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DEXUS Annual Report 2010
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Annual Report
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DEXUS Property Group ASX release
18 August 2010
Combined Financial Accounts for the year ending 30 June 2010
DEXUS Funds Management Limited, as responsible entity for DEXUS Property Group (DXS), provides a copy of the Financial Statements of DEXUS Office Trust, DEXUS Industrial Trust and the DEXUS Operations Trust for the half year ending 30 June 2010, including Independent Audit Reports from PricewaterhouseCoopers.
Contacts:
| Media Relations | Investor Relations | ||
|---|---|---|---|
| Emma Parry | T: (02) 9017 1133 | Daniel Rubinstein | T: (02) 9017 1336 |
| M: 0421 000 329 | M: 0466 016 725 | ||
| E: [email protected] | E: [email protected] | ||
| Fiona Tyndall | T: (02) 9017 1199 | Karol O'Reilly | T: (03) 8611 2930 |
| M: 0468 988 420 | M: 0405 134 856 | ||
| E: [email protected] | E: [email protected] |
About DEXUS
DEXUS is one of Australia's leading property groups specialising in world-class office, industrial and retail properties with total assets under management of \$13.3bn. In Australia, DEXUS is the number 1 owner/manager of office, number 3 in industrial and, on behalf of third party clients, a leading manager and developer of shopping centres. DEXUS is committed to being a market leader in Corporate Responsibility and Sustainability and has been recognised as one of the Global 100 Most Sustainable Corporations at the World Economic Forum in Davos and recently achieved listing on the DJSI World and Asia Pacific Indexes. www.dexus.com
DEXUS Funds Management Ltd ABN 24 060 920 783, AFSL 238163, as Responsible Entity for DEXUS Property Group (ASX: DXS)
FINANCIAL STATEMENTS DEXUS INDUSTRIAL TRUST
(ARSN 090 879 137)
30 JUNE 2010
| Contents | Page |
|---|---|
| Directors' Report | 1 |
| Auditor's Independence Declaration | 7 |
| Statements of Comprehensive Income | 8 |
| Statements of Financial Position | 9 |
| Statements of Changes in Equity | 10 |
| Statements of Cash Flows | 11 |
| Notes to the Financial Statements | 12 |
| Directors' Declaration | 70 |
| Independent Auditor's Report | 71 |
DEXUS Property Group (DXS) (ASX Code: DXS), consists of DEXUS Diversified Trust (DDF), DEXUS Industrial Trust (DIT), DEXUS Office Trust (DOT), and DEXUS Operations Trust (DXO), collectively known as DXS or the Group.
Under Australian Accounting Standards, DDF has been deemed the parent entity for accounting purposes. Therefore the DDF consolidated Financial Statements include all entities forming part of DXS. The DDF consolidated Financial Statements are presented in separate Financial Statements.
All press releases, Financial Statements and other information are available on our website: www.dexus.com
DEXUS INDUSTRIAL TRUST Page 1 of 72 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2010
The Directors of DEXUS Funds Management Limited (DXFM) as Responsible Entity of DEXUS Industrial Trust and its consolidated entities (DIT or the Trust) present its Directors' Report together with the consolidated Financial Statements for the year ended 30 June 2010.
The Trust together with DEXUS Diversified Trust (DDF), DEXUS Office Trust (DOT) and DEXUS Operations Trust (DXO) form the DEXUS Property Group (DXS or the Group) stapled security.
1. Directors and Secretaries
1.1 Directors
The following persons were Directors of DXFM at all times during the year and to the date of this Directors' Report:
| Directors | Appointed |
|---|---|
| Christopher T Beare | 4 August 2004 |
| Elizabeth A Alexander AM | 1 January 2005 |
| Barry R Brownjohn | 1 January 2005 |
| John C Conde AO | 29 April 2009 |
| Stewart F Ewen OAM | 4 August 2004 |
| Victor P Hoog Antink | 1 October 2004 |
| Brian E Scullin | 1 January 2005 |
| Peter B St George | 29 April 2009 |
Particulars of the qualifications, experience and special responsibilities of the Directors at the date of this Directors' Report are set out in the Directors section of the DEXUS Property Group Annual Report and form part of this Directors' Report.
1.2 Company Secretaries
The names and details of the Company Secretaries of DXFM as at 30 June 2010 are as follows:
Tanya L Cox MBA MAICD FCIS (Company Secretary)
Appointed: 1 October 2004
Tanya is the Chief Operating Officer and Company Secretary of DXFM and is responsible for the delivery of company secretarial, operational, information technology, communications and administration services, as well as operational risk management systems and practices across the Group. Prior to joining DXS in July 2003, Tanya held various general management positions over the past 16 years, including Director and Chief Operating Officer of NM Rothschild & Sons (Australia) Ltd and General Manager – Finance, Operations and IT for Bank of New Zealand (Australia). Tanya is Chair of the Property Council of Australia National Risk Committee and is a non-executive director of a number of not-for-profit organisations. Tanya is a member of the Australian Institute of Company Directors and a fellow of the Institute of Chartered Secretaries and Administrators (ICSA) and Chartered Secretaries Australia (CSA). Tanya has an MBA from the Australian Graduate School of Management and a Graduate Diploma in Applied Corporate Governance.
Tanya is Chief Operating Officer and Company Secretary of DXFM, DEXUS Holdings Pty Limited (DXH) and DEXUS Wholesale Property Limited (DWPL) and is a member of the Board Compliance Committee.
John C Easy B Comm LLB ACIS (Company Secretary)
Appointed: 1 July 2005
John is the General Counsel and Company Secretary of DXFM. During his time with the Group he has been involved in the establishment and public listing of the Deutsche Office Trust, the acquisition of the Paladin and AXA property portfolios, and subsequent stapling and creation of DXS. Prior to joining DXS in November 1997, John was employed as a senior associate in the commercial property/funds management practices of law firms Allens Arthur Robinson and Gilbert & Tobin. John graduated from the University of New South Wales with Bachelor of Laws and Bachelor of Commerce (Major in Economics) degrees. He is a member of Chartered Secretaries Australia (CSA) and holds a Graduate Diploma in Applied Corporate Governance.
John is General Counsel and Company Secretary for DXFM, DXH and DWPL and is a member of the Board Compliance Committee.
DEXUS INDUSTRIAL TRUST Page 2 of 72 DIRECTORS' REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2010
2. Attendance of Directors at Board meetings and Board Committee meetings
The number of Directors' meetings held during the year and each Director's attendance at those meetings is set out in the table below.
The Directors met thirteen times during the year. Ten Board meetings were main meetings, three meetings were held to consider specific business. While the Board continuously considers strategy, in March 2010 they met with the executive and senior management team over three days to consider DXS's strategic plans.
| Main meetings held |
Main meetings attended |
Specific meetings held |
Specific meetings attended |
|
|---|---|---|---|---|
| Christopher T Beare | 10 | 10 | 3 | 3 |
| Elizabeth A Alexander AM | 10 | 10 | 3 | 3 |
| Barry R Brownjohn | 10 | 10 | 3 | 3 |
| John C Conde AO | 10 | 10 | 3 | 3 |
| Stewart F Ewen OAM | 10 | 10 | 3 | 3 |
| Victor P Hoog Antink | 10 | 10 | 3 | 3 |
| Brian E Scullin | 10 | 10 | 3 | 2 |
| Peter B St George | 10 | 9 | 3 | 3 |
Special meetings are held at a time to enable the maximum number of Directors to attend and are generally held to consider specific items that cannot be held over to the next scheduled main meeting.
The table below sets out the number of Board Committee meetings held during the year for the Committees in place at the end of the year and each Directors' attendance at those meetings.
| Board Audit Committee |
Board Risk and Sustainability Committee2 |
Board Compliance Committee |
Board Nomination and Remuneration Committee |
Board Finance Committee |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Held | Attended | Held | Attended | Held | Attended | Held | Attended | Held | Attended | |
| Christopher T Beare | - | - | - | - | - | - | 5 | 5 | 5 | 5 |
| Elizabeth A Alexander AM | 7 | 7 | 4 | 4 | - | - | - | - | - | - |
| Barry R Brownjohn | 7 | 7 | 4 | 4 | - | - | - | - | 5 | 5 |
| John C Conde AO | - | - | - | - | 4 | 4 | 5 | 5 | - | - |
| Stewart F Ewen OAM | - | - | - | - | - | - | 5 | 5 | - | - |
| Victor P Hoog Antink | - | - | - | - | - | - | - | - | - | - |
| Brian E Scullin1 | - | - | - | - | 4 | 4 | 1 | 1 | - | - |
| Peter B St George | 7 | 7 | 4 | 4 | - | - | - | - | 5 | 5 |
1 Nomination and Remuneration Member from 1 July 2009 to 31 August 2009.
2 Name changed from Board Risk Committee on 2 June 2010.
DEXUS INDUSTRIAL TRUST Page 3 of 72 DIRECTORS' REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2010
3. Directors' interests
The Board's policy on insider trading and trading in DXS securities or securities in any of the funds managed by DXS by any Director or employee is outlined in the Corporate Governance Statement in the DXS Financial Statements.
While the trading policy described in the Corporate Governance Statement applies to Directors and Senior Executives, the Board has determined that Directors will not trade in any security managed by DXS.
Directors have made this decision because the Board of DXFM has responsibility for the Group itself as well as the third party business. Directors are obliged to act in the best interests of each group of investors independently of each other. Therefore, to minimise the appearance of conflict that may arise by being a Director of multiple funds, the Directors have determined that they will not invest in any fund managed by the Group including DXS. This position is periodically reviewed by the Board.
As a direct result of the Group's policy regarding Directors holding DXS securities, or securities in any of the funds managed by the Group, as at the date of this Directors' Report no Director directly or indirectly held:
- DXS securities; or
- Options over, or any other contractual interest in, DXS securities; or
- An interest in any other fund managed by DXFM or any other entity that forms part of the Group.
4. Directors' directorships in other listed entities
The following table sets out directorships of other listed entities, not including DXFM, held by the Directors at any time in the three years immediately prior to the end of the year, and the period for which each directorship was held:
| Director | Company | Date appointed | Date resigned or ceased being a director of a listed entity |
|---|---|---|---|
| Christopher T Beare | MNet Group Limited | 6 November 2009 | |
| Elizabeth A Alexander AM | CSL Limited | 12 July 1991 | |
| Boral Limited | 15 December 1999 | 24 October 2008 | |
| John C Conde AO | Whitehaven Coal Limited | 3 May 2007 | |
| Brian E Scullin | SPARK Infrastructure RE Limited1 | 1 November 2005 | 24 August 2007 |
| BT Investment Management Limited | 17 September 2007 | ||
| Peter B St George | Boart Longyear Limited | 21 February 2007 | |
| SPARK Infrastructure RE Limited1 | 8 November 2005 | 31 December 2008 | |
| First Quantum Minerals Limited2 | 20 October 2003 | ||
1 SPARK Infrastructure RE Limited has issued ASX listed stapled securities trading as SPARK Infrastructure Group (ASX:SKI). 2 Listed for trading on the Toronto Stock Exchange in Canada and the London Stock Exchange in the United Kingdom.
5. Principal activities
During the year the principal activity of the Trust was investment in real estate assets. There were no significant changes in the nature of the Trust's activities during the year.
6. Total value of trust assets
The total value of the assets of the Trust as at 30 June 2010 was \$1,958.8 million (2009: \$2,092.6 million). Details of the basis of this valuation are outlined in note 1 of the Notes to the Financial Statements and form part of this Directors' Report.
7. Review and results of operations
A review of the results and operations of the Group, of which DIT forms a part thereof, is set out in the Chief Executive Officers report of the DEXUS Property Group 2010 Security Holder Review and forms part of this Directors' Report.
8. Likely developments and expected results of operations
In the opinion of the Directors, disclosure of any further information regarding business strategies and the future developments or results of the Trust, other than the information already outlined in this Directors' Report or the Financial Statements accompanying this Directors' Report would be unreasonably prejudicial to the Trust.
DEXUS INDUSTRIAL TRUST Page 4 of 72 DIRECTORS' REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2010
9. Significant changes in the state of affairs
The Directors are not aware of any matter or circumstance, not otherwise dealt with in this Directors' Report or the Financial Statements that has significantly or may significantly affect the operations of the Trust, the results of those operations, or the state of the Trust's affairs in future financial years.
10. Matters subsequent to the end of the financial year
Since the end of the financial year the Directors are not aware of any matter or circumstance not otherwise dealt with in this Directors' Report or the Financial Statements that has significantly or may significantly affect the operations of the Trust, the results of those operations, or the state of the Trust's affairs in future financial years.
11. Distributions
Distributions paid or payable by the Trust for the year ended 30 June 2010 are outlined in note 26 of the Notes to the Financial Statements and form part of this Directors' Report.
12. DXFM's fees and associate interests
Details of fees paid or payable by the Trust to DXFM for the year ended 30 June 2010 are outlined in note 30 of the Notes to the Financial Statements and form part of this Directors' Report.
The number of interests in the Trust held by DXFM or its associates as at the end of the financial year were nil (2009: nil).
13. Units on issue
The movement in units on issue during the year and the number of units on issue as at 30 June 2010 are detailed in note 24 of the Notes to the Financial Statements and form part of this Directors' Report.
14. Environmental regulation
DXS senior management, through its Board Risk and Sustainability Committee, oversee the policies, procedures and systems that have been implemented to ensure the adequacy of its environmental risk management practices. It is the opinion of this Committee that adequate systems are in place for the management of its environmental responsibilities and compliance with its various licence requirements and regulations. Further, the Committee is not aware of any breaches of these requirements and to the best of its knowledge all activities have been undertaken in compliance with environmental requirements.
15. Indemnification and insurance
The insurance premium for a policy of insurance indemnifying Directors, officers and others (as defined in the relevant policy of insurance) is paid by DXH.
The Auditor, PricewaterhouseCoopers (PwC), is indemnified out of the assets of the Trust pursuant to the DEXUS specific Terms of Business agreed for all engagements with PwC, to the extent that the Trust inappropriately uses or discloses a report prepared by PwC. The Auditor, PwC, is not indemnified for the provision of services where such an indemnification is prohibited by the Corporations Act 2001.
16. Audit
16.1 Auditor
PricewaterhouseCoopers (PwC or the Auditor) continues in office in accordance with section 327 of the Corporations Act 2001.
16.2 Non-audit services
The Trust may decide to employ the Auditor on assignments additional to their statutory audit duties where the Auditors expertise and experience with the Trust and/or DXS are important.
Details of the amounts paid to the Auditor, which include amounts paid for non-audit services are set out in note 7 of the Notes to the Financial Statements.
The Board Audit Committee is satisfied that the provision of non-audit services provided during the year by the Auditor (or by another person or firm on the Auditor's behalf) is compatible with the standard of independence for auditors imposed by the Corporations Act 2001.
16.2 Non-audit services (continued)
The reasons for the Directors being satisfied are:
- A Charter of Audit Independence was adopted during the year that provides guidelines under which the Auditor may be engaged to provide non-audit services without impairing the Auditor's objectivity or independence.
- The Charter states that the Auditor will not provide services where the Auditor may be required to review or audit its own work, including:
- the preparation of tax provisions, accounting records and financial statements;
- the design, implementation and operation of information technology systems;
- the design and implementation of internal accounting and risk management controls;
- conducting valuation, actuarial or legal services;
- consultancy services that include direct involvement in management decision making functions;
- investment banking, borrowing, dealing or advisory services;
- acting as trustee, executor or administrator of trust or estate;
- prospectus independent expert reports and being a member of the due diligence committee; and
- providing internal audit services.
- Board Audit Committee regularly reviews the performance and independence of the Auditor and whether the independence of this function has been maintained having regard to the provision of non-audit services. The Auditor has provided a written declaration to the Board regarding its independence at each reporting period and Board Audit Committee approval is required before the engagement of the Auditor to perform any non-audit service for a fee in excess of \$100,000.
The above Directors' statements are in accordance with the advice received from the Board Audit Committee.
16.3 Auditor's independence declaration
A copy of the Auditor's Independence Declaration as required under section 307C of the Corporations Act 2001 is set out in the Financial Statements and forms part of this Directors' Report.
17. Corporate governance
DXFM's Corporate Governance Statement is set out in a separate section of the DEXUS Property Group Annual Report and forms part of this Directors' Report.
18. Rounding of amounts and currency
The Trust is a registered scheme of the kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission, relating to the "rounding off" of amounts in this Directors' Report and the Financial Statements. Amounts in this Directors' Report and Financial Statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, unless otherwise indicated. All figures in this Directors' Report and the Financial Statements, except where otherwise stated, are expressed in Australian dollars.
DEXUS INDUSTRIAL TRUST Page 8 of 72 STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| Notes | \$'000 | \$'000 | \$'000 | \$'000 | |
| Revenue from ordinary activities | |||||
| Property revenue | 2 | 154,107 | 155,287 | 78,539 | 75,590 |
| Distribution revenue | - | - | 34,438 | 59,490 | |
| Interest revenue | 3 | 2,157 | 3,541 | 2,102 | 3,235 |
| Total revenue from ordinary activities | 156,264 | 158,828 | 115,079 | 138,315 | |
| Net fair value gain/(loss) of derivatives | 3,704 | (14,763) | 3,704 | (14,763) | |
| Net foreign exchange gain/(loss) | 1,390 | 1,654 | 6,933 | (112,105) | |
| Other income | - | 19 | - | 19 | |
| Total income | 161,358 | 145,738 | 125,716 | 11,466 | |
| Expenses | |||||
| Property expenses | (32,674) | (28,328) | (16,628) | (15,363) | |
| Responsible Entity fees | 30 | (4,439) | (5,598) | (4,439) | (5,598) |
| Finance costs | 4 | (129,914) | (209,660) | (109,314) | (184,645) |
| Share of net losses of associates accounted for using the equity | |||||
| method | 17 | (59,285) | (245,448) | - | - |
| Net loss on sale of investment properties | (1,535) | (654) | (612) | - | |
| Net fair value loss of investment properties | (24,581) | (360,663) | (22,980) | (114,371) | |
| Net fair value loss of investments | - | - | (73,832) | (329,585) | |
| Other expenses | 6 | (3,783) | (4,315) | (1,899) | (1,520) |
| Total expenses | (256,211) | (854,666) | (229,704) | (651,082) | |
| Loss before tax | (94,853) | (708,928) | (103,988) | (639,616) | |
| Tax (expense)/benefit | |||||
| Income tax expense | 5 (a) | (41) | (2,042) | - | - |
| Withholding tax (expense)/benefit | (1,804) | 14,658 | - | - | |
| Total tax (expense)/benefit | (1,845) | 12,616 | - | - | |
| Loss after tax | (96,698) | (696,312) | (103,988) | (639,616) | |
| Other comprehensive loss | |||||
| Exchange differences on translating foreign operations | 7,372 | 4,616 | - | - | |
| Total comprehensive loss for the year | (89,326) | (691,696) | (103,988) | (639,616) | |
| Earnings per unit | Cents | Cents | |||
| Basic earnings per unit on loss attributable to unitholders | 35 | (2.03) | (18.79) | ||
| Diluted earnings per unit on loss attributable to unitholders | 35 | (2.03) | (18.79) | ||
The above Statements of Comprehensive Income should be read in conjunction with the accompanying notes.
DEXUS INDUSTRIAL TRUST Page 9 of 72 STATEMENTS OF FINANCIAL POSITION AS AT 30 JUNE 2010
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Notes | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Current assets | |||||
| Cash and cash equivalents | 8 | 16,537 | 13,043 | 1,453 | 1,729 |
| Receivables | 9 | 4,604 | 14,036 | 1,332 | 8,874 |
| Non current assets classified as held for sale | 10 | - | 22,254 | - | - |
| Loan with related parties | 11 | 138,948 | 138,948 | 138,948 | 150,675 |
| Derivative financial instruments | 12 | 9,657 | 30,307 | 9,657 | 30,307 |
| Current tax assets | 73 | - | - | - | |
| Other | 13 | 2,737 | 3,135 | 1,491 | 1,951 |
| Total current assets | 172,556 | 221,723 | 152,881 | 193,536 | |
| Non-current assets | |||||
| Investment properties | 14 | 1,462,007 | 1,425,178 | 746,341 | 733,714 |
| Property, plant and equipment | 15 | - | 94,007 | - | 94,007 |
| Other financial assets at fair value through profit and loss | 16 | - | - | 333,245 | 308,996 |
| Investments accounted for using the equity method | 17 | 122,627 | 138,276 | - | - |
| Investments in associates | 18 | - | - | 122,627 | 138,276 |
| Deferred tax assets | 19 | 10,080 | 11,177 | - | - |
| Loans with related parties | 11 | 151,942 | 159,601 | 424,040 | 474,081 |
| Derivative financial instruments | 12 | 39,261 | 40,780 | 39,261 | 40,780 |
| Other | 20 | 305 | 1,848 | 229 | 328 |
| Total non-current assets | 1,786,222 | 1,870,867 | 1,665,743 | 1,790,182 | |
| Total assets | 1,958,778 | 2,092,590 | 1,818,624 | 1,983,718 | |
| Current liabilities | |||||
| Payables | 21 | 44,545 | 31,166 | 50,210 | 22,212 |
| Current tax liabilities | 973 | 955 | - | - | |
| Interest bearing liabilities | 22 | 47,796 | 64,036 | - | - |
| Derivative financial instruments | 12 | 7,139 | 2,694 | 7,139 | 2,694 |
| Total current liabilities | 100,453 | 98,851 | 57,349 | 24,906 | |
| Non-current liabilities | |||||
| Loans with related parties | 11 | 1,257,916 | 1,311,960 | 1,099,372 | 1,201,113 |
| Derivative financial instruments | 12 | 154,833 | 146,467 | 154,833 | 146,467 |
| Other | 23 | 875 | 1,285 | 111 | 285 |
| Total non-current liabilities | 1,413,624 | 1,459,712 | 1,254,316 | 1,347,865 | |
| Total liabilities | 1,514,077 | 1,558,563 | 1,311,665 | 1,372,771 | |
| Net assets | 444,701 | 534,027 | 506,959 | 610,947 | |
| Equity | |||||
| Contributed equity | 24 | 925,116 | 925,116 | 925,116 | 925,116 |
| Reserves | 25 | 12,163 | 4,791 | - | - |
| Accumulated losses | 25 | (492,578) | (395,880) | (418,157) | (314,169) |
| Total equity | 444,701 | 534,027 | 506,959 | 610,947 |
DEXUS INDUSTRIAL TRUST Page 10 of 72 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2010
| Consolidated | Note | Contributed equity \$'000 |
Accumulated losses \$'000 |
Foreign currency translation reserve \$'000 |
Total equity \$'000 |
|---|---|---|---|---|---|
| Opening balance as at 1 July 2008 | 760,988 | 344,634 | 175 | 1,105,797 | |
| Comprehensive loss for the year | - | (696,312) | 4,616 | (691,696) | |
| Transactions with owners in their capacity as owners | |||||
| Contributions of equity, net of transaction costs | 164,128 | - | - | 164,128 | |
| Distributions paid or provided for | 26 | - | (44,202) | - | (44,202) |
| Closing balance as at 30 June 2009 | 925,116 | (395,880) | 4,791 | 534,027 | |
| Opening balance as at 1 July 2009 Comprehensive loss for the year |
925,116 - |
(395,880) (96,698) |
4,791 7,372 |
534,027 (89,326) |
|
| Closing balance as at 30 June 2010 | 925,116 | (492,578) | 12,163 | 444,701 |
| Foreign currency | ||||||
|---|---|---|---|---|---|---|
| Accumulated | translation | |||||
| Parent Entity | Contributed equity | losses | reserve | Total equity | ||
| Note | \$'000 | \$'000 | \$'000 | \$'000 | ||
| Opening balance as at 1 July 2008 | 760,988 | 369,649 | - | 1,130,637 | ||
| Comprehensive loss for the year | - | (639,616) | - | (639,616) | ||
| Transactions with owners in their capacity as owners | ||||||
| Contributions of equity, net of transaction costs | 164,128 | - | - | 164,128 | ||
| Distributions paid or provided for | 26 | - | (44,202) | - | (44,202) | |
| Closing balance as at 30 June 2009 | 925,116 | (314,169) | - | 610,947 | ||
| Opening balance as at 1 July 2009 | 925,116 | (314,169) | - | 610,947 | ||
| Comprehensive loss for the year | - | (103,988) | - | (103,988) | ||
| Closing balance as at 30 June 2010 | 925,116 | (418,157) | - | 506,959 | ||
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
DEXUS INDUSTRIAL TRUST Page 11 of 72 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2010
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Notes | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Cash flows from operating activities | |||||
| Receipts in the course of operations (inclusive of GST) | 180,396 | 179,526 | 98,426 | 97,331 | |
| Payments in the course of operations (inclusive of GST) | (53,266) | (47,827) | (32,207) | (26,525) | |
| Interest received | 2,122 | 3,532 | 13,040 | 14,052 | |
| Finance costs paid | (52,382) | (49,830) | (42,491) | (35,284) | |
| Distributions received | - | - | 34,009 | 63,475 | |
| Dividends received | 517 | 24,636 | 517 | 24,636 | |
| Income and withholding taxes paid | (619) | (396) | - | - | |
| Net cash inflow from operating activities | 33 | 76,768 | 109,641 | 71,294 | 137,685 |
| Cash flows from investing activities | |||||
| Proceeds from sale of investment properties | 100,685 | 5,546 | 72,918 | - | |
| Payments for capital expenditure on investment properties | (13,715) | (25,872) | (10,652) | (15,426) | |
| Payments for investment properties | (28,191) | - | - | - | |
| Payments for investments | - | - | (29,848) | (2,544) | |
| Payments for investments accounted for using the equity | |||||
| method | (52,584) | - | (52,584) | - | |
| Payments for capital expenditure on property, plant and | |||||
| equipment | - | (8,886) | - | (8,886) | |
| Net cash inflow/(outflow) from investing activities | 6,195 | (29,212) | (20,166) | (26,856) | |
| Cash flows from financing activities | |||||
| Issue of units | - | 148,640 | - | 148,640 | |
| Establishment expenses and unit issue cost | - | (4,194) | - | (4,194) | |
| Borrowings provided to entities within DXS | (390,801) | (1,121,466) | (390,801) | (1,144,697) | |
| Borrowings provided by entities within DXS | 317,612 | 930,258 | 289,962 | 930,737 | |
| Proceeds from borrowings | 49,435 | - | 49,435 | - | |
| Repayment of borrowings | (54,637) | - | - | - | |
| Distributions paid to unitholders | - | (41,850) | - | (41,850) | |
| Net cash outflow from financing activities | (78,391) | (88,612) | (51,404) | (111,364) | |
| Net increase/(decrease) in cash and cash equivalents | 4,572 | (8,183) | (276) | (535) | |
| Cash and cash equivalents at the beginning of the year | 13,043 | 20,216 | 1,729 | 2,264 | |
| Effects of exchange rate changes on cash and cash equivalents | (1,078) | 1,010 | - | - | |
| Cash and cash equivalents at the end of the year | 8 | 16,537 | 13,043 | 1,453 | 1,729 |
The above Statements of Cash Flows should be read in conjunction with the accompanying notes.
DEXUS INDUSTRIAL TRUST Page 12 of 72 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies
(a) Basis of preparation
DEXUS Property Group stapled securities are quoted on the Australian Stock Exchange under the "DXS" code and comprise one unit in each of DDF, DIT, DOT and DXO. Each entity forming part of DXS continues as a separate legal entity in its own right under the Corporations Act 2001 and is therefore required to comply with the reporting and disclosure requirements under the Corporations Act 2001 and Australian Accounting Standards.
DEXUS Funds Management Limited (DXFM) as Responsible Entity for each entity within DXS may only unstaple if approval is obtained by a special resolution of the stapled security holders.
These general purpose Financial Statements for the year ended 30 June 2010 have been prepared in accordance with the requirements of the Trust's Constitution, the Corporations Act 2001, Australian Accounting Standards, other authoritative pronouncements of the Australia Accounting Standards Board and interpretations. Compliance with Australian Accounting Standards ensures that the consolidated and parent Financial Statements and notes also comply with International Financial Reporting Standards (IFRS).
These Financial Statements are prepared on a going concern basis and in accordance with historical cost conventions and have not been adjusted to take account of either changes in the general purchasing power of the dollar or changes in the values of specific assets, except for the valuation of certain non-current assets and financial instruments (refer notes 1(e), 1(n), 1(o), and 1(u)).
The Trust has applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January 2009. The revised standard requires the separate presentation of Statements of Comprehensive Income and Statements of Changes in Equity. Comparative information has been re-presented so that it is also in conformity with the revised standard.
The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, unless otherwise stated.
Critical accounting estimates
The preparation of Financial Statements requires the use of certain critical accounting estimates and management to exercise its judgement in the process of applying the Trust's accounting policies. Other than the estimations described in notes 1(e), 1(n), 1(o), and 1(u), no key assumptions concerning the future or other estimation of uncertainty at the end of the reporting period have a significant risk of causing material adjustments to the Financial Statements in the next annual reporting period.
Uncertainty around international property valuations
The fair value of our investment properties in the United States and Europe has been adjusted to reflect market conditions at the end of the reporting period. While this represents the best estimates of fair value as at the end of the reporting period, the current uncertainty in these markets means that if investment property is sold in future, the price achieved may be higher or lower than the most recent valuation, or higher or lower than the fair value recorded in the Financial Statements.
DEXUS INDUSTRIAL TRUST Page 13 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(b) Principles of consolidation
(i) Controlled entities
The Financial Statements have been prepared on a consolidated basis. The accounting policies of the subsidiaries are consistent with those of the parent.
Subsidiaries are all entities (including special purpose entities) over which the Trust has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Trust controls another entity.
The Financial Statements incorporate an elimination of inter-entity transactions and balances to present the Financial Statements on a consolidated basis. Where control of an entity is obtained during a financial year, its results are included in the Statements of Comprehensive Income from the date on which control is gained. The Financial Statements incorporate all the assets, liabilities and results of the parent and its controlled entities.
(ii) Partnerships and joint ventures
Where assets are held in a partnership or joint venture with another entity directly, the Trust's share of the results and assets of this partnership or joint venture are consolidated into the Statements of Comprehensive Income and Statements of Financial Position of the Trust. Where assets are jointly controlled via ownership of units in single purpose unlisted unit trusts or shares in companies, the Trust applies equity accounting to record the operations of these investments (refer note 1(r)).
(c) Revenue recognition
(i) Rent
Rental revenue is brought to account on a straight-line basis over the lease term for leases with fixed rent review clauses. In all other circumstances rental revenue is brought to account on an accruals basis. If not received at the end of the reporting period, rental revenue is reflected in the Statements of Financial Position as a receivable. Recoverability of receivables is reviewed on an ongoing basis. Debts which are known to be not collectable are written off.
(ii) Interest revenue
Interest revenue is brought to account on an accruals basis using the effective interest rate method and, if not received at the end of the reporting period, is reflected in the Statements of Financial Position as a receivable.
(iii) Dividends and distribution revenue
Revenue from dividends and distributions are recognised when declared. Amounts not received at the end of the reporting period are included as a receivable in the Statements of Financial Position.
(d) Expenses
Expenses are brought to account on an accruals basis and, if not paid at the end of the reporting period, are reflected in the Statements of Financial Position as a payable.
(i) Property expenses
Property expenses include rates, taxes and other property outgoings incurred in relation to investment properties and property, plant and equipment where such expenses are the responsibility of the Trust.
(ii) Borrowing costs
Borrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation or ancillary costs incurred in connection with arrangement of borrowings and foreign exchange losses net of hedged amounts on borrowings, including trade creditors and lease finance charges. Borrowing costs are expensed as incurred unless they relate to qualifying assets.
Qualifying assets are assets which take more than twelve months to get ready for their intended use or sale. In these circumstances, borrowing costs are capitalised to the cost of the asset during the period of time that is required to complete and prepare the asset for its intended use or sale. Where funds are borrowed generally, borrowing costs are capitalised using a weighted average capitalisation rate.
DEXUS INDUSTRIAL TRUST Page 14 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(e) Derivatives and other financial instruments
(i) Derivatives
The Trust's activities expose it to a variety of financial risks including foreign exchange risk and interest rate risk. Accordingly, the Trust enters into various derivative financial instruments such as interest rate swaps, cross currency swaps and foreign exchange contracts to manage its exposure to certain risks. Written policies and limits are approved by the Board of Directors of the Responsible Entity, in relation to the use of financial instruments to manage financial risks. The Responsible Entity continually reviews the Trust's exposures and updates its treasury policies and procedures. The Trust does not trade in derivative instruments for speculative purposes. Even though derivative financial instruments are entered into for the purpose of providing the Trust with an economic hedge, the Trust has elected not to apply hedge accounting under AASB 139 Financial Instruments: Recognition and Measurement for interest rate swaps and foreign exchange contracts. Accordingly, derivatives including interest rate swaps, interest rate component of cross currency swaps and foreign exchange contracts are measured at fair value with any changes in fair value recognised in the Statements of Comprehensive Income.
(ii) Debt and equity instruments issued by the Trust
Financial instruments issued by the Trust are classified as either liabilities or as equity in accordance with the substance of the contractual arrangements. Accordingly, ordinary units issued by DIT are classified as equity.
Interest and distributions are classified as expenses or as distributions of profit consistent with the Statements of Financial Position classification of the related debt or equity instruments.
Transaction costs arising on the issue of equity instruments are recognised directly in equity (net of tax) as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.
(iii) Financial guarantee contracts
Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where appropriate.
The fair value of financial guarantees is determined as the present value of the difference in the net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations. Where guarantees in relation to loans or other payables of subsidiaries or associates are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.
(iv) Other financial assets
Loans and other receivables are measured at amortised cost using the effective interest rate method less impairment.
(f) Goods and services tax/value added tax
Revenues, expenses and capital assets are recognised net of any amount of Australian/Canadian Goods and Services Tax (GST) or French and German Value Added Tax (VAT), except where the amount of GST/VAT incurred is not recoverable. In these circumstances the GST/VAT is recognised as part of the cost of acquisition of the asset or as part of the expense.
Cash flows are included in the Statements 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 Australian Taxation Office is classified as operating cash flows.
DEXUS INDUSTRIAL TRUST Page 15 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(g) Taxation
Under current Australian income tax legislation DIT, is not liable for income tax provided it satisfies certain legislative requirements. DIT may be liable for income tax in jurisdiction where foreign property is held (i.e. United States, France, Germany and Canada).
Withholding tax payable on distributions received by the Trust from DEXUS Industrial Properties Inc (US REIT) and DEXUS US Properties Inc (US W REIT) are recognised as an expense when tax is withheld.
In addition, a deferred tax liability or asset and related deferred tax expense/benefit is recognised on differences between the tax cost base of US assets and liabilities in the Trust (held by US REIT and US W REIT) and their accounting carrying values at the end of the reporting period. Any deferred tax liability or asset is calculated using a blend of the current withholding tax rate applicable to income distributions and the applicable US federal and state taxes.
Under current Australian income tax legislation, the unitholders will generally be entitled to receive a foreign tax credit for US withholding tax deducted from distributions paid by the US REIT and US W REIT.
DIT France Logistique SAS (DIT France), a wholly owned sub-trust of DIT, is liable for French corporation tax on its taxable income at the rate of 33.33%. In addition, a deferred tax liability or asset and its related deferred tax expense/benefit is recognised on differences between the tax cost base of the French real estate assets and their accounting carrying value at the end of the reporting period.
DEXUS GLOG Trust, a wholly owned Australian sub-trust of DIT, is liable for German income tax on its German taxable income at the rate of 15.82%. In addition, a deferred tax liability or asset and its related deferred tax expense/benefit is recognised on differences between the tax cost base of the German real estate assets and their accounting carrying value at the end of the reporting period.
DEXUS Canada Trust, a wholly owned Australian sub-trust of DIT, is liable for Canadian income tax on its Canadian taxable income at the rate of 25%. In addition, a deferred tax liability or asset and its related deferred tax expense/benefit is recognised on differences between the tax cost base of the Canadian real estate asset and the accounting carrying value at the end of the reporting period.
(h) Distributions
In accordance with the Trust's Constitution, the Trust distributes its distributable income to unitholders by cash or reinvestment. Distributions are provided for when they are approved by the Board of Directors and declared.
(i) Repairs and maintenance
Plant is required to be overhauled on a regular basis and is managed as part of an ongoing major cyclical maintenance program. The costs of this maintenance are charged as expenses as incurred, except where they relate to the replacement of a component of an asset, in which case the replaced component will be derecognised and the replacement costs capitalised in accordance with note 1(o). Other routine operating maintenance, repair costs and minor renewals are also charged as expenses as incurred.
(j) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
(k) Receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, which is based on the invoiced amount less provision for doubtful debts. Trade receivables are required to be settled within 30 days and are assessed on an ongoing basis for impairment. Receivables which are known to be uncollectible are written off. A provision for doubtful debts is established when there is objective evidence that the Trust will not be able to collect all amounts due according to the original terms of the receivables.
DEXUS INDUSTRIAL TRUST Page 16 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(l) Non-current assets (or disposal groups) held for sale and discontinued operations
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement.
(m) Other financial assets at fair value through profit and loss
Interests held by the Trust in controlled entities and associates are measured at fair value through profit and loss to reduce a measurement or recognition inconsistency.
(n) Property, plant and equipment
Property, plant and equipment is stated at historical cost less depreciation and accumulated impairment. Historical cost includes expenditure that is directly attributable to its acquisition. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the trust and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Statements of Comprehensive Income during the financial period in which they are incurred.
Property, plant and equipment are tested for impairment whenever events or changes in circumstances indicate that the carrying amounts exceed their recoverable amounts (refer note 1(t)).
(o) Investment properties
During the period DIT adopted the amendments to AASB 140 Investment Property as set out in AASB 2008-5 Amendments to Australian Accounting Standards arising from the Annual Improvements Project effective for reporting periods beginning on or after 1 January 2009. Under this amendment, property that is under construction or development for future use as investment property falls within the scope of AASB 140. As such development property of this nature is no longer recognised and measured as property, plant and equipment but is included as investment property measured at fair value. Where fair value of investment property under construction is not reliably measurable, the property is measured at cost until the earlier of the date construction is completed and the date at which fair value becomes reliably measurable. As required by the standard, the amendments to AASB 140 have been applied prospectively from 1 July 2009.
Investment properties consist of properties held for long-term rental yields, capital appreciation or both. Investment properties are initially recognised at cost including transaction costs. Investment properties are subsequently recognised at fair value in the Financial Statements. Each valuation firm and its signatory valuer are appointed on the basis that they are engaged for no more than three consecutive valuations.
The basis of valuations of investment properties is fair value being the amounts for which the assets could be exchanged between knowledgeable willing parties in an arm's length transaction, based on current prices in an active market for similar properties in the same location and condition and subject to similar leases. In addition, an appropriate valuation method is used, which may include the discounted cash flow and the capitalisation method. Discount rates and capitalisation rates are determined based on industry expertise and knowledge, and where possible a direct comparison to third party rates for similar assets in a comparable location. Rental revenue from current leases and assumptions about future leases, as well as any expected operational cash outflows in relation to the property, are also reflected in fair value. In relation to development properties under construction for future use as investment property, where reliably measurable, fair value is determined based on the market value of the property on the assumption it had already been completed at the valuation date less costs still required to complete the project, including an appropriate adjustment for profit and risk.
External valuations of the individual investments are carried out in accordance with the Trust's Constitution or may be earlier where the Responsible Entity believes there is a potential for a material change in the fair value of the property.
Changes in fair values are recorded in the Statements of Comprehensive Income. The gain or loss on disposal of an investment property is calculated as the difference between the carrying amount of the asset at the date of disposal and the net proceeds from disposal and is included in the Statements of Comprehensive Income in the year of disposal.
DEXUS INDUSTRIAL TRUST Page 17 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(o) Investment properties (continued)
Subsequent redevelopment and refurbishment costs (other than repairs and maintenance) are capitalised to the investment property where they result in an enhancement in the future economic benefits of the property. Repairs and maintenance are accounted for in accordance with note 1(i).
(p) Leasing fees
Leasing fees incurred are capitalised and amortised over the lease periods to which they relate.
(q) Lease incentives
Prospective lessees may be offered incentives as an inducement to enter into operating leases. These incentives may take various forms including cash payments, rent free periods, or a contribution to certain lessee costs such as fitout costs or relocation costs.
The costs of incentives are recognised as a reduction of rental revenue on a straight-line basis from the earlier of the date which the tenant has effective use of the premises or the lease commencement date to the end of the lease term. The carrying amount of the lease incentives is reflected in the fair value of investment properties.
(r) Investments accounted for using the equity method
Some property investments are held through the ownership of units in single purpose unlisted trusts or shares in unlisted companies where the Trust exerts significant influence but does not have a controlling interest. These investments are considered to be associates and the equity method of accounting is applied in the Financial Statements.
Under this method, the entity's share of the post-acquisition profits of associates is recognised in the Statements of Comprehensive Income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends or distributions receivable from associates are recognised in the parent entity's Statement of Comprehensive Income, while in the consolidated Financial Statements they reduce the carrying amount of the investment.
When the Trust's share of losses in an associate equal or exceed its interest in the associate (including any unsecured receivables) the Trust does not recognise any further losses unless it has incurred obligations or made payments on behalf of the associate.
(s) Business combinations
During the period DIT adopted the revised AASB 3 Business Combinations, AASB 127 Consolidated and Separate Financial Statements and AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 effective for annual reporting periods beginning on or after 1 July 2009.
The acquisition method of accounting is used to account for all business combinations. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Trust recognises any non-controlling interest in the acquiree at its proportionate share of the acquiree's net identifiable assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Trust's share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in the Statements of Comprehensive Income as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
DEXUS INDUSTRIAL TRUST Page 18 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(t) Impairment of assets
Certain assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Nonfinancial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
(u) Financial assets and liabilities
(i) Classification
DIT has classified its financial assets and liabilities as follows:
| Financial Asset/Liability | Classification | Valuation Basis | Reference |
|---|---|---|---|
| Cash and cash equivalents | Fair value through profit or loss | Fair value | Refer note 1(j). |
| Receivables | Loans and receivables | Amortised cost | Refer note 1(k). |
| Other financial assets | Loans and receivables | Amortised cost | Refer note 1(e). |
| Other financial assets | Fair value through profit or loss | Fair value | Refer note 1(m). |
| Payables | Financial liability at amortised cost | Amortised cost | Refer note 1(v). |
| Interest bearing liabilities | Financial liability at amortised cost | Amortised cost | Refer note 1(w). |
| Derivatives | Fair value through profit or loss | Fair value | Refer note 1(e). |
Financial assets and liabilities are classified in accordance with the purpose for which they were acquired.
(ii) Fair value estimation of financial assets and liabilities
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement and for disclosure purposes.
The fair value of financial instruments traded in active markets (such as publicly traded derivatives) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Trust is the current bid price. The appropriate quoted market price for financial liabilities is the current ask price.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques including dealer quotes for similar instruments and discounted cash flows. In particular, the fair value of interest rate swaps and cross currency swaps are calculated as the present value of the estimated future cash flows, the fair value of forward exchange rate contracts is determined using forward exchange market rates at the end of the reporting period, and the fair value interest rate option contracts are calculated as the present value of the estimated future cash flows taking into account the time value and implied volatility of the underlying instrument.
(v) Payables
These amounts represent liabilities for amounts owing at the end of the reporting period. The amounts are unsecured and are usually paid within 30 days of recognition.
(w) Interest bearing liabilities
Subsequent to initial recognition at fair value, net of transaction costs incurred, interest bearing liabilities are measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Statements of Comprehensive Income over the period of the borrowings using the effective interest method. Interest bearing liabilities are classified as current liabilities unless the Trust has an unconditional right to defer the liability for at least twelve months after the end of the reporting period.
(x) Earnings per unit
Earnings per unit are determined by dividing the net profit attributable to unitholders of the parent entity by the weighted average number of ordinary units outstanding during the year.
Diluted earnings per unit are adjusted from the basic earnings per unit by taking into account the impact of dilutive potential units. The Trust did not have such dilutive potential units during the year.
DEXUS INDUSTRIAL TRUST Page 19 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(y) Foreign currency
Items included in the Financial Statements of the Trust are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The Financial Statements are presented in Australian dollars, which is the functional and presentation currency of the Trust.
(i) Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of financial assets and liabilities denominated in foreign currencies are recognised in the Statements of Comprehensive Income.
(ii) Foreign operations
Foreign operations are located in the United States, France, Germany and Canada. These operations have a functional currency of US Dollars, Euros and Canadian Dollars respectively, which are translated into the presentation currency.
The assets and liabilities of the foreign operations are translated at exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, are recognised in the foreign currency translation reserve and recognised in profit or loss on disposal of the foreign operation.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at exchange rates prevailing at the end of the reporting period.
(z) Operating segments
During the year the Trust adopted AASB 8 Operating Segments which replaced AASB 114 Segment Reporting. The new standard requires a 'management approach', under which segment information is presented in a manner that is consistent with internal reporting provided to the Chief Operating Decision Maker (CODM). The CODM who is responsible for allocating resources and assessing performance of the operating segments has been identified as the Board of Directors of DXFM. The Board of Directors are responsible for the strategic decision making for the Group which consists of DIT, DOT, DDF and DXO. Consistent with how the CODM manages the business the operating segments within the Group are reviewed on a consolidated basis rather than at an individual trust level. Disclosures concerning DXS's operating segments as well as the operating segments key financial information provided to the CODM are presented in the Group's Financial Statements.
(aa) Rounding of amounts
The Trust is the kind referred to in Class Order 98/0100, issued by the Australian Securities and Investment Commission, relating to the rounding off of amounts in the Financial Statements. Amounts in the Financial Statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar.
(ab) Presentation of parent entity Financial Statements
The Trust is a registered scheme of the kind referred to in Class Order 10/654, issued by the Australian Securities & Investments Commission, relating to the inclusion of parent entity Financial Statements in the consolidated Financial Statements. The Class Order provides relief from the Corporations Amendment (Corporate Reporting Reform) Act 2010 and the Trust continues to present the parent entity Financial Statements in the consolidated Financial Statements in accordance with that Class Order.
DEXUS INDUSTRIAL TRUST Page 20 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(ac) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2010 reporting period. Our assessment of the impact of these new standards and interpretations is set out below:
- (i) AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 (effective from 1 January 2013). AASB 9 Financial Instruments addresses the classification and measurement of financial assets. Under the new guidance, a financial asset is to be measured at amortised cost only if it is held within a business model whose objective is to collect contractual cash flows and the contractual terms of the asset give rise on specific dates to cash flows that are payments solely of principal and interest on the principal amount outstanding. All other financial assets are to be measured at fair value. The standard is not applicable until 1 January 2013 but is available for early adoption. The Trust is currently assessing the impact of this standard but does not expect it to be significant.
- (ii) Revised AASB 124 Related Party Disclosures (effective from 1 January 2011). In December 2009 the AASB issued a revised AASB 124 Related Party Disclosures. It is effective for accounting periods beginning on or after 1 January 2011 and must be applied retrospectively. The amendment clarifies and simplifies the definition of a related party. The Trust will apply the amended standard from 1 July 2011. It is not expected to have any impact on the Trust's Financial Statements.
- (iii) AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project (effective from 1 January 2010). In May 2010, the AASB issued a number of improvements to existing Australian Accounting Standards. The Trust will apply the revised standards from 1 July 2010 where applicable. The Trust is currently assessing the impact of the revised rules but does not expect it to be significant.
- (iv) AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements (effective from 1 July 2013). On 30 June 2010 the AASB officially introduced a revised differential reporting framework in Australia. Under this framework, a two-tier differential reporting regime applies to all entities that prepare general purpose financial statements. The Trust, as part of DXS, is listed on the ASX and is therefore not eligible to adopt the new Australian Accounting Standards – Reduced Disclosure Requirements. As a consequence, the two standards will have no impact on the Financial Statements of the Trust.
DEXUS INDUSTRIAL TRUST Page 21 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 2. Property revenue
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Rent and recoverable outgoings | 153,831 | 156,405 | 78,018 | 76,526 | |
| Incentive amortisation | (4,999) | (4,099) | (3,426) | (2,755) | |
| Other revenue | 5,275 | 2,981 | 3,947 | 1,819 | |
| Total property revenue | 154,107 | 155,287 | 78,539 | 75,590 |
Note 3. Interest revenue
| Parent Entity | |||
|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 |
| \$'000 | \$'000 | \$'000 | \$'000 |
| 331 | 438 | 276 | 132 |
| 1,826 | 3,103 | 1,826 | 3,103 |
| 2,157 | 3,541 | 2,102 | 3,235 |
| Consolidated |
Note 4. Finance costs
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2010 | 2009 | |||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Interest paid/payable | 1,905 | 2,641 | - | - | |
| Interest paid to related parties | 77,865 | 75,072 | 59,415 | 52,747 | |
| Amount capitalised | (6,073) | (5,364) | (6,073) | (5,364) | |
| Other finance costs | 365 | 183 | 143 | 134 | |
| Net fair value loss of interest rate swaps | 55,852 | 137,128 | 55,829 | 137,128 | |
| Total finance costs | 129,914 | 209,660 | 109,314 | 184,645 |
The average capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 7.15% (2009: 6.90%).
DEXUS INDUSTRIAL TRUST Page 22 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 5. Income tax
(a) Income tax expense
| Consolidated | ||
|---|---|---|
| 2010 | 2009 | |
| \$'000 | \$'000 | |
| Current tax expense | (37) | (1,041) |
| Deferred tax expense | (4) | (1,001) |
| Income tax expense | (41) | (2,042) |
| Deferred income tax expense included in income tax expense comprises: | ||
| Increase in deferred tax assets | (4) | (1,001) |
| (4) | (1,001) | |
| (b) Reconciliation of income tax expense to net profit | ||
| Consolidated | ||
| 2010 | 2009 | |
| \$'000 | \$'000 | |
| Loss before tax | 94,853 | 708,928 |
| Less amounts not subject to income tax (note 1(g)) | (96,326) | (674,211) |
| (1,473) | 34,717 | |
| Prima facie tax (expense)/benefit at the Australian tax rate of 30% (2009: 30%) | (442) | 10,415 |
| Tax effect of amounts which are not (taxable)/deductible in calculating taxable income: |
||
| Depreciation and amortisation | 1,443 | 1,866 |
| Revaluation of investment properties | (948) | (16,125) |
| Previously unrecognised tax losses now recognised | - | 1,802 |
| Net loss on sale of investment properties | (94) | - |
| 401 | (12,457) | |
| Income tax expense | (41) | (2,042) |
DEXUS INDUSTRIAL TRUST Page 23 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 6. Other expenses
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Note | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Audit and other fees 7 |
497 | 675 | 339 | 426 | |
| Custodian fees | 77 | 151 | 56 | 138 | |
| Legal and other professional fees | 865 | 496 | 777 | 94 | |
| Registry costs and listing fees | 232 | 145 | 232 | 145 | |
| External management fees | 1,083 | 1,711 | - | - | |
| Other expenses | 1,029 | 1,137 | 495 | 717 | |
| Total other expenses | 3,783 | 4,315 | 1,899 | 1,520 |
Note 7. Audit and advisory fees
During the year the auditor of the parent entity and its related practices and non-related audit firms earned the following remuneration:
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$ | \$ | \$ | \$ | |
| (a) Assurance services | ||||
| Audit services | ||||
| PwC audit and review of Financial Statements and | ||||
| other audit work under the Corporations Act 2001 | 290,540 | 318,772 | 286,780 | 317,987 |
| PwC fees paid in relation to outgoings audit1 | 5,483 | 22,836 | 2,513 | 17,963 |
| Fees paid to PwC US | 15,425 | - | - | - |
| Remuneration for audit services to PwC | 311,448 | 341,608 | 289,293 | 335,950 |
| Audit - Fees paid to non-PwC audit firms | 92,786 | 134,449 | - | 7,350 |
| Total remuneration for assurance services | 404,234 | 476,057 | 289,293 | 343,300 |
| (b) Taxation services | ||||
| Fees paid to PwC Australia | 51,900 | 221,836 | 51,900 | 100,698 |
| Fees paid to PwC US | 45,961 | - | - | - |
| Total remuneration for taxation services2 | 97,861 | 221,836 | 51,900 | 100,698 |
| Total assurance and taxation fees1 | 502,095 | 697,893 | 341,193 | 443,998 |
| (c) Fees paid to PwC for transaction services | ||||
| PwC Assurance services in respect of capital raisings | - | 100,929 | - | 100,929 |
| PwC taxation services | - | 18,258 | - | 18,258 |
| PwC other transaction and advisory fees | - | 54,767 | 54,767 | |
| Total remuneration for advisory services | - | 173,954 | - | 173,954 |
| Total remuneration for assurance, taxation and | ||||
| advisory services | 502,095 | 871,847 | 341,193 | 617,952 |
1 Fees paid in relation to outgoing audits are included in property expenses. Therefore total audit and taxation fees included in
other expenses are \$497,000 (2009: \$675,000) consolidated and \$339,000 (2009: \$426,000) for the parent entity. 2 These services include general compliance work, one off project work and advice with respect to the management of day to day tax affairs of the Trust.
DEXUS INDUSTRIAL TRUST Page 24 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 8. Current assets – cash and cash equivalents
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Cash at bank | 16,537 | 13,043 | 1,453 | 1,729 |
Total current assets - cash and cash equivalents 16,537 13,043 1,453 1,729
Note 9. Current assets – receivables
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Rent receivable | 4,049 | 5,084 | 195 | 2,121 |
| Less: provision for doubtful debts | (2,452) | (204) | - | (6) |
| Total rental receivables | 1,597 | 4,880 | 195 | 2,115 |
| Interest receivable from related parties | 128 | 5,370 | 128 | 5,370 |
| Other receivables | 2,879 | 3,786 | 1,009 | 1,389 |
| Total other receivables | 3,007 | 9,156 | 1,137 | 6,759 |
| Total current assets - receivables | 4,604 | 14,036 | 1,332 | 8,874 |
Note 10. Non–current assets classified as held for sale
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Investment properties held for sale | - | 22,254 | - | - |
| Total non-current assets classified as held for sale | - | 22,254 | - | - |
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| Reconciliation | \$'000 | \$'000 | \$'000 | \$'000 |
| Opening balance as at 1 July | 22,254 | - | - | - |
| Disposals | (22,202) | - | - | - |
| Transfer from property, plant and equipment | - | 22,254 | - | - |
| Additions, amortisation and other | (52) | - | - | - |
| Closing balance as at 30 June | - | 22,254 | - | - |
Disposals
On 8 July 2009, 68 Hasler Road, Herdsman, WA was disposed of for \$11.3 million.
On 15 July 2009, Nordstraße 1, Lobau was disposed of for \$1.9 million.
On 30 July 2009, 3-7 Bessemer Street, Blacktown, NSW was disposed of for \$9.1 million.
DEXUS INDUSTRIAL TRUST Page 25 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 11. Loans with related parties
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Current assets - loans with related parties | ||||
| Non-interest bearing loans with entities within DXS1 | 138,948 | 138,948 | 138,948 | 138,948 |
| Non-interest bearing loans with controlled entities | - | - | - | 11,727 |
| Total current assets - loans with related parties | 138,948 | 138,948 | 138,948 | 150,675 |
| Non-current assets - loans with related parties | ||||
| Interest bearing loans with controlled entities | - | - | 272,098 | 314,480 |
| Interest bearing loans with entities within DXS | 151,942 | 159,601 | 151,942 | 159,601 |
| Total non-current assets - loan with related parties | 151,942 | 159,601 | 424,040 | 474,081 |
| Non-current liabilities - loans with related parties | ||||
| Interest bearing loans with related parties2 | 1,152,388 | 1,201,113 | 1,099,372 | 1,201,113 |
| Interest bearing loans with entities within DXS | 105,528 | 110,847 | - | - |
| Total non-current liabilities - loan with related parties | 1,257,916 | 1,311,960 | 1,099,372 | 1,201,113 |
1 Non-interest bearing loans with entities within DXS were created to effect the stapling of the Trust, DDF, DOT and DXO.
These loan balances eliminate on consolidation within DXS. 2 Interest-bearing loans with DEXUS Finance Pty Limited (DXF). These loan balances eliminate on consolidation within DXS.
DEXUS INDUSTRIAL TRUST Page 26 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 12. Derivative financial instruments
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Current assets | |||||
| Interest rate swap contracts | 1,186 | 455 | 1,186 | 455 | |
| Cross currency swap contracts | 7,812 | 29,109 | 7,812 | 29,109 | |
| Forward foreign exchange contracts | 659 | 743 | 659 | 743 | |
| Total current assets - derivative financial instruments | 9,657 | 30,307 | 9,657 | 30,307 | |
| Non-current assets | |||||
| Interest rate swap contracts | 24,804 | 16,731 | 24,804 | 16,731 | |
| Cross currency swap contracts | 13,440 | 23,073 | 13,440 | 23,073 | |
| Forward foreign exchange contracts | 1,017 | 976 | 1,017 | 976 | |
| Total non-current assets - derivative financial instruments | 39,261 | 40,780 | 39,261 | 40,780 | |
| Current liabilities | |||||
| Interest rate swap contracts | 798 | 2,051 | 798 | 2,051 | |
| Cross currency swap contracts | 6,248 | 446 | 6,248 | 446 | |
| Forward foreign exchange contracts | 93 | 197 | 93 | 197 | |
| Total current liabilities - derivative financial instruments | 7,139 | 2,694 | 7,139 | 2,694 | |
| Non-current liabilities | |||||
| Interest rate swap contracts | 153,117 | 119,959 | 153,117 | 119,959 | |
| Cross currency swap contracts | 1,585 | 26,366 | 1,585 | 26,366 | |
| Forward foreign exchange contracts | 131 | 142 | 131 | 142 | |
| Total non-current liabilities - derivative financial instruments | 154,833 | 146,467 | 154,833 | 146,467 | |
| Net derivative financial instruments | (113,054) | (78,074) | (113,054) | (78,074) |
Refer note 27 for further discussion regarding derivative financial instruments.
DEXUS INDUSTRIAL TRUST Page 27 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 13. Current assets – other
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Prepayments | 2,737 | 3,135 | 1,491 | 1,951 | |
| Total current assets - other | 2,737 | 3,135 | 1,491 | 1,951 |
Note 14. Non-current assets – investment properties
Reconciliation
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Opening balance as at 1 July | 1,425,178 | 1,695,388 | 733,714 | 800,767 |
| Additions | 17,169 | 20,006 | 14,259 | 11,329 |
| Acquisitions | 80,262 | - | - | - |
| Transfer from property, plant and equipment | 94,007 | 33,118 | 94,007 | 33,118 |
| Lease incentives | 4,254 | 7,409 | 3,341 | 5,626 |
| Amortisation of lease incentives | (4,793) | (4,099) | (3,480) | (2,755) |
| Net fair value loss of investment properties | (24,581) | (360,663) | (22,980) | (114,371) |
| Rent straightlining | 1,072 | - | 1,027 | - |
| Disposals | (80,019) | (6,200) | (73,547) | - |
| Transfer to non current assets classified as held for sale | - | (22,254) | - | - |
| Foreign exchange differences on foreign currency translation | (50,542) | 62,473 | - | - |
| Closing balance as at 30 June | 1,462,007 | 1,425,178 | 746,341 | 733,714 |
Key valuation assumptions
Details of key valuation assumptions in relation to investment properties are outlined in note 14 of the DXS Financial Statements.
Acquisitions
• On 2 July 2009, D/P Rickenbacker LLC, which is owned 100% by DEXUS US Whirlpool Trust acquired a property located in Columbus, Ohio for US\$64.6 million (A\$80.3 million).
Disposals
- On 28 September 2009, 40 Biloela Street, Villawood, NSW was disposed of for \$6.3 million.
- All strata lots within the Macaulay Road, Kensington Estate were disposed of: Lot 6 for \$2.4 million on 5 October 2009, Lots 1-3 for \$3.1 million on 2 November 2009, Lots 4-5 for \$ 2.4 million on 25 June 2010.
- On 30 June 2010, the Trust disposed of Boundary Road, Laverton North, VIC to DEXUS Projects Pty Limited, a wholly owned subsidiary of DXO, for \$64.8 million.
Refer to note 10 for disposals of investment properties classified as held for sale.
Developments
• On 13 March 2009, subdivision approval was received for 2.1 hectare of vacant land at Norwest Estate, Brookhollow Road, NSW accommodating 23,083 square metres of lettable area. Development has not yet commenced.
DEXUS INDUSTRIAL TRUST Page 28 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 15. Non-current assets – property, plant and equipment
(a) Property, plant and equipment
| Consolidated Land and |
Parent Entity Land and |
|||||
|---|---|---|---|---|---|---|
| 30 June 2010 | ||||||
| Construction in | freehold | Construction in | freehold | |||
| progress | buildings | Total | progress | buildings | Total | |
| \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | |
| Opening balance as at 1 July 2009 | 44,282 | 49,725 | 94,007 | 44,282 | 49,725 | 94,007 |
| Additions | - | - | - | - | ||
| Transfer to investment properties | (44,282) | (49,725) | (94,007) | (44,282) | (49,725) | (94,007) |
| Closing balance as at 30 June 2010 | - | - | - | - | - | - |
| Consolidated | Parent Entity | |||||||
|---|---|---|---|---|---|---|---|---|
| 30 June 2009 | Construction in progress \$'000 |
Land and freehold buildings \$'000 |
Total \$'000 |
Construction in progress \$'000 |
Land and freehold buildings \$'000 |
Total \$'000 |
||
| Opening balance as at 1 July 2008 | 65,533 | 49,725 | 115,258 | 65,533 | 49,725 | 115,258 | ||
| Additions | 11,867 | - | 11,867 | 11,867 | - | 11,867 | ||
| Transfer to investment properties | (33,118) | - | (33,118) | (33,118) | - | (33,118) | ||
| Closing balance as at 30 June 2009 | 44,282 | 49,725 | 94,007 | 44,282 | 49,725 | 94,007 | ||
| Cost | 44,282 | 49,725 | 94,007 | 44,282 | 49,725 | 94,007 | ||
| Net book value as at 30 June 2009 | 44,282 | 49,725 | 94,007 | 44,282 | 49,725 | 94,007 |
In the current year, based on the revised AASB 140 Investment Property, development properties being developed for future use as investment properties have been included in investment properties and were fair valued at the end of the reporting period (refer to note 14).
DEXUS INDUSTRIAL TRUST Page 29 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 16. Non-current assets – other financial assets at fair value through profit or loss
Investments are adjusted to their fair value through the Statements of Comprehensive Income.
| Name of entity | Principal activity | Ownership Interest | Parent Entity | |||
|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||
| % | % | \$'000 | \$'000 | |||
| Foundation Macquarie Park Trust | Industrial property investment | 100.0 | 100.0 | 96,631 | 100,195 | |
| DEXUS PID Trust | Industrial property investment | 100.0 | 100.0 | 169,325 | 167,657 | |
| DIT Luxemburg 1 SARL | Investment trust | 100.0 | 100.0 | - | - | |
| DEXUS GLOG Trust | Industrial property investment | 100.0 | 100.0 | - | - | |
| DEXUS US Whirlpool Trust | Industrial property investment | 100.0 | 100.0 | 63,693 | 41,144 | |
| DEXUS Canada Trust | Industrial property investment | 100.0 | 100.0 | 3,596 | - | |
| DEXUS Finance Pty Limited | Finance services | 25.0 | 25.0 | - | - | |
| Total non-current assets - other financial assets at fair value through profit and loss | 333,245 | 308,996 | ||||
| Reconciliation | Parent Entity | |||||
| 2010 | 2009 | |||||
| \$'000 | \$'000 | |||||
| Opening balance as at 1 July | 308,996 | 459,325 | ||||
| Acquisitions | 32,050 | 2,544 | ||||
| Fair value loss | (7,801) | (152,873) | ||||
| Closing balance as at 30 June | 333,245 | 308,996 |
All controlled entities are wholly owned by the Trust with the exception of DEXUS Finance Pty Limited which is owned jointly by DDF, DIT, DOT and DXO. Both the parent entity and the controlled entities were formed in Australia. With the exception of DIT Luxemburg 1 SARL which was formed in Luxemburg and DEXUS US Whirlpool Trust which was formed in the United States.
DEXUS INDUSTRIAL TRUST Page 30 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 17. Non-current assets – investments accounted for using the equity method
Investments are accounted for in the consolidated Financial Statements using the equity method of accounting (refer note 1).
Information relating to these entities is set out below.
| Name of entity | Principal activity | Ownership Interest | Consolidated | Parent Entity | |||
|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||
| % | % | \$'000 | \$'000 | \$'000 | \$'000 | ||
| DEXUS Industrial | Asset, property and funds | ||||||
| Properties, Inc.1 | management | 50.0 | 50.0 | 122,627 | 138,276 | - | - |
| Total | 122,627 | 138,276 | - | - |
1 The remaining 50% of this entity is owned by DDF. As a result, this entity is classed as controlled on a DDF consolidated basis.
DEXUS Industrial Properties, Inc. was formed in the United States.
Movements in carrying amounts of investments accounted for using the equity method
| equity method | Consolidated | |
|---|---|---|
| 2010 | 2009 | |
| \$'000 | \$'000 | |
| Opening balance as at 1 July | 138,276 | 314,989 |
| Interest acquired during the year | 54,937 | - |
| Share of net losses after tax | (59,285) | (245,448) |
| Dividends received | (517) | (24,636) |
| Foreign exchange difference on foreign currency translation | (10,784) | 93,371 |
| Closing balance as at 30 June | 122,627 | 138,276 |
| Results attributable to associates | ||
| Operating losses before income tax | (58,447) | (244,382) |
| Withholding tax expense | (838) | (1,066) |
| Operating losses after income tax | (59,285) | (245,448) |
| Less: Dividends received | (517) | (24,636) |
| (59,802) | (270,084) | |
| (Accumulated losses)/retained profits attributable to associates as at 1 July | (187,450) | 82,634 |
| Accumulated losses attributable to associates as at 30 June | (247,252) | (187,450) |
DEXUS INDUSTRIAL TRUST Page 31 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 17. Non-current assets – investments accounted for using the equity method (continued)
Summary of the performance and financial position of investments accounted for using the equity method
The Trust's share of aggregate profits, assets and liabilities of investments accounted for using the equity method are:
| Consolidated | |||
|---|---|---|---|
| 2010 | 2009 | ||
| \$'000 | \$'000 | ||
| Losses from ordinary activities after income tax expense | (59,285) | (245,448) | |
| Assets | 696,814 | 833,212 | |
| Liabilities | 574,187 | 693,562 | |
| Share of associates' expenditure commitments | |||
| Capital commitments | 5,168 | 1,953 |
Note 18. Non-current assets – investment in associates
| Name of entity | Principal activity | Ownership Interest | Consolidated | Parent Entity | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||
| % | % | \$'000 | \$'000 | \$'000 | \$'000 | |||||
| DEXUS Industrial Properties, Inc.1 |
Asset, property and funds management |
50.0 | 50.0 | - | - | 122,627 | 138,276 | |||
| - | - | 122,627 | 138,276 |
1 50% of the DEXUS Industrial Properties, Inc is owned by DIT. This is classified for as investment in associates and is measured at fair value through profit and loss. The remaining 50% of this entity is owned by DDF.
The DEXUS Industrial Properties, Inc. was formed in the United States.
DEXUS INDUSTRIAL TRUST Page 32 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 19. Non-current assets – deferred tax assets
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| The balance comprises temporary differences attributable to: | ||||
| Investment properties | 10,080 | 9,764 | - | - |
| Tax losses | - | 1,413 | - | - |
| Total non-current assets - deferred tax assets | 10,080 | 11,177 | - | - |
| Movements | ||||
| Opening balance as at 1 July | 11,177 | (1,936) | - | - |
| (Charged)/credited to Statements of Comprehensive Income | (1,097) | 13,113 | - | - |
| Closing balance as at 30 June | 10,080 | 11,177 | - | - |
Note 20. Non-current assets - other
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Tenant and other bonds | 305 | 1,848 | 229 | 328 | |
| Total non-current assets - other | 305 | 1,848 | 229 | 328 |
Note 21. Current liabilities - payables
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Trade creditors | 9,393 | 8,981 | 4,317 | 4,459 |
| Accruals | 2,049 | 1,375 | 1,530 | 697 |
| Accrued capital expenditure | 1,622 | 2,309 | 1,138 | 1,581 |
| Prepaid income | 2,053 | 2,038 | 1,785 | 1,878 |
| Responsible Entity fee payable | 724 | 444 | 724 | 444 |
| GST payable | 7,575 | 1,236 | 6,976 | 279 |
| Accrued interest | 2,193 | 1,909 | - | - |
| Other payable to related party | 18,936 | 12,874 | 33,740 | 12,874 |
| Total current liabilities – payables | 44,545 | 31,166 | 50,210 | 22,212 |
DEXUS INDUSTRIAL TRUST Page 33 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 22. Interest bearing liabilities
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Current | |||||
| Unsecured | |||||
| Bank loans | - | 64,337 | - | - | |
| Total unsecured | - | 64,337 | - | - | |
| Secured | |||||
| Bank loans | (a) | 48,046 | - | - | - |
| Total secured | 48,046 | - | - | - | |
| Deferred borrowing costs | (250) | (301) | - | - | |
| Total interest bearing liabilities | 47,796 | 64,036 | - | - |
The Trust's unsecured borrowing facilities are supported by the Trust's guarantee arrangements, and have negative pledge provisions which limit the amount and type of encumbrances that the Trust can have over its assets and ensures that all senior unsecured debt ranks pari-passu.
The current debt facilities will be refinanced as at/or prior to their maturity.
(a) Bank loans – secured
This includes a total of a US\$41.0 million (A\$48.0 million) secured interest only bank facility maturing in February 2011. The facility is secured by a mortgage over one investment property with a value of US\$58.2 million (A\$68.3 million) as at 30 June 2010.
Note 23. Non-current liabilities – other
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Tenant bonds | 875 | 1,209 | 111 | 285 | |
| Other | - | 76 | - | - | |
| Total non-current liabilities – other | 875 | 1,285 | 111 | 285 |
DEXUS INDUSTRIAL TRUST Page 34 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 24. Contributed equity
(a) Contributed equity
| Consolidated | ||
|---|---|---|
| 2010 | 2009 | |
| \$'000 | \$'000 | |
| Opening balance as at 1 July | 925,116 | 760,988 |
| Issue of units | - | 148,640 |
| Distributions reinvested | - | 19,682 |
| Cost of issuing units | - | (4,194) |
| Closing balance as at 30 June | 925,116 | 925,116 |
(b) Number of units on issue
| Consolidated | ||
|---|---|---|
| 2010 | 2009 | |
| No. of | No. of | |
| securities | securities | |
| Opening balance as at 1 July | 4,700,841,666 | 3,040,019,487 |
| Distributions reinvested | 119,980,133 | 100,368,579 |
| Issue of units | - | 1,560,453,600 |
| Closing balance as at 30 June | 4,820,821,799 | 4,700,841,666 |
Terms and conditions
Each stapled security ranks equally with all other stapled securities for the purposes of distributions and on termination of the Trust.
Each stapled security entitles the holder to one vote, either in person or by proxy, at a meeting of the Trust.
(c) Distribution reinvestment plan
Under the distribution reinvestment plan (DRP), stapled security holders may elect to have all or part of their distribution entitlements satisfied by the issue of new stapled securities, rather than being paid in cash.
On 28 August 2009, 65,251,600 units were issued at a unit price of nil in relation to the June 2009 distribution period.
On 26 February 2010, 54,728,533 units were issued at a unit price of nil in relation to the December 2009 distribution period.
Approval of issues of Stapled Securities to an underwriter in connection with issues under a Distribution Reinvestment Plan
At the Extraordinary General Meeting held on 6 February 2009 by DXFM, as Responsible Entity for DDF, DIT, DOT and DXO, security holders resolved to authorise DXFM, as Responsible Entity, to issue stapled securities, each comprising a unit in each of the above mentioned trusts (Stapled Securities), to an underwriter or persons procured by an underwriter within a period of twenty four months from the date of the meeting in connection with any issue of Stapled Securities under the DXS distribution reinvestment plan.
Such an issue will not be counted for the purposes of the calculation of the 15% limit under ASX Listing Rule 7.1.
DEXUS INDUSTRIAL TRUST Page 35 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 25. Reserves and undistributed income
(a) Reserves
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Foreign currency translation reserve | 12,163 | 4,791 | - | - |
| Total reserves | 12,163 | 4,791 | - | - |
| Movements: | ||||
| Foreign currency translation reserve | ||||
| Opening balance as at 1 July | 4,791 | 175 | - | - |
| Exchange difference arising from the translation of the | ||||
| financial statements of foreign operations | 7,372 | 4,616 | - | - |
| Total movement in foreign currency translation reserve | 7,372 | 4,616 | - | - |
| Closing balance as at 30 June | 12,163 | 4,791 | - | - |
(b) Nature and purpose of reserves
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the Financial Statements of foreign operations.
(c) (Accumulated losses)/retained profits
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Opening balance as at 1 July | (395,880) | 344,634 | (314,169) | 369,649 |
| Net loss attributable to unitholders | (96,698) | (696,312) | (103,988) | (639,616) |
| Distributions provided for or paid | - | (44,202) | - | (44,202) |
| Closing balance as at 30 June | (492,578) | (395,880) | (418,157) | (314,169) |
DEXUS INDUSTRIAL TRUST Page 36 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 26. Distributions paid and payable
(a) Distribution to unitholders
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| 31 December 2009 (paid 27 February 2010) | - | 44,202 | - | 44,202 |
| Total distributions | - | 44,202 | - | 44,202 |
(b) Distribution rate
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 Cents per |
2009 | 2010 Cents per |
2009 Cents per |
||
| unit Cents per unit | unit | unit | |||
| 31 December (paid 27 February 2010) | - | 1.27 | - | 1.27 | |
| Total distributions | - | 1.27 | - | 1.27 |
Note 27. Financial risk management
To ensure the effective and prudent management of the Trust's capital and financial risks, DIT (as part of DXS) has a well established framework consisting of a Board Finance Committee and a Capital Markets Committee. The Board Finance Committee is accountable to and primarily acts as an advisory body to the DXFM Board and includes three Directors of the DXFM Board. Its responsibilities include reviewing and recommending financial risk management polices and funding strategies for approval.
The Capital Markets Committee is a management committee that is accountable to both the Board Finance Committee and the Group Management Committee. It convenes at least quarterly and conducts a review of financial risk management exposures including liquidity, funding strategies and hedging. It is also responsible for the development of financial risk management policies and funding strategies for recommendation to the Board Finance Committee, and the approval of treasury transactions within delegated limits and powers.
Further information on the DXS governance structure, including terms of reference, is available at www.dexus.com
(1) Capital risk management
The Trust manages its capital to ensure that entities within the Trust will be able to continue as a going concern while maximising the return to owners through the optimisation of the debt and equity balance.
The capital structure of the Trust consists of debt (see note 22), cash and cash equivalents, and equity attributable to unitholders. The capital structure is monitored and managed in consideration of a range of factors including:
- The cost of capital and the financial risks associated with each class of capital;
- Gearing levels and other covenants;
- Potential impacts on net tangible assets and unitholder's equity;
- Potential impacts on DXS's credit rating; and
- Other market factors and circumstances.
DEXUS INDUSTRIAL TRUST Page 37 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Financial risk management (continued)
(1) Capital risk management (continued)
To minimise the potential impacts of foreign exchange risk on the Trust's capital structure, the Trust's policy is to hedge the majority of its foreign asset and liability exposures. Consequently the size of the assets and liabilities on the Statements of Financial Position (translated into Australian Dollars) and gearing ratios will rise and fall as exchange rates fluctuate. This policy ensures that net tangible assets are not materially affected by currency movements (refer foreign exchange risk below)
The gearing ratio at 30 June 2010 was 68.7% (as detailed below).
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Gearing ratio | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Total interest bearing liabilities 1 | 1,305,962 | 1,363,254 | 1,099,372 | 1,199,384 | |
| Total tangible assets 2 | 1,899,781 | 2,010,326 | 1,769,706 | 1,912,631 | |
| Gearing ratio3 | 68.7% | 67.8% | 62.1% | 62.7% |
1 Total interest bearing liabilities excludes deferred borrowing costs as reported internally to management. 2 Total tangible assets comprise total assets less derivatives and deferred tax balances as reported internally to management.
3 Gearing is managed centrally for DXS. The gearing ratio as disclosed in the DEXUS Property Group Financial Statements 2010 is 30.4% (refer note 32 of the DXS Financial Statements).
The Trust is not rated by ratings agencies, however, DXS has been rated BBB+ by Standard and Poor's and Baa1 by Moody's. The Trust considers potential impacts upon the rating when assessing the strategy and activities of the Trust and regards those impacts as an important consideration in its management of the Trust's capital structure.
The Responsible Entity for DIT (DXFM) has been issued with an Australian Financial Services Licence (AFSL). The licence is subject to certain capital requirements including the requirement to hold minimum net tangible assets (of \$5 million), and maintaining a minimum level of surplus liquid funds. Furthermore, the Responsible Entity maintains trigger points in accordance with the requirements of the licence. These trigger points maintain a headroom value above the AFSL requirements and the entity has in place a number of processes and procedures should a trigger point be reached.
(2) Financial risk management
The Trust's activities expose it to a variety of financial risks: credit risk, market risk (including currency risk and interest rate risk), and liquidity risk. Financial risk management is not managed at the individual trust level, but holistically as part of DXS. DXS's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Trust.
Accordingly, the Trust enters into various derivative financial instruments such as interest rate swaps, cross currency interest rate swaps, and foreign exchange contracts to manage its exposure to certain risks. The Trust does not trade in derivative instruments for speculative purposes. The Trust uses different methods to measure the different types of risks to which it is exposed, including monitoring the current and forecast levels of exposure, and conducting sensitivity analyses.
Risk management is implemented by a centralised treasury department (Group Treasury) whose members act under written policies that are endorsed by the Board Finance Committee and approved by the Board of Directors of the Responsible Entity. Group Treasury identifies, evaluates and hedges financial risks in close cooperation with the Trust's business units. The treasury policies approved by the Board of Directors cover overall treasury risk management, as well as policies and limits covering specific areas such as liquidity risk, interest rate risk, foreign exchange risk, credit risk and the use of derivatives and other financial instruments. In conjunction with its advisers, the Responsible Entity continually reviews the Trust's exposures and (at least annually) updates its treasury policies and procedures.
DEXUS INDUSTRIAL TRUST Page 38 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Financial risk management (continued)
(2) Financial risk management (continued)
(a) Liquidity risk
Liquidity risk is the risk that the Trust will not have sufficient available funds to meet financial obligations in an orderly manner when they fall due or at an acceptable cost.
The Trust identifies and manages liquidity risk across short, medium and long-term categories:
- Short-term liquidity management includes continuously monitoring forecast and actual cash flows;
- Medium-term liquidity management includes maintaining a level of committed borrowing facilities above the forecast committed debt requirements (liquidity headroom buffer). Committed debt includes future expenditure that has been approved by the Board or Investment Committee (as required within delegated limits), and may also include projects that have a very high probability of proceeding, taking into consideration risk factors such as the level of regulatory approval, tenant pre-commitments and portfolio considerations; and
- Long-term liquidity risk is managed through ensuring an adequate spread of maturities of borrowing facilities so that refinancing risk is not concentrated, and ensuring an adequate diversification of funding sources where possible subject to market conditions.
Refinancing risk
A key liquidity risk is the Trust's ability to refinance its current debt facilities. As the Trust's debt facilities mature, they are usually required to be refinanced by extending the facility or replacing the facility with an alternative form of capital.
The refinancing of existing facilities may also result in margin price risk, whereby market conditions may result in an unfavourable change in credit margins on the refinanced facilities. The Trust's key risk management strategy for margin price risk on refinancing is to spread the maturities of debt facilities over different time periods to reduce the volume of facilities to be refinanced and the exposure to market conditions in any one period.
DEXUS INDUSTRIAL TRUST Page 39 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Financial risk management (continued)
(2) Financial risk management (continued)
(a) Liquidity risk (continued)
An analysis of the contractual maturities of the Trust's interest bearing liabilities and derivative financial instruments are shown in the table below. The amounts in the table represent undiscounted cash flows.
| Consolidated | 2010 | 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
| Expiring | Expiring | Expiring | Expiring | |||||
| Expiring | between one | between two | Expiring | Expiring | between one | between two | ||
| within one | and two | and five | after five | within one | and two | and five | Expiring after | |
| year | years | years | years | year | years | years | five years | |
| Receivables | 4,604 | - | - | - | 14,036 | - | - | - |
| Payables | 44,545 | - | - | - | 31,166 | - | - | - |
| (39,941) | - | - | - | (17,130) | - | - | - | |
| Loans with related parties | - | - | - | 1,257,916 | - | - | - | 1,311,960 |
| Interest bearing liabilities Floating interest bearing |
||||||||
| liabilities | 48,046 | - | - | - | 64,337 | - | - | - |
| Total interest bearing | ||||||||
| liabilities 1 | 48,046 | - | - | - | 64,337 | - | - | - |
| Derivative financial instruments |
||||||||
| Derivative assets | 31,958 | 25,848 | 1,794 | 195 | 324,377 | 161,445 | 248,726 | 13,584 |
| Derivative liabilities | 49,841 | 33,483 | 34,806 | 12,053 | 328,170 | 210,263 | 361,200 | 106,523 |
| Total net derivative | ||||||||
| financial instruments 2 | (17,883) | (7,635) | (33,012) | (11,858) | (3,793) | (48,818) | (112,474) | (92,939) |
1 Refer to note 22 (interest bearing liabilities). Excludes deferred borrowing costs.
2 The notional maturities on derivatives is only shown for cross currency interest rate swaps (refer foreign exchange rate risk) and forward foreign exchange contracts as they are the only instruments where a principal amount is exchanged. For interest rate swaps, only the net interest cash flows (not the notional principal) are included. For derivative assets and liabilities that have floating rate interest cash flow, future cash flow have been calculated using static interest rate prevailing at 30 June 2010. Refer to note 12 Derivative Financial Instruments for fair value of derivatives. Refer Contingent Liabilities (note 28) for Financial Guarantees.
DEXUS INDUSTRIAL TRUST Page 40 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Financial risk management (continued)
(2) Financial risk management (continued)
(a) Liquidity risk (continued)
| Parent Entity | 2010 | 20009 | ||||||
|---|---|---|---|---|---|---|---|---|
| Expiring | Expiring | Expiring | Expiring | |||||
| Expiring | between one | between two | Expiring | Expiring | between one | between two | ||
| within one | and two | and five | after five | within one | and two | and five | Expiring after | |
| year | years | years | years | year | years | years | five years | |
| Receivables | 1,332 | - | - | - | 8,874 | - | - | - |
| Payables | 50,210 | - | - | - | 22,212 | - | - | - |
| (48,878) | - | - | - | (13,338) | - | - | - | |
| Loans with related parties | - | - | - | 1,099,372 | - | - | - | 1,201,113 |
| Derivative financial | ||||||||
| instruments | ||||||||
| Derivative financial instruments |
||||||||
| Derivative assets | 31,958 | 25,848 | 1,794 | 195 | 324,377 | 161,445 | 248,726 | 13,584 |
| Derivative liabilities | 49,841 | 33,483 | 34,806 | 12,053 | 328,170 | 210,263 | 361,200 | 106,523 |
| Total net derivative | ||||||||
| financial instruments 1 | (17,883) | (7,635) | (33,012) | (11,858) | (3,793) | (48,818) | (112,474) | (92,939) |
1 The notional maturities on derivatives is only shown for cross currency interest rate swaps (refer foreign exchange rate risk) and forward foreign exchange contracts as they are the only instruments where a principal amount is exchanged For interest rate swaps, only the net interest cash flows (not the notional principal) are included. For derivative assets and liabilities that have floating rate interest cash flow, future cash flow have been calculated using static interest rate prevailing at 30 June 2010. Refer to note 12 Derivative Financial Instruments for fair value of derivatives. Refer Contingent Liabilities (note 28) for Financial Guarantees.
(b) Market risk
Market risk is the risk that the fair value or future cash flows of the Trust's financial instruments will fluctuate because of changes in market prices. The market risks that the Trust is exposed to are detailed further below.
(i) Interest rate risk
Interest rate risk is the risk that fluctuating interest rates will cause an adverse impact on interest payable (or receivable), or an adverse change on the capital value (present market value) of long-term fixed rate instruments.
Interest rate risk for the Trust arises from interest bearing financial assets and liabilities that the Trust holds. Borrowings issued at variable rates expose the Trust to cash flow interest rate risk. Borrowings issued at fixed rates expose the Trust to fair value interest rate risk.
The primary objective of the Trust's risk management policy for interest rate risk is to minimise the effects of interest rate movements on the Trust's portfolio of financial assets and liabilities and financial performance. The policy sets out the minimum and maximum hedging amounts for the Trust which is managed on a portfolio basis.
Cash flow interest rate risk on borrowings is managed through the use of interest rate swaps, whereby a floating interest rate exposure is converted to a fixed interest rate exposure. Fair value interest rate risk on borrowings is also managed through the use of interest rate swaps, whereby a fixed interest exposure is converted to a floating interest rate exposure. The mix of fixed and floating rate exposures is monitored regularly to ensure that the interest rate exposure on the Trust's cash flows is managed within the parameters defined by the Group Treasury Policy.
The Trust holds borrowings in multiple currencies with both fixed and floating rate exposures and is exposed to interest rate risk related to each particular currency.
DEXUS INDUSTRIAL TRUST Page 41 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Financial risk management (continued)
(2) Financial risk management (continued)
(b) Market risk (continued)
The net notional amount of fixed rate debt and interest rate swaps in place in each year and the weighted average effective hedge rate per currency is set out in the next table.
| Consolidated 30 June 2010 | June 2011 \$'000 |
June 2012 \$'000 |
June 2013 \$'000 |
June 2014 \$'000 |
> June 2015 \$'000 |
|---|---|---|---|---|---|
| Interest rate swaps | |||||
| AUD hedged 1 | 333,400 | 332,000 | 271,667 | 75,000 | 90,000 |
| AUD hedge rate (%) 2 | 5.84% | 5.92% | 6.30% | 6.87% | 6.28% |
| USD hedged 1 | 363,115 | 336,532 | 299,115 | 294,115 | 241,542 |
| USD hedge rate (%) 2 | 5.89% | 6.06% | 5.66% | 5.54% | 4.94% |
| EUR hedged 1 | 137,500 | 127,500 | 105,000 | 70,000 | 23,056 |
| EUR hedge rate (%) 2 | 4.40% | 4.43% | 4.55% | 4.86% | 4.12% |
| CAD hedged 1 | 50,000 | 50,000 | 50,000 | 50,000 | 28,472 |
| CAD hedge rate (%) 2 | 5.41% | 5.41% | 5.41% | 5.41% | 5.41% |
| Combined fixed debt and swaps (A\$ | |||||
| equivalent) | 1,012,165 | 965,246 | 828,773 | 576,089 | 438,156 |
| Hedge rate (%) | 5.55% | 5.66% | 5.64% | 5.58% | 5.25% |
1 Average amounts for the period. Hedged amounts above do not include potential hedges that are cancellable at the counterparty's option.
2 The above hedge rates do not include margins payable on borrowings.
Sensitivity on interest expense
The table below shows the impact on unhedged net interest expense (excluding non-cash items) of a 50 basis points increase or decrease in short-term and long-term market interest rates. The sensitivity on cash flow arises due to the impact that a change in interest rates will have on the Trust's floating rate debt and derivative cash flows. Net interest expense is only sensitive to movements in markets rates to the extent that floating rate debt is not hedged.
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | ||
| + / - 0.50% (50 basis points) | AUD | 515 | 595 | 515 | 595 |
| + / - 0.50% (50 basis points) | USD | (58) | (65) | (58) | (505) |
| + / - 0.50% (50 basis points) | EUR | 13 | 13 | 13 | 417 |
| + / - 0.50% (50 basis points) | CAD | - | - | - | - |
| Total A\$ equivalent | 466 | 536 | 466 | 697 |
The increase or decrease in interest expense is proportional to the increase or decrease in interest rates.
DEXUS INDUSTRIAL TRUST Page 42 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Financial risk management (continued)
(2) Financial risk management (continued)
(b) Market risk (continued)
Sensitivity on fair value of interest rate swaps
The table below shows the impact on the Statements of Comprehensive Income for changes in the fair value of interest rate swaps for a 50 basis points increase and decrease in short-term and long-term market interest rates. The sensitivity on the fair value arises from the impact that changes in market rates will have on the mark-to-market valuation of the interest rate swaps. The fair value of interest rate swaps is calculated as the present value of estimated future cash flows on the instruments. Cash flows are discounted using the forward price curve of interest rates at the end of the reporting period. Although interest rate swaps are transacted for the purpose of providing the Trust with an economic hedge, the Trust has elected not to apply hedge accounting to its interest rate derivatives. Accordingly, gains or losses arising from changes in the fair value are reflected in the Statements of Comprehensive Income.
| Consolidated | Parent Entity | |||||
|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||
| (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | |||
| + / - 0.50% (50 basis points) | AUD | 6,753 | 7,724 | 6,753 | 7,724 | |
| + / - 0.50% (50 basis points) | USD | 11,579 | 13,108 | 11,579 | 13,108 | |
| + / - 0.50% (50 basis points) | EUR | 2,777 | 2,651 | 2,777 | 2,651 | |
| + / - 0.50% (50 basis points) | CAD | 1,784 | 2,714 | 1,784 | 2,714 | |
| Total A\$ equivalent | 26,305 | 31,382 | 26,305 | 31,382 |
(ii) Foreign exchange risk
Foreign exchange risk is the risk that movements in exchange rates used to convert foreign currency revenues, expenses, assets, or liabilities to the Trust's functional currency will have an adverse effect on the Trust.
The Trust operates internationally with investments in the United States, France, Germany and Canada. As a result of these activities, the Trust has foreign exchange risk, arising primarily from:
- Translation of investments in foreign operations;
- Borrowings and cross currency swaps denominated in foreign currencies; and
- Earnings distributions and other transactions denominated in foreign currencies.
The objective of the Trust's foreign exchange risk management policy is to ensure that movements in exchange rates have minimal adverse impact on the Trust's foreign currency assets and liabilities, and net foreign currency cash flows as outlined below.
Foreign currency assets and liabilities
Exposure to foreign exchange risk is minimised by predominantly matching the currency of the Trust's debt with the currency of its investment to form a natural hedge against movements in exchange rates. This policy reduces the risk that movements in foreign exchange rates will have an adverse impact on equity and net tangible assets.
Where Australian dollar borrowings are used to fund the foreign currency investment, the Trust may transact cross currency swaps for the purpose of providing an alternate source of foreign currency funding whilst maintaining the natural hedge. In these instances the Trust has committed foreign currency borrowing capacity in place that can replace the foreign currency amounts that are due under the cross currency swaps.
DEXUS INDUSTRIAL TRUST Page 43 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Financial risk management (continued)
(2) Financial risk management (continued)
(b) Market risk (continued)
The Trust's net foreign currency exposures for net investments in foreign operations and hedging instruments are as follows:
| Consolidated | Parent Entity | |||||
|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||
| \$'000 | \$'000 | \$'000 | \$'000 | |||
| USD assets 1 | 334,893 | 329,884 | 164,191 | 329,884 | ||
| USD net borrowings 2 | (405,487) | (359,526) | (274,087) | (359,526) | ||
| USD cross currency swaps 3 | - | (30,000) | - | (30,000) | ||
| USD denominated net investment | (70,594) | (59,642) | (109,896) | (59,642) | ||
| % hedged | 121% | 118% | 167% | 118% | ||
| EUR assets 1 | 137,350 | 138,675 | 122,662 | 220,126 | ||
| EUR net borrowings 2 | (54,942) | (39,305) | (36,109) | (11,160) | ||
| EUR cross currency swaps 3 | (80,000) | (100,000) | (80,000) | (100,000) | ||
| EUR denominated net investment | 2,408 | (630) | 6,553 | 108,966 | ||
| % hedged | 98% | 100% | 95% | 50% | ||
| CAD assets 1 | 55,650 | 51,600 | 53,881 | 53,881 | ||
| CAD net borrowings 2 | - | - | - | - | ||
| CAD cross currency swaps 3 | (50,000) | (70,000) | (50,000) | (70,000) | ||
| CAD denominated net investment | 5,650 | (18,400) | 3,881 | (16,119) | ||
| % hedged | 90% | 136% | 93% | - | ||
| Total net foregin investment (AUD equivalent) | (73,082) | (94,218) | (115,227) | 115,969 | ||
| Total % hedged | 111% | 113% | 125% | 85% |
1 Assets exclude working capital and cash as reported internally to management. parent entity assets comprise related party interest bearing loans and receivables.
2 Net borrowings is equal to interest bearing liabilities less cash. parent entity debt comprises related party interest bearing liabilities. 3 Cross currency swap amounts comprise the foreign currency denominated leg of the cross currency interest swaps.
Sensitivity on equity (foreign currency translation reserve)
The table below shows the impact on the foreign currency translation reserve for changes in the translated value of foreign currency assets and liabilities for an increase and decrease in foreign exchange rates per currency. The increase and decrease in cents per currency has been based on the historical movements of the Australian dollar relative to each currency1 . The cents per currency has been applied to the spot rates prevailing at 30 June 2010 (see footnote below). The impact on the foreign currency translation reserve arises as the translation of the Trust's foreign currency assets and liabilities are recorded (in Australian Dollars) directly in the foreign currency translation reserve.
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| + 11.3 cents (13.3%) | USD (AUD Equivalent) | (9,706) | (11,917) | - | - |
| - 11.3 cents (13.3%) | USD (AUD Equivalent) | 12,678 | 17,635 | - | - |
| + 8.8 cents (10.4%) | EUR (AUD Equivalent) | 388 | (110) | - | - |
| - 8.8 cents (10.4%) | EUR (AUD Equivalent) | (500) | 137 | - | - |
| + 7.5 cents (8.4%) | CAD (AUD Equivalent) | 486 | (1,417) | - | - |
| - 7.5 cents (8.4%) | CAD (AUD Equivalent) | (575) | 1,656 | - | - |
1 The sensitivity on market rates has been based on the standard deviation of the annual change in the Australian dollar exchange rate per currency since 1984 or commencement.
2 Exchange rates at 30 June 2010: AUD/USD 0.8523 (2009: 0.8144), AUD/EUR 0.6979 (2009: 0.5751), AUD/CAD 0.8976 (2009: 0.9379)
DEXUS INDUSTRIAL TRUST Page 44 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Financial risk management (continued)
(2) Financial risk management (continued)
(b) Market risk (continued)
Sensitivity on fair value of cross currency swaps
The table below shows the impact on the Statements of Comprehensive Income for changes in the fair value of cross currency swaps for a 50 basis point increase and decrease in market rates. The sensitivity on the fair value arises from the impact that changes in short-term and long-term market rates will have on the interest rate mark-to-market valuation of the cross currency swaps1 . The Trust has elected not to apply hedge accounting to its cross currency swaps. Accordingly, gains or losses arising from changes in the fair value are reflected in the Statements of Comprehensive Income.
| Consolidated | Parent Entity | |||||
|---|---|---|---|---|---|---|
| 2010 (+/-) \$'000 |
2009 (+/-) \$'000 |
2010 (+/-) \$'000 |
2009 (+/-) \$'000 |
|||
| + 0.50% (50 basis point) | USD (AUD Equivalent) | 4 | (3) | 4 | (3) | |
| + 0.50% (50 basis point) | EUR (AUD Equivalent) | 16 | 2 | 16 | 2 | |
| + 0.50% (50 basis point) | CAD (AUD Equivalent) | 3 | (91) | 3 | (91) |
1 Note the above sensitivity is reflective of how changes in interest rates will affect the valuation of the cross currency swaps. The effect of movements in foreign exchange rates on the valuation of cross currency swaps is reflected in the foreign currency translation reserve sensitivity.
Net foreign currency denominated cash flows
Foreign exchange risk exists in relation to net cash flows and transactions with foreign operations that are denominated in foreign currencies. This risk is managed through the use of forward foreign exchange contracts (after taking into account the natural hedging through foreign denominated interest expense).
Forward foreign exchange contracts outstanding at 30 June 2010 are as follows:
| 2010 | 2010 | 2010 Weighted |
2009 | 2009 | 2009 | |
|---|---|---|---|---|---|---|
| To pay US\$ million |
To receive A\$ million |
average exchange rate |
To pay US\$ million |
To receive A\$ million |
Weighted average exchange rate |
|
| 1 year or less | - | - | - | 2.9 | 4.1 | 0.6902 |
| Over 1 and less than 2 years | 2.9 | 4.1 | 0.7031 | 2.8 | 4.0 | 0.7084 |
| More than 2 years | 2.9 | 4.3 | 0.6707 | 5.8 | 8.4 | 0.6865 |
Sensitivity on fair value of foreign exchange contracts
The table below shows the impact on the Statements of Comprehensive Income for changes in the fair value of forward foreign exchange contracts for an increase and decrease in market rates. The increase and decrease in cents per currency has been based on the historical movements of the Australian dollar relative to each currency. The cents per currency has been applied to the spot rates prevailing at 30 June 2010 (see footnote below). The sensitivity on the fair value arises from the impact that changes in market rates will have on the mark-to-market valuation of the forward foreign exchange contracts.
Although forward foreign exchange contracts are transacted for the purpose of providing the Trust with an economic hedge, the Trust has elected not to apply hedge accounting to its forward foreign exchange contracts. Accordingly, gains or losses arising from changes in the fair value are reflected in the Statements of Comprehensive Income.
DEXUS INDUSTRIAL TRUST Page 45 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Financial risk management (continued)
(2) Financial risk management (continued)
(b) Market risk (continued)
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| + 11.3 cents (13.2%) | USD (AUD Equivalent) | 1,011 | 2,177 | 1,011 | 2,177 |
| - 11.3 cents (13.2%) | USD (AUD Equivalent) | (774) | (3,222) | (774) | (3,222) |
1 The sensitivity on market rates has been based on the standard deviation of the annual change in the Australian dollar exchange rate per currency since 1984 or commencement. Exchange rates at 30 June 2010: AUD/USD 0.8523 (2009: 0.8114), AUD/EUR 0.6979 (2009: 0.5751), AUD/CAD 0.8976 (2009: 0.9379)
(c) Credit risk
Credit risk is the risk of loss to the Trust in the event of non-performance by the Trust's financial instrument counterparties. Credit risk arises from cash and cash equivalents, loans and receivables, and derivative financial instruments. The Trust and parent entity have exposure to credit risk on all financial assets.
DXS manages this risk by:
- Adopting a process for determining an approved counterparty, with consideration of qualitative factors as well as the counterparty's rating;
- Regularly monitoring counterparty exposure within approved credit limits that are based on the lower of a S&P, Moody's and Fitch credit rating. The exposure includes the current market value of in-the-money contracts as well as potential exposure, which is measured with reference to credit conversion factors as per APRA guidelines;
- Entering into ISDA Master Agreements once a financial institution counterparty is approved;
- ensuring tenants, together with approved credit limits, are approved and ensuring that leases are undertaken with a large number of tenants;
- For some trade receivables, obtaining collateral where necessary in the form of bank guarantees and tenant bonds; and
- Regularly monitoring loans and receivables on an ongoing basis.
A minimum S&P rating of A– (or Moody's or Fitch equivalent) is required to become or remain an approved counterparty. As at 30 June 2010, the lowest rating of counterparties that the Trust is exposed to was A (S&P).
Financial instrument transactions are spread among a number of approved financial institutions within specified credit limits to minimise the Trust's exposure to any one counterparty. As a result, there is no significant concentration of credit risk for financial instruments.
The maximum exposure to credit risk at 30 June 2010 is the carrying amount of financial assets recognised on the Statements of Financial Position of the Trust and parent entity.
As at 30 June 2010, the Trust and the parent have no significant concentrations of credit risk for trade receivables. Trade receivable balances and the credit quality of trade debtors are consistently monitored on an ongoing basis. As a result, the Trust and parent entity's exposure to bad debts is not significant.
For the consolidated entity, the ageing analysis of loans and receivables net of provisions at 30 June 2010 is (\$'000): 3,834.0 (0-30 days), 165.0 (31-60 days), 266.0 (61-90 days), 339.0 (91+ days). The ageing analysis of loans and receivables net of provisions at 30 June 2009 is (\$'000): 12,702.0 (0-30 days), 485.9 (31-60 days), 78.1 (61-90 days), 769.9 (91+ days). Amounts over 31 days are past due, however, no receivables are impaired.
For the parent entity, the ageing analysis for loans and receivables net of provisions at 30 June 2010 is (\$'000): 1,169.0 (0-30 days), 147.0 (31-60 days), 5.0 (61-90 days), 11.0 (91+ days). The ageing analysis of loans and receivables net of provisions for the parent entity at 30 June 2009 is (\$'000): 8,739.8 (0-30 days), 127.1 (31-60 days), 0.9 (61-90 days), 6.2 (91+ days). Amounts over 31 days are past due, however, no receivables are impaired.
The credit quality of financial assets that are neither past due nor impaired is consistently monitored to ensure that there are no adverse changes in credit quality.
DEXUS INDUSTRIAL TRUST Page 46 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Financial risk management (continued)
(2) Financial risk management (continued)
(d) Fair value of financial instruments
Fair value interest rate risk is the risk of an adverse change in the net fair (or market) value of an asset or liability due to movements in interest rates.
At 30 June 2010, the carrying amounts and fair value of financial assets and liabilities are shown as follows:
| Consolidated | Consolidated | |||
|---|---|---|---|---|
| 2010 | 2010 | 2009 | 2009 | |
| Carrying | Carrying | |||
| amount 1 | Fair value 2 | amount 1 | Fair value 2 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Financial assets | ||||
| Cash and cash equivalents | 16,537 | 16,537 | 13,043 | 13,043 |
| Loans and receivables (current) | 4,604 | 4,604 | 14,036 | 14,036 |
| Derivative assets | 48,918 | 48,918 | 71,087 | 71,087 |
| Loans with related parties | 290,890 | 290,890 | 138,948 | 138,948 |
| Total financial assets | 360,949 | 360,949 | 237,114 | 237,114 |
| Financial liabilities | ||||
| Trade payables | 44,545 | 44,545 | 31,166 | 31,166 |
| Derivative liabilities | 161,972 | 161,972 | 149,161 | 149,161 |
| Interest bearing liabilities | 47,796 | 47,796 | 64,036 | 64,036 |
| Loans with related parties | 1,257,916 | 1,257,916 | 1,311,960 | 1,311,960 |
| Total financial liabilities | 1,512,229 | 1,512,229 | 1,556,323 | 1,556,323 |
| Parent | Parent | |||
| 2010 | 2010 | 2009 | 2009 | |
| Carrying | Carrying | |||
| amount 1 | Fair value 2 | amount 1 | Fair value 2 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Financial assets | ||||
| Cash and cash equivalents | 1,453 | 1,453 | 1,729 | 1,729 |
| Receivables (current) | 1,332 | 1,332 | 8,874 | 8,874 |
| Derivative assets | 48,918 | 48,918 | 71,087 | 71,087 |
| Loans with related parties | 562,988 | 562,988 | 150,675 | 150,675 |
| Total financial assets | 614,691 | 614,691 | 232,365 | 232,365 |
| Financial liabilities | ||||
| Trade payables | 50,210 | 50,210 | 22,212 | 22,212 |
| Derivative liabilities | 161,972 | 161,972 | 149,161 | 149,161 |
| Loans with related parties | 1,099,372 | 1,099,372 | 1,201,113 | 1,201,113 |
| Total financial liabilities | 1,311,554 | 1,311,554 | 1,372,486 | 1,372,486 |
1 Carrying value is equal to the value of the financial instruments in the Statements of Financial Position.
2 Fair value is the amount for which the financial instrument could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction, however, not recognised in the Statements of Financial Position.
The fair value of interest-bearing liabilities and derivative financial instruments has been determined by discounting the expected future cash flows by the relevant market interest rates. The discount rates applied range from 0.53% to 4.21% for US\$ and 4.79% to 6.08% for A\$. Refer note 1(u) for fair value methodology for financial assets and liabilities.
DEXUS INDUSTRIAL TRUST Page 47 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Financial risk management (continued)
(2) Financial risk management (continued)
(d) Fair value of financial instruments (continued)
Determination of fair value
The Trust uses methods in the determination and disclosure of the fair value of financial instruments. These methods comprise: Level 1: the fair value is calculated using quoted prices in active markets.
Level 2: the fair value is determined using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: the fair value is estimated using inputs for the asset or liability that are not based on observable data.
The following table presents the consolidated and parent entity's assets and liabilities measured and recognised as at fair value at 30 June 2010.
| Consolidated financial assets and liabilities | Level 1 \$'000 |
Level 2 \$'000 |
Level 3 \$'000 |
2010 \$'000 |
|---|---|---|---|---|
| Financial assets | ||||
| Derivative assets | ||||
| - Interest rate derivatives | - | 25,990 | - | 25,990 |
| - Cross currency swaps | - | 21,252 | - | 21,252 |
| - Forward exchange contracts | - | 1,676 | - | 1,676 |
| - | 48,918 | - | 48,918 | |
| Financial liabilities | ||||
| Interest-bearing liabilities | ||||
| - Floating rate debt | - | 48,046 | - | 48,046 |
| - | 48,046 | - | 48,046 | |
| Derivative liabilities | ||||
| - Interest rate derivatives | - | 153,915 | - | 153,915 |
| - Cross currency swaps | - | 7,833 | - | 7,833 |
| - Forward exchange contracts | - | 224 | - | 224 |
| - | 161,972 | - | 161,972 | |
| Parent financial assets and liabilities | Level 1 | Level 2 | Level 3 | 2010 |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Financial assets | ||||
| Derivative assets | ||||
| - Interest rate derivatives | - | 25,990 | - | 25,990 |
| - Cross currency swaps | - | 21,252 | - | 21,252 |
| - Forward exchange contracts | - | 1,676 | - | 1,676 |
| - | 48,918 | - | 48,918 | |
| Financial liabilities | ||||
| Derivative liabilities | ||||
| - Interest rate derivatives | - | 153,915 | - | 153,915 |
| - Cross currency swaps | - | 7,833 | - | 7,833 |
| - Forward exchange contracts | - | 224 | - | 224 |
| - | 161,972 | - | 161,972 |
DEXUS INDUSTRIAL TRUST Page 48 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Contingent liabilities
The Trust together with DDF, DXO and DOT is also a guarantor of a US\$210.0 million (A\$246.4 million) syndicated bank debt facility and a total of A\$1,182.5 million and US\$120.0 million (A\$140.8 million) of bank bi-lateral facilities, a total of A\$361.1 million of medium term notes, a total of US\$400.0 million (A\$469.3 million) of privately placed notes, and a total of US\$300.0 million (A\$352.0 million) of public 144a senior notes, which have all been negotiated to finance the Trust and other entities within DXS. The guarantees have been given in support of debt outstanding and drawn against these facilities, and may be called upon in the event that a borrower under the above facilities does not comply with certain loan conditions, such as, failure to meet interest payments or failure to repay a borrowing, whichever is earlier. During the period none of the guarantees were called.
The Trust together with DDF, DOT and DXO is also a guarantor, on a subordinated basis, of RENTS (Real-estate perpetual ExchaNgable sTep-up Secuties). The guarantee has been given in support of payments that become due and payable to the RENTS holders and ranks ahead of the Group's distribution payments, but subordinated to the claims of the senior creditors.
The guarantees are issued in respect of the Trust and do not constitute an additional liability to those already existing in interest bearing liabilities on the Statements of Financial Position.
The Directors of the Responsible Entity are not aware of any other contingent liabilities in relation to the Trust, other than those disclosed in the Financial Statements, which should be brought to the attention of unitholders as at the date of completion of this report.
Note 29. Commitments
(a) Capital commitments
The following amounts represent capital expenditure on investment properties contracted at the end of the reporting period but not recognised as liabilities payable:
| Capital expenditure commitments: | Consolidated | Parent Entity | ||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Not longer than one year | ||||
| 3 Brookhollow Avenue, Norwest, NSW | 93 | 421 | 93 | 421 |
| 5–13 Rosebery Avenue, Rosebery, NSW | 172 | - | 172 | - |
| RN 19 ZAC de L'Ormes Road, Servon | 1,614 | - | - | - |
| Total capital commitments | 1,879 | 421 | 265 | 421 |
(b) Lease receivable commitments
The future minimum lease payments receivable by the Trust are:
| the Trust are: | Consolidated | Parent Entity | ||
|---|---|---|---|---|
| 2010 2009 |
2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Within one year | 119,966 | 129,160 | 74,655 | 62,728 |
| Later than one year but not later than five years | 337,344 | 390,215 | 188,930 | 172,441 |
| Later than five years | 230,644 | 231,833 | 147,520 | 134,523 |
| Total lease receivable commitments | 687,954 | 751,208 | 411,105 | 369,692 |
DEXUS INDUSTRIAL TRUST Page 49 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties
Responsible Entity
DXFM is the Responsible Entity of the Trust.
Responsible Entity fees
Under the terms of the Trust's Constitution, the Responsible Entity is entitled to receive fees in relation to the management of the Trust. DXFM's parent entity, DXH is entitled to be reimbursed for administration expenses incurred on behalf of the Trust. DEXUS Property Services Pty Limited (DXPS), a wholly owned subsidiary of DXH is entitled to property management fees from the Trust.
Related party transactions
Responsible Entity fees are on a cost recovery basis as reflected in the parent entity's transactions with DXFM.
DEXUS Funds Management Limited and its related entities
There were a number of transactions and balances between the Trust and the Responsible Entity and its related entities as detailed below:
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$ | \$ | \$ | \$ | ||
| Responsible Entity fees paid and payable | 4,438,726 | 5,598,240 | 4,438,726 | 5,598,240 | |
| Property management fees to DXPS | 3,888,555 | 3,147,185 | 3,292,776 | 2,610,441 | |
| Recovery of administration expenses paid to DXH | 3,640,256 | 4,198,336 | 3,083,317 | 3,571,297 | |
| Aggregate amounts payable to the Responsible Entity | |||||
| at the end of the reporting period (included above) | 769,515 | 443,560 | 769,515 | 443,560 | |
| Property management fees payable at the end of the | |||||
| reporting period (included above) | 828,564 | 655,401 | 723,316 | 543,279 | |
| Administration expenses payable at the end of the | |||||
| reporting period (included above) | 97,845 | 72,109 | 188,564 | 156,744 |
Entities within DXS
Aggregate amounts included in the determination of profit that resulted from transactions with each class of other related parties:
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$ | \$ | \$ | \$ | ||
| Interest income | 1,825,950 | 3,102,815 | 1,825,950 | 3,102,815 | |
| Interest expense | 77,865,385 | 75,071,908 | 59,414,879 | 52,746,504 | |
| Interest bearing loans advanced to trusts within DXS | 390,800,617 | 1,121,465,506 | 390,800,617 | 1,144,697,125 | |
| Interest bearing loans advanced from trusts within DXS | 317,612,417 | 930,257,931 | 289,961,649 | 930,737,281 | |
| Sale of land to DEXUS Projects Pty Limited (refer to | |||||
| note 14) | 64,800,000 | - | 64,800,000 | - |
DEXUS INDUSTRIAL TRUST Page 50 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
The following persons were Directors of DXFM at all times during the year and to the date of this report:
Directors
- C T Beare, BSc, BE (Hons), MBA, PhD, FAICD1,4,5
- E A Alexander AM, BComm, FCA, FAICD, FCPA1,2,6
- B R Brownjohn, BComm1,2,5,6
- J C Conde AO, BSc, BE(Hons), MBA 1,3,4
- S F Ewen OAM1,4
- V P Hoog Antink, BComm, MBA, FCA, FAPI, FRICS, MAICD
- B E Scullin, BEc1,3,7
- P B St George CA(SA), MBA 1,2,5,6
-
1 Independent Director
-
2 Audit Committee Member 3 Compliance Committee Member 4 Nomination and Remuneration Committee Member 5 Finance Committee Member 6 Risk & Sustainability Committee Member (name changed from Board Risk Committee on 2 June 2010) 7 Nomination and Remuneration Committee Member from 1 July 2009 to 31 August 2009
No directors held an interest in the Trust for the years ended 30 June 2010 and 30 June 2009.
Other key management personnel
In addition to the directors listed above the following persons were deemed by the Board Nomination and Remuneration Committee to be key management personnel during the financial year:
| Name | Position |
|---|---|
| Victor P Hoog Antink | Chief Executive Officer |
| Tanya Cox | Chief Operating Officer |
| Patricia A Daniels | Head of Human Resources |
| John C Easy | General Counsel |
| Jane Lloyd | Head of US Investments |
| Louise J Martin | Head of Office |
| Craig D Mitchell | Chief Financial Officer |
| Paul G Say | Head of Corporate Development |
| Mark F Turner | Head of Funds Management |
| Andrew P Whiteside | Head of Industrial |
Remuneration received by key management personnel of the Trust is a cost of DXH and not the Trust. DXH does not recover any proportion of their remuneration from the Trust.
No key management personnel or their related parties held an interest in the Trust for the years ended 30 June 2010 and 30 June 2009.
There were no loans or other transactions with key management personnel or their related parties during the years ended 30 June 2010 and 30 June 2009.
| 2010 | 2009 | |
|---|---|---|
| \$ | \$ | |
| Compensation | ||
| Short term employee benefits | 9,174,298 | 7,910,223 |
| Post employment benefits | 328,058 | 563,665 |
| Other long term benefits | 3,797,553 | 1,509,929 |
| 13,299,909 | 9,983,817 |
DEXUS INDUSTRIAL TRUST Page 51 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
Remuneration Report
1 Introduction
This Remuneration Report has been prepared in accordance with AASB 124 Related Party Disclosures and section 300A of the Corporations Act 2001 for the year ended 30 June 2010. The information provided in this Report has been audited in accordance with the provisions of section 308 (3C) of the Corporations Act 2001.
Changes to this Report, compared to the previous year, include a clearer description of the structure and nature of the Long Term Incentive Plan (known this year as DEXUS Deferred Performance Payments). DEXUS has also disclosed the outcome of fixed remuneration reviews for Executives for the 2010/11 year, and the outcome of the fee review for Directors.
Key Management Personnel
In this report, Key Management Personnel ("KMP") are those people having the authority and responsibility for planning, directing and controlling the activities of DEXUS, either directly or indirectly. They comprise Non-Executive Directors, the CEO and other members of the Executive Committee. Within this report the term 'Executive' encompasses the CEO and other members of the Executive Committee.
KMP (including the five highest paid Executives) of DEXUS for the year ended 30 June 2010 are set out below.
| Name | Title | Date of qualification as a KMP |
|---|---|---|
| Non-Executive Directors | ||
| Christopher T Beare | Non-Executive Chair | Appointed 1 October 2004 |
| Elizabeth A Alexander AM | Non-Executive Director | Appointed 1 January 2005 |
| Barry R Brownjohn | Non-Executive Director | Appointed 1 January 2005 |
| John C Conde AO | Non-Executive Director | Appointed 29 April 2009 |
| Stewart F Ewen OAM | Non-Executive Director | Appointed 1 October 2004 |
| Charles B Leitner III 1 | Non-Executive Director | Resigned 29 April 2009 |
| Brian E Scullin | Non-Executive Director | Appointed 1 January 2005 |
| Peter B St George | Non-Executive Director | Appointed 29 April 2009 |
1 Mr Leitner was appointed on 10 March 2005. Simultaneous with Mr Leitner's resignation, Mr Fay resigned as Mr Leitner's alternate.
DEXUS INDUSTRIAL TRUST Page 52 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
1 Introduction (continued)
Key Management Personnel (continued)
| Name | Title | Date of qualification as a KMP |
|---|---|---|
| Executives | ||
| Victor P Hoog Antink | Chief Executive Officer | Appointed 1 October 2004 |
| Tanya L Cox | Chief Operating Officer | Appointed 1 October 2004 |
| Patricia A Daniels | Head of Human Resources | Appointed 14 January 2008 |
| John C Easy | General Counsel | Appointed 1 October 2004 |
| Jane Lloyd | Head of US Investments | Appointed 14 July 2008 |
| Louise J Martin | Head of Office | Appointed 27 March 2008 |
| Craig D Mitchell | Chief Financial Officer | Appointed 17 September 2007 |
| Paul G Say | Head of Corporate Development | Appointed 19 March 2007 |
| Mark F Turner | Head of Funds Management | Appointed 1 October 2004 |
| Andrew P Whiteside | Head of Industrial | Appointed 28 April 2008 |
Following a streamlining of the Group's executive structure in July 2010 the DEXUS Executive Committee was replaced by a new, smaller Group Management Committee. This change will impact those positions which qualify as Key Management Personnel in the 2010/11 year.
2 Board oversight of remuneration
The Board Nomination and Remuneration Committee ("Committee") oversees the remuneration of Directors and Executives. The Committee is responsible for reviewing and recommending Executive remuneration policies and structures to the Board.
The Committee assesses the appropriateness of the structure and quantum of Director and Executive remuneration on an annual basis by reference to relevant regulatory and market conditions, and individual and company performance. The Committee engages external consultants to provide independent advice when required.
Further information about the role and responsibility of the Committee is set out in the Corporate Governance Statement which may be found at http://www.DEXUS.com/Corporate-Governance.aspx.
During the reporting period Nomination and Remuneration Committee members were Messrs Conde (Member until 31 August 2009, Chair with effect from 1 September 2009), Beare (Chair until 31 August 2009, Member with effect from 1 September 2009), Scullin (Member until 31 August 2009) and Ewen.
3 Non-Executive Directors' remuneration framework
The objectives of the Non-Executive Directors' remuneration framework are to ensure Non-Executive Directors' fees reflect the responsibilities of Non-Executive Directors and are market competitive. Non-Executive Directors' fees are reviewed annually.
Non-Executive Directors, other than the Chair, receive a base fee plus additional fees for membership of Board Committees. The table below outlines the fee structure for the reporting period.
| Committee | Chair | Member |
|---|---|---|
| Non-Executive Director | \$300,000 | \$130,000 |
| Board Audit & Risk | \$30,000 | \$15,000 |
| DWPL Board | \$30,000 | \$15,000 |
| Board Finance | \$15,000 | \$7,500 |
| Board Compliance | \$15,000 | \$7,500 |
| Board Nomination & Remuneration | \$15,000 | \$7,500 |
DEXUS INDUSTRIAL TRUST Page 53 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
3 Executive Directors' remuneration framework (continued)
Further to the Committee fee structure outlined above, Mr Ewen has been paid an additional fixed fee of \$30,000 per annum for assuming responsibilities involved in attending property inspections, reviewing property investment proposals and participating in informal management meetings.
Recognising the greater responsibility and time commitment required the Board Chair receives a higher fee than other Non-Executive Directors, which is benchmarked to the market median of comparably sized ASX listed entities. The Chair receives no Board Committee fees, nor is the Chair present during any discussion relating to the determination of the Chair's fees.
Non-Executive Directors are not eligible to receive performance based remuneration or accrue separate retirement benefits beyond statutory superannuation entitlements.
Fees paid to Non-Executive Directors are paid from a remuneration pool of \$1,750,000 per annum, which was approved by DEXUS security holders at its Annual General Meeting held in October 2008. Non-Executive Directors' fees were last adjusted in July 2007 and Non-Executive Directors have received no increase in fees since that time. At its meeting on 20 May 2010, following analysis of Non-Executive Director market remuneration data, the Nomination and Remuneration Committee determined that fees paid to its Non-Executive Directors had fallen below the market median of comparably sized ASX listed entities. Similarly, the Committee determined that fees paid to its Chair had fallen significantly below this peer group. Following consideration by the full Board, fees paid to DEXUS Non-Executive Directors for the year commencing 1 July 2010 will increase to \$150,000 per annum and fees paid to the Chair will increase to \$350,000 per annum. Committee fees will remain unchanged.
4 Approach to Executive remuneration
4.1 Executive remuneration principles
The Directors believe that achievement of DEXUS's strategic plans will create superior security holder value, through the delivery of consistent returns, generated with relatively moderate risk. The Directors consider that an appropriately skilled and qualified Executive team is essential to achieve this objective. DEXUS's approach to the principles, structure and quantum of Executive remuneration is therefore designed to attract, motivate and retain such an Executive team.
In establishing DEXUS's remuneration principles, the Directors are cognisant that DEXUS's business is based on long term property investments and similarly longer term tenant relationships. Furthermore, property market investment returns tend to be cyclical, particularly when coupled with financial structures that act to enhance returns.
Taking these factors into account, the Executive remuneration structure is based on the following criteria:
- (a) market competitiveness and reasonableness;
- (b) alignment of Executive performance payments with achievement of the Group's financial and operational objectives, within its risk framework and cognisant of its values-based culture; and
- (c) an appropriate target mix of remuneration components, including performance payments linked to security holder returns over the longer term.
(a) Market competitiveness and reasonableness
For the purposes of determining market competitive remuneration, DEXUS obtains external executive remuneration benchmarks and analyses information from a range of sources, including:
-
- publicly available data from the annual reports of constituents of the S&P/ASX 100 index;
-
- independent remuneration consultants, including Hart Consulting Group, Financial Institutions Remuneration Group, Hewitt and the Avdiev Group regarding property organisations of a similar market capitalisation; and
-
- various recruitment and consulting agencies who are informed sources of market remuneration trends.
DEXUS INDUSTRIAL TRUST Page 54 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
4 Approach to Executive remuneration (continued)
(b) Alignment of Executive performance payments with achievement of the Group's objectives
In 2009, DEXUS introduced a new method for determining key performance indicators (KPIs) and assessing individual performance known as the Balanced Scorecard performance framework. The Balanced Scorecard prescribes clearly the performance indicators that will be measured in order to 'balance' the financial perspective. The Balanced Scorecard is a performance management method that enables DEXUS to measure the execution of its strategy and reflect this performance in its incentive payments. It also provides targets and measurements around internal business processes and external outcomes in order to achieve strategic performance objectives and results. The Balanced Scorecard focuses on performance in four areas, which reflect each Executive's role, responsibility, accountability and strategy delivery.
| DEXUS Balanced Scorecard - Typical Objectives | |||||||
|---|---|---|---|---|---|---|---|
| Financial Performance | Business Development and Business Management | ||||||
| • | Earnings per security | • | Delivery of strategic projects on time and on budget | ||||
| • | Distributions per security | • | Corporate responsibility and sustainability initiatives | ||||
| • | Third party funds performance | • | Achievement of international operations strategies | ||||
| • | Total security holder return, relative to peers | ||||||
| Stakeholder Satisfaction | Leadership | ||||||
| • | Investor relations | • | Executive succession | ||||
| • | Tenant satisfaction | • | Talent management | ||||
| • | Employee engagement | • | Role modelling DEXUS cultural values | ||||
| • | Executive development |
Objectives are selected based on the key drivers to achieve superior security holder returns over time and are tailored and weighted according to the individual Executive's role. The typical objectives listed above may therefore not be common to all Executive roles.
The Committee reviews and approves Executive KPIs against Group objectives at the commencement of each financial year and reviews achievement against KPIs at the end of each financial year. The Committee's review of Executive performance, in conjunction with data provided from benchmarking total remuneration levels, provides the Committee with the information necessary to determine the quantum of Performance Payments to be awarded to Executives.
DEXUS INDUSTRIAL TRUST Page 55 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
4 Approach to Executive remuneration (continued)
(c) Executive remuneration structure
i. Executive Remuneration Components
The DEXUS Executive remuneration structure comprises the following remuneration components:
| TOTAL REMUNERATION | ||||||||
|---|---|---|---|---|---|---|---|---|
| • • • |
targeted at the market median | delivered through fixed and variable components awarded on a variable scale, which may result in a total remuneration range from lower quartile to upper quartile, reflecting differing levels of experience, role structure and contribution |
||||||
| FIXED REMUNERATION |
Salary Superannuation |
• Consists of cash salary and salary sacrificed fringe benefits, such as motor vehicles • Prescribed and salary sacrifice superannuation contributions, including insurance premiums (if applicable) |
• Targeted at Australian market median using external benchmark data and varies according to Executives' skills and depth of experience • Reviewed annually by the Board, effective 1 July, including internal and external relativities and gender pay equity |
|||||
| VARIABLE REMUNERATION Performance Payments |
Single pool funded annually from underlying profits to meet Performance Payments |
• The aim of Performance Payments is to attract, motivate and retain appropriately skilled and qualified executives to achieve the strategic objectives of the business, measured through the achievement of KPIs • Strategic objectives incorporate financial and non-financial measures of performance at Group, business unit and individual level and represent key drivers for the success of the business and for delivering long term value to security holders • The achievement of KPIs is assessed through a Balanced Scorecard approach • Individual awards are determined on a range of factors, including achievement of KPIs and relative market remuneration positioning |
• Reviewed annually by the Board • The pool is funded to enable total remuneration to be paid at market median, based on external benchmark data • Performance Payments are delivered as immediate and deferred elements in accordance with the targeted remuneration mix set out in the table below • The award of any Performance Payment to an Executive is dependant upon achieving minimum threshold performance targets |
|||||
| DEXUS Performance Payments ("DPP") DEXUS Deferred Performance Payments ("DDPP") |
• Delivery of DPP is immediate • Delivery of DDPP is deferred for three years, as described below |
• Awarded annually as a cash payment in September • Granted annually • Grants vest after three years • Delivered as a cash payment in accordance with the plan design described below • Unvested grants are forfeited upon Executive initiated termination (ie resignation) unless otherwise determined by the Nomination & Remuneration Committee |
DEXUS INDUSTRIAL TRUST Page 56 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
4 Approach to Executive remuneration (continued)
Performance payment pool
A single pool of funds is made available to meet all Performance Payments. The pool of funds available is sufficient to ensure that DEXUS is able to achieve its total remuneration positioning target, relative to the market. The Board may exercise its discretion to vary the size of the available pool by reference to such factors as:
- three year absolute total security holder return;
- management costs and revenue of DEXUS Holdings; and
- performance against budgeted earnings and distributions per security
ii. Target mix of remuneration components
The target remuneration mix for Executives, expressed as a percentage of total remuneration, is provided in the table below.
| 2010 | 2009 | ||||||
|---|---|---|---|---|---|---|---|
| Remuneration component | CEO | CFO | Other Executives |
CEO | CFO | Other Executives |
|
| Total fixed | 35% | 40% | 50% | 35% | 40% | 50% | |
| DEXUS Performance Payment ("DPP") |
30% | 30% | 25% | 30% | 30% | 25% | |
| DEXUS Deferred Performance Payment ("DDPP") |
35% | 30% | 25% | 35% | 30% | 25% |
The Directors consider that allocating Performance Payments evenly between immediate payments and deferred payments is appropriate for Executives other than the CEO, whose Performance Payment is weighted to the longer term to reflect relatively greater alignment with long term returns to security holders.
iii. DEXUS Deferred Performance Payment ("DDPP") plan
The DDPP plan operates as follows:
- Following allocation, Deferred Performance Payments are subject to a three year vesting period from allocation date;
- The DDPP allocation value is notionally invested during the vesting period in DEXUS securities (50 percent of DDPP value) and its unlisted funds and mandates (50 percent of DDPP value);
- During the vesting period, DDPP allocation values fluctuate in line with changes in the "Composite Total Return" (simulating the notional investment exposure), comprising 50 percent of the total return of DEXUS securities and 50 percent of the combined asset weighted total return of its unlisted funds and mandates; and
- At the conclusion of the three year vesting period, if the Composite Total Return meets or exceeds the Composite Performance Benchmark, the Board may approve the application of a performance factor to the final DDPP allocation value:
- The "Composite Performance Benchmark" is 50 percent of the S&P/ASX 200 Property Accumulation Index and 50 percent of the Mercer Unlisted Property Fund Index over the 3-year vesting period;
- For performance up to 100% of the Composite Performance Benchmark, executives receive a DDPP allocation reflecting the Composite Total Return of the preceding 3 year vesting period; and
- For performance between 100% and 130% of the Composite Performance Benchmark a performance factor may be applied, ranging from 1.1 to a maximum of 1.5 times.
Provisions regarding the vesting of DDPP in the event of termination of service agreements are outlined in section 7 below.
DEXUS INDUSTRIAL TRUST Page 57 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
4 Approach to Executive remuneration (continued)
Equity options scheme
DEXUS does not operate an equity option scheme as part of its Executive remuneration structure. The Committee has considered the introduction of such a scheme, but has determined that it would not be, at the present time, an appropriate component of DEXUS's remuneration structure.
Equity and loan schemes
DEXUS does not operate a security participation plan or a loan plan for Executives or Directors.
The deferred element of DEXUS's Performance Payment is designed to simulate an equity plan, but does not provide Executives with direct equity exposure.
Hedging policy
DEXUS does not permit Executives to hedge their DDPP allocation.
5 Executive remuneration arrangements for the year ended 30 June 2010
This section outlines how the approach to Executive remuneration described above has been implemented in the 2009/10 financial year.
Decisions taken impacting executive remuneration for the year ended 30 June 2010 only
- No increase in base salaries in 2009/10 for Executives or employees with the exception of adjustments for a limited number of employees whose roles and responsibilities markedly increased.
- No increase in Non-Executive Director fees for 2008/09 and 2009/10.
Decisions taken impacting executive remuneration for the year ended 30 June 2010 and future years
- Accelerated DDPP vesting on termination for reasons outside of the Executive's control was discontinued, but can be applied by exception with the approval of the Nomination and Remuneration Committee.
- Automatic application of the DDPP performance multiplier was removed, impacting all current unvested awards and all future allocations.
- Eligibility of DDPP was restricted to Executives and senior management.
- Balanced Scorecard performance approach was introduced for Executives incorporating four key areas of focus financial performance, business development & business management, stakeholder satisfaction and leadership.
- Remuneration mix guidelines were adopted for all employees to provide greater transparency in the determination of the size of the performance payment pool.
Decisions taken impacting executive remuneration for the year ending 30 June 2011 and future years
- KPI performance weightings were introduced.
- The effectiveness of existing incentive plans was, and will continue to be reviewed.
At its meeting on 21 July 2010 the Nomination and Remuneration Committee determined that the fixed remuneration paid to a number of Executives had fallen below the market median of comparably sized ASX listed entities. Following consideration by the full Board, the fixed remuneration paid to specific Executives for the year commencing 1 July 2010 will increase in line with comparable market medium positions.
DEXUS INDUSTRIAL TRUST Page 58 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
6 Group performance and the link to remuneration
Total return analysis
The table below sets out the DEXUS total security holder return since inception, relative to the S&P/ASX 200 Property Accumulation Index. It also sets out DEXUS's Composite Total Return since inception, relative to the Composite Performance Benchmark. The DEXUS Composite Total Return is 50 percent of the total return of DEXUS securities, plus 50 percent of the combined asset weighted total return of its unlisted funds and mandates and the Composite Performance Benchmark is 50 percent of the S&P/ASX 200 Property Accumulation Index and 50 percent of Mercers' Unlisted Property Fund Index.
| Period to 30 June 2010 | 1 year (% per annum) |
2 years (% per annum) |
3 years (% per annum) |
Since 1 October 20041 (% per annum) |
|---|---|---|---|---|
| DEXUS Property Group | 9.4% | -17.2% | -19.6% | -0.5% |
| S&P/ASX 200 Property Accumulation | 20.4% | -16.6% | -23.8% | -5.6% |
| Index | ||||
| DEXUS Composite Total Return | 8.0% | -10.0% | -9.1% | 4.1% |
| Composite Performance Benchmark | 11.6% | -10.8% | -11.3% | 1.4% |
1 DEXUS's inception date is 1 October 2004.
In determining the construction of the Composite Total Return and in particular the relative weighting between the returns of the DEXUS Property Group and its unlisted funds and mandates, the Board considered the following factors:
- the desire of DEXUS Property Group to attract and retain third party funds and mandates based on the assurance that incentives are in place to ensure their equitable treatment;
- the economic contribution to DEXUS Property Group of management fees arising from third party funds under management;
- the increased investment in its management team and infrastructure, enabled by third party funds management fees, including in-house research, valuations and sustainability teams, the cost of which is defrayed by those fees; and
- the greater market presence and relevance the third party business brings to the DEXUS Property Group.
The Board also considered whether the construction of the Composite Total Return should reflect the actual value of the unlisted funds and mandates, and DEXUS Property Group's own funds under management.
Cognisant of all the above factors, the Board determined that a 50/50 allocation, rather than an allocation varying according to asset weighting, most fairly reflects the value contribution of third party funds to the DEXUS Property Group and provides the greatest assurance that all investors are treated equitably.
During the year DEXUS did not buy back or cancel any of its securities.
DEXUS INDUSTRIAL TRUST Page 59 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
6 Group performance and the link to remuneration (continued)
Total return of DEXUS securities
The graph below illustrates DEXUS' total security holder return relative to the S&P/ASX 200 Property Accumulation Index.
DEXUS has outperformed the S&P ASX 200 Property Accumulation index on a rolling three year basis each period since inception in October 2004. In addition, the DEXUS Composite Total Return has outperformed the Composite Performance Benchmark on a rolling three year basis each period since inception.
While the Directors recognise that improvement is always possible, they consider that DEXUS's business model, which aims to deliver consistent returns with relatively moderate risk, has been central to DEXUS's relative out-performance, and that its approach to Executive remuneration, with a focus on consistent out-performance of objectives, is aligned with and supports the superior execution of DEXUS's strategic plans.
DEXUS INDUSTRIAL TRUST Page 60 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
7 Service agreements
The employment arrangements for Executives are set out below.
CEO - Victor P Hoog Antink
The current employment contract commenced on 1 October 2004. The principal terms of the employment contract are as follows:
- the CEO is employed under a rolling contract;
- the CEO may resign from his position and thus terminate this contract by giving six months written notice. On resignation any unvested DDPP will be forfeited subject to the discretion of the Board;
- the Group may terminate the CEO's employment agreement by providing six months written notice or payment in lieu of the notice period (based on the fixed component of CEO's remuneration). Additionally, the Group may provide a performance payment for the period of the last review date (being 1 July) until the last day of the notice period;
- in the event that the Group initiates termination for reasons outside the control of the CEO, a severance payment equal to 100% of fixed remuneration is payable;
- on termination by the Group, any DDPP awards will vest in accordance with the vesting schedule of the DDPP Plan, subject to the discretion of the Board; and
- the Group may terminate the contract of the CEO at any time without notice if serious misconduct has occurred. In the event of termination for cause, the CEO is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination for cause any unvested DDPP awards will immediately be forfeited.
Executives (other than the CEO)
The principal terms of Executive employment contracts are as follows:
- all Executives have rolling contracts;
- an Executive may resign from their position and thus terminate their contract by giving three months written notice. On resignation any unvested DDPP will be forfeited subject to the discretion of the Board;
- the Group may terminate an Executive's employment agreement by providing three months written notice or providing payment in lieu of the notice period (based on the fixed component of the Executive's remuneration). In the event that the Group initiates the termination for reasons outside the control of the Executive, a severance payment equal to a maximum of 75% of fixed remuneration will be made;
- on termination by the Group, any DDPP awards will vest in accordance with the vesting schedule of the DDPP Plan, subject to the discretion of the Board; and
- the Group may terminate the contract at any time without notice if serious misconduct has occurred. Where termination for cause occurs the Executive is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination for cause any unvested DDPP awards will immediately be forfeited.
DEXUS INDUSTRIAL TRUST Page 61 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
8 Remuneration of Key Management Personnel
(a) Cash Accounting Method
In response to the Productivity Commission's recommendation to improve the transparency of remuneration reports by disclosing actual remuneration received by executives, the following table provides details of actual cash and other benefits received by Executives in the years ending 30 June 2009 and 30 June 2010. This table includes details of the five highest paid Directors or Executives.
The amounts detailed in the cash accounting table vary to the amounts detailed in the statutory accounting table because performance payments are paid to Executives in the year following the performance period to which they relate. Furthermore, DDPP allocations and movement in prior year DDPP allocation values detailed in the statutory accounting table do not reflect what will be paid to the Executive when the DDPP vests as the award will be revalued at that time.
| Name | Cash salary including Superannuation |
DEXUS Performance Payments |
DEXUS Deferred Performance Payments |
Other Short Term Benefits 1 |
Total | |
|---|---|---|---|---|---|---|
| (\$) | (\$) | (\$) | (\$) | (\$) | ||
| Victor P Hoog Antink | 2010 | 1,300,000 | 785,000 | 339,375 | - | 2,424,375 |
| 2009 | 1,300,000 | 900,000 | 391,584 | - | 2,591,584 | |
| Tanya L Cox | 2010 | 400,000 | 150,000 | 81,450 | - | 631,450 |
| 2009 | 400,000 | 200,000 | 20,885 | - | 620,885 | |
| Patricia A Daniels 2 | 2010 | 261,333 | 90,000 | - | - | 351,333 |
| 2009 | 261,334 | 60,000 | - | - | 321,334 | |
| John C Easy | 2010 | 375,000 | 163,000 | 67,875 | - | 605,875 |
| 2009 | 375,000 | 150,000 | 26,106 | - | 551,106 | |
| Jane Lloyd | 2010 | 369,916 | 113,000 | - | 123,107 | 606,023 |
| 2009 | 375,000 | - | - | - | 375,000 | |
| Louise J Martin | 2010 | 500,000 | 175,000 | - | - | 675,000 |
| 2009 | 500,000 | 225,000 | - | - | 725,000 | |
| Craig D Mitchell | 2010 | 550,000 | 325,000 | - | - | 875,000 |
| 2009 | 550,000 | 250,000 | - | - | 800,000 | |
| Paul G Say | 2010 | 500,000 | 200,000 | - | - | 700,000 |
| 2009 | 500,000 | 225,000 | - | - | 725,000 | |
| Mark F Turner | 2010 | 450,000 | 135,000 | 95,025 | - | 680,025 |
| 2009 | 450,000 | 200,000 | 20,885 | - | 670,885 | |
| Andrew P Whiteside | 2010 | 475,000 | 135,000 | - | - | 610,000 |
| 2009 | 475,000 | 200,000 | - | - | 675,000 | |
| Total | 2010 | 5,181,249 | 2,271,000 | 583,725 | 123,107 | 8,159,081 |
| 2009 | 5,186,334 | 2,410,000 | 459,460 | - | 8,055,794 |
1 Other short-term benefits include expatriate assignment benefits such as relocation and housing allowances, relocation consultant assistance, health insurance premiums and associated taxes on these benefits. 2 Patricia A Daniels actual remuneration received is for a four day week.
DEXUS INDUSTRIAL TRUST Page 62 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
(b) Statutory accounting method
In accordance with Australian Accounting Standard AASB 124 details of the structure and quantum of each component of remuneration for Executives for the years ended 30 June 2009 and 30 June 2010 are set out in the following table.
| S ho Te Em loy Be f i t ts r rm p ee ne |
O he Lo Te Be f i t r ng rm ne |
t ts n ts |
To l ta |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Na me |
Ca Sa h lar d s y an Fe es |
S fo D E X U Pe r rm an ce Pa ts y me n |
S O t he ho t Te r r rm 4 Be f i ts ne |
ion Pe d ns an Su Be f i ts p er ne |
S fe D E X U De d rre Pe fo r rm an ce Pa t y me n 2 A l loc ion t a s |
in ior Mo t Pr ve me n Ye De fe d ar rre Pe fo r rm an ce Pa t y me n 3 A l loc ion Va lue t a s |
O t he Lo r ng Te Be f i ts rm ne |
|||||
| \$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
|||||
| V ic P Ho An in k to t r og |
||||||||||||
| 2 0 1 0 |
1, 2 5 2, 5 3 9 |
1, 1 0 0, 0 0 0 |
- | 4 7, 4 6 1 |
1, 2 0 0, 0 0 0 |
3 6 3, 9 5 7 |
- | 3, 9 6 3, 9 5 7 |
||||
| 2 0 0 9 |
1, 2 0 0, 0 0 0 |
7 8 5, 0 0 0 |
- | 1 0 0, 0 0 0 |
9 1 5, 0 0 0 |
( ) 4 1 6, 6 0 0 |
- | 2, 5 8 3, 4 0 0 |
||||
| Ta L Co ny a x |
3 8 5, 5 3 9 |
1 8 0, 0 0 0 |
- | 1 4, 4 6 1 |
1 8 0, 0 0 0 |
6 2, 5 3 3 |
- | 8 2 2, 5 3 3 |
||||
| 2 0 1 0 |
3 8 5, 5 3 9 |
1 8 0, 0 0 0 |
- | 1 4, 4 6 1 |
1 8 0, 0 0 0 |
6 2, 5 3 3 |
- | 8 2 2, 5 3 3 |
||||
| 2 0 0 9 |
3 2, 0 8 6 5 |
1 0, 0 0 0 5 |
- | 4 9 1 4 7, |
1 0, 0 0 0 5 |
( 8 0, 3 ) 7 7 |
- | 6 1 9, 2 2 7 |
||||
| 1 Pa ic ia A Da ie ls tr n |
||||||||||||
| 2 0 1 0 |
2 4 6, 8 7 2 |
1 0 4, 0 0 0 |
- | 1 4, 4 6 1 |
1 0 4, 0 0 0 |
1 3, 0 2 3 |
- | 4 8 2, 3 5 6 |
||||
| 2 0 0 9 |
2 4 8 9 7, 5 |
9 0, 0 0 0 |
- | 1 3, 4 7 5 |
9 0, 0 0 0 |
( 2 4, 2 0 ) 5 |
- | 4 1 0 8 4 7, |
||||
| Jo hn C Ea sy |
||||||||||||
| 2 0 1 0 |
3 6 0, 5 3 9 |
1 8 7, 0 0 0 |
- | 1 4, 4 6 1 |
1 8 8, 0 0 0 |
4 7, 4 3 7 |
- | 7 9 7, 4 3 7 |
||||
| 2 0 0 9 |
3 4 3, 2 5 5 |
1 6 3, 0 0 0 |
- | 3 1, 4 7 5 |
1 6 2, 0 0 0 |
( 6 8 8 ) 5 7, |
- | 6 4 2, 3 1 2 |
||||
| Ja L loy d ne |
||||||||||||
| 2 0 1 0 |
5 5, 5 5 3 4 |
1 6 2, 0 0 0 |
1 2 3, 1 0 7 |
1 4, 4 6 1 |
1 6 3, 0 0 0 |
1 0, 0 1 2 |
- | 5 8 2 8, 0 3 |
||||
| 2 0 0 9 |
3 6 1, 2 5 5 |
1 1 3, 0 0 0 |
- | 1 3, 4 7 5 |
1 1 2, 0 0 0 |
- | - | 6 0 0, 0 0 0 |
||||
DEXUS INDUSTRIAL TRUST Page 63 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
| S ho Te t r rm |
Em loy Be f i ts p ee ne |
Po Em loy t t s p me n Be f i ts ne |
O he Lo t r |
Te Be f i ts ng rm ne |
To l ta |
|||
|---|---|---|---|---|---|---|---|---|
| Na me |
Ca Sa h lar d s y an Fe es |
S fo D E X U Pe r rm an ce Pa ts y me n |
S O t he ho t Te r r rm 4 f i Be ts ne |
ion Pe d ns an Su f i Be ts p er ne |
S fe D E X U De d rre fo Pe r rm an ce Pa t y me n 2 A l loc ion t a s |
in ior Mo t Pr ve me n fe Ye De d ar rre fo Pe r rm an ce Pa t y me n 3 A l loc ion Va lue t a s |
O t he Lo r ng f i Te Be ts rm ne |
|
| \$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
|
| ise in Lo J Ma t u r |
||||||||
| 2 0 1 0 |
4 8 5, 5 3 9 |
2 0 0, 0 0 0 |
- | 1 4, 4 6 1 |
2 0 0, 0 0 0 |
7 4, 4 1 5 |
- | 9 7 4, 4 1 5 |
| 2 0 0 9 |
4 0 5, 0 0 0 |
1 7 5, 0 0 0 |
- | 9 5, 0 0 0 |
1 7 5, 0 0 0 |
( ) 6 0, 6 2 5 |
- | 7 8 9, 3 7 5 |
| Cr ig D M i he l l tc a |
||||||||
| 2 0 1 0 |
5 3 5, 5 3 9 |
4 0 0, 0 0 0 |
- | 1 4, 4 6 1 |
4 0 0, 0 0 0 |
4 0, 5 2 8 |
- | 1, 3 9 0, 5 2 8 |
| 2 0 0 9 |
0 0, 0 0 0 5 |
3 2 0 0 0 5, |
- | 0, 0 0 0 5 |
3 2 0 0 0 5, |
( 6 0, 6 2 ) 5 |
- | 1, 1 3 9, 3 7 5 |
| Pa l G Sa u y |
||||||||
| 2 0 1 0 |
4 8 5, 5 3 9 |
2 5 0, 0 0 0 |
- | 1 4, 4 6 1 |
2 5 0, 0 0 0 |
3 0, 5 6 5 |
- | 1, 0 3 0, 5 6 5 |
| 2 0 0 9 |
4 8 6, 2 5 5 |
2 0 0, 0 0 0 |
- | 1 3, 7 4 5 |
2 0 0, 0 0 0 |
( 6 0, 6 2 5 ) |
- | 8 3 9, 3 7 5 |
| Ma k F Tu r rn er |
||||||||
| 2 0 1 0 |
4 0 1, 3 3 9 |
1 4 0, 0 0 0 |
- | 4 8, 6 6 1 |
1 4 0, 0 0 0 |
8 8, 4 7 3 |
- | 8 1 8, 4 7 3 |
| 2 0 0 9 |
4 0 0, 0 1 5 |
1 3 5, 0 0 0 |
- | 4 9, 9 8 5 |
1 3 5, 0 0 0 |
( ) 1 0 3, 6 3 5 |
- | 6 1 6, 3 6 5 |
| An dr P W h i i de tes ew |
||||||||
| 2 0 1 0 |
4 6 0, 5 3 9 |
2 2 5, 0 0 0 |
- | 1 4, 4 6 1 |
2 2 5, 0 0 0 |
1 6, 6 1 0 |
- | 9 4 1, 6 1 0 |
| 2 0 0 9 |
4 6 1, 2 5 5 |
1 3 5, 0 0 0 |
- | 1 3, 7 4 5 |
1 3 5, 0 0 0 |
( ) 2 4, 2 5 0 |
- | 7 2 0, 7 5 0 |
| T O T A L |
||||||||
| 2 0 1 0 |
4, 9 6 9, 4 3 9 |
2, 9 4 8, 0 0 0 |
1 2 3, 1 0 7 |
2 1 1, 8 1 0 |
3, 0 5 0, 0 0 0 |
4 5 5 3 7 7, |
- | 1 2, 0 4 9, 9 0 9 |
| 2 0 0 9 |
4, 7 5 6, 7 1 0 |
2, 2 7 1, 0 0 0 |
- | 4 2 9, 6 2 4 |
2, 3 9 9, 0 0 0 |
( 8 8 9, 0 7 1 ) |
- | 8, 9 6 7, 2 6 3 |
1Patricia A Daniels actual remuneration received is for a four day week. 2
This is the DDPP allocation for the current year which is deferred for three years as described on page 64. 3 This is the notional change in value of all unvested DDPP allocations from prior year. 4
Other short-term benefits include expatriate assignment benefits such as relocation and housing allowances, relocation consultant assistance, health insurance premiums and associated taxes on these benefits.
DEXUS INDUSTRIAL TRUST Page 64 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
Deferred Performance Payments
The table below sets out details of previous DDPP allocations and current valuations.
| Name | Year of | DDPP | Movement in | Closing | Movement In | Vested DDPP | Year that |
|---|---|---|---|---|---|---|---|
| Grant | Allocation | DDPP | DDPP | DDPP | as at | DDPP | |
| Value | Allocation | Allocation | Allocation | 30 June 2010 | will Vest | ||
| Value (Since Grant |
Value as at 30 June 2010 |
Value at Vesting Date |
|||||
| Date) | (Due to | ||||||
| Performance | |||||||
| Multiplier) | |||||||
| (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | |
| Victor P Hoog Antink | 2010 | 1,200,000 | - | - | - | - | 2013 |
| 2009 | 915,000 | 72,926 | 987,926 | - | - | 2012 | |
| 2008 | 900,000 | (165,600) | 734,400 | - | - | 2011 | |
| 2007 | 650,000 | (142,285) | - | 203,086 | 710,801 | 2010 | |
| Tanya L Cox | 2010 2009 |
180,000 150,000 |
- 11,955 |
- 161,955 |
- - |
- - |
2013 2012 |
| 2008 | 175,000 | (32,200) | 142,800 | - | - | 2011 | |
| 2007 | 110,000 | (24,079) | - | 34,368 | 120,289 | 2010 | |
| Patricia A Daniels | 2010 | 104,000 | - | - | - | - | 2013 |
| 2009 | 90,000 | 7,173 | 97,173 | - | - | 2012 | |
| 2008 | 100,000 | (18,400) | 81,600 | - | - | 2011 | |
| John C Easy | 2010 | 188,000 | - | - | - | - | 2013 |
| 2009 | 162,000 | 12,911 | 174,911 | - | - | 2012 | |
| 2008 | 120,000 | (22,080) | 97,920 | - | - | 2011 | |
| 2007 | 75,000 | (16,418) | - | 23,433 | 82,015 | 2010 | |
| Jane Lloyd 1 | 2010 | 163,000 | - | - | - | - | 2013 |
| 2009 | 112,000 | 8,926 | 120,926 | - | - | 2012 | |
| 2008 | - | - | - | - | - | 2011 | |
| 2007 | 20,000 | (4,378) | - | 6,249 | 21,871 | 2010 | |
| Louise J Martin 2 | 2010 | 200,000 | - | - | - | - | 2013 |
| 2009 | 175,000 | 13,948 | 188,948 | - | - | 2012 | |
| 2008 | 250,000 | (46,000) | 204,000 | - | - | 2011 | |
| 2007 | 125,000 | (27,636) | - | 39,054 | 136,688 | 2010 | |
| Craig D Mitchell | 2010 | 400,000 | - | - | - | - | 2013 |
| 2009 | 325,000 | 25,903 | 350,903 | - | - | 2012 | |
| 2008 | 250,000 | (46,000) | 204,000 | - | - | 2011 | |
| Paul G Say | 2010 | 250,000 | - | - | - | - | 2013 |
| 2009 | 200,000 | 15,940 | 215,940 | - | - | 2012 | |
| 2008 | 250,000 | (46,000) | 204,000 | - | - | 2011 | |
| Mark F Turner | 2010 | 140,000 | - | - | - | - | 2013 |
| 2009 | 135,000 | 10,760 | 145,760 | - | - | 2012 | |
| 2008 | 200,000 | (36,800) | 163,200 | - | - | 2011 | |
| 2007 | 180,000 | (39,402) | - | 56,239 | 196,837 | 2010 | |
| Andrew P Whiteside | 2010 | 225,000 | - | - | - | - | 2013 |
| 2009 | 135,000 | 10,760 | 145,760 | - | - | 2012 | |
| 2008 | 100,000 | (18,400) | 81,600 | - | - | 2011 |
1 Jane Lloyd qualified as a KMP on 14 July 2008. 2
Louise J Martin qualified as a KMP on 27 March 2008.
DEXUS INDUSTRIAL TRUST Page 65 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
Non-Executive Director board and committee fees
Board and Committee fees paid to Non-Executive Directors for the years ended 30 June 2009 and 30 June 2010 are set out in the table below. Note: In 2009/10 two additional paid Board members were in place for the full twelve months to 30 June 2010, compared to only two months the preceding year.
| Directors Fees |
Committee Fees | Total Cash Salary and Fees |
||||||
|---|---|---|---|---|---|---|---|---|
| Name | Board | DWPL | Board Audit |
Board Risk |
Board Compliance |
Board Nom & Rem |
Board Finance |
|
| (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | |
| Christopher T Beare | ||||||||
| 2010 | 300,000 | - | - | - | - | - | - | 300,000 |
| 2009 | 300,000 | - | - | - | - | - | - | 300,000 |
| Elizabeth A Alexander AM1 | ||||||||
| 2010 | 130,000 | 17,500 | 8,750 | 8,750 | - | - | - | 165,000 |
| 2009 | 130,000 | - | 15,000 | 15,000 | 6,250 | - | 6,250 | 172,500 |
| Barry R Brownjohn 2 | ||||||||
| 2010 | 130,000 | - | 13,750 | 13,750 | - | - | 8,750 | 166,250 |
| 2009 | 130,000 | - | 7,500 | 7,500 | - | - | 15,000 | 160,000 |
| John C Conde AO 3 | ||||||||
| 2010 | 130,000 | - | - | - | 7,500 | 13,750 | - | 151,250 |
| 2009 | 22,652 | - | - | - | 1,250 | 1,250 | - | 25,152 |
| Stewart F Ewen OAM | ||||||||
| 2010 | 130,000 | - | - | - | - | 7,500 | - | 137,500 |
| 2009 | 130,000 | - | - | - | - | 7,500 | - | 137,500 |
| Charles B Leitner III 4 | ||||||||
| 2010 | - | - | - | - | - | - | - | - |
| 2009 | - | - | - | - | - | - | - | - |
| Brian E Scullin 5 | ||||||||
| 2010 | 130,000 | 25,000 | - | - | 15,000 | 1,250 | - | 171,250 |
| 2009 | 130,000 | 30,000 | 6,250 | 6,250 | 15,000 | 7,500 | - | 195,000 |
| Peter B St. George 6 | ||||||||
| 2010 | 130,000 | - | 7,500 | 7,500 | - | - | 13,750 | 158,750 |
| 2009 | 22,652 | - | 1,250 | 1,250 | - | - | 1,250 | 26,402 |
| Total | ||||||||
| 2010 | 1,080,000 | 42,500 | 30,000 | 30,000 | 22,500 | 22,500 | 22,500 | 1,250,000 |
| 2009 | 865,304 | 30,000 | 30,000 | 30,000 | 22,500 | 16,250 | 22,500 | 1,016,554 |
1 Elizabeth A Alexander became a member of the Board Audit and Board Risk Committees on 1 September 2009. Elizabeth was previously the Chair of both Committees. Elizabeth became a Director of the DWPL Board on 1 September 2009 and became Chair of that Board on
1 March 2010. 2 Barry R Brownjohn became a member of the Board Finance Committee on 1 September 2009. Barry was previously the Chair of that Committee. Barry became Chair of the Board Audit and Board Risk Committees on 1 September 2009. Barry was previously a member of
both Committees. 3 John C Conde became Chair of the Board Nomination and Remuneration Committee on 1 September 2009. John was previously a
member of that Committee. 4 As an employee of the Deutsche Bank group, Mr Leitner waived his right to receive Director's fees. Accordingly, Mr Leitner's Alternate Director, Mr Fay did not receive Director's fees when acting as his alternate. Mr Leitner ceased to be a Non-Executive Director on 29 April 2009. Accordingly, Mr Fay ceased to be Mr Leitner's Alternate Director on 29 April 2009. 5
Brian Scullin ceased to be a member of the Board Nomination and Remuneration Committee on 31 August 2009. Brian became a Director of the DWPL Board on 1 March 2010. Brian was previously Chair of the DWPL Board. 6 Peter B St George became Chair of the Board Finance Committee on 1 September 2009. Peter was previously a member of that
Committee.
DEXUS INDUSTRIAL TRUST Page 66 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Related parties (continued)
All Non-Executive Directors also receive reimbursement for reasonable travel, accommodation and other expenses incurred whilst undertaking DEXUS business.
The Chief Executive Officer, Victor P Hoog Antink, does not receive fees in respect of his role as a Director, but does receive remuneration as a Senior Executive of the DEXUS Property Group.
Commencing 1 April 2009 Mr Ewen earned a fixed fee of \$30,000 per annum, in addition to his Director's fee, as compensation for the added responsibilities assumed in attending property inspections, reviewing property investment proposals and participating in informal management meetings.
Non-Executive Director Remuneration
Details of the structure and quantum of each component of remuneration for each Non-Executive Director for the years ended 30 June 2009 and 30 June 2010 are set out in the following table.
| Name | Short Term Employee Benefits |
Post Employment Benefits1 |
Other Long Term Benefits |
Total |
|---|---|---|---|---|
| (\$) | (\$) | (\$) | (\$) | |
| Christopher T Beare | ||||
| 2010 | 285,539 | 14,461 | - | 300,000 |
| 2009 | 286,255 | 13,745 | - | 300,000 |
| Elizabeth A Alexander AM | ||||
| 2010 | 151,376 | 13,624 | - | 165,000 |
| 2009 | 157,844 | 14,656 | - | 172,500 |
| Barry R Brownjohn | ||||
| 2010 | 152,523 | 13,727 | - | 166,250 |
| 2009 | 146,789 | 13,211 | - | 160,000 |
| John C Conde AO | ||||
| 2010 | 138,761 | 12,489 | - | 151,250 |
| 2009 | 23,075 | 2,077 | - | 25,152 |
| Stewart F Ewen OAM | ||||
| 2010 | 102,700 | 34,800 | - | 137,500 |
| 2009 | 63,073 | 74,427 | - | 137,500 |
| Brian E Scullin | ||||
| 2010 | 157,211 | 14,039 | - | 171,250 |
| 2009 | 181,255 | 13,745 | - | 195,000 |
| Peter B St George | ||||
| 2010 | 145,642 | 13,108 | - | 158,750 |
| 2009 | 24,222 | 2,180 | - | 26,402 |
| Total 2010 |
1,133,752 | 116,248 | - | 1,250,000 |
| Total 2009 |
882,513 | 134,041 | - | 1,016,554 |
1 Post-employment benefits represent compulsory and salary sacrificed superannuation benefits.
DEXUS INDUSTRIAL TRUST Page 67 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 31. Operating Segments
The Chief Operating Decision Maker (CODM) has been identified as the Board of Directors of DXFM as they are responsible for the strategic decision making for the Group. The Group's operating segments have been identified based on the segments analysed within the management reports reviewed by the CODM in order to monitor performance across the Group and to appropriately allocate resources. The operating segments of the Group have been identified as follows:
| Office - Australia and New Zealand | This operating segment comprises office space with any associated retail space; as well as car-parks and office developments in Australia and New Zealand. |
|---|---|
| Industrial - Australia | This operating segment comprises domestic industrial properties, industrial estates and industrial developments. |
| Industrial - North America | This comprises industrial properties, industrial estates and industrial developments in the United States as well as one industrial asset in Canada. |
| Management Company | The domestic and US based management companies are responsible for asset, property and development management of Office, Industrial and Retail properties for DXS and the third party funds management business. |
| Financial Services | The treasury function of DXS is managed through a centralised treasury department. As a result, all treasury related financial information relating to borrowings, finance costs as well as fair value movements in derivatives, are prepared and monitored separately. |
| All other segments | This comprises the European industrial and retail portfolios. These operating segments do not meet the quantitative thresholds set out in AASB 8 Operating Segments due to their relatively small scale. As a result these non-core operating segments have been included in 'all other segments' in the operating segment information. |
Consistent with how the CODM manages the business, the operating segments within the Group are reviewed on a consolidated basis and are not monitored at an individual trust level. The results of the individual trusts are not limited to any one of the segments described above.
Disclosures concerning the Group's operating segments as well as the operating segments key financial information provided to the CODM are presented in the Group's Financial Statements.
DEXUS INDUSTRIAL TRUST Page 68 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 32. Reconciliation of net loss to net cash inflow from operating activities
Reconciliation
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Net loss | (96,698) | (696,312) | (103,988) | (639,616) |
| Capitalised interest | (6,073) | (5,364) | (6,073) | (5,364) |
| Net fair value loss of investment properties | 24,581 | 360,663 | 22,980 | 114,371 |
| Net fair value loss of investments | - | - | 73,832 | 329,585 |
| Share of net losses of associates accounted for using | ||||
| the equity method | 59,285 | 245,448 | - | - |
| Net fair value (loss)/gain of derivatives | (3,704) | 14,763 | (3,704) | 14,763 |
| Net loss on sale of investment properties | 1,535 | 654 | 612 | - |
| Net foreign exchange (gain)/loss | (1,390) | (1,654) | (1,390) | 158,215 |
| Net fair value loss of interest rate swaps | 22,455 | - | 21,951 | - |
| Change in operating assets and liabilities | ||||
| Decrease in receivables | 9,431 | 10,158 | 7,542 | 10,724 |
| Increase in other current assets | (143) | (15,145) | (143) | (15,146) |
| Decrease/(increase) in prepaid expenses | 398 | (1,109) | 459 | (855) |
| Decrease/(increase) in other non-current assets | 2,643 | (10,215) | 99 | (61) |
| Increase in payables | 13,324 | 15,859 | 1,326 | 8,485 |
| Increase in current liabilities | - | 125,171 | - | 125,171 |
| Increase in non-current liabilities | 51,124 | 66,724 | 57,791 | 37,413 |
| Net cash inflow from operating activities | 76,768 | 109,641 | 71,294 | 137,685 |
Note 33. Non-cash financing and investing activities
| Note | Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|---|
| 2010 \$'000 |
2009 \$'000 |
2010 \$'000 |
2009 \$'000 |
|||
| Distributions reinvested | 24 | - | 19,682 | - | 19,682 |
DEXUS INDUSTRIAL TRUST Page 69 of 72 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 34. Earnings per unit
(a) Basic earnings per unit on loss attributable to unitholders
| Consolidated | ||
|---|---|---|
| 2010 | 2009 | |
| cents | cents | |
| (2.03) | (18.79) | |
| (b) Diluted earnings per unit on loss attributable to unitholders | ||
| Consolidated | ||
| 2010 | 2009 | |
| cents | cents | |
| (2.03) | (18.79) | |
| (c) Reconciliation of earnings used in calculating earnings per unit | ||
| Consolidated | ||
| 2010 | 2009 | |
| \$'000 | \$'000 | |
| Net loss | (96,698) | (696,312) |
| Net loss attributable to the unitholders of the Trust used in | ||
| calculating basic and diluted earnings per unit | (96,698) | (696,312) |
| (d) Weighted average number of units used as a denominator | ||
| Consolidated | ||
2010 2009 units units
FINANCIAL STATEMENTS DEXUS OFFICE TRUST
(ARSN 090 768 531)
30 JUNE 2010
| Contents | Page |
|---|---|
| Directors' Report | 1 |
| Auditor's Independence Declaration | 7 |
| Statements of Comprehensive Income | 8 |
| Statements of Financial Position | 9 |
| Statements of Changes in Equity | 10 |
| Statements of Cash Flows | 12 |
| Notes to the Financial Statements | 13 |
| Directors' Declaration | 67 |
| Independent Auditor's Report | 68 |
DEXUS Property Group (DXS) (ASX Code: DXS), consists of DEXUS Diversified Trust (DDF), DEXUS Industrial Trust (DIT), DEXUS Office Trust (DOT), and DEXUS Operations Trust (DXO), collectively known as DXS or the Group.
Under Australian Accounting Standards, DDF has been deemed the parent entity for accounting purposes. Therefore the DDF consolidated Financial Statements include all entities forming part of DXS. The DDF consolidated Financial Statements are presented in separate Financial Statements.
All press releases, Financial Statements and other information are available on our website: www.dexus.com
DEXUS OFFICE TRUST Page 1 of 69 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2010
The Directors of DEXUS Funds Management Limited (DXFM) as Responsible Entity of DEXUS Office Trust and its consolidated entities (DOT or the Trust) present their Directors' Report together with the consolidated Financial Statements for the year ended 30 June 2010.
The Trust together with DEXUS Diversified Trust (DDF), DEXUS Industrial Trust (DIT) and DEXUS Operations Trust (DXO) form the DEXUS Property Group (DXS or the Group) stapled security.
1. Directors and Secretaries
1.1 Directors
The following persons were Directors of DXFM at all times during the year and to the date of this Directors' report:
| Directors | Appointed |
|---|---|
| Christopher T Beare | 4 August 2004 |
| Elizabeth A Alexander AM | 1 January 2005 |
| Barry R Brownjohn | 1 January 2005 |
| John C Conde AO | 29 April 2009 |
| Stewart F Ewen OAM | 4 August 2004 |
| Victor P Hoog Antink | 1 October 2004 |
| Brian E Scullin | 1 January 2005 |
| Peter B St George | 29 April 2009 |
Particulars of the qualifications, experience and special responsibilities of Directors at the date of this Directors' Report are set out in the Directors section of the DEXUS Property Group Annual Report and form part of this Directors' Report.
1.2 Company Secretaries
The names and details of the Company Secretaries of DXFM as at 30 June 2010 are as follows:
Tanya L Cox MBA MAICD FCIS (Company Secretary)
Appointed: 1 October 2004
Tanya is the Chief Operating Officer and Company Secretary of DXFM and is responsible for the delivery of company secretarial, operational, information technology, communications and administration services, as well as operational risk management systems and practices across the Group. Prior to joining DXS in July 2003, Tanya held various general management positions over the past 16 years, including Director and Chief Operating Officer of NM Rothschild & Sons (Australia) Ltd and General Manager – Finance, Operations and IT for Bank of New Zealand (Australia). Tanya is Chair of the Property Council of Australia National Risk Committee and is a non-executive director of a number of not-for-profit organisations. Tanya is a member of the Australian Institute of Company Directors and a fellow of the Institute of Chartered Secretaries and Administrators (ICSA) and Chartered Secretaries Australia (CSA). Tanya has an MBA from the Australian Graduate School of Management and a Graduate Diploma in Applied Corporate Governance.
Tanya is Chief Operating Officer and Company Secretary of DXFM, DEXUS Holdings Pty Limited (DXH) and DEXUS Wholesale Property Limited (DWPL) and is a member of the Board Compliance Committee.
DEXUS OFFICE TRUST Page 2 of 69 DIRECTORS' REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2010
1.2 Company Secretaries (continued)
John C Easy B Comm LLB ACIS (Company Secretary)
Appointed: 1 July 2005
John is the General Counsel and Company Secretary of DXFM. During his time with the Group he has been involved in the establishment and public listing of the Deutsche Office Trust, the AXA acquisition of the Paladin and AXA property portfolios, and subsequent stapling and creation of DXS. Prior to joining DXS in November 1997, John was employed as a senior associate in the commercial property/funds management practices of law firms Allens Arthur Robinson and Gilbert & Tobin. John graduated from the University of New South Wales with Bachelor of Law and Bachelor of Commerce (Major in Economics) degrees. He is a member of Chartered Secretaries Australia and holds a Graduate Diploma in Applied Corporate Governance.
John is General Counsel and Company Secretary for DXFM, DXH and DWPL and is a member of the Board Compliance Committee.
2. Attendance of Directors at Board meetings and Board Committee meetings
The number of Directors' meetings held during the year and each Director's attendance at those meetings is set out in the table below.
The Directors met thirteen times during the year. Ten Board meetings were main meetings, three meetings were held to consider specific business. While the Board continuously considers strategy, in March 2010 it met with the executive and senior management team over three days to consider DXS's strategic plans.
| Main meetings held |
Main meetings attended |
Specific meetings held |
Specific meetings attended |
|
|---|---|---|---|---|
| Christopher T Beare | 10 | 10 | 3 | 3 |
| Elizabeth A Alexander AM | 10 | 10 | 3 | 3 |
| Barry R Brownjohn | 10 | 10 | 3 | 3 |
| John C Conde AO | 10 | 10 | 3 | 3 |
| Stewart F Ewen OAM | 10 | 10 | 3 | 3 |
| Victor P Hoog Antink | 10 | 10 | 3 | 3 |
| Brian E Scullin | 10 | 10 | 3 | 3 |
| Peter B St George | 10 | 9 | 3 | 3 |
Special meetings are held at a time to enable the maximum number of Directors to attend and are generally held to consider specific items that cannot be held over to the next scheduled main meeting.
The table below sets out the number of Board Committee meetings held during the year for the Committees in place at the end of the year and each Directors' attendance at those meetings.
| Board Risk and Board Audit Sustainability Committee2 Committee |
Board Compliance Committee |
Board Nomination and Remuneration Committee |
Board Finance Committee |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Held | Attended | Held | Attended | Held | Attended | Held | Attended | Held | Attended | |
| Christopher T Beare | - | - | - | - | - | - | 5 | 5 | 5 | 5 |
| Elizabeth A Alexander AM | 7 | 7 | 4 | 4 | 4 | 4 | - | - | - | - |
| Barry R Brownjohn | 7 | 7 | 4 | 4 | - | - | - | - | 5 | 5 |
| John C Conde AO | - | - | - | - | 4 | 4 | 5 | 5 | - | - |
| Stewart F Ewen OAM | - | - | - | - | - | - | 5 | 5 | - | - |
| Victor P Hoog Antink | - | - | - | - | - | - | - | - | - | - |
| Brian E Scullin 1 | - | - | - | - | 4 | 4 | 1 | 1 | - | - |
| Peter B St George | 7 | 7 | 4 | 4 | - | - | - | - | 5 | 5 |
1 Nomination and Remuneration Committee member from 1 July 2009 to 31 August 2009 2
Name changed from Board Risk Committee on 2 June 2010.
DEXUS OFFICE TRUST Page 3 of 69 DIRECTORS' REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2010
3. Directors' interests
The Board's policy on insider trading and trading in DXS securities or securities in any of the funds managed by DXS by any Directors or employee is outlined in the Corporate Governance Statement in the DEXUS Property Group Annual Report.
While the trading policy described in the Corporate Governance Statement applies to Directors and Senior Executives, the Board has determined that Directors will not trade in any security managed by DXS.
Directors have made this decision because the Board of DXFM has responsibility for the Group itself as well as the third party business. Directors are obliged to act in the best interests of each group of investors independently of each other. Therefore, to minimise the appearance of conflict that may arise by being a Director of multiple funds, the Directors have determined that they will not invest in any fund managed by the Group including DXS. This position is periodically reviewed by the Board.
As a direct result of the Group's policy regarding Directors holding DXS securities, or securities in any of the funds managed by the Group, as at the date of this Directors' Report no Director directly or indirectly held:
- DXS securities; or
- Options over, or any other contractual interest in, DXS securities; or
- An interest in any other fund managed by DXFM or any other entity that forms part of the Group.
4. Directors' directorships in other listed entities
The following table sets out directorships of other listed entities, not including DXFM, held by the Directors at any time in the three years immediately prior to the end of the year, and the period for which each directorship was held:
| Directors | Company | Date appointed | Date resigned or ceased being a Director of a listed entity |
|---|---|---|---|
| Christopher T Beare | MNet Group Limited | 6 November 2009 | |
| Elizabeth A Alexander AM | CSL Limited | 12 July 1991 | |
| Boral Limited | 15 December 1999 | 24 October 2008 | |
| John C Conde AO | Whitehaven Coal Limited | 3 May 2007 | |
| Brian E Scullin | SPARK Infrastructure RE Limited | 1 November 2005 | 24 August 2007 |
| BT Investment Management Limited | 17 September 2007 | ||
| Peter B St George | Boart Longyear Limited | 21 February 2007 | |
| SPARK Infrastructure RE Limited1 | 8 November 2005 | 31 December 2008 | |
| First Quantum Minerals Limited2 | 20 October 2003 |
1 SPARK Infrastructure RE Limited has issued ASX listed stapled securities trading as SPARK Infrastructure Group (ASX:SKI). 2
Listed for trading on the Toronto Stock Exchange in Canada and the London Stock Exchange in the United Kingdom.
5. Principal activities
During the year the principal activity of the Trust was investment in real estate assets. There were no significant changes in the nature of the Trust's activities during the year.
6. Total value of trust assets
The total value of the assets of the Trust as at 30 June 2010 was \$3,105.6 million (2009: \$3,066.8 million). Details of the basis of this valuation are outlined in note 1 of the Notes to the Financial Statements and form part of this Directors' Report.
7. Review and results of operations
A review of the results and operations of the Group, which DOT forms part thereof, is set out in the Chief Executive Officer's Report of the DEXUS Property Group 2010 Security Holder Review and forms part of this Directors' Report.
8. Likely developments and expected results of operations
In the opinion of the Directors, disclosure of any further information regarding business strategies and the future developments or results of the Trust, other than the information already outlined in this Directors' Report or the Financial Statements accompanying this Directors' Report would be unreasonably prejudicial to the Trust.
DEXUS OFFICE TRUST Page 4 of 69 DIRECTORS' REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2010
9. Significant changes in the state of affairs
The Directors are not aware of any matter or circumstance, not otherwise dealt with in this Directors' Report or the Financial Statements that has significantly or may significantly affect the operations of the Trust, the results of those operations, or the state of the Trust's affairs in future financial years.
10. Matters subsequent to the end of the financial year
Since the end of the financial year the Directors are not aware of any matter or circumstance not otherwise dealt with in this Directors' Report or the Financial Statements that has significantly or may significantly affect the operations of the Trust, the results of those operations, or the state of the Trust's affairs in future financial years.
11. Distributions
Distributions paid or payable by the Trust for the year ended 30 June 2010 are outlined in note 24 of the Notes to the Financial Statements and form part of this Directors' Report.
12. DXFM's fees and associate interests
Details of fees paid or payable by the Trust to DXFM for the year ended 30 June 2010 are outlined in note 28 of the Notes to the Financial Statements and form part of this Directors' Report.
The number of interests in the Trust held by DXFM or its associates as at the end of the financial year were nil (2009: nil).
13. Units on issue
The movement in units on issue in the Trust during the year and the number of units on issue as at 30 June 2010 are detailed in note 21 of the Notes to the Financial Statements and form part of this Directors' Report.
14. Environmental regulation
DXS senior management, through its Board Risk and Sustainability Committee, oversee the policies, procedures and systems that have been implemented to ensure the adequacy of its environmental risk management practices. It is the opinion of this Committee that adequate systems are in place for the management of its environmental responsibilities and compliance with its various licence requirements and regulations. Further, the Committee is not aware of any breaches of these requirements and to the best of its knowledge all activities have been undertaken in compliance with environmental requirements.
15. Indemnification and insurance
The insurance premium for a policy of insurance indemnifying Directors, officers and others (as defined in the relevant policy of insurance) is paid by DXH.
The Auditor, PricewaterhouseCoopers (PwC), is indemnified out of the assets of the Trust pursuant to the DEXUS specific Terms of Business agreed for all engagements with PwC, to the extent that the Trust inappropriately uses or discloses a report prepared by PwC. The Auditor, PwC, is not indemnified for the provision of services where such an indemnification is prohibited by the Corporations Act 2001.
16. Audit
16.1 Auditor
PricewaterhouseCoopers (PwC or the Auditor) continues in office in accordance with section 327 of the Corporations Act 2001.
16.2 Non-audit services
The Trust may decide to employ the Auditor on assignments additional to their statutory audit duties where the Auditors expertise and experience with the Trust and/or DXS are important.
Details of the amounts paid or payable to the Auditor, for audit and non-audit services provided during the year are set out in note 6 of the Notes to the Financial Statements.
The Board Audit Committee is satisfied that the provision of non-audit services provided during the year by the Auditor (or by another person or firm on the Auditor's behalf) is compatible with the standard of independence for auditors imposed by the Corporations Act 2001.
DEXUS OFFICE TRUST Page 5 of 69 DIRECTORS' REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2010
16. Audit (continued)
16.2 Non-audit services (continued)
The reasons for the Directors being satisfied are:
- A Charter of Audit Independence was adopted during the year that provides guidelines under which the Auditor may be engaged to provide non-audit services without impairing the Auditor's objectivity or independence.
- The Charter states that the Auditor will not provide services where the Auditor may be required to review or audit its own work, including:
- the preparation of tax provisions, accounting records and financial statements;
- the design, implementation and operation of information technology systems;
- the design and implementation of internal accounting and risk management controls;
- conducting valuation, actuarial or legal services;
- consultancy services that include direct involvement in management decision making functions;
- investment banking, borrowing, dealing or advisory services;
- acting as trustee, executor or administrator of trust or estate;
- prospectus independent expert reports and being a member of the due diligence committee; and
- providing internal audit services.
- Board Audit Committee regularly reviews the performance and independence of the Auditor and whether the independence of this function has been maintained having regard to the provision of non-audit services. The Auditor has provided a written declaration to the Board regarding its independence at each reporting period and Board Audit Committee approval is required before the engagement of the Auditor to perform any non-audit service for a fee in excess of \$100,000.
The above Directors' statements are in accordance with the advice received from the Board Audit Committee.
16.3 Auditor's independence declaration
A copy of the Auditor's Independence Declaration as required under section 307C of the Corporations Act 2001 is set out in the Financial Statements and forms part of this Directors' Report.
17. Corporate governance
DXFM's Corporate Governance Statement is set out in a separate section of the DEXUS Property Group Annual Report and forms part of this Directors' Report.
18. Rounding of amounts and currency
The Trust is a registered scheme of the kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission, relating to the "rounding off" of amounts in this Directors' Report and the Financial Statements. Amounts in this Directors' Report and Financial Statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, unless otherwise indicated. All figures in this Directors' Report and the Financial Statements, except where otherwise stated, are expressed in Australian dollars.
19. Presentation of parent entity Financial Statements
The Trust is a registered scheme of the kind referred to in Class Order 10/654, issued by the Australian Securities & Investments Commission, relating to the inclusion of parent entity Financial Statements in the consolidated Financial Statements. The Class Order provides relief from the Corporations Amendment (Corporate Reporting Reform) Act 2010 and the Trust continues to present the parent entity Financial Statements in the consolidated Financial Statements in accordance with that Class Order.
20. Management representation
The Chief Executive Officer and Chief Financial Officer have reviewed the Trust's financial reporting processes, policies and procedures together with its risk management and internal control and compliance policies and procedures. Following that review it is their opinion that the Trust's financial records for the financial year have been properly maintained in accordance with the Corporations Act 2001 and the Financial Statements and their notes comply with the accounting standards and give a true and fair view.
DEXUS OFFICE TRUST Page 8 of 69 STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Notes | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Revenue from ordinary activities | |||||
| Property revenue | 2 | 247,993 | 241,389 | 161,202 | 151,465 |
| Distribution revenue | - | - | 55,391 | 53,999 | |
| Interest revenue | 3 | 301 | 631 | 7,360 | 8,737 |
| Total revenue from ordinary activities | 248,294 | 242,020 | 223,953 | 214,201 | |
| Net fair value gain of investment properties | 7,297 | - | 30,707 | - | |
| Net foreign exchange gain | 120 | 354 | 110 | 410 | |
| Other income | 3 | 82 | 3 | 82 | |
| Total income | 255,714 | 242,456 | 254,773 | 214,693 | |
| Expenses | |||||
| Property expenses | (66,692) | (63,642) | (40,496) | (38,342) | |
| Responsible Entity fees | 28 | (8,998) | (10,167) | (6,362) | (7,118) |
| Finance costs | 4 | (25,234) | (98,516) | (31,453) | (104,670) |
| Share of net (losses)/profits of associates accounted for using | |||||
| the equity method | 15 | (26,243) | 31 | - | - |
| Net loss on sale of investment | (15) | (534) | - | - | |
| Net fair value loss of investment properties | - | (449,463) | - | (323,528) | |
| Net fair value loss of investment | - | - | (56,962) | (144,697) | |
| Net fair value loss of derivatives | (77) | (693) | (77) | (693) | |
| Impairment | - | (11,413) | - | - | |
| Other expenses | 5 | (2,095) | (1,813) | (1,855) | (1,587) |
| Total expenses | (129,354) | (636,210) | (137,205) | (620,635) | |
| Profit/(loss) before tax | 126,360 | (393,754) | 117,568 | (405,942) | |
| Other comprehensive income: | |||||
| Exchange differences on translating foreign operations | 1,163 | 2,069 | - | - | |
| Total comprehensive income/(loss) for the year | 127,523 | (391,685) | 117,568 | (405,942) | |
| Net profit/(loss) for the year attributable to: | |||||
| Unitholders of DEXUS Office Trust | 124,728 | (397,449) | 117,568 | (405,942) | |
| Non-controlling interests | 1,632 | 3,695 | - | - | |
| Net profit/(loss) for the year | 126,360 | (393,754) | 117,568 | (405,942) | |
| Total comprehensive income/(loss) for the year attributable to: | |||||
| Unitholders of DEXUS Office Trust | 125,891 | (395,380) | 117,568 | (405,942) | |
| Non-controlling interests | 1,632 | 3,695 | - | - | |
| Total comprehensive income/(loss) for the year | 127,523 | (391,685) | 117,568 | (405,942) | |
| Earnings per unit | Cents | Cents | |||
| Basic earnings per unit on profit/(loss) attributable to | |||||
| unitholders | 32 | 0.26 | (10.73) | ||
| Diluted earnings per unit on profit/(loss) attributable to | |||||
| unitholders | 32 | 0.26 | (10.73) |
DEXUS OFFICE TRUST Page 9 of 69 STATEMENTS OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2010
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Notes | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Current assets | |||||
| Cash and cash equivalents | 7 | 8,766 | 8,289 | 3,192 | 3,728 |
| Receivables | 8 | 3,737 | 6,714 | 2,520 | 5,090 |
| Loans with related parties | 9 | - | - | 311,800 | 262,153 |
| Derivative financial instruments | 10 | 46 | 163 | 46 | 163 |
| Other | 11 | 3,462 | 2,702 | 2,076 | 1,851 |
| Total current assets | 16,011 | 17,868 | 319,634 | 272,985 | |
| Non-current assets | |||||
| Investment properties | 12 | 2,939,511 | 2,891,603 | 2,032,323 | 1,992,000 |
| Property, plant and equipment | 13 | - | 18,150 | - | - |
| Derivative financial instruments | 10 | 6,064 | 13,622 | 6,064 | 13,622 |
| Other financial assets at fair value through profit and loss | 14 | - | - | 453,948 | 510,910 |
| Investments accounted for using the equity method | 15 | 93,344 | 84,165 | - | - |
| Loans with related parties | 9 | 49,637 | 41,049 | 49,637 | 41,049 |
| Other | 16 | 997 | 385 | 685 | 363 |
| Total non-current assets | 3,089,553 | 3,048,974 | 2,542,657 | 2,557,944 | |
| Total assets | 3,105,564 | 3,066,842 | 2,862,291 | 2,830,929 | |
| Current liabilities | |||||
| Payables | 17 | 41,782 | 27,690 | 24,927 | 18,541 |
| Loans with related parties | 9 | 55,684 | 55,684 | 55,684 | 55,684 |
| Provisions | 19 | 52,225 | 74,141 | 52,225 | 74,141 |
| Derivative financial instruments | 10 | 1,083 | 724 | 1,083 | 724 |
| Total current liabilities | 150,774 | 158,239 | 133,919 | 149,090 | |
| Non-current liabilities | |||||
| Interest bearing liabilities | 18 | 248,618 | 248,038 | - | - |
| Loans with related parties | 9 | - | - | 248,618 | 248,038 |
| Derivative financial instruments | 10 | 21,083 | 23,301 | 21,083 | 23,301 |
| Other | 20 | 708 | 96 | 685 | 74 |
| Total non-current liabilities | 270,409 | 271,435 | 270,386 | 271,413 | |
| Total liabilities | 421,183 | 429,674 | 404,305 | 420,503 | |
| Net assets | 2,684,381 | 2,637,168 | 2,457,986 | 2,410,426 | |
| Equity | |||||
| Contributed equity | 21 | 2,056,790 | 2,015,192 | 2,056,790 | 2,015,192 |
| Reserves | 22 | (10,555) | (11,718) | - | - |
| Retained profits | 22 | 433,945 | 429,669 | 401,196 | 395,234 |
| 2,480,180 | 2,433,143 | 2,457,986 | 2,410,426 | ||
| Non-controlling interests | 23 | 204,201 | 204,025 | - | - |
| Total equity | 2,684,381 | 2,637,168 | 2,457,986 | 2,410,426 | |
The above Statements of Financial Position should be read in conjunction with the accompanying notes.
DEXUS OFFICE TRUST Page 10 of 69 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2010
| Fo ig re n c urr en cy |
||||||||
|---|---|---|---|---|---|---|---|---|
| Co ibu ted ntr |
lat ion tra ns |
No llin tro n-c on g |
||||||
| Co ida ol ted ns |
No tes |
ity eq u \$ '00 0 |
ine fits Re ta d p ro \$ '00 0 |
res erv e \$ '00 0 |
ith ity Un old er eq u \$ '00 0 |
int sts ere \$ '00 0 |
ity To tal eq u \$ '00 0 |
|
| Op ing ba lan at 1 J uly 20 08 en ce as |
1, 506 188 , |
95 1, 335 |
( ) 13, 787 |
2, 443 736 , |
204 07 1 , |
2, 647 807 , |
||
| Co reh ive ( los ) / inc for th mp ens s om e e y ea r |
- | ( ) 397 449 , |
2, 069 |
( ) 395 380 , |
3, 695 |
( ) 39 1, 685 |
||
| Tra ctio wit h o in the ir c aci ty nsa ns wn ers ap as ow ner s |
||||||||
| Co ibu tion f e ity, f tr ion ntr t o act sts s o qu ne ans co |
509 004 , |
- | - | 509 004 , |
- | 509 004 , |
||
| Dis trib utio aid ide d for ns p or p rov |
24 | - | ( ) 114 209 , |
- | ( ) 114 209 , |
( ) 13, 749 |
( ) 127 958 , |
|
| Tra fer ine d p fits to reta ns ro |
- | ( 10, 008 ) |
- | ( 10, 008 ) |
10, 008 |
- | ||
| C los ing ba lan 30 Ju 200 9 at ce as ne |
2, 015 192 , |
429 669 , |
( 11, 718 ) |
2, 433 143 , |
204 025 , |
2, 637 168 , |
||
| Op ing ba lan 1 J uly at 20 09 en ce as |
5, 2, 01 192 |
429 669 , |
( ) 11, 718 |
2, 433 143 , |
5 204 02 , |
2, 637 168 , |
||
| Co reh ive inc for th mp ens om e e y ea r |
- | 124 728 , |
1, 163 |
125 89 1 , |
1, 632 |
127 523 , |
||
| Tra ctio wit h o in the ir c aci ty nsa ns wn ers ap as ow ner s |
||||||||
| Co ibu tion f e ity, f tr ion ntr t o act sts s o qu ne ans co |
598 41 , |
- | - | 598 41 , |
- | 598 41 , |
||
| Dis trib utio aid ide d for ns p or p rov |
24 | - | ( 111 606 ) , |
- | ( 111 606 ) , |
( 10, 302 ) |
( 121 908 ) , |
|
| fer fits Tra to reta ine d p ns ro |
- | ( 8, 846 ) |
- | ( 8, 846 ) |
8, 846 |
- | ||
| C los ing ba lan 30 Ju 20 10 at ce as ne |
2, 0 56 790 , |
433 94 5 , |
( 10, 5 5 5 ) |
2, 480 180 , |
204 20 1 , |
2, 684 38 1 , |
DEXUS OFFICE TRUST Page 11 of 69 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2010
| Fo ig re n c urr en cy |
|||||||
|---|---|---|---|---|---|---|---|
| Co ibu ted ntr |
lat ion tra ns |
No llin tro n-c on g |
|||||
| nti Pa t E ty ren |
No tes |
ity eq u \$ '00 0 |
ine fits Re ta d p ro \$ '00 0 |
res erv e \$ '00 0 |
ith ity Un old er eq u \$ '00 0 |
int sts ere \$ '00 0 |
ity To tal eq u \$ '00 0 |
| Op ing ba lan at 1 J uly 20 08 en ce as |
1, 506 188 , |
915 385 , |
- | 2, 42 1, 573 |
- | 2, 42 1, 573 |
|
| Co reh ive los for th mp ens s e y ea r Tra ctio wit h o in the ir c aci ty nsa ns wn ers ap as ow ner s |
- | ( ) 405 942 , |
- | ( ) 405 942 , |
- | ( ) 405 942 , |
|
| Co ibu tion f e ity, f tr ion ntr t o act sts s o qu ne ans co |
509 004 , |
- | - | 509 004 , |
- | 509 004 , |
|
| Dis trib utio aid ide d for ns p or p rov Tra fer ine d p fits to reta ns ro |
24 | - - |
( ) 114 209 , - |
- - |
( ) 114 209 , - |
- - |
( ) 114 209 , - |
| C los ing ba lan 30 Ju 200 9 at ce as ne |
2, 015 192 , |
395 234 , |
- | 2, 410 426 , |
- | 2, 410 426 , |
|
| Op ing ba lan 1 J uly 20 09 at en ce as |
2, 01 5, 192 |
39 5, 234 |
- | 2, 410 426 , |
- | 2, 410 426 , |
|
| Co reh ive inc for th mp ens om e e y ea r |
- | 117 568 , |
- | 117 568 , |
- | 117 568 , |
|
| Tra ctio wit h o in the ir c aci ty nsa ns wn ers ap as ow ner s |
|||||||
| Co ibu tion f e ity, f tr ion ntr t o act sts s o qu ne ans co |
41 598 , |
- | - | 41 598 , |
- | 41 598 , |
|
| Dis trib utio aid ide d for ns p or p rov Tra fer ine d p fits to reta ns ro |
24 | - - |
( 111 606 ) , - |
- - |
( 111 606 ) , - |
- - |
( 111 606 ) , - |
| C los ing ba lan at 30 Ju 20 10 ce as ne |
2, 0 56 790 , |
40 1, 196 |
- | 2, 457 986 , |
- | 2, 457 986 , |
DEXUS OFFICE TRUST Page 12 of 69 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2010
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Notes | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Cash flows from operating activities Receipts in the course of operations (inclusive of GST) |
299,916 | 286,357 | 194,097 | 182,649 | |
| Payments in the course of operations (inclusive of GST) | (103,048) | (106,180) | (61,187) | (67,074) | |
| Interest received | 301 | 629 | 7,360 | 8,738 | |
| Finance costs paid to financial institutions | (19,146) | (36,186) | (19,816) | (35,421) | |
| Distributions received | 16 | - | 5,390 | 4,263 | |
| Net cash inflow from operating activities | 30 | 178,039 | 144,620 | 125,844 | 93,155 |
| Cash flows from investing activities | |||||
| Payments for capital expenditure on investment properties | (31,343) | (29,441) | (18,843) | (23,674) | |
| Proceeds from the sale of investments Payments for investments accounted for using the equity |
3,288 | 60,178 | - | - | |
| method | (31,995) | (25,995) | - | - | |
| Payments for capital expenditure on property, plant and equipment |
- | (1,035) | - | - | |
| Net cash (outflow)/inflow from investing activities | (60,050) | 3,707 | (18,843) | (23,674) | |
| Cash flows from financing activities | |||||
| Establishment expenses and unit issue cost | - | (17,075) | - | (17,075) | |
| Issue of units | - | 494,818 | - | 494,818 | |
| Borrowings provided to entities within DXS | (147,525) | (671,023) | (147,525) | (671,023) | |
| Borrowings provided by entities within DXS | 131,557 | 373,477 | 131,557 | 373,477 | |
| Proceeds from borrowings | - | 250,000 | - | 250,000 | |
| Repayment of borrowings | - | (500,000) | - | (500,000) | |
| Borrowings provided by related parties | - | - | 354 | 66,509 | |
| Distributions paid to unitholders | (91,923) | (66,653) | (91,923) | (66,653) | |
| Distributions paid to non-controlling interests | (9,629) | (16,136) | - | - | |
| Net cash outflow from financing activities | (117,520) | (152,592) | (107,537) | (69,947) | |
| Net increase/(decrease) in cash and cash equivalents | 469 | (4,265) | (536) | (466) | |
| Cash and cash equivalents at the beginning of the year | 8,289 | 12,532 | 3,728 | 4,194 | |
| Effects of exchange rate changes on cash and cash equivalents | 8 | 22 | - | - | |
| Cash and cash equivalents at the end of the year | 7 | 8,766 | 8,289 | 3,192 | 3,728 |
The above Statements of Cash Flows should be read in conjunction with the accompanying notes.
DEXUS OFFICE TRUST Page 13 of 69 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies
(a) Basis of preparation
DEXUS Property Group stapled securities are quoted on the Australian Stock Exchange under the "DXS" code and comprise one unit in each of DDF, DIT, DOT and DXO. Each entity forming part of DXS continues as a separate legal entity in its own right under the Corporations Act 2001 and is therefore required to comply with reporting and disclosure requirements under the Corporations Act 2001 and the Australian Accounting Standards.
DEXUS Funds Management Limited (DXFM) as Responsible Entity for each entity within DXS may only unstaple if approval is obtained by a special resolution of the stapled security holders.
These general purpose Financial Statements for the year ended 30 June 2010 have been prepared in accordance with the requirements of the Trust's Constitutions, the Corporations Act 2001, Australian Accounting Standards, other authoritative pronouncements of the Australia Accounting Standards Board and interpretations. Compliance with Australian Accounting Standards ensures that the consolidated and parent entity Financial Statements and notes also comply with International Financial Reporting Standards (IFRS).
These Financial Statements are prepared on a going concern basis and in accordance with historical cost conventions and have not been adjusted to take account of either changes in the general purchasing power of the dollar or changes in the values of specific assets, except for the valuation of certain non-current assets and financial instruments (refer notes 1(e), 1(m), 1(n), and 1(t)).
As at 30 June 2010, the Trust had a net current assets deficiency of \$134.8 million. The accounts have been prepared on a going concern basis due to the existence of cross guarantee arrangements with other entities within the DXS group. Gearing is managed centrally for DXS. The gearing ratio as disclosed in the DXS Financial Statements for the year ended 30 June 2010 is 30.4% (refer note 32 of the DXS Financial Statements).
The Trust has applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January 2009. The revised standard requires the separate presentation of Statements of Comprehensive Income and Statements of Changes in Equity. All non-owner changes in equity must now be presented in the Statements of Comprehensive Income. As a consequence, the Trust has changed the presentation of its Financial Statements. Comparative information has been represented so that it is also in conformity with the revised standard.
The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, unless otherwise stated.
Critical accounting estimates
The preparation of Financial Statements requires the use of certain critical accounting estimates and management to exercise its judgement in the process of applying the Trust's accounting policies. Other than the estimation described in notes 1(e), 1(m), 1(n), and 1(t), no key assumptions concerning the future or other estimation of uncertainty at the reporting date have a significant risk of causing material adjustments to the Financial Statements in the next annual reporting period.
(b) Principles of consolidation
(i) Controlled entities
The Financial Statements have been prepared on a consolidated basis. The accounting policies of the subsidiaries are consistent with those of the parent.
Subsidiaries are all entities over which the Trust has power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Trust controls another entity.
The Financial Statements incorporate an elimination of inter-entity transactions and balances to present the Financial Statements on a consolidated basis. Where control of an entity is obtained during a financial year, its results are included in the Statements of Comprehensive Income from the date on which control is gained. The Financial Statements incorporate all the assets, liabilities and results of the parent and its controlled entities.
(ii) Partnerships and joint ventures
Where assets are held in a partnership or joint venture with another entity directly, the Trust's share of the results and assets of this partnership or joint venture are consolidated into the Statements of Comprehensive Income and Statements of Financial Position of the Trust. Where assets are jointly controlled via ownership of units in single purpose unlisted unit trusts or shares in companies, the Trust applies equity accounting to record the operations of these investments (refer note 1(q)).
DEXUS OFFICE TRUST Page 14 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(c) Revenue recognition
(i) Rent
Rental revenue is brought to account on a straight-line basis over the lease term for leases with fixed rent review clauses. In all other circumstances rental revenue is brought to account on an accruals basis. If not received at the end of the reporting period, rental revenue is reflected in the Statements of Financial Position as a receivable. Recoverability of receivables is reviewed on an ongoing basis. Debts which are known to be not collectable are written off.
(ii) Interest revenue
Interest revenue is brought to account on an accruals basis using the effective interest rate method and, if not received at the end of the reporting period, is reflected in the Statements of Financial Position as a receivable.
(iii) Distribution revenue
Revenue from distributions are recognised when declared. Amounts not received at the end of the reporting period are included as a receivable in the Statements of Financial Position.
(d) Expenses
Expenses are brought to account on an accruals basis and, if not paid at the end of the reporting period, are reflected in the Statements of Financial Position as a payable.
(i) Property expenses
Property expenses include rates, taxes and other property outgoings incurred in relation to investment properties and property, plant and equipment where such expenses are the responsibility of the Trust.
(ii) Borrowing costs
Borrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation or ancillary costs incurred in connection with arrangement of borrowings and foreign exchange losses net of hedged amounts on borrowings, including trade creditors and lease finance charges. Borrowing costs are expensed as incurred unless they relate to qualifying assets.
Qualifying assets are assets which take more than twelve months to get ready for their intended use or sale. In these circumstances, borrowing costs are capitalised to the cost of the asset during the period of time that is required to complete and prepare the asset for its intended use or sale. Where funds are borrowed generally, borrowing costs are capitalised using a weighted average capitalisation rate.
(e) Derivatives and other financial instruments
(i) Derivatives
The Trust's activities expose it to a variety of financial risks including foreign exchange risk and interest rate risk. Accordingly, the Trust enters into various derivative financial instruments such as interest rate swaps and foreign exchange contracts to manage its exposure to certain risks. Written policies and limits are approved by the Board of Directors of the Responsible Entity, in relation to the use of financial instruments to manage financial risks. The Responsible Entity continually reviews the Trust's exposures and updates its treasury policies and procedures. The Trust does not trade in derivative instruments for speculative purposes. Even though derivative financial instruments are entered into for the purpose of providing the Trust with an economic hedge, the Trust has elected not to apply hedge accounting under AASB 139 Financial Instruments: Recognition and Measurement. Accordingly, derivatives including interest rate swaps and foreign exchange contracts are measured at fair value with any changes in fair value recognised in the Statements of Comprehensive Income.
(ii) Debt and equity instruments issued by the Trust
Financial instruments issued by the Trust are classified as either liabilities or as equity in accordance with the substance of the contractual arrangements. Accordingly, ordinary units issued by DOT are classified as equity.
Interest and distributions are classified as expenses or as distributions of profit consistent with the Statements of Financial Position classification of the related debt or equity instruments.
Transaction costs arising on the issue of equity instruments are recognised directly in equity (net of tax) as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.
DEXUS OFFICE TRUST Page 15 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(iii) Financial guarantee contracts
Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where appropriate.
The fair value of financial guarantees is determined as the present value of the difference in the net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations. Where guarantees in relation to loans or other payables of subsidiaries or associates are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.
(iv) Other financial assets
Loans and other receivables are measured at amortised cost using the effective interest rate method less impairment.
(f) Goods and services tax
Revenues, expenses and capital assets are recognised net of the amount of Goods and Services Tax (GST), except where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.
Cash flows are included in the Statements 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.
(g) Taxation
Under current Australian income tax legislation, DOT is not liable for income tax provided they satisfy certain legislative requirements. DOT may be liable for income tax in jurisdiction where foreign property is held (i.e New Zealand).
DOT NZ Sub-Trust No. 1, a wholly owned Australian sub-trust of DOT, is liable for New Zealand corporate tax on its New Zealand taxable income at the rate of 30%. In addition, a deferred tax liability or asset and its related deferred tax expense/benefit is recognised on differences between the tax cost base of the New Zealand real estate asset and the accounting carrying value at the end of the reporting period.
(h) Distributions
In accordance with the Trust's Constitution, the Trust distributes its distributable income to unitholders by cash or reinvestment. Distributions are provided for when they are approved by the Board of Directors and declared.
(i) Repairs and maintenance
Plant is required to be overhauled on a regular basis and is managed as part of an ongoing major cyclical maintenance program. The costs of this maintenance are charged as expenses as incurred, except where they relate to the replacement of a component of an asset, in which case the replaced component will be derecognised and the replacement costs capitalised in accordance with note 1(n). Other routine operating maintenance, repair costs and minor renewals are also charged as expenses as incurred.
(j) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
(k) Receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, which is based on the invoiced amount less provision for doubtful debts. Trade receivables are required to be settled within 30 days and are assessed on an ongoing basis for impairment. Receivables which are known to be uncollectible are written off. A provision for doubtful debts is established when there is objective evidence that the Trust will not be able to collect all amounts due according to the original terms of the receivables.
DEXUS OFFICE TRUST Page 16 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(l) Other financial assets at fair value through profit and loss
Interests held by the Trust in controlled entities and associates are measured at fair value through profit and loss to reduce a measurement or recognition inconsistency.
(m) Property, plant and equipment
Property, plant and equipment is stated at historical cost less depreciation and accumulated impairment. Historical cost includes expenditure that is directly attributable to its acquisition. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Trusts and the cost of the item can be measured reliably. All other repairs and maintenance are charged to Statements of Comprehensive Income during the financial period in which they are incurred.
Property, plant and equipment are tested for impairment whenever events or changes in circumstances indicate that the carrying amounts exceed their recoverable amounts (refer note 1(s)).
(n) Investment properties
During the period DOT adopted the amendments to AASB 140 Investment Property as set out in AASB 2008-5 Amendments to Australian Accounting Standards arising from the Annual Improvements Project effective for reporting periods beginning on or after 1 January 2009. Under this amendment, property that is under construction or development for future use as investment property falls within the scope of AASB 140. As such development property of this nature is no longer recognised and measured as property, plant and equipment but is included as investment property measured at fair value. Where fair value of investment property under construction is not reliably measurable, the property is measured at cost until the earlier of the date construction is completed and the date at which fair value becomes reliably measurable. As required by the standard, the amendments to AASB 140 have been applied prospectively from 1 July 2009.
Investment properties consist of properties held for long-term rental yields and/or capital appreciation and property that is being constructed or developed for future use as investment property. Investment properties are initially recognised at cost including transaction costs. Investment properties are subsequently recognised at fair value in the Financial Statements. Each valuation firm and its signatory valuer are appointed on the basis that they are engaged for no more than three consecutive valuations.
The basis of valuations of investment properties is fair value being the amounts for which the assets could be exchanged between knowledgeable willing parties in an arm's length transaction, based on current prices in an active market for similar properties in the same location and condition and subject to similar leases. In addition, an appropriate valuation method is used, which may include the discounted cashflow and the capitalisation method. Discount rates and capitalisation rates are determined based on industry expertise and knowledge, and where possible a direct comparison to third party rates for similar assets in a comparable location. Rental revenue from current leases and assumptions about future leases, as well as any expected operational cash outflows in relation to the property, are also reflected in fair value. In relation to development properties under construction for future use as investment property, where reliably measurable, fair value is determined based on the market value of the property on the assumption it had already been completed at the valuation date less costs still required to complete the project, including an appropriate adjustment for profit and risk.
External valuations of the individual investments are carried out in accordance with the Constitution for DOT, or may be earlier where the Responsible Entity believes there is a potential for a material change in the fair value of the property.
Changes in fair values are recorded in the Statements of Comprehensive Income. The gain or loss on disposal of an investment property is calculated as the difference between the carrying amount of the asset at the date of disposal and the net proceeds from disposal and is included in the Statements of Comprehensive Income in the year of disposal.
Subsequent redevelopment and refurbishment costs (other than repairs and maintenance) are capitalised to the investment property where they result in an enhancement in the future economic benefits of the property.
(o) Leasing fees
Leasing fees incurred are capitalised and amortised over the lease periods to which they relate.
DEXUS OFFICE TRUST Page 17 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(p) Lease incentives
Prospective lessees may be offered incentives as an inducement to enter into operating leases. These incentives may take various forms including cash payments, rent free periods, or a contribution to certain lessee costs such as fit out costs or relocation costs.
The costs of incentives are recognised as a reduction of rental revenue on a straight-line basis from the earlier of the date which the tenant has effective use of the premises or the lease commencement date to the end of the lease term. The carrying amount of the lease incentives is reflected in the fair value of investment properties.
(q) Investments accounted for using the equity method
Some property investments are held through the ownership of units in single purpose unlisted trusts or shares in unlisted companies where the Trust exerts significant influence but does not have a controlling interest. These investments are considered to be associates and the equity method of accounting is applied in the Financial Statements.
Under this method, the entity's share of the post-acquisition profits of associates is recognised in the Statements of Comprehensive Income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends or distributions receivable from associates are recognised in the parent entity's Statements of Comprehensive Income, while in the consolidated Financial Statements they reduce the carrying amount of the investment.
When the Trust's share of losses in an associate equal or exceed its interest in the associate (including any unsecured receivables) the Trust does not recognise any further losses unless it has incurred obligations or made payments on behalf of the associate.
(r) Business combinations
During the year DOT adopted the revised AASB 3 Business Combinations, AASB 127 Consolidated and Separate Financial Statements and AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 effective for annual reporting periods beginning on or after 1 July 2009.
The acquisition method of accounting is used to account for all business combinations. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Trust recognises any non-controlling interest in the acquiree at its proportionate share of the acquiree's net identifiable assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Trust's share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in the Statements of Comprehensive Income as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
(s) Impairment of assets
Certain assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Nonfinancial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
DEXUS OFFICE TRUST Page 18 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(t) Financial assets and liabilities
(i) Classification
DOT has classified its financial assets and liabilities as follows:
| Financial Asset/Liability | Classification | Valuation Basis | Reference |
|---|---|---|---|
| Cash and cash equivalents | Fair value through profit or loss | Fair value | Refer note 1(j). |
| Receivables | Loans and receivables | Amortised cost | Refer note 1(k). |
| Other financial assets | Loans and receivables | Amortised cost | Refer note 1(e). |
| Other financial assets | Fair value through profit or loss | Fair value | Refer note 1(l). |
| Payables | Financial liability at amortised cost | Amortised cost | Refer note 1(u). |
| Interest bearing liabilities | Financial liability at amortised cost | Amortised cost | Refer note 1(v). |
| Derivatives | Fair value through profit or loss | Fair value | Refer note 1(e). |
Financial assets and liabilities are classified in accordance with the purpose for which they were acquired.
(ii) Fair value estimation of financial assets and liabilities
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement and for disclosure purposes.
The fair value of financial instruments traded in active markets (such as publicly traded derivatives) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Trust is the current bid price. The appropriate quoted market price for financial liabilities is the current ask price.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques including dealer quotes for similar instruments and discounted cash flows. In particular, the fair value of interest rate swaps are calculated as the present value of the estimated future cash flows, the fair value of forward exchange rate contracts is determined using forward exchange market rates at the end of the reporting period, and the fair value of interest rate option contracts are calculated as the present value of the estimated future cash flows taking into account the time value and implied volatility of the underlying instrument.
(u) Payables
These amounts represent liabilities for amounts owing at the end of the reporting period. The amounts are unsecured and are usually paid within 30 days of recognition.
(v) Interest bearing liabilities
Subsequent to initial recognition at fair value, net of transaction costs incurred, interest bearing liabilities are measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Statements of Comprehensive Income over the period of the borrowings using the effective interest method. Interest bearing liabilities are classified as current liabilities unless the Trust has an unconditional right to defer the liability for at least twelve months after the end of each reporting period.
(w) Earnings per unit
Earnings per unit are determined by dividing the net profit attributable to unit holders of the parent entity by the weighted average number of ordinary units outstanding during the year.
Diluted earnings per unit are adjusted from the basic earnings per unit by taking into account the impact of dilutive potential units. The Trust did not have such dilutive potential units during the year.
DEXUS OFFICE TRUST Page 19 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(x) Foreign currency
Items included in the Financial Statements of the Trust are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The Financial Statements are presented in Australian dollars, which is the functional and presentation currency of the Trust.
(i) Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of financial assets and liabilities denominated in foreign currencies are recognised in the Statements of Comprehensive Income.
(ii) Foreign operations
Foreign operations are located in New Zealand. These operations have a functional currency of NZ Dollars, which is translated into the presentation currency.
The assets and liabilities of the foreign operations are translated at exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, are recognised in the foreign currency translation reserve and recognised in profit or loss on disposal of the foreign operation.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at exchange rates prevailing at the end of each reporting period.
(y) Operating segments
During the year the Trust adopted AASB 8 Operating Segments which replaced AASB 114 Segment Reporting. The new standard requires a 'management approach', under which segment information is presented in a manner that is consistent with internal reporting provided to the Chief Operating Decision Maker (CODM). The CODM who is responsible for allocating resources and assessing performance of the operating segments has been identified as the Board of Directors of DXFM. The Board of Directors are responsible for the strategic decision making for the Group which consists of DIT, DOT, DDF and DXO. Consistent with how the CODM manages the business the operating segments within the Group are reviewed on a consolidated basis rather than at an individual trust level. Disclosures concerning DXS's operating segments as well as the operating segments key financial information provided to the CODM are presented in the Group's Financial Statements.
(z) Rounding of amounts
The Trust is the kind referred to in Class Order 98/0100, issued by the Australian Securities and Investment Commission, relating to the rounding off of amounts in the Financial Statements. Amounts in the Financial Statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar.
(aa) Relief for Corporations Amendment (Corporate Reporting Reform) Act 2010
The Trust is the kind referred to in Class Order 10/654, issued by the Australian Securities and Investment Commission, relating to the inclusion of the parent entity Financial Statements in the consolidated Financial Statements. The Trust continues to present the parent entity Financial Statements in the consolidated Financial Statements in accordance with that Class Order.
DEXUS OFFICE TRUST Page 20 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(ab) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2010 reporting period. Our assessment of the impact of these new standards and interpretations is set out below:
- (i) AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 (effective from 1 January 2013). AASB 9 Financial Instruments addresses the classification and measurement of financial assets. Under the new guidance, a financial asset is to be measured at amortised cost only if it is held within a business model whose objective is to collect contractual cash flows and the contractual terms of the asset give rise on specific dates to cash flows that are payments solely of principal and interest on the principal amount outstanding. All other financial assets are to be measured at fair value. The standard is not applicable until 1 January 2013 but is available for early adoption. The Trust is currently assessing the impact of this standard but does not expect it to be significant.
- (ii) Revised AASB 124 Related Party Disclosures (effective from 1 January 2011). In December 2009 the AASB issued a revised AASB 124 Related Party Disclosures. It is effective for accounting periods beginning on or after 1 January 2011 and must be applied retrospectively. The amendment clarifies and simplifies the definition of a related party. The Trust will apply the amended standard from 1 July 2011. It is not expected to have any impact on the Trust's Financial Statements.
- (iii) AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project (effective from 1 January 2010). In May 2010, the AASB issued a number of improvements to existing Australian Accounting Standards. The Trust will apply the revised standards from 1 July 2010 where applicable. The Trust is currently assessing the impact of the revised rules but does not expect it to be significant.
- (iv) AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements (effective from 1 July 2013). On 30 June 2010 the AASB officially introduced a revised differential reporting framework in Australia. Under this framework, a two-tier differential reporting regime applies to all entities that prepare general purpose financial statements. The Trust, as part of DXS, is listed on the ASX and is therefore not eligible to adopt the new Australian Accounting Standards – Reduced Disclosure Requirements. As a consequence, the two standards will have no impact on the Financial Statements of the Trust.
DEXUS OFFICE TRUST Page 21 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 2. Property revenue
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Rent and recoverable outgoings | 265,201 | 257,807 | 172,183 | 165,168 |
| Incentive amortisation | (25,266) | (25,468) | (16,665) | (17,940) |
| Other revenue | 8,058 | 9,050 | 5,684 | 4,237 |
| Total property revenue | 247,993 | 241,389 | 161,202 | 151,465 |
Note 3. Interest revenue
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 2010 2009 |
2009 | |||
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Interest revenue from financial institutions | 301 | 631 | 181 | 382 |
| Interest revenue from related parties | - | - | 7,179 | 8,355 |
| Total interest revenue | 301 | 631 | 7,360 | 8,737 |
Note 4. Finance costs
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Interest paid/payable | 14,316 | 29,242 | 14,316 | 29,242 |
| Interest (received from)/paid to related parties | (2,202) | 12,270 | (2,202) | 12,270 |
| Amount capitalised | (7,212) | (8,311) | (469) | (1,390) |
| Other finance costs | 1,079 | 2,083 | 555 | 1,316 |
| Net fair value loss of interest rate swaps | 19,253 | 63,232 | 19,253 | 63,232 |
| Total finance costs | 25,234 | 98,516 | 31,453 | 104,670 |
The average capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 7.15% (2009: 6.90%).
Note 5. Other expenses
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Note | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Audit and other fees | 6 | 302 | 465 | 263 | 397 |
| Custodian fees | 206 | 242 | 189 | 215 | |
| Legal and other professional fees | 232 | 284 | 187 | 284 | |
| Registry costs and listing fees | 360 | 338 | 269 | 258 | |
| Other expenses | 995 | 484 | 947 | 433 | |
| Total other expenses | 2,095 | 1,813 | 1,855 | 1,587 |
DEXUS OFFICE TRUST Page 22 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 6. Audit and advisory fees
During the year the auditor of the parent entity and its related practices and non-related audit firms earned the following remuneration:
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$ | \$ | \$ | \$ | |
| (a) Assurance services | ||||
| Audit services | ||||
| PwC audit and review of financial reports and other audit | ||||
| work under the Corporations Act 2001 | 284,705 | 328,580 | 256,246 | 306,095 |
| PwC fees paid in relation to outgoings audit1 | 45,000 | 60,193 | 26,041 | 31,425 |
| Remuneration for audit services to PwC | 329,705 | 388,773 | 282,287 | 337,520 |
| Total remuneration for assurance services | 329,705 | 388,773 | 282,287 | 337,520 |
| (b) Taxation services | ||||
| Fees paid to PwC Australia | 17,648 | 136,270 | 6,692 | 90,848 |
| Total remuneration for taxation services2 | 17,648 | 136,270 | 6,692 | 90,848 |
| Total audit and taxation fees1 | 347,353 | 525,043 | 288,979 | 428,368 |
| (c) Fees paid to PwC for transaction services | ||||
| PwC Assurance services in respect of capital raisings | - | 254,594 | - | 254,594 |
| PwC taxation services | - | 101,444 | - | 54,314 |
| PwC other transaction and advisory fees | - | 96,421 | - | 57,821 |
| Total transaction service fees | - | 452,459 | - | 366,729 |
| Total audit, taxation and transaction service fees | 347,353 | 977,502 | 288,979 | 795,097 |
1 Fees paid in relation to outgoing audits are included in property expenses. Therefore total audit and taxation fees included in other expenses are \$302,353 (2009: \$464,850) consolidated and \$262,938 (2009: \$396,943) for the parent entity. 2
These services include general compliance work, one off project work and advice with respect to the management of day to day tax affairs of the Trust.
Note 7. Current assets – cash and cash equivalents
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Cash at bank | 8,766 | 8,289 | 3,192 | 3,728 |
| Total current assets - cash and cash equivalents | 8,766 | 8,289 | 3,192 | 3,728 |
DEXUS OFFICE TRUST Page 23 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 8. Current assets – receivables
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Rent receivable | 903 | 1,748 | 529 | 762 |
| Less: provision for doubtful debts | (75) | (165) | (75) | (165) |
| Total rental receivables | 828 | 1,583 | 454 | 597 |
| Receivables from related parties | 15 | 16 | - | - |
| Other receivables | 2,894 | 5,115 | 2,066 | 4,493 |
| Total other receivables | 2,909 | 5,131 | 2,066 | 4,493 |
| Total current assets - receivables | 3,737 | 6,714 | 2,520 | 5,090 |
Note 9. Loans with related parties
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Current assets - loans with related parties | |||||
| Non-interest bearing loans with controlled entities | - | - | 132,114 | 115,032 | |
| Interest bearing loans with controlled entities | - | - | 179,686 | 147,121 | |
| Total current assets - loans with related parties | - | - | 311,800 | 262,153 | |
| Non-current assets - loans with related parties | |||||
| Interest bearing loans with related parties 1 | 49,637 | 41,049 | 49,637 | 41,049 | |
| Total non-current assets - loans with related parties | 49,637 | 41,049 | 49,637 | 41,049 | |
| Current liabilities - loans with related parties | |||||
| Non-interest bearing loans with entities within DXS 2 | 55,684 | 55,684 | 55,684 | 55,684 | |
| Total current liabilities - loans with related parties | 55,684 | 55,684 | 55,684 | 55,684 | |
| Non-current liabilities - loans with related parties | |||||
| Interest bearing loans with controlled entities | - | - | 248,618 | 248,038 | |
| Total non-current liabilities - loans with related parties | - | - | 248,618 | 248,038 |
1 Interest-bearing loans with DEXUS Finance Pty Limited (DXF). These loan balances eliminate on consolidation within DXS. 2 Non-interest bearing loans with entities within DXS were created to effect the stapling of the Trust, DIT, DDF and DXO. These loan balances eliminate on consolidation within DXS.
DEXUS OFFICE TRUST Page 24 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 10. Derivative financial instruments
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Current assets | ||||
| Forward foreign exchange contracts | 46 | 163 | 46 | 163 |
| Total current assets - derivative financial instruments | 46 | 163 | 46 | 163 |
| Non-current assets | ||||
| Interest rate swap contracts | 6,064 | 13,558 | 6,064 | 13,558 |
| Forward foreign exchange contracts | - | 64 | - | 64 |
| Total non-current assets - derivative financial instruments | 6,064 | 13,622 | 6,064 | 13,622 |
| Current liabilities | ||||
| Interest rate swap contracts | 1,083 | 724 | 1,083 | 724 |
| Total current liabilities - derivative financial instruments | 1,083 | 724 | 1,083 | 724 |
| Non-current liabilities | ||||
| Interest rate swap contracts | 21,083 | 23,301 | 21,083 | 23,301 |
| Total non-current liabilities - derivative financial instruments | 21,083 | 23,301 | 21,083 | 23,301 |
| Net derivative financial instruments | (16,056) | (10,240) | (16,056) | (10,240) |
Refer note 25 for further discussion regarding derivative financial instruments.
Note 11. Current assets – other
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Prepayments | 3,462 | 2,702 | 2,076 | 1,851 | |
| Total current assets - other | 3,462 | 2,702 | 2,076 | 1,851 |
Note 12. Non-current assets – investment properties
(a) Reconciliation
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Opening balance as at 1 July | 2,891,603 | 3,325,300 | 1,992,000 | 2,305,243 | |
| Additions | 17,845 | 21,635 | 6,009 | 17,008 | |
| Lease incentives | 27,736 | 14,000 | 19,794 | 8,473 | |
| Amortisation of lease incentives | (25,267) | (25,468) | (16,664) | (17,940) | |
| Rent straightlining | 1,131 | 3,666 | 477 | 2,744 | |
| Transfer from property, plant and equipment | 18,150 | - | - | - | |
| Net fair value gain/(loss) of investment properties | 7,297 | (449,463) | 30,707 | (323,528) | |
| Foreign exchange differences on foreign currency translation | 1,016 | 1,933 | - | - | |
| Closing balance as at 30 June | 2,939,511 | 2,891,603 | 2,032,323 | 1,992,000 |
DEXUS OFFICE TRUST Page 25 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 12. Non-current assets – investment properties (continued)
Key valuation assumptions
Details of key valuation assumptions in relation to investment properties are outlined in note 14 of the DXS Financial Statements.
(b) Developments
144 Wicks Road, North Ryde, NSW
In November 2006, DOT (through its sub-trust Wicks Road Trust), acquired a 50% ownership interest in 144 Wicks Road, North Ryde, NSW for a consideration of \$25.9 million. The DA for stage 1 (estimated 26,000 square metres net lettable area) is expected to be approved by December 2010. This site is currently undeveloped land.
Note 13. Non-current assets – property, plant and equipment
(a) Property plant and equipment
| Consolidated | Parent Entity | |||||
|---|---|---|---|---|---|---|
| 30 June 2010 | Land and | Land and | ||||
| Construction | freehold | Construction | freehold | |||
| in progress | buildings | Total | in progress | buildings | Total | |
| \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | |
| Opening balance as at 1 July 2009 | 2,033 | 16,117 | 18,150 | - | - | - |
| Transfer to investment properties | (2,033) | (16,117) | (18,150) | - | - | - |
| Closing balance as at 30 June 2010 | - | - | - | - | - | - |
| 30 June 2009 | Construction in progress \$'000 |
Consolidated Land and freehold buildings \$'000 |
Total \$'000 |
Construction in progress \$'000 |
Parent Entity Land and freehold buildings \$'000 |
Total \$'000 |
|---|---|---|---|---|---|---|
| Opening balance as at 1 July 2008 Additions Impairment |
997 1,036 - |
27,530 - (11,413) |
28,527 1,036 (11,413) |
- - - |
- - - |
- - - |
| Closing balance as at 30 June 2009 | 2,033 | 16,117 | 18,150 | - | - | - |
| Cost Impairment |
2,033 - |
27,530 (11,413) |
29,563 (11,413) |
- - |
- - |
- - |
| Net book value as at 30 June 2009 | 2,033 | 16,117 | 18,150 | - | - | - |
In the current year, based on the revised AABS140 Investment Property, development properties being developed for future use as investment properties have been included in investment properties and were fair valued at the end of the reporting period (refer to note 12).
(b) Impairment
In the financial year ended 30 June 2009, a review of the recoverable amount of its properties were undertaken. This resulted in the recognition of an impairment loss of \$11.4 million for 144 Wicks Road, North Ryde, NSW, which was recognised in the Statements of Comprehensive Income.
DEXUS OFFICE TRUST Page 26 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 14. Non-current assets – other financial assets at fair value through profit or loss
Investments are adjusted to their fair value through the consolidated Statements of Comprehensive Income.
| Name of entity | Principal activity | Ownership Interest | Parent Entity | ||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| % | % | \$'000 | \$'000 | ||
| DOT Commercial Trust | Office property investment | 100.0 | 100.0 | 429,301 | 485,701 |
| DOT NZ Sub-trust No 1 | Office property investment | 100.0 | 100.0 | 24,592 | 25,154 |
| DOT NZ Sub-trust No 2 | Office property investment | 100.0 | 100.0 | 55 | 55 |
| DEXUS Finance Pty Limited | Finance Services | 25.0 | 25.0 | - | - |
| Total non-current assets - other financial assets at fair value through profit and loss | 453,948 | 510,910 | |||
| Reconciliation | Parent Entity | ||||
| 2010 | 2009 | ||||
| \$'000 | \$'000 | ||||
| Opening balance as at 1 July | 510,910 | 655,607 | |||
| Fair value loss | (56,962) | (144,697) | |||
| Closing balance as at 30 June | 453,948 | 510,910 |
All controlled entities are wholly owned by the Trust. Both the parent entity and the controlled entities were formed in Australia.
Note 15. Non-current assets – investments accounted for using the equity method
Investments are accounted for in the consolidated Financial Statements using the equity method of accounting (refer note 1 (q)).
Information relating to these entities is set out below.
| Name of entity | Principal activity | Ownership Interest | Consolidated | Parent Entity | |||
|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||
| % | % | \$'000 | \$'000 | \$'000 | \$'000 | ||
| Held by controlled entities | |||||||
| Bent Street Trust1 | Office property | ||||||
| investment | 33.3 | 34.9 | 93,344 | 84,165 | - | - | |
| Total | 93,344 | 84,165 | - | - |
These entities were formed in Australia.
1 On 31 July 2009, 1.6% of the Bent Street Trust was sold to DWPF.
DEXUS OFFICE TRUST Page 27 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 15. Non-current assets – investments accounted for using the equity method (continued)
Movements in carrying amounts of investments accounted for using
| the equity method | Consolidated | |
|---|---|---|
| 2010 | 2009 | |
| \$'000 | \$'000 | |
| Opening balance as at 1 July | 84,165 | 111,946 |
| Interest acquired during the year | 38,739 | 32,916 |
| Interest sold during the year | (3,302) | (60,712) |
| Share of net (loss)/profit after tax | (26,243) | 31 |
| Distributions received | (15) | (16) |
| Closing balance as at 30 June | 93,344 | 84,165 |
| Results attributable to associates | ||
| Operating (loss)/profit before income tax | (26,243) | 31 |
| Operating (loss)/profit after income tax | (26,243) | 31 |
| Less: Distributions received | (15) | (16) |
| (26,258) | 15 | |
| Accumulated losses attributable to associates as at 1 July | (6,352) | (6,367) |
Summary of the performance and financial position of investments accounted for using the equity method
The Trust's share of aggregate (loss)/profit, assets and liabilities of investments accounted for using the equity method are:
Accumulated losses attributable to associates as at 30 June (32,610) (6,352)
| Consolidated | ||
|---|---|---|
| 2010 | 2009 | |
| \$'000 | \$'000 | |
| (Loss)/profit from ordinary activities after income tax expense | (26,243) | 31 |
| Assets | 97,670 | 86,075 |
| Liabilities | 4,326 | 1,910 |
| Share of associates' expenditure commitments | ||
| Capital commitments | 67,308 | 96,318 |
DEXUS OFFICE TRUST Page 28 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 16. Non-current assets – other
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Tenant and other bonds | 708 | 96 | 685 | 74 |
| Other | 289 | 289 | - | 289 |
| Total non-current assets – other | 997 | 385 | 685 | 363 |
Note 17. Current liabilities – payables
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Trade creditors | 11,760 | 9,013 | 7,977 | 5,586 | |
| Accruals | 3,652 | 2,529 | 3,314 | 2,281 | |
| Amount payable to non-controlling interests | 2,917 | 2,244 | - | - | |
| Accrued capital expenditure | 10,850 | 2,274 | 3,107 | 341 | |
| Prepaid income | 8,008 | 5,705 | 6,338 | 4,237 | |
| Responsible Entity fee payable | 756 | 827 | 536 | 1,696 | |
| GST payable | 1,058 | 1,385 | 874 | 687 | |
| Accrued interest | 2,781 | 3,713 | 2,781 | 3,713 | |
| Total current liabilities – payables | 41,782 | 27,690 | 24,927 | 18,541 |
Note 18. Interest bearing liabilities
| Consolidated | Parent Entity | |||||
|---|---|---|---|---|---|---|
| Note | 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | |||
| Non-current | ||||||
| Secured | ||||||
| Bank loans | (a) | 250,000 | 250,000 | - | - | |
| Total secured | 250,000 | 250,000 | - | - | ||
| Deferred borrowing costs | (1,382) | (1,962) | - | - | ||
| Total non-current liabilities – interest bearing liabilities | 248,618 | 248,038 | - | - | ||
| Total interest bearing liabilities | 248,618 | 248,038 | - | - | ||
(a) Bank loans – secured
Comprises a \$250.0 million secured bank loan maturing in October 2011. The loan is secured by mortgages over one DDF investment property and two DOT investment properties totalling \$770.3 million as at 30 June 2010.
DEXUS OFFICE TRUST Page 29 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 19. Provisions
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| Current | 2010 | 2009 | 2010 | 2009 |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Provision for distribution | 52,225 | 74,141 | 52,225 | 74,141 |
| 52,225 | 74,141 | 52,225 | 74,141 |
Movements in provision for distribution is set out below:
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Provision for distribution | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Opening balance as at 1 July | 74,141 | 57,847 | 74,141 | 57,847 | |
| Additional provisions | 111,606 | 114,209 | 111,606 | 114,209 | |
| Payments and reinvestment of distributions | (133,522) | (97,915) | (133,522) | (97,915) | |
| Closing balance as at 30 June | 52,225 | 74,141 | 52,225 | 74,141 |
Provision for distribution
A provision for distribution has been raised for the period ended 30 June 2010. This distribution is to be paid on 27 August 2010.
Note 20. Non-current liabilities – other
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Tenant bonds | 708 | 96 | 685 | 74 | |
| Total non-current liabilities – other | 708 | 96 | 685 | 74 |
DEXUS OFFICE TRUST Page 30 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 21. Contributed equity
(a) Contributed equity
| Consolidated | ||||
|---|---|---|---|---|
| 2010 | 2009 | |||
| \$'000 | \$'000 | |||
| Opening balance as at 1 July | 2,015,192 | 1,506,188 | ||
| Distributions reinvested | 41,598 | 31,262 | ||
| Issue of units | - | 494,817 | ||
| Cost of issuing units | - | (17,075) | ||
| Closing balance as at 30 June | 2,056,790 | 2,015,192 | ||
(b) Number of units on issue
| Consolidated | |||
|---|---|---|---|
| 2010 | 2009 | ||
| No. of | No. of | ||
| units | units | ||
| Opening balance as at 1 July | 4,700,841,666 | 3,040,019,487 | |
| Distributions reinvested | 119,980,133 | 100,368,579 | |
| Issue of unit | - | 1,560,453,600 | |
| Closing balance as at 30 June | 4,820,821,799 | 4,700,841,666 |
Terms and conditions
Each stapled security ranks equally with all other stapled securities for the purposes of distributions and on termination of the Trust.
Each stapled security entitles the holder to one vote, either in person or by proxy, at a meeting of each of the Trusts.
(c) Distribution reinvestment plan
Under the distribution reinvestment plan (DRP), stapled security holders may elect to have all or part of their distribution entitlements satisfied by the issue of new stapled securities, rather than being paid in cash.
On 28 August 2009, 65,251,600 units were issued at a unit price of 31.3 cents in relation to the June 2009 distribution period.
On 26 February 2010, 54,728,533 units were issued at a unit price of 38.7 cents in relation to the December 2009 distribution period.
Approval of issues of Stapled Securities to an underwriter in connection with issues under a Distribution Reinvestment Plan
At the Extraordinary General Meeting held on 6 February 2009 by DXFM, as Responsible Entity for DDF, DIT, DOT and DXO, security holders resolved to authorise DXFM, as Responsible Entity, to issue stapled securities, each comprising a unit in each of the above mentioned trusts (Stapled Securities), to an underwriter or persons procured by an underwriter within a period of twenty four months from the date of the meeting in connection with any issue of Stapled Securities under the DXS distribution reinvestment plan.
Such an issue will not be counted for the purposes of the calculation of the 15% limit under the ASX Listing Rule 7.1.
DEXUS OFFICE TRUST Page 31 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 22. Reserves and retained profits
(a) Reserves
| Consolidated | Parent Entity | ||
|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 |
| \$'000 | \$'000 | \$'000 | \$'000 |
| (10,555) | (11,718) | - | - |
| (10,555) | (11,718) | - | - |
| (11,718) | (13,787) | - | - |
| - | |||
| 1,163 | 2,069 | - | - |
| - | |||
| 1,163 (10,555) |
2,069 (11,718) |
- - |
(b) Nature and purpose of reserves
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the Financial Statements of foreign operations.
(c) Retained profits
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Opening balance as at 1 July | 429,669 | 951,335 | 395,234 | 915,385 |
| Net profit/(loss) attributable to unitholders | 124,728 | (397,449) | 117,568 | (405,942) |
| Transfer of capital reserve of non-controlling interests | (8,846) | (10,008) | - | - |
| Distributions provided for or paid | (111,606) | (114,209) | (111,606) | (114,209) |
| Closing balance as at 30 June | 433,945 | 429,669 | 401,196 | 395,234 |
DEXUS OFFICE TRUST Page 32 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 23. Non-controlling interests
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| Interest in | 2010 | 2009 | 2010 | 2009 |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Contributed equity | 197,705 | 197,705 | - | - |
| Reserves | 60,566 | 51,721 | - | - |
| Accumulated losses | (54,070) | (45,401) | - | - |
| Total non-controlling interests | 204,201 | 204,025 | - | - |
Note 24. Distributions paid and payable
(a) Distribution to unitholders
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| 31 December (paid 26 February 2010) | 59,381 | 40,068 | 59,381 | 40,068 |
| 30 June (payable 27 August 2010) | 52,225 | 74,141 | 52,225 | 74,141 |
| 111,606 | 114,209 | 111,606 | 114,209 |
(b) Distribution to non-controlling interests
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| DEXUS RENTS Trust (paid 16 October 2009) | 2,285 | 4,651 | - | - |
| DEXUS RENTS Trust (paid 18 January 2010) | 2,387 | 4,243 | - | - |
| DEXUS RENTS Trust (paid 19 April 2010) | 2,713 | 2,611 | - | - |
| DEXUS RENTS Trust (payable 15 July 2010) | 2,917 | 2,244 | - | - |
| 10,302 | 13,749 | - | - | |
| Total distributions | 125,213 | 127,958 | 114,911 | 114,209 |
(c) Distribution rate
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| Cents per | Cents per | Cents per | Cents per | ||
| unit | unit | unit | unit | ||
| 31 December (paid 26 February 2010) | 1.25 | 1.15 | 1.25 | 1.15 | |
| 30 June (payable 27 August 2010) | 1.08 | 1.57 | 1.08 | 1.57 | |
| Total distributions | 2.33 | 2.72 | 2.33 | 2.72 |
DEXUS OFFICE TRUST Page 33 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 25. Financial risk management
To ensure the effective and prudent management of the Trust's capital and financial risks, DOT (as part of DXS) has a well established framework consisting of a Board Finance Committee and a Capital Markets Committee. The Board Finance Committee is accountable to and primarily acts as an advisory body to the DXFM Board and includes three Directors of the DXFM Board. Its responsibilities include reviewing and recommending financial risk management polices and funding strategies for approval.
The Capital Markets Committee is a management committee that is accountable to both the Board Finance Committee and the Group Management Committee. It convenes at least quarterly and conducts a review of financial risk management exposures including liquidity, funding strategies and hedging. It is also responsible for the development of financial risk management policies and funding strategies for recommendation to the Board Finance Committee, and the approval of treasury transactions within delegated limits and powers.
Further information on the DXS governance structure, including terms of reference, is available at www.dexus.com
(1) Capital risk management
The Trust manages its capital to ensure that entities within the Trust will be able to continue as a going concern while maximising the return to owners through the optimisation of the debt and equity balance.
The capital structure of the Trust consists of debt (see note 18), cash and cash equivalents, and equity attributable to unitholders (including hybrid securities). The capital structure is monitored and managed in consideration of a range of factors including:
- The cost of capital and the financial risks associated with each class of capital;
- Gearing levels and other covenants;
- Potential impacts on net tangible assets and unitholders equity; and
- Other market factors and circumstances.
To minimise the potential impacts of foreign exchange risk on the Trust's capital structure, the Trust's policy is to hedge the majority of its foreign asset and liability exposures. Consequently the size of the assets and liabilities on the consolidated Statements of Financial Position (translated into Australian Dollars) and gearing ratios will rise and fall as exchange rates fluctuate. This policy ensures that net tangible assets are not materially affected by currency movements (refer foreign exchange risk below).
DEXUS OFFICE TRUST Page 34 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 25. Financial risk management (continued)
(1) Capital risk management (continued)
The gearing ratio at 30 June 2010 was 8.1% (as detailed below).
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Gearing ratio | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Total interest bearing liabilities 1 | 250,000 | 250,000 | 250,000 | 250,000 | |
| Total tangible assets 2 | 3,099,454 | 3,053,057 | 2,856,181 | 2,817,144 | |
| Gearing ratio3 | 8.1% | 8.2% | 8.8% | 8.9% |
1 Total interest bearing liabilities excludes deferred borrowing costs as reported internally to management. 2
- Total tangible assets comprise total tangible assets less derivatives and deferred tax balances as reported internally to management. 3
- Gearing is managed centrally for DXS. The gearing ratio as disclosed in the DEXUS Property Group Annual Report 2010 is 30.4% (refer note 32 of the DXS Financial Statements).
The Trust is not rated by ratings agencies, however, DXS has been rated BBB+ by Standard and Poor's (S&P) and Baa1 by Moody's. The Trust considers potential impacts upon the rating when assessing the strategy and activities of the Trust and regards those impacts as an important consideration in its management of the Trust's and DXS capital structure.
The Responsible Entity for DOT (DXFM) has been issued with an Australian Financial Services Licence (AFSL). The licence is subject to certain capital requirements including the requirement to hold minimum net tangible assets (of \$5 million), and maintaining a minimum level of surplus liquid funds. Furthermore, the Responsible Entity maintains trigger points in accordance with the requirements of the licence. These trigger points maintain a headroom value above the AFSL requirements and the entity has in place a number of processes and procedures should a trigger point be reached.
(2) Financial risk management
The Trust's activities expose it to a variety of financial risks: credit risk, market risk (including currency risk and interest rate risk), and liquidity risk. Financial risk management is not managed at the individual Trust level, but holistically as part of DXS. DXS's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Trust.
Accordingly, the Trust enters into various derivative financial instruments such as interest rate swaps and foreign exchange contracts to manage its exposure to certain risks. The Trust does not trade in derivative instruments for speculative purposes. The Trust uses different methods to measure the different types of risks to which it is exposed, including monitoring the current and forecast levels of exposure, and conducting sensitivity analyses.
Risk management is implemented by a centralised treasury department (Group Treasury) whose members act under written policies that are endorsed by the Board Finance Committee and approved by the Board of Directors of the Responsible Entity. Group Treasury identifies, evaluates and hedges financial risks in close cooperation with the Trust's business units. The treasury policies approved by the Board of Directors cover overall treasury risk management, as well as policies and limits covering specific areas such as liquidity risk, interest rate risk, foreign exchange risk, credit risk and the use of derivatives and other financial instruments. In conjunction with its advisers, the Responsible Entity continually reviews the Trust's exposures and (at least annually) updates its treasury policies and procedures.
(a) Liquidity risk
Liquidity risk is the risk that the Trust will not have sufficient available funds to meet financial obligations in an orderly manner when they fall due or at an acceptable cost.
The Trust identifies and manages liquidity risk across short, medium and long-term categories:
- Short-term liquidity management includes continuously monitoring forecast and actual cash flows;
- Medium-term liquidity management includes maintaining a level of committed borrowing facilities above the forecast committed debt requirements (liquidity headroom buffer). Committed debt includes future expenditure that has been approved by the Board or Investment Committee (as required within delegated limits), and may also include projects that have a very high probability of proceeding, taking into consideration risk factors such as the level of regulatory approval, tenant pre-commitments and portfolio considerations; and
DEXUS OFFICE TRUST Page 35 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 25. Financial risk management (continued)
(2) Financial risk management (continued)
(a) Liquidity risk (continued)
Long-term liquidity risk is managed through ensuring an adequate spread of maturities of borrowing facilities so that refinancing risk is not concentrated, and ensuring an adequate diversification of funding sources where possible subject to market conditions.
Refinancing risk
A key liquidity risk is the Trust's ability to refinance its current debt facilities. As the Trust's debt facilities mature, they are usually required to be refinanced by extending the facility or replacing the facility with an alternative form of capital.
The refinancing of existing facilities may also result in margin price risk, whereby market conditions may result in an unfavourable change in credit margins on the refinanced facilities. The Trust's key risk management strategy for margin price risk on refinancing is to spread the maturities of debt facilities over different time periods to reduce the volume of facilities to be refinanced and the exposure to market conditions in any one period.
An analysis of the contractual maturities of the Trust's interest bearing liabilities and derivative financial instruments are shown in the table below. The amounts in the table represent undiscounted cash flows.
| Consolidated | 2010 | 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
| Expiring | Expiring | Expiring | Expiring | |||||
| Expiring | between one | between two | Expiring | Expiring | between one | between two | ||
| within one | and two | and five | after five | within one | and two | and five | Expiring after | |
| year | years | years | years | year | years | years | five years | |
| \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | |
| Receivables | 3,737 | - | - | - | 6,714 | - | - | - |
| Payables | 41,782 | - | - | - | 27,690 | - | - | - |
| (38,045) | - | - | - | (20,976) | - | - | - | |
| Interest bearing loans with related parties |
- | - | - | 49,637 | - | - | - | 41,049 |
| Interest bearing liabilities Floating interest bearing liabilities |
- | 250,000 | - | - | - | - | 250,000 | - |
| Total interest bearing liabilities 1 |
- | 250,000 | - | - | - | - | 250,000 | - |
| Derivative financial instruments |
||||||||
| Derivative assets | 2,264 | 1,971 | 2,392 | 569 | 5,723 | 6,528 | 9,232 | - |
| Derivative liabilities | 6,278 | 5,082 | 9,817 | 1,754 | 23,297 | 22,697 | 52,660 | 25,064 |
| Total net derivative | ||||||||
| financial instruments 2 | (4,014) | (3,111) | (7,425) | (1,185) | (17,574) | (16,169) | (43,428) | (25,064) |
1 Refer to note 18 (interest bearing liabilities). Excludes deferred borrowing costs and preference shares. For financial
guarantees refer note 26 (contingent liabilities). 2 The notional maturities on derivatives are only shown for forward foreign exchange contracts as they are the only instruments where a principal amount is exchanged. For interest rate swaps, only the net interest cash flows (not the notional principal) are included. For derivative assets and liabilities that have floating rate interest cash flows, future cash flows have been calculated using static interest rates prevailing at 30 June 2010. Refer to note 10 Derivative Financial Instruments for fair value of derivatives.
DEXUS OFFICE TRUST Page 36 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 25. Financial risk management (continued)
(2) Financial risk management (continued)
(a) Liquidity risk (continued)
| Parent Entity | 2010 | 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
| Expiring | Expiring | Expiring | Expiring | |||||
| Expiring | between one between two |
Expiring Expiring |
between one | between two | ||||
| within one | and two | and five | after five | within one | and two | and five | Expiring after | |
| year | years | years | years | year | years | years | five years | |
| \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | |
| Receivables | 2,520 | - | - | - | 5,090 | - | - | - |
| Payables | 24,927 | - | - | - | 18,541 | - | - | - |
| (22,407) | - | - | - | (13,361) | - | - | - | |
| Interest bearing loans with | ||||||||
| controlled entities | - | (248,618) | - | 305,753 | 262,153 | - | - | 248,038 |
| Derivative financial instruments |
||||||||
| Derivative assets | 2,264 | 1,971 | 2,392 | 569 | 5,723 | 6,528 | 9,232 | - |
| Derivative liabilities | 6,278 | 5,082 | 9,817 | 1,754 | 23,297 | 22,697 | 52,660 | 25,064 |
| Total net derivative | ||||||||
| financial instruments 1 | (4,014) | (3,111) | (7,425) | (1,185) | (17,574) | (16,169) | (43,428) | (25,064) |
1 The notional maturities on derivatives are only shown for forward foreign exchange contracts as they are the only instruments where a principal amount is exchanged. For interest rate swaps, only the net interest cash flows (not the notional principal) are included. For derivative assets and liabilities that have floating rate interest cash flows, future cash flows have been calculated using static interest rates prevailing at 30 June 2010. Refer to note 10 Derivative Financial Instruments for fair value of derivatives.
(b) Market risk
Market risk is the risk that the fair value or future cash flows of the Trust's financial instruments will fluctuate because of changes in market prices. The market risks that the Trust is exposed to are detailed further below.
(i) Interest rate risk
Interest rate risk is the risk that fluctuating interest rates will cause an adverse impact on interest payable (or receivable), or an adverse change on the capital value (present market value) of long-term fixed rate instruments.
Interest rate risk for the Trust arises from interest bearing financial assets and liabilities that the Trust holds. Borrowings issued at variable rates expose the Trust to cash flow interest rate risk. Borrowings issued at fixed rates expose the Trust to fair value interest rate risk.
The primary objective of the Trust's risk management policy for interest rate risk is to minimise the effects of interest rate movements on the Trust's portfolio of financial assets and liabilities and financial performance. The policy sets out the minimum and maximum hedging amounts for the Trust which is managed on a portfolio basis.
Cash flow interest rate risk on borrowings is managed through the use of interest rate swaps, whereby a floating interest rate exposure is converted to a fixed interest rate exposure. Fair value interest rate risk on borrowings is also managed through the use of interest rate swaps, whereby a fixed interest exposure is converted to a floating interest rate exposure. The mix of fixed and floating rate exposures is monitored regularly to ensure that the interest rate exposure on the Trust's cash flows is managed within the parameters defined by the Group Treasury Policy.
The net notional amount of fixed rate debt and interest rate swaps in place in each year and the weighted average effective hedge rate is set out in the next table.
DEXUS OFFICE TRUST Page 37 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 25. Financial risk management (continued)
(2) Financial risk management (continued)
(b) Market risk (continued)
| Consolidated 30 June 2010 | June 2011 | June 2012 | June 2013 | June 2014 | > June 2015 |
|---|---|---|---|---|---|
| Interest rate swaps | |||||
| AUD hedged 1 | 694,167 | 593,333 | 555,000 | 550,000 | 134,444 |
| AUD hedge rate (%) 2 | 5.48% | 5.48% | 5.83% | 5.98% | 4.14% |
1 Average amounts for the period. Hedged amounts above do not include potential hedges that are cancellable at the counterparty's option. 2 The above hedge rates do not include margins payable on borrowings.
Sensitivity on interest expense
The table below shows the impact on unhedged net interest expense (excluding non-cash items) of a 50 basis points increase or decrease in short-term and long-term market interest rates. The sensitivity on cash flow arises due to the impact that a change in interest rates will have on the Trust's floating rate debt and derivative cash flows. Net interest expense is only sensitive to movements in market rates to the extent that floating rate debt is not hedged.
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 (+/-) \$'000 |
2009 (+/-) \$'000 |
2010 (+/-) \$'000 |
2009 (+/-) \$'000 |
||
| + / - 0.50% (50 basis points) | AUD | (3,279) | (1,525) | (3,279) | (1,525) |
The increase or decrease in interest expense is proportional to the increase or decrease in interest rates.
Sensitivity on fair value of interest rate swaps
The table below shows the impact on the Statements of Comprehensive Income for changes in the fair value of interest rate swaps for a 50 basis points increase and decrease in short-term and long-term market interest rates. The sensitivity on the fair value arises from the impact that changes in market rates will have on the mark-to-market valuation of the interest rate swaps. The fair value of interest rate swaps is calculated as the present value of estimated future cash flows on the instruments. Cash flows are discounted using the forward price curve of interest rates at the end of the reporting period. Although interest rate swaps are transacted for the purpose of providing the Trust with an economic hedge, the Trust has elected not to apply hedge accounting to its interest rate derivatives. Accordingly, gains or losses arising from changes in the fair value are reflected in the Statements of Comprehensive Income.
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | ||
| + / - 0.50% (50 basis points) | AUD | 13,755 | 16,366 | 13,755 | 16,366 |
DEXUS OFFICE TRUST Page 38 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 25. Financial risk management (continued)
(2) Financial risk management (continued)
(b) Market risk (continued)
(ii) Foreign exchange risk
Foreign exchange risk is the risk that movements in exchange rates used to convert foreign currency revenues, expenses, assets, or liabilities to the Trust's functional currency will have an adverse effect on the Trust.
The Trust operates internationally with investments in New Zealand. As a result of these activities, the Trust has foreign exchange risk, arising primarily from:
- Translation of investments in foreign operations; and
- Earnings distributions and other transactions denominated in foreign currencies.
The objective of the Trust's foreign exchange risk management policy is to ensure that movements in exchange rates have minimal adverse impact on the Trust's foreign currency assets and liabilities, and net foreign currency cash flows as outlined below.
Foreign currency assets and liabilities
Exposure to foreign exchange risk is minimised by predominantly matching the currency of the Trust's debt with the currency of its investment to form a natural hedge against movements in exchange rates. This policy reduces the risk that movements in foreign exchange rates will have an adverse impact on unit holder's equity and net tangible assets.
Where Australian dollar borrowings are used to fund the foreign currency investment, the Trust may transact cross currency swaps for the purpose of providing an alternate source of foreign currency funding whilst maintaining the natural hedge. In these instances the Trust has committed foreign currency borrowing capacity in place that can replace the foreign currency amounts that are due under the cross currency swaps.
The Trust's net foreign currency exposures for net investments in foreign operations and hedging instruments are as follows:
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2009 2008 |
2009 | 2008 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | |
| NZD net assets 1 | 128,500 | 130,000 | - | - |
| NZD net borrowings 2 | - | - | - | - |
| NZD cross currency swaps 3 | - | - | - | - |
| NZD denominated net investment | 128,500 | 130,000 | - | |
| % hedged | 0% | 0% | - | - |
1 Assets excludes working capital and cash as reported internally to management. 2
Net borrowings is equal to interest bearing liabilities less cash. 3
Cross currency swap amounts comprise the foreign currency denominated leg of the cross currency swaps.
DEXUS OFFICE TRUST Page 39 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 25. Financial risk management (continued)
(2) Financial risk management (continued)
(b) Market risk (continued)
Sensitivity on equity (foreign currency translation reserve)
The table below shows the impact on the foreign currency translation reserve for changes in the translated value of foreign currency assets and liabilities for an increase and decrease in foreign exchange rates. The increase and decrease in cents has been based on the historical movements of the Australian dollar relative to the New Zealand dollar1 . The increase and decrease has been applied to the spot rate prevailing at 30 June 2010 (see footnote below). The impact on the foreign currency translation reserve arises as the translation of the Trust's foreign currency assets and liabilities are recorded (in Australian Dollars) directly in the foreign currency translation reserve.
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | ||
| + 10.4 cents (10%) (2009: 10.0 cents) | NZ\$ (A\$ Equivalent) | 8,156 | 18,636 | - | - |
| - 10.4 cents (10%) (2009: 10.0 cents) | NZ\$ (A\$ Equivalent) | (9,666) | (27,577) | - | - |
1 The sensitivity on market rates has been based on the standard deviation of the annual change in the Australian dollar exchange rate per currency since 1984 or commencement. 2
Exchange rates at 30 June 2010: AUD/NZD 1.2308 (2009: 1.2428)
Net foreign currency denominated cash flows
Foreign exchange risk exists in relation to net cash flows and transactions with foreign operations that are denominated in foreign currencies. This risk is managed through the use of forward foreign exchange contracts (after taking into account the natural hedging through foreign denominated interest expense).
Forward foreign exchange contracts outstanding at 30 June 2010 are as follows:
| 2010 | 2010 | 2010 Weighted |
2009 | 2009 | 2009 | |
|---|---|---|---|---|---|---|
| To pay NZ\$ million |
To receive A\$ million |
average exchange rate |
To pay NZ\$ million |
To receive A\$ million |
Weighted average exchange rate |
|
| 1 year or less | 2.0 | 1.7 | 1.1848 | 4.0 | 3.4 | 1.1780 |
| Over 1 and less than 2 years | - | - | - | 2.0 | 1.7 | 1.1847 |
| More than 2 years | - | - | - | - | - | - |
DEXUS OFFICE TRUST Page 40 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 25. Financial risk management (continued)
(2) Financial risk management (continued)
(b) Market risk (continued)
Sensitivity on fair value of foreign exchange contracts
The table below shows the impact on the Statements of Comprehensive Income for changes in the fair value of forward foreign exchange contracts for an increase and decrease in market rates. The increase and decrease in cents has been based on the historical movements of the Australian dollar relative to the New Zealand dollar1 . The increase and decrease in cents has been applied to the spot rate prevailing at 30 June 2010 (see footnote below). The sensitivity on the fair value arises from the impact that changes in market rates will have on the mark-to-market valuation of the forward foreign exchange contracts.
Although forward foreign exchange contracts are transacted for the purpose of providing the Trust with an economic hedge, the Trust has elected not to apply hedge accounting to its forward foreign exchange contracts. Accordingly, gains or losses arising from changes in the fair value are reflected in the Statements of Comprehensive Income.
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | ||
| + 10.4 cents (8.5%) (2009: 10.0 cents) | NZ\$ (A\$ Equivalent) | 124 | 347 | 124 | - |
| - 10.4 cents (8.5%) (2009: 10.0 cents) | NZ\$ (A\$ Equivalent) | (146) | (408) | (146) | - |
1 The sensitivity on market rates has been based on the standard deviation of the annual change in the Australian dollar exchange rate per currency since 1984 or commencement. 2
Exchange rates at 30 June 2010: AUD/NZD 1.2308 (2009: 1.2428)
DEXUS OFFICE TRUST Page 41 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 25. Financial risk management (continued)
(2) Financial risk management (continued)
(c) Credit risk
Credit risk is the risk of loss to the Trust in the event of non-performance by the Trust's financial instrument counterparties. Credit risk arises from cash and cash equivalents, loans and receivables, and derivative financial instruments. The Trust and parent entity have exposure to credit risk on all financial assets.
The Trust manages this risk by:
- Adopting a process for determining an approved counterparty, with consideration of qualitative factors as well as the counterparty's rating;
- Regularly monitoring counterparty exposure within approved credit limits that are based on the lower of a S&P, Moody's and Fitch credit rating. The exposure includes the current market value of in-the-money contracts as well as potential exposure, which is measured with reference to credit conversion factors as per APRA guidelines;
- Entering into ISDA Master Agreements once a financial institution counterparty is approved;
- Ensuring tenants, together with approved credit limits, are approved and ensuring that leases are undertaken with a large number of tenants;
- For some trade receivables, obtaining collateral where necessary in the form of bank guarantees and tenant bonds; and
- Regularly monitoring loans and receivables on an ongoing basis.
A minimum S&P rating of A– (or Moody's or Fitch equivalent) is required to become or remain an approved counterparty. As at 30 June 2010 and 30 June 2009, the lowest rating of counterparties that the Trust is exposed to was A (S&P).
Financial instrument transactions are spread among a number of approved financial institutions within specified credit limits to minimise the Trust's exposure to any one counterparty. As a result, there is no significant concentration of credit risk for financial instruments.
The maximum exposure to credit risk at 30 June 2010 and 30 June 2009 is the carrying amount of financial assets recognised on the Statements of Financial Position of the Trust and parent entity.
As at 30 June 2010 and 30 June 2009, the Trust and the parent have no significant concentrations of credit risk for trade receivables. Trade receivable balances and the credit quality of trade debtors are consistently monitored on an ongoing basis. As a result, the Trust and parent entity's exposure to bad debts is not significant.
For the consolidated entity, the ageing analysis of loans and receivables net of provisions at 30 June 2010 is (\$'000): 3,610.2 (0- 30 days), 60.4 (31-60 days), 37.4 (61-90 days), 28.7 (91+ days). The ageing analysis of loans and receivables net of provisions at 30 June 2009 is (\$'000): 6,339.7 (0-30 days), 320.6 (31-60 days), 84.0 (61-90 days), 29.5 (91+ days). Amounts over 31 days are past due, however, no receivables are impaired.
For the parent entity, the ageing analysis for loans and receivables net of provisions at 30 June 2010 is (\$'000): 2,565.4 (0-30 days), (12.3) (31-60 days), (0.4) (61-90 days), (32.3) (91+ days). The ageing analysis of loans and receivables net of provisions for the parent entity at 30 June 2009 is (\$'000): 5,124.6 (0-30 days), 22.4 (31-60 days), (4.4) (61-90 days), (7.7) (91+ days). Amounts over 31 days are past due, however, no receivables are impaired.
The credit quality of financial assets that are neither past due nor impaired is consistently monitored to ensure that there are no adverse changes in credit quality.
DEXUS OFFICE TRUST Page 42 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 25. Financial risk management (continued)
(2) Financial risk management (continued)
(d) Fair value of financial instruments
Fair value interest rate risk is the risk of an adverse change in the net fair (or market) value of an asset or liability due to movements in interest rates.
At 30 June 2010, the carrying amounts and fair value of financial assets and liabilities are shown as follows:
| Consolidated | Consolidated | |||
|---|---|---|---|---|
| 2010 | 2010 | 2009 | 2009 | |
| Carrying | Carrying | |||
| amount 1 | Fair value 2 | amount 1 | Fair value 2 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Financial assets | ||||
| Cash and cash equivalents | 8,766 | 8,766 | 8,289 | 8,289 |
| Loans and receivables (current) | 3,737 | 3,737 | 6,714 | 6,714 |
| Derivative assets | 6,110 | 6,110 | 13,785 | 13,785 |
| Interest bearing assets | ||||
| Interest bearing loans with related parties | 49,637 | 49,637 | 41,049 | 41,049 |
| Total financial assets | 68,250 | 68,250 | 69,837 | 69,837 |
| Financial liabilities | ||||
| Trade payables | 41,782 | 41,782 | 27,690 | 27,690 |
| Derivative liabilities | 22,166 | 22,166 | 24,025 | 24,025 |
| Non-interest bearing loans with the entities within DXS | 55,684 | 55,684 | 55,684 | 55,684 |
| Interest bearing liabilities | ||||
| Bank loans | 250,000 | 250,000 | 250,000 | 250,000 |
| Total financial liabilities | 369,632 | 369,632 | 357,399 | 357,399 |
| Parent Entity | Parent Entity | |||
| 2010 | 2010 | 2009 | 2009 | |
| Carrying | Carrying | |||
| amount 1 | Fair value 2 | amount 1 | Fair value 2 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Financial assets | ||||
| Cash and cash equivalents | 3,192 | 3,192 | 3,728 | 3,728 |
| Loans and receivables (current) | 2,520 | 2,520 | 267,243 | 267,243 |
| Derivative assets | 6,110 | 6,110 | 13,785 | 13,785 |
| Other financial assets at fair value through profit and loss | 453,948 | 453,948 | 510,910 | 510,910 |
| Interest bearing assets |
| Other financial assets at fair value through profit and loss | 453,948 | 453,948 | 510,910 | 510,910 |
|---|---|---|---|---|
| Interest bearing assets | ||||
| Interest bearing loans with related parties | 49,637 | 49,637 | 41,049 | 41,049 |
| Total financial assets | 515,407 | 515,407 | 836,715 | 836,715 |
| Financial liabilities | ||||
| Trade payables | 24,927 | 24,927 | 18,541 | 18,541 |
| Derivative liabilities | 22,166 | 22,166 | 24,025 | 24,025 |
| Non-interest bearing loans with the entities within DXS | 55,684 | 55,684 | 55,684 | 55,684 |
| Interest bearing liabilities | ||||
| Interest bearing loans with controlled entities | 248,618 | 248,618 | 248,038 | 248,038 |
| Total financial liabilities | 351,395 | 351,395 | 346,288 | 346,288 |
1 Carrying value is equal to the value of the financial instruments in the Statements of Financial Position. 2
Fair value is the amount for which the financial instrument could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction, however, not recognised in the Statements of Financial Position.
DEXUS OFFICE TRUST Page 43 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 25. Financial risk management (continued)
(2) Financial risk management (continued)
(d) Fair value of financial instruments (continued)
The fair value of fixed rate interest bearing liabilities have been determined by discounting the expected future cash flows by the relevant market rates. The discount rates applied range from 4.79% to 6.08% for AUD. Refer note 1(t) for fair value methodology for financial assets and liabilities.
Determination of fair value
The Trust uses methods in the determination and disclosure of the fair value of financial instruments. These methods comprise: Level 1: the fair value is calculated using quoted prices in active markets.
Level 2: the fair value is determined using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: the fair value is estimated using inputs for the asset or liability that are not based on observable data.
| Consolidated | Level 1 \$'000 |
Level 2 \$'000 |
Level 3 \$'000 |
2010 \$'000 |
|---|---|---|---|---|
| Financial assets | ||||
| Derivative assets | ||||
| - Interest rate derivatives | - | 13,557 | - | 13,557 |
| - Forward exchange contracts | - | 227 | - | 227 |
| - | 13,784 | - | 13,784 | |
| Financial liabilities | ||||
| Derivative liabilities | ||||
| - Interest rate derivatives | - | 24,025 | - | 24,025 |
| Parent Entity | Level 1 | Level 2 | Level 3 | 2010 |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Financial assets | ||||
| Derivative assets | ||||
| - Interest rate derivatives | - | 13,557 | - | 13,557 |
| - Forward exchange contracts | - | 227 | - | 227 |
| 13,784 | 13,784 | |||
| Financial liabilities | ||||
| Derivative liabilities | ||||
| - Interest rate derivatives | - | 24,025 | - | 24,025 |
DEXUS OFFICE TRUST Page 44 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 26. Contingent liabilities
Details and estimates of maximum amounts of
| contingent liabilities are as follows: | Consolidated | Parent Entity | ||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Bank guarantees by the Trust in respect of variations and other financial risks associated with the development of: |
||||
| 60 Miller Street, North Sydney, NSW | - | 497 | - | 497 |
| Bligh Street, Sydney, NSW 1 | 3,820 | 3,820 | - | - |
| Total contingent liabilities | 3,820 | 4,317 | - | 497 |
1 Bank guarantee held in relation to an equity accounted investment. (Refer note15).
The Trust together with DDF, DIT and DXO is also a guarantor of a US\$210.0 million (A\$246.4 million) syndicated bank debt facility and a total of A\$1,182.5 million and US\$120.0 million (A\$140.8 million) of bank bi-lateral facilities, a total of A\$361.1 million of medium term notes, a total of US\$400.0 million (A\$469.3 million) of privately placed notes, and a total of US\$300.0 million (A\$352.0 million) of public 144a senior notes, which have all been negotiated to finance the Trust and other entities within DXS. The guarantees have been given in support of debt outstanding and drawn against these facilities, and may be called upon in the event that a borrower under the above facilities does not comply with certain loan conditions, such as, failure to meet interest payments or failure to repay a borrowing, whichever is earlier. During the period none of the guarantees were called.
The Trust together with DDF, DIT and DXO is also a guarantor, on a subordinated basis, of RENTS (Real-estate perpetual ExchaNgable sTep-up Securities). The guarantee has been given in support of payments that become due and payable to the RENTS holders and ranks ahead of the Group's distribution payments, but subordinated to the claims of senior creditors.
The guarantees are issued in respect of the Trust and do not constitute an additional liability to those already existing in interest bearing liabilities on the Statements of Financial Position.
The Directors of the Responsible Entity are not aware of any other contingent liabilities in relation to the Trust, other than those disclosed in the Financial Statements, which should be brought to the attention of unitholders.
DEXUS OFFICE TRUST Page 45 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Commitments
(a) Capital commitments
The following amounts represent capital expenditure on investment properties contracted at the end of each reporting period:
| Capital expenditure commitments: | Consolidated | Parent Entity | ||
|---|---|---|---|---|
| 2,010 | 2,009 | 2,010 | 2,009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Not longer than one year | ||||
| Governor Phillip Tower & Governor Macquarie Tower Office | ||||
| Complex 1 Farrer Place, Sydney, NSW | 1,986 | 3,310 | 1,986 | 3,310 |
| The Zenith, 821–843 Pacific Highway, Chatswood, NSW | 1,811 | 197 | 1,811 | 197 |
| 60 Miller Street, North Sydney NSW | 765 | 195 | 765 | 195 |
| 1 Margaret Street, Sydney NSW | 369 | - | 369 | - |
| 45 Clarence Street, Sydney, NSW | 1,200 | - | 1,200 | - |
| 309 - 321 Kent Street, Sydney, NSW | 1,121 | - | 1,121 | - |
| Southgate Complex, 3 Southgate Avenue, Southgate, VIC Australia Square Complex, 264 - 278 George Street, Sydney, |
756 | 74 | - | - |
| NSW | - | 68 | - | - |
| 8,008 | 3,844 | 7,252 | 3,702 | |
| Later than one year but no later than five years | ||||
| Southgate Complex, 3 Southgate Avenue, Southgate, VIC Governor Phillip Tower & Governor Macquarie Tower Office |
- | 1,066 | - | - |
| Complex 1 Farrer Place, Sydney, NSW | - | 1,532 | - | 1,532 |
| - | 2,598 | - | 1,532 | |
| Total capital commitments | 8,008 | 6,442 | 7,252 | 5,234 |
(b) Lease receivable commitments
The future minimum lease payments receivable by the Trust are:
| the Trust are: | Consolidated | Parent Entity | ||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Within one year | 191,581 | 186,048 | 184,079 | 121,991 |
| Later than one year but not later than five years | 645,175 | 741,982 | 616,747 | 480,071 |
| Later than five years | 241,914 | 259,637 | 233,798 | 128,041 |
| Total lease receivable commitments | 1,078,670 | 1,187,667 | 1,034,624 | 730,103 |
DEXUS OFFICE TRUST Page 46 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties
Responsible Entity
DXFM is the Responsible Entity of the Trust.
Responsible Entity fees
Under the terms of the Trust's Constitution, the Responsible Entity is entitled to receive fees in relation to the management of the Trust. DXFM's parent entity, DXH is entitled to be reimbursed for administration expenses incurred on behalf of the Trust. DEXUS Property Services Pty Limited (DXPS), a wholly owned subsidiary of DXH is entitled to property management fees from the Trust.
Related party transactions
Responsible Entity fees in relation to DXS assets are on a cost recovery basis.
DEXUS Funds Management Limited and its related entities
There were a number of transactions and balances between the Trust and the Responsible Entity and its related entities as detailed below:
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$ | \$ | \$ | \$ | |
| Responsible Entity fees paid and payable | 8,998,138 | 10,167,291 | 6,362,366 | 7,118,211 |
| Property management fees paid and payable to DXPS | 5,279,268 | 4,382,849 | 4,190,900 | 3,721,117 |
| Recovery of administration expenses paid to DXH | 5,272,669 | 7,623,664 | 4,015,412 | 6,742,898 |
| Aggregate amounts payable to the Responsible Entity | ||||
| at the end of each reporting period (included above) Property management fees payable at the end of each |
758,567 | 826,897 | 601,243 | 580,462 |
| reporting period (included above) Administration expenses payable at the end of each |
983,764 | 981,458 | 884,603 | 498,038 |
| reporting period (included above) | 626,545 | 143,761 | 494,127 | 108,214 |
| Net rental expense payable to DXPS | 382,593 | - | - | - |
Entities within DXS
Aggregate amounts included in the determination of profit that resulted from transactions with each class of other related parties:
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$ | \$ | \$ | \$ | |
| Interest revenue | (2,202,233) | - | (2,202,233) | - |
| Interest expense | - | 12,270,083 | - | 12,270,083 |
| Interest bearing loans advanced to entities within DXS | 147,525,419 | 671,022,708 | 147,525,419 | 671,022,708 |
| Interest bearing loans from entities within DXS | 131,557,258 | 373,477,247 | 131,557,258 | 373,477,247 |
DEXUS OFFICE TRUST Page 47 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
The following persons were Directors of DXFM at all times during the year and to the date of this report:
Directors
- C T Beare, BSc, BE (Hons), MBA, PhD, FAICD1,4,5
- E A Alexander AM, BComm, FCA, FAICD, FCPA1,2,6
- B R Brownjohn, BComm1,2,5,6
- J C Conde AO, BSc, BE(Hons), MBA 1,3,4
- S F Ewen OAM1,4
- V P Hoog Antink, BComm, MBA, FCA, FAPI, FRICS, MAICD
- B E Scullin, BEc1,3,7
- P B St George, CA (SA), MBA 1,2,5,6
- 1 Independent Director
- 2 Audit Committee Member
- 3 Compliance Committee Member
- 4 Nomination and Remuneration Committee Member
- 5 Finance Committee Member
- 6 Risk and Sustainability Committee Member (name changed from Board Risk Committee on 2 June 2010) 7
- Nomination and Remuneration Committee Member from 1 July 2009 to 31 August 2009
No Directors held an interest in the Trust for the years ended 30 June 2010 and 30 June 2009.
Other key management personnel
In addition to the Directors listed above the following persons were deemed by the Board Nomination and Remuneration Committee to be key management personnel during all or part of the financial year and up to the date of this report:
| Name | Position |
|---|---|
| Victor P Hoog Antink | Chief Executive Officer |
| Tanya L Cox | Chief Operating Officer |
| Patricia A Daniels | Head of Human Resources |
| John C Easy | General Counsel |
| Jane LIoyd | Head of US Investments |
| Louise J Martin | Head of Office |
| Craig D Mitchell | Chief Financial Officer |
| Paul G Say | Head of Corporate Development |
| Mark F Turner | Head of Funds Management |
| Andrew P Whiteside | Head of Industrial |
No key management personnel or their related parties held an interest in the Trust for the years ended 30 June 2010 and 30 June 2009.
There were no loans or other transactions with key management personnel or their related parties during the years ended 30 June 2010 and 30 June 2009.
| 2010 | 2009 | |
|---|---|---|
| \$ | \$ | |
| Compensation | ||
| Short term employee benefits | 9,174,298 | 7,910,223 |
| Post employment benefits | 328,058 | 563,665 |
| Other long term benefits | 3,797,553 | 1,509,929 |
| 13,299,909 | 9,983,817 |
DEXUS OFFICE TRUST Page 48 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
Remuneration Report
1 Introduction
This Remuneration Report has been prepared in accordance with AASB 124 Related Party Disclosures and section 300A of the Corporations Act 2001 for the year ended 30 June 2010. The information provided in this Report has been audited in accordance with the provisions of section 308 (3C) of the Corporations Act 2001.
Changes to this Report, compared to the previous year, include a clearer description of the structure and nature of the Long Term Incentive Plan (known this year as DEXUS Deferred Performance Payments). DEXUS has also disclosed the outcome of fixed remuneration reviews for Executives for the 2010/11 year, and the outcome of the fee review for Directors.
Key Management Personnel
In this report, Key Management Personnel ("KMP") are those people having the authority and responsibility for planning, directing and controlling the activities of DEXUS, either directly or indirectly. They comprise Non-Executive Directors, the CEO and other members of the Executive Committee. Within this report the term 'Executive' encompasses the CEO and other members of the Executive Committee.
KMP (including the five highest paid Executives) of DEXUS for the year ended 30 June 2010 are set out below.
| Name | Title | Date of qualification as a KMP |
|---|---|---|
| Non-Executive Directors | ||
| Christopher T Beare | Non-Executive Chair | Appointed 1 October 2004 |
| Elizabeth A Alexander AM | Non-Executive Director | Appointed 1 January 2005 |
| Barry R Brownjohn | Non-Executive Director | Appointed 1 January 2005 |
| John C Conde AO | Non-Executive Director | Appointed 29 April 2009 |
| Stewart F Ewen OAM | Non-Executive Director | Appointed 1 October 2004 |
| Charles B Leitner III 1 | Non-Executive Director | Resigned 29 April 2009 |
| Brian E Scullin | Non-Executive Director | Appointed 1 January 2005 |
| Peter B St George | Non-Executive Director | Appointed 29 April 2009 |
1 Mr Leitner was appointed on 10 March 2005. Simultaneous with Mr Leitner's resignation, Mr Fay resigned as Mr Leitner's alternate.
| Name | Title | Date of qualification as a KMP |
|---|---|---|
| Executives | ||
| Victor P Hoog Antink | Chief Executive Officer | Appointed 1 October 2004 |
| Tanya L Cox | Chief Operating Officer | Appointed 1 October 2004 |
| Patricia A Daniels | Head of Human Resources | Appointed 14 January 2008 |
| John C Easy | General Counsel | Appointed 1 October 2004 |
| Jane Lloyd | Head of US Investments | Appointed 14 July 2008 |
| Louise J Martin | Head of Office | Appointed 27 March 2008 |
| Craig D Mitchell | Chief Financial Officer | Appointed 17 September 2007 |
| Paul G Say | Head of Corporate Development | Appointed 19 March 2007 |
| Mark F Turner | Head of Funds Management | Appointed 1 October 2004 |
| Andrew P Whiteside | Head of Industrial | Appointed 28 April 2008 |
Following a streamlining of the Group's executive structure in July 2010 the DEXUS Executive Committee was replaced by a new, smaller Group Management Committee. This change will impact those positions which qualify as Key Management Personnel in the 2010/11 year.
DEXUS OFFICE TRUST Page 49 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
2 Board oversight of remuneration
The Board Nomination and Remuneration Committee ("Committee") oversees the remuneration of Directors and Executives. The Committee is responsible for reviewing and recommending Executive remuneration policies and structures to the Board.
The Committee assesses the appropriateness of the structure and quantum of Director and Executive remuneration on an annual basis by reference to relevant regulatory and market conditions, and individual and company performance. The Committee engages external consultants to provide independent advice when required.
Further information about the role and responsibility of the Committee is set out in the Corporate Governance Statement which may be found at http://www.DEXUS.com/Corporate-Governance.aspx.
During the reporting period Nomination and Remuneration Committee members were Messrs Conde (Member until 31 August 2009, Chair with effect from 1 September 2009), Beare (Chair until 31 August 2009, Member with effect from 1 September 2009), Scullin (Member until 31 August 2009) and Ewen.
3 Non-Executive Directors' remuneration framework
The objectives of the Non-Executive Directors' remuneration framework are to ensure Non-Executive Directors' fees reflect the responsibilities of Non-Executive Directors and are market competitive. Non-Executive Directors' fees are reviewed annually.
Non-Executive Directors, other than the Chair, receive a base fee plus additional fees for membership of Board Committees. The table below outlines the fee structure for the reporting period.
| Committee | Chair | Member |
|---|---|---|
| Non-Executive Director | \$300,000 | \$130,000 |
| Board Audit & Risk | \$30,000 | \$15,000 |
| DWPL Board | \$30,000 | \$15,000 |
| Board Finance | \$15,000 | \$7,500 |
| Board Compliance | \$15,000 | \$7,500 |
| Board Nomination & Remuneration | \$15,000 | \$7,500 |
Further to the Committee fee structure outlined above, Mr Ewen has been paid an additional fixed fee of \$30,000 per annum for assuming responsibilities involved in attending property inspections, reviewing property investment proposals and participating in informal management meetings.
Recognising the greater responsibility and time commitment required the Board Chair receives a higher fee than other Non-Executive Directors, which is benchmarked to the market median of comparably sized ASX listed entities. The Chair receives no Board Committee fees, nor is the Chair present during any discussion relating to the determination of the Chair's fees.
Non-Executive Directors are not eligible to receive performance based remuneration or accrue separate retirement benefits beyond statutory superannuation entitlements.
DEXUS OFFICE TRUST Page 50 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
3 Executive Directors' remuneration framework (continued)
Fees paid to Non-Executive Directors are paid from a remuneration pool of \$1,750,000 per annum, which was approved by DEXUS security holders at its Annual General Meeting held in October 2008. Non-Executive Directors' fees were last adjusted in July 2007 and Non-Executive Directors have received no increase in fees since that time. At its meeting on 20 May 2010, following analysis of Non-Executive Director market remuneration data, the Nomination and Remuneration Committee determined that fees paid to its Non-Executive Directors had fallen below the market median of comparably sized ASX listed entities. Similarly, the Committee determined that fees paid to its Chair had fallen significantly below this peer group. Following consideration by the full Board, fees paid to DEXUS Non-Executive Directors for the year commencing 1 July 2010 will increase to \$150,000 per annum and fees paid to the Chair will increase to \$350,000 per annum. Committee fees will remain unchanged.
4 Approach to Executive remuneration
4.1 Executive remuneration principles
The Directors believe that achievement of DEXUS's strategic plans will create superior security holder value, through the delivery of consistent returns, generated with relatively moderate risk. The Directors consider that an appropriately skilled and qualified Executive team is essential to achieve this objective. DEXUS's approach to the principles, structure and quantum of Executive remuneration is therefore designed to attract, motivate and retain such an Executive team.
In establishing DEXUS's remuneration principles, the Directors are cognisant that DEXUS's business is based on long term property investments and similarly longer term tenant relationships. Furthermore, property market investment returns tend to be cyclical, particularly when coupled with financial structures that act to enhance returns.
Taking these factors into account, the Executive remuneration structure is based on the following criteria:
- (a) market competitiveness and reasonableness;
- (b) alignment of Executive performance payments with achievement of the Group's financial and operational objectives, within its risk framework and cognisant of its values-based culture; and
- (c) an appropriate target mix of remuneration components, including performance payments linked to security holder returns over the longer term.
(a) Market competitiveness and reasonableness
For the purposes of determining market competitive remuneration, DEXUS obtains external executive remuneration benchmarks and analyses information from a range of sources, including:
-
- publicly available data from the annual reports of constituents of the S&P/ASX 100 index;
-
- independent remuneration consultants, including Hart Consulting Group, Financial Institutions Remuneration Group, Hewitt and the Avdiev Group regarding property organisations of a similar market capitalisation; and
-
- various recruitment and consulting agencies who are informed sources of market remuneration trends.
DEXUS OFFICE TRUST Page 51 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
4. Approach to Executive remuneration (continued)
(b) Alignment of Executive performance payments with achievement of the Group's objectives
In 2009, DEXUS introduced a new method for determining key performance indicators (KPIs) and assessing individual performance known as the Balanced Scorecard performance framework. The Balanced Scorecard prescribes clearly the performance indicators that will be measured in order to 'balance' the financial perspective. The Balanced Scorecard is a performance management method that enables DEXUS to measure the execution of its strategy and reflect this performance in its incentive payments. It also provides targets and measurements around internal business processes and external outcomes in order to achieve strategic performance objectives and results. The Balanced Scorecard focuses on performance in four areas, which reflect each Executive's role, responsibility, accountability and strategy delivery.
| DEXUS Balanced Scorecard - Typical Objectives | ||||||||
|---|---|---|---|---|---|---|---|---|
| Financial Performance | Business Development and Business Management | |||||||
| • | Earnings per security | • Delivery of strategic projects on time and on budget |
||||||
| • | Distributions per security | • Corporate responsibility and sustainability initiatives |
||||||
| • | Third party funds performance | • Achievement of international operations strategies |
||||||
| • | Total security holder return, relative to peers | |||||||
| Stakeholder Satisfaction | Leadership | |||||||
| • | Investor relations | • Executive succession |
||||||
| • | Tenant satisfaction | • Talent management |
||||||
| • | Employee engagement | • Role modelling DEXUS cultural values |
||||||
| • Executive development |
Objectives are selected based on the key drivers to achieve superior security holder returns over time and are tailored and weighted according to the individual Executive's role. The typical objectives listed above may therefore not be common to all Executive roles.
The Committee reviews and approves Executive KPIs against Group objectives at the commencement of each financial year and reviews achievement against KPIs at the end of each financial year. The Committee's review of Executive performance, in conjunction with data provided from benchmarking total remuneration levels, provides the Committee with the information necessary to determine the quantum of Performance Payments to be awarded to Executives.
DEXUS OFFICE TRUST Page 52 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
4 Approach to Executive remuneration (continued)
(c) Executive remuneration structure
i. Executive Remuneration Components
The DEXUS Executive remuneration structure comprises the following remuneration components:
| TOTAL REMUNERATION | |||||||
|---|---|---|---|---|---|---|---|
| • • • |
delivered through fixed and variable components targeted at the market median |
awarded on a variable scale, which may result in a total remuneration range from lower quartile to upper quartile, reflecting differing levels of experience, role structure and contribution |
|||||
| FIXED REMUNERATION |
Salary Superannuation |
• Consists of cash salary and salary sacrificed fringe benefits, such as motor vehicles • Prescribed and salary sacrifice superannuation contributions, including insurance premiums (if applicable) |
• Targeted at Australian market median using external benchmark data and varies according to Executives' skills and depth of experience • Reviewed annually by the Board, effective 1 July, including internal and external relativities and gender pay equity |
||||
| VARIABLE REMUNERATION Performance Payments |
Single pool funded annually from underlying profits to meet Performance Payments |
• The aim of Performance Payments is to attract, motivate and retain appropriately skilled and qualified executives to achieve the strategic objectives of the business, measured through the achievement of KPIs • Strategic objectives incorporate financial and non-financial measures of performance at Group, business unit and individual level and represent key drivers for the success of the business and for delivering long term value to security holders • The achievement of KPIs is assessed through a Balanced Scorecard approach • Individual awards are determined on a range of factors, including achievement of KPIs and relative market remuneration positioning |
• Reviewed annually by the Board • The pool is funded to enable total remuneration to be paid at market median, based on external benchmark data • Performance Payments are delivered as immediate and deferred elements in accordance with the targeted remuneration mix set out in the table below • The award of any Performance Payment to an Executive is dependant upon achieving minimum threshold performance targets |
||||
| DEXUS Performance Payments ("DPP") DEXUS Deferred Performance Payments ("DDPP") |
• Delivery of DPP is immediate • Delivery of DDPP is deferred for three years, as described below |
• Awarded annually as a cash payment in September • Granted annually • Grants vest after three years • Delivered as a cash payment in accordance with the plan design described below • Unvested grants are forfeited upon Executive initiated termination (ie resignation) unless otherwise determined by the Nomination & Remuneration Committee |
DEXUS OFFICE TRUST Page 53 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
4 Approach to Executive remuneration (continued)
Performance payment pool
A single pool of funds is made available to meet all Performance Payments. The pool of funds available is sufficient to ensure that DEXUS is able to achieve its total remuneration positioning target, relative to the market. The Board may exercise its discretion to vary the size of the available pool by reference to such factors as:
- three year absolute total security holder return;
- management costs and revenue of DEXUS Holdings; and
- performance against budgeted earnings and distributions per security
ii. Target mix of remuneration components
The target remuneration mix for Executives, expressed as a percentage of total remuneration, is provided in the table below.
| 2010 | 2009 | |||||
|---|---|---|---|---|---|---|
| Remuneration component | CEO | CFO | Other Executives |
CEO | CFO | Other Executives |
| Total fixed | 35% | 40% | 50% | 35% | 40% | 50% |
| DEXUS Performance Payment ("DPP") |
30% | 30% | 25% | 30% | 30% | 25% |
| DEXUS Deferred Performance Payment ("DDPP") |
35% | 30% | 25% | 35% | 30% | 25% |
The Directors consider that allocating Performance Payments evenly between immediate payments and deferred payments is appropriate for Executives other than the CEO, whose Performance Payment is weighted to the longer term to reflect relatively greater alignment with long term returns to security holders.
iii. DEXUS Deferred Performance Payment ("DDPP") plan
The DDPP plan operates as follows:
- Following allocation, Deferred Performance Payments are subject to a three year vesting period from allocation date;
- The DDPP allocation value is notionally invested during the vesting period in DEXUS securities (50 percent of DDPP value) and its unlisted funds and mandates (50 percent of DDPP value);
- During the vesting period, DDPP allocation values fluctuate in line with changes in the "Composite Total Return" (simulating the notional investment exposure), comprising 50 percent of the total return of DEXUS securities and 50 percent of the combined asset weighted total return of its unlisted funds and mandates; and
- At the conclusion of the three year vesting period, if the Composite Total Return meets or exceeds the Composite Performance Benchmark, the Board may approve the application of a performance factor to the final DDPP allocation value:
- The "Composite Performance Benchmark" is 50 percent of the S&P/ASX 200 Property Accumulation Index and 50 percent of the Mercer Unlisted Property Fund Index over the 3-year vesting period;
- For performance up to 100% of the Composite Performance Benchmark, executives receive a DDPP allocation reflecting the Composite Total Return of the preceding 3 year vesting period; and
- For performance between 100% and 130% of the Composite Performance Benchmark a performance factor may be applied, ranging from 1.1 to a maximum of 1.5 times.
Provisions regarding the vesting of DDPP in the event of termination of service agreements are outlined in section 7 below.
DEXUS OFFICE TRUST Page 54 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
4 Approach to Executive remuneration (continued)
Equity options scheme
DEXUS does not operate an equity option scheme as part of its Executive remuneration structure. The Committee has considered the introduction of such a scheme, but has determined that it would not be, at the present time, an appropriate component of DEXUS's remuneration structure.
Equity and loan schemes
DEXUS does not operate a security participation plan or a loan plan for Executives or Directors.
The deferred element of DEXUS's Performance Payment is designed to simulate an equity plan, but does not provide Executives with direct equity exposure.
Hedging policy
DEXUS does not permit Executives to hedge their DDPP allocation.
5 Executive remuneration arrangements for the year ended 30 June 2010
This section outlines how the approach to Executive remuneration described above has been implemented in the 2009/10 financial year.
Decisions taken impacting executive remuneration for the year ended 30 June 2010 only
- No increase in base salaries in 2009/10 for Executives or employees with the exception of adjustments for a limited number of employees whose roles and responsibilities markedly increased.
- No increase in Non-Executive Director fees for 2008/09 and 2009/10.
Decisions taken impacting executive remuneration for the year ended 30 June 2010 and future years
- Accelerated DDPP vesting on termination for reasons outside of the Executive's control was discontinued, but can be applied by exception with the approval of the Nomination and Remuneration Committee.
- Automatic application of the DDPP performance multiplier was removed, impacting all current unvested awards and all future allocations.
- Eligibility of DDPP was restricted to Executives and senior management.
- Balanced Scorecard performance approach was introduced for Executives incorporating four key areas of focus financial performance, business development & business management, stakeholder satisfaction and leadership.
- Remuneration mix guidelines were adopted for all employees to provide greater transparency in the determination of the size of the performance payment pool.
Decisions taken impacting executive remuneration for the year ending 30 June 2011 and future years
- KPI performance weightings were introduced.
- The effectiveness of existing incentive plans was, and will continue to be reviewed.
At its meeting on 21 July 2010 the Nomination and Remuneration Committee determined that the fixed remuneration paid to a number of Executives had fallen below the market median of comparably sized ASX listed entities. Following consideration by the full Board, the fixed remuneration paid to specific Executives for the year commencing 1 July 2010 will increase in line with comparable market medium positions.
DEXUS OFFICE TRUST Page 55 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
6 Group performance and the link to remuneration
Total return analysis
The table below sets out the DEXUS total security holder return since inception, relative to the S&P/ASX 200 Property Accumulation Index. It also sets out DEXUS's Composite Total Return since inception, relative to the Composite Performance Benchmark. The DEXUS Composite Total Return is 50 percent of the total return of DEXUS securities, plus 50 percent of the combined asset weighted total return of its unlisted funds and mandates and the Composite Performance Benchmark is 50 percent of the S&P/ASX 200 Property Accumulation Index and 50 percent of Mercers' Unlisted Property Fund Index.
| Period to 30 June 2010 | 1 year (% per annum) |
2 years (% per annum) |
3 years (% per annum) |
Since 1 October 20041 (% per annum) |
|---|---|---|---|---|
| DEXUS Property Group | 9.4% | -17.2% | -19.6% | -0.5% |
| S&P/ASX 200 Property Accumulation Index |
20.4% | -16.6% | -23.8% | -5.6% |
| DEXUS Composite Total Return | 8.0% | -10.0% | -9.1% | 4.1% |
| Composite Performance Benchmark | 11.6% | -10.8% | -11.3% | 1.4% |
1 DEXUS's inception date is 1 October 2004.
In determining the construction of the Composite Total Return and in particular the relative weighting between the returns of the DEXUS Property Group and its unlisted funds and mandates, the Board considered the following factors:
- the desire of DEXUS Property Group to attract and retain third party funds and mandates based on the assurance that incentives are in place to ensure their equitable treatment;
- the economic contribution to DEXUS Property Group of management fees arising from third party funds under management;
- the increased investment in its management team and infrastructure, enabled by third party funds management fees, including in-house research, valuations and sustainability teams, the cost of which is defrayed by those fees; and
- the greater market presence and relevance the third party business brings to the DEXUS Property Group.
The Board also considered whether the construction of the Composite Total Return should reflect the actual value of the unlisted funds and mandates, and DEXUS Property Group's own funds under management.
Cognisant of all the above factors, the Board determined that a 50/50 allocation, rather than an allocation varying according to asset weighting, most fairly reflects the value contribution of third party funds to the DEXUS Property Group and provides the greatest assurance that all investors are treated equitably.
During the year DEXUS did not buy back or cancel any of its securities.
DEXUS OFFICE TRUST Page 56 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
6 Group performance and the link to remuneration (continued)
Total return of DEXUS securities
The graph below illustrates DEXUS' total security holder return relative to the S&P/ASX 200 Property Accumulation Index.
DEXUS has outperformed the S&P ASX 200 Property Accumulation index on a rolling three year basis each period since inception in October 2004. In addition, the DEXUS Composite Total Return has outperformed the Composite Performance Benchmark on a rolling three year basis each period since inception.
While the Directors recognise that improvement is always possible, they consider that DEXUS's business model, which aims to deliver consistent returns with relatively moderate risk, has been central to DEXUS's relative out-performance, and that its approach to Executive remuneration, with a focus on consistent out-performance of objectives, is aligned with and supports the superior execution of DEXUS's strategic plans.
DEXUS OFFICE TRUST Page 57 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
7 Service agreements
The employment arrangements for Executives are set out below.
CEO - Victor P Hoog Antink
The current employment contract commenced on 1 October 2004. The principal terms of the employment contract are as follows:
- the CEO is employed under a rolling contract;
- the CEO may resign from his position and thus terminate this contract by giving six months written notice. On resignation any unvested DDPP will be forfeited subject to the discretion of the Board;
- the Group may terminate the CEO's employment agreement by providing six months written notice or payment in lieu of the notice period (based on the fixed component of CEO's remuneration). Additionally, the Group may provide a performance payment for the period of the last review date (being 1 July) until the last day of the notice period;
- in the event that the Group initiates termination for reasons outside the control of the CEO, a severance payment equal to 100% of fixed remuneration is payable;
- on termination by the Group, any DDPP awards will vest in accordance with the vesting schedule of the DDPP Plan, subject to the discretion of the Board; and
- the Group may terminate the contract of the CEO at any time without notice if serious misconduct has occurred. In the event of termination for cause, the CEO is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination for cause any unvested DDPP awards will immediately be forfeited.
Executives (other than the CEO)
The principal terms of Executive employment contracts are as follows:
- all Executives have rolling contracts;
- an Executive may resign from their position and thus terminate their contract by giving three months written notice. On resignation any unvested DDPP will be forfeited subject to the discretion of the Board;
- the Group may terminate an Executive's employment agreement by providing three months written notice or providing payment in lieu of the notice period (based on the fixed component of the Executive's remuneration). In the event that the Group initiates the termination for reasons outside the control of the Executive, a severance payment equal to a maximum of 75% of fixed remuneration will be made;
- on termination by the Group, any DDPP awards will vest in accordance with the vesting schedule of the DDPP Plan, subject to the discretion of the Board; and
- the Group may terminate the contract at any time without notice if serious misconduct has occurred. Where termination for cause occurs the Executive is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination for cause any unvested DDPP awards will immediately be forfeited.
DEXUS OFFICE TRUST Page 58 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
8 Remuneration of Key Management Personnel
(a) Cash Accounting Method
In response to the Productivity Commission's recommendation to improve the transparency of remuneration reports by disclosing actual remuneration received by executives, the following table provides details of actual cash and other benefits received by Executives in the years ending 30 June 2009 and 30 June 2010. This table includes details of the five highest paid Directors or Executives.
The amounts detailed in the cash accounting table vary to the amounts detailed in the statutory accounting table because performance payments are paid to Executives in the year following the performance period to which they relate. Furthermore, DDPP allocations and movement in prior year DDPP allocation values detailed in the statutory accounting table do not reflect what will be paid to the Executive when the DDPP vests as the award will be revalued at that time.
| Name | Cash Salary including Superannuation |
DEXUS Performance Payments |
DEXUS Deferred Performance Payments |
Other Short Term Benefits 1 |
Total | |
|---|---|---|---|---|---|---|
| (\$) | (\$) | (\$) | (\$) | (\$) | ||
| Victor P Hoog Antink | 2010 | 1,300,000 | 785,000 | 339,375 | - | 2,424,375 |
| 2009 | 1,300,000 | 900,000 | 391,584 | - | 2,591,584 | |
| Tanya L Cox | 2010 | 400,000 | 150,000 | 81,450 | - | 631,450 |
| 2009 | 400,000 | 200,000 | 20,885 | - | 620,885 | |
| Patricia A Daniels 2 | 2010 | 261,333 | 90,000 | - | - | 351,333 |
| 2009 | 261,334 | 60,000 | - | - | 321,334 | |
| John C Easy | 2010 | 375,000 | 163,000 | 67,875 | - | 605,875 |
| 2009 | 375,000 | 150,000 | 26,106 | - | 551,106 | |
| Jane Lloyd | 2010 | 369,916 | 113,000 | - | 123,107 | 606,023 |
| 2009 | 375,000 | - | - | - | 375,000 | |
| Louise J Martin | 2010 | 500,000 | 175,000 | - | - | 675,000 |
| 2009 | 500,000 | 225,000 | - | - | 725,000 | |
| Craig D Mitchell | 2010 | 550,000 | 325,000 | - | - | 875,000 |
| 2009 | 550,000 | 250,000 | - | - | 800,000 | |
| Paul G Say | 2010 | 500,000 | 200,000 | - | - | 700,000 |
| 2009 | 500,000 | 225,000 | - | - | 725,000 | |
| Mark F Turner | 2010 | 450,000 | 135,000 | 95,025 | - | 680,025 |
| 2009 | 450,000 | 200,000 | 20,885 | - | 670,885 | |
| Andrew P Whiteside | 2010 | 475,000 | 135,000 | - | - | 610,000 |
| 2009 | 475,000 | 200,000 | - | - | 675,000 | |
| Total | 2010 | 5,181,249 | 2,271,000 | 583,725 | 123,107 | 8,159,081 |
| 2009 | 5,186,334 | 2,410,000 | 459,460 | - | 8,055,794 |
1 Other short-term benefits include expatriate assignment benefits such as relocation and housing allowances, relocation consultant assistance, health insurance premiums and associated taxes on these benefits. 2 Patricia A Daniels actual remuneration received is for a four day week.
DEXUS OFFICE TRUST Page 59 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
(b) Statutory accounting method
In accordance with Australian Accounting Standard AASB 124 details of the structure and quantum of each component of remuneration for Executives for the years ended 30 June 2009 and 30 June 2010 are set out in the following table.
| S ho Te t r rm |
Em loy Be f i ts p ee ne |
Po t Em loy t s p me n f i Be ts ne |
O he Lo Te Be f i t r ng rm ne |
To l ta |
||||
|---|---|---|---|---|---|---|---|---|
| Na me |
Ca h Sa lar d s an y Fe es |
D E X U S Pe fo r rm an ce Pa ts me n y |
O he S ho Te t t r r rm 4 Be f i ts ne |
Pe ion d ns an Su Be f i ts p er ne |
D E X U S De fe rre Pe fo r rm an ce Pa y me n A l loc ion t a s |
d Mo in Pr ior t ve me n Ye De fe d ar rre Pe fo t r rm an ce 2 Pa t y me n 3 A l loc ion Va lue t a s |
O he Lo t r ng Te Be f i ts rm ne |
|
| \$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( |
\$ ) ( ) |
\$ ( ) |
\$ ( ) |
|
| V ic P Ho An in k to t r og |
||||||||
| 2 0 1 0 |
1, 2 5 2, 5 3 9 |
1, 1 0 0, 0 0 0 |
- | 4 4 6 1 7, |
1, 2 0 0, 0 0 0 |
3 6 3, 9 5 7 |
- | 3, 9 6 3, 9 5 7 |
| 2 0 0 9 |
1, 2 0 0, 0 0 0 |
7 8 5, 0 0 0 |
- | 1 0 0, 0 0 0 |
9 1 5, 0 0 0 |
( 4 1 6, 6 0 0 ) |
- | 2, 5 8 3, 4 0 0 |
| Co Ta L ny a x |
3 8 5, 5 3 9 |
1 8 0, 0 0 0 |
- | 1 4, 4 6 1 |
1 8 0, 0 0 0 |
6 2, 5 3 3 |
- | 8 2 2, 5 3 3 |
| 2 0 1 0 |
3 8 5, 5 3 9 |
1 8 0, 0 0 0 |
- | 1 4, 4 6 1 |
1 8 0, 0 0 0 |
6 2, 5 3 3 |
- | 8 2 2, 5 3 3 |
| 2 0 0 9 |
3 5 2, 0 8 6 |
1 5 0, 0 0 0 |
- | 4 7, 9 1 4 |
1 5 0, 0 0 0 |
( ) 8 0, 7 7 3 |
- | 6 1 9, 2 2 7 |
| 1 ic ia ie Pa tr A Da ls n |
||||||||
| 2 0 1 0 |
2 4 6, 8 7 2 |
1 0 4, 0 0 0 |
- | 1 4, 4 6 1 |
1 0 4, 0 0 0 |
1 3, 0 2 3 |
- | 4 8 2, 3 5 6 |
| 2 0 0 9 |
2 4 7, 5 8 9 |
9 0, 0 0 0 |
- | 1 3, 7 4 5 |
9 0, 0 0 0 |
( ) 2 4, 2 5 0 |
- | 4 1 7, 0 8 4 |
| C Jo hn Ea sy |
||||||||
| 2 0 1 0 |
3 6 0, 5 3 9 |
1 8 7, 0 0 0 |
- | 1 4, 4 6 1 |
1 8 8, 0 0 0 |
4 7, 4 3 7 |
- | 7 9 7, 4 3 7 |
| 2 0 0 9 |
3 4 3, 2 5 5 |
1 6 3, 0 0 0 |
- | 3 1, 7 4 5 |
1 6 2, 0 0 0 |
( ) 5 7, 6 8 8 |
- | 6 4 2, 3 1 2 |
| Ja L loy d ne |
||||||||
| 2 0 1 0 |
3 5 5, 4 5 5 |
1 6 2, 0 0 0 |
1 2 3, 1 0 7 |
1 4, 4 6 1 |
1 6 3, 0 0 0 |
1 0, 0 1 2 |
- | 8 2 8, 0 3 5 |
| 2 0 0 9 |
3 6 1, 2 5 5 |
1 1 3, 0 0 0 |
- | 1 3, 7 4 5 |
1 1 2, 0 0 0 |
- | - | 6 0 0, 0 0 0 |
DEXUS OFFICE TRUST Page 60 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
| S ho Te Em loy Be f i Po t ts r rm p ee ne |
O he Lo Te Be f i t ts r ng rm ne |
To l ta |
||||||
|---|---|---|---|---|---|---|---|---|
| Na me |
Ca h Sa lar d s an y Fe es |
D E X U S Pe fo r rm an ce Pa ts me n y |
O he S ho Te t t r r rm 4 Be f i ts ne |
Pe ion d ns an Su Be f i ts p er ne |
D E X U S De fe d rre Pe fo r rm an ce Pa t me n y 2 A l loc ion t a s |
Mo in Pr ior t ve me n Ye De fe d ar rre Pe fo r rm an ce Pa t y me n 3 A l loc ion Va lue t a s |
O he Lo t r ng Te Be f i ts rm ne |
|
| ( \$ ) |
( \$ ) |
( \$ ) |
( \$ ) |
( \$ ) |
( \$ ) |
( \$ ) |
( \$ ) |
|
| Lo ise J Ma in t r u |
||||||||
| 2 0 1 0 |
5, 5 4 8 3 9 |
2 0 0, 0 0 0 |
- | 1 4, 4 6 1 |
2 0 0, 0 0 0 |
5 7 4, 4 1 |
- | 5 9 7 4, 4 1 |
| 2 0 0 9 |
4 0 0 0 0 5, |
1 0 0 0 7 5, |
- | 9 0 0 0 5, |
1 0 0 0 7 5, |
( 6 0, 6 2 ) 5 |
- | 8 9, 3 7 7 5 |
| Cr ig i D M tc he l l a |
||||||||
| 2 0 1 0 |
5 3 5, 5 3 9 |
4 0 0, 0 0 0 |
- | 1 4, 4 6 1 |
4 0 0, 0 0 0 |
4 0, 5 2 8 |
- | 1, 3 9 0, 5 2 8 |
| 2 0 0 9 |
5 0 0, 0 0 0 |
3 2 5, 0 0 0 |
- | 5 0, 0 0 0 |
3 2 5, 0 0 0 |
( ) 6 0, 6 2 5 |
- | 1, 1 3 9, 3 7 5 |
| Pa l G Sa u y |
||||||||
| 2 0 1 0 |
4 8 5, 5 3 9 |
2 5 0, 0 0 0 |
- | 1 4, 4 6 1 |
2 5 0, 0 0 0 |
3 0, 5 6 5 |
- | 1, 0 3 0, 5 6 5 |
| 2 0 0 9 |
4 8 6, 2 5 5 |
2 0 0, 0 0 0 |
- | 1 3, 7 4 5 |
2 0 0, 0 0 0 |
( ) 6 0, 6 2 5 |
- | 8 3 9, 3 7 5 |
| Ma k F Tu r rn er |
||||||||
| 2 0 1 0 |
4 0 1, 3 3 9 |
1 4 0, 0 0 0 |
- | 4 8, 6 6 1 |
1 4 0, 0 0 0 |
8 8, 4 7 3 |
- | 8 1 8, 4 7 3 |
| 2 0 0 9 |
4 0 0, 0 1 5 |
1 3 0 0 0 5, |
- | 4 9, 9 8 5 |
1 3 0 0 0 5, |
( 1 0 3, 6 3 ) 5 |
- | 6 1 6, 3 6 5 |
| An dr P W h i tes i de ew |
||||||||
| 2 0 1 0 |
4 6 0, 5 3 9 |
2 2 5, 0 0 0 |
- | 1 4, 4 6 1 |
2 2 5, 0 0 0 |
1 6, 6 1 0 |
- | 9 4 1, 6 1 0 |
| 2 0 0 9 |
4 6 1, 2 5 5 |
1 3 5, 0 0 0 |
- | 1 3, 7 4 5 |
1 3 5, 0 0 0 |
( ) 2 4, 2 5 0 |
- | 7 2 0, 7 5 0 |
| T O T A L |
||||||||
| 2 0 1 0 |
4, 9 6 9, 4 3 9 |
2, 9 4 8, 0 0 0 |
1 2 3, 1 0 7 |
2 1 1, 8 1 0 |
3, 0 5 0, 0 0 0 |
7 4 7, 5 5 3 |
- | 1 2, 0 4 9, 9 0 9 |
| 2 0 0 9 1 |
4, 7 5 6, 7 1 0 |
2, 2 7 1, 0 0 0 |
- | 4 2 9, 6 2 4 |
2, 3 9 9, 0 0 0 |
( ) 8 8 9, 0 7 1 |
- | 8, 9 6 7, 2 6 3 |
Patricia A Daniels actual remuneration received is for a four day week. 2
This is the DDPP allocation for the current year which is deferred for three years as described on page 61. 3 This is the notional change in value of all unvested DDPP allocations from prior year. 4
Other short-term benefits include expatriate assignment benefits such as relocation and housing allowances, relocation consultant assistance, health insurance premiums and associated taxes on these benefits.
DEXUS OFFICE TRUST Page 61 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
Deferred Performance Payments
The table below sets out details of previous DDPP allocations and current valuations.
| Name | Year of Grant |
DDPP Allocation Value |
Movement in DDPP Allocation Value (Since Grant Date) |
Closing DDPP Allocation Value as at 30 June 2010 |
Movement in DDPP Allocation Value at Vesting Date (Due to Performance |
Vested DDPP as at 30 June 2010 |
Year that DDPP will Vest |
|---|---|---|---|---|---|---|---|
| Multiplier) | |||||||
| (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | |
| Victor P Hoog Antink | 2010 | 1,200,000 | - | - | - | - | 2013 |
| 2009 | 915,000 | 72,926 | 987,926 | - | - | 2012 | |
| 2008 | 900,000 | (165,600) | 734,400 | - | - | 2011 | |
| 2007 | 650,000 | (142,285) - |
- - |
203,086 - |
710,801 - |
2010 | |
| Tanya L Cox | 2010 2009 |
180,000 150,000 |
11,955 | 161,955 | - | - | 2013 2012 |
| 2008 | 175,000 | (32,200) | 142,800 | - | - | 2011 | |
| 2007 | 110,000 | (24,079) | - | 34,368 | 120,289 | 2010 | |
| Patricia A Daniels | 2010 | 104,000 | - | - | - | - | 2013 |
| 2009 | 90,000 | 7,173 | 97,173 | - | - | 2012 | |
| 2008 | 100,000 | (18,400) | 81,600 | - | - | 2011 | |
| John C Easy | 2010 | 188,000 | - | - | - | - | 2013 |
| 2009 | 162,000 | 12,911 | 174,911 | - | - | 2012 | |
| 2008 | 120,000 | (22,080) | 97,920 | - | - | 2011 | |
| 2007 | 75,000 | (16,418) | - | 23,433 | 82,015 | 2010 | |
| Jane Lloyd 1 | 2010 | 163,000 | - | - | - | - | 2013 |
| 2009 | 112,000 | 8,926 | 120,926 | - | - | 2012 | |
| 2008 | - | - | - | - | - | 2011 | |
| 2007 | 20,000 | (4,378) | - | 6,249 | 21,871 | 2010 | |
| Louise J Martin 2 | 2010 | 200,000 | - | - | - | - | 2013 |
| 2009 | 175,000 | 13,948 | 188,948 | - | - | 2012 | |
| 2008 | 250,000 | (46,000) | 204,000 | - | - | 2011 | |
| 2007 | 125,000 | (27,636) | - | 39,054 | 136,688 | 2010 | |
| Craig D Mitchell | 2010 | 400,000 | - | - | - | - | 2013 |
| 2009 | 325,000 | 25,903 | 350,903 | - | - | 2012 | |
| 2008 | 250,000 | (46,000) | 204,000 | - | - | 2011 | |
| Paul G Say | 2010 | 250,000 | - | - | - | - | 2013 |
| 2009 | 200,000 | 15,940 | 215,940 | - | - | 2012 | |
| 2008 | 250,000 | (46,000) | 204,000 | - | - | 2011 | |
| Mark F Turner | 2010 | 140,000 | - | - | - | - | 2013 |
| 2009 | 135,000 | 10,760 | 145,760 | - | - | 2012 | |
| 2008 | 200,000 | (36,800) | 163,200 | - | - | 2011 | |
| 2007 | 180,000 | (39,402) | - | 56,239 | 196,837 | 2010 | |
| Andrew P Whiteside | 2010 | 225,000 | - | - | - | - | 2013 |
| 2009 | 135,000 | 10,760 | 145,760 | - | - | 2012 | |
| 1 | 2008 | 100,000 | (18,400) | 81,600 | - | - | 2011 |
Jane Lloyd qualified as a KMP on 14 July 2008. 2
Louise J Martin qualified as a KMP on 27 March 2008.
DEXUS OFFICE TRUST Page 62 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
Non-Executive Director board and committee fees
Board and Committee fees paid to Non-Executive Directors for the years ended 30 June 2009 and 30 June 2010 are set out in the table below. Note: In 2009/10 two additional paid Board members were in place for the full twelve months to 30 June 2010, compared to only two months the preceding year.
| Directors Fees |
Committee Fees | Total Cash Salary and Fees |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| Name | Board | DWPL | Board Audit |
Board Risk |
Board Compliance |
Board Nom & Rem |
Board Finance |
||
| (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | ||
| Christopher T Beare | |||||||||
| 2010 | 300,000 | - | - | - | - | - | - | 300,000 | |
| 2009 | 300,000 | - | - | - | - | - | - | 300,000 | |
| Elizabeth A Alexander AM 1 | |||||||||
| 2010 | 130,000 | 17,500 | 8,750 | 8,750 | - | - | - | 165,000 | |
| 2009 | 130,000 | - | 15,000 | 15,000 | 6,250 | - | 6,250 | 172,500 | |
| Barry R Brownjohn 2 | |||||||||
| 2010 | 130,000 | - | 13,750 | 13,750 | - | - | 8,750 | 166,250 | |
| 2009 | 130,000 | - | 7,500 | 7,500 | - | - | 15,000 | 160,000 | |
| John C Conde AO 3 | |||||||||
| 2010 | 130,000 | - | - | - | 7,500 | 13,750 | - | 151,250 | |
| 2009 | 22,652 | - | - | - | 1,250 | 1,250 | - | 25,152 | |
| Stewart F Ewen OAM | 2010 | 130,000 | - | - | - | - | 7,500 | - | 137,500 |
| 2009 | 130,000 | - | - | - | - | 7,500 | - | 137,500 | |
| Charles B Leitner III 4 | |||||||||
| 2010 | - | - | - | - | - | - | - | - | |
| 2009 | - | - | - | - | - | - | - | - | |
| Brian E Scullin 5 | |||||||||
| 2010 | 130,000 | 25,000 | - | - | 15,000 | 1,250 | - | 171,250 | |
| 2009 | 130,000 | 30,000 | 6,250 | 6,250 | 15,000 | 7,500 | - | 195,000 | |
| Peter B St. George 6 | |||||||||
| 2010 | 130,000 | - | 7,500 | 7,500 | - | - | 13,750 | 158,750 | |
| 2009 | 22,652 | - | 1,250 | 1,250 | - | - | 1,250 | 26,402 | |
| Total | |||||||||
| 2010 1,080,000 | 42,500 | 30,000 | 30,000 | 22,500 | 22,500 | 22,500 | 1,250,000 | ||
| 2009 | 865,304 | 30,000 | 30,000 | 30,000 | 22,500 | 16,250 | 22,500 | 1,016,554 |
1 Elizabeth A Alexander became a member of the Board Audit and Board Risk Committees on 1 September 2009. Elizabeth was previously the Chair of both Committees. Elizabeth became a Director of the DWPL Board on 1 September 2009 and became Chair of that Board on
1 March 2010. 2 Barry R Brownjohn became a member of the Board Finance Committee on 1 September 2009. Barry was previously the Chair of that Committee. Barry became Chair of the Board Audit and Board Risk Committees on 1 September 2009. Barry was previously a member of both Committees. 3
John C Conde became Chair of the Board Nomination and Remuneration Committee on 1 September 2009. John was previously a
member of that Committee. 4 As an employee of the Deutsche Bank group, Mr Leitner waived his right to receive Director's fees. Accordingly, Mr Leitner's Alternate Director, Mr Fay did not receive Director's fees when acting as his alternate. Mr Leitner ceased to be a Non-Executive Director on 29 April
- Accordingly, Mr Fay ceased to be Mr Leitner's Alternate Director on 29 April 2009. 5 Brian Scullin ceased to be a member of the Board Nomination and Remuneration Committee on 31 August 2009. Brian became a Director
of the DWPL Board on 1 March 2010. Brian was previously Chair of the DWPL Board. 6 Peter B St George became Chair of the Board Finance Committee on 1 September 2009. Peter was previously a member of that Committee.
DEXUS OFFICE TRUST Page 63 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Related parties (continued)
All Non-Executive Directors also receive reimbursement for reasonable travel, accommodation and other expenses incurred whilst undertaking DEXUS business.
The Chief Executive Officer, Victor P Hoog Antink, does not receive fees in respect of his role as a Director, but does receive remuneration as a Senior Executive of the DEXUS Property Group.
Commencing 1 April 2009 Mr Ewen earned a fixed fee of \$30,000 per annum, in addition to his Director's fee, as compensation for the added responsibilities assumed in attending property inspections, reviewing property investment proposals and participating in informal management meetings.
Non-Executive Director Remuneration
Details of the structure and quantum of each component of remuneration for each Non-Executive Director for the years ended 30 June 2009 and 30 June 2010 are set out in the following table.
| Name | Short Term Employee Benefits |
Post Employment Benefits1 |
Other Long Term Benefits |
Total | |
|---|---|---|---|---|---|
| (\$) | (\$) | (\$) | (\$) | ||
| Christopher T Beare | |||||
| 2010 | 285,539 | 14,461 | - | 300,000 | |
| 2009 | 286,255 | 13,745 | - | 300,000 | |
| Elizabeth A Alexander AM | |||||
| 2010 | 151,376 | 13,624 | - | 165,000 | |
| 2009 | 157,844 | 14,656 | - | 172,500 | |
| Barry R Brownjohn | |||||
| 2010 | 152,523 | 13,727 | - | 166,250 | |
| 2009 | 146,789 | 13,211 | - | 160,000 | |
| John C Conde AO | |||||
| 2010 | 138,761 | 12,489 | - | 151,250 | |
| 2009 | 23,075 | 2,077 | - | 25,152 | |
| Stewart F Ewen OAM | |||||
| 2010 | 102,700 | 34,800 | - | 137,500 | |
| 2009 | 63,073 | 74,427 | - | 137,500 | |
| Brian E Scullin | |||||
| 2010 | 157,211 | 14,039 | - | 171,250 | |
| 2009 | 181,255 | 13,745 | - | 195,000 | |
| Peter B St George | |||||
| 2010 | 145,642 | 13,108 | - | 158,750 | |
| 2009 | 24,222 | 2,180 | - | 26,402 | |
| Total | 2010 | 1,133,752 | 116,248 | - | 1,250,000 |
| Total | 2009 | 882,513 | 134,041 | - | 1,016,554 |
1 Post-employment benefits represent compulsory and salary sacrificed superannuation benefits.
DEXUS OFFICE TRUST Page 64 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 29. Operating segments
The Chief Operating Decision Maker (CODM) has been identified as the Board of Directors of DXFM as they are responsible for the strategic decision making for the Group. The Group's operating segments have been identified based on the segments analysed within the management reports reviewed by the CODM in order to monitor performance across the Group and to appropriately allocate resources. The operating segments of the Group have been identified as follows:
| Office - Australia and New Zealand | This operating segment comprises office space with any associated retail space; as well as car-parks and office developments in Australia and New Zealand. |
|---|---|
| Industrial - Australia | This operating segment comprises domestic industrial properties, industrial estates and industrial developments. |
| Industrial - North America | This comprises industrial properties, industrial estates and industrial developments in the United States as well as one industrial asset in Canada. |
| Management Company | The domestic and US based management companies are responsible for asset, property and development management of Office, Industrial and Retail properties for DXS and the third party funds management business. |
| Financial Services | The treasury function of DXS is managed through a centralised treasury department. As a result, all treasury related financial information relating to borrowings, finance costs as well as fair value movements in derivatives, are prepared and monitored separately. |
| All other segments | This comprises the European industrial and retail portfolios. These operating segments do not meet the quantitative thresholds set out in AASB 8 Operating Segments due to their relatively small scale. As a result these non-core operating segments have been included in 'all other segments' in the operating segment information. |
Consistent with how the CODM manages the business, the operating segments within the Group are reviewed on a consolidated basis and are not monitored at an individual trust level. The results of the individual trusts are not limited to any one of the segments described above.
Disclosures concerning the Group's operating segments as well as the operating segments key financial information provided to the CODM are presented in the DXS Financial Statements (refer note 38 in the DXS Financial Statements).
DEXUS OFFICE TRUST Page 65 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Reconciliation of net profit to net cash inflow from operating activities
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Net profit/(loss) | 126,360 | (393,754) | 117,568 | (405,942) |
| Capitalised interest | (7,212) | (8,311) | (469) | (1,390) |
| Net fair value (gain)/loss of investment properties | (7,297) | 460,876 | (30,707) | 323,528 |
| Net fair value loss of investments | - | - | 56,962 | 144,697 |
| Share of net losses/(profit) of associates accounted | ||||
| for using the equity method | 26,259 | (31) | - | - |
| Net fair value loss of derivatives | 7,368 | 63,925 | 7,368 | 63,925 |
| Net foreign exchange loss | 134 | 115 | - | - |
| Change in operating assets and liabilities | ||||
| Decrease/(increase) in receivables | 2,977 | (2,150) | 2,570 | (1,898) |
| Decrease/(increase) in other non-current assets - | ||||
| investments | 18,961 | 19,007 | (37,539) | (34,860) |
| (Increase) in other current assets | (760) | (835) | (225) | (553) |
| Decrease in other non-current assets | 5,546 | 12,580 | 5,836 | 12,472 |
| Increase/(decrease) in payables | 4,840 | (6,048) | 3,617 | (6,180) |
| (Decrease)/increase in other current liabilities | (329) | 1,306 | (329) | 1,306 |
| Increase/(decrease) in other non-current liabilities | 1,192 | (2,060) | 1,192 | (1,950) |
| Net cash inflow from operating activities | 178,039 | 144,620 | 125,844 | 93,155 |
Note 31. Non-cash financing and investing activities
| Note | Consolidated | Parent Entity | |||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Distributions reinvested | 26 | 41,598 | 31,262 | 41,598 | 31,262 |
DEXUS OFFICE TRUST Page 66 of 69 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 32. Earnings per unit
(a) Basic earnings per unit on net profit/(loss) attributable to unitholders
| Consolidated | ||
|---|---|---|
| 2010 | 2009 | |
| cents | cents | |
| 0.26 | (10.73) | |
| (b) Diluted earnings per unit on net profit/(loss) attributable to unitholders | ||
| Consolidated | ||
| 2010 | 2009 | |
| cents | cents | |
| 0.26 | (10.73) | |
| (c) Reconciliation of earnings used in calculating earnings per unit | ||
| Consolidated | ||
| 2010 | 2009 | |
| \$'000 | \$'000 | |
| Net profit/(loss) | 126,360 | (393,754) |
| Net profit attributable to non-controlling interests | (1,632) | (3,695) |
| Net profit/(loss) attributable to the unitholders of the Trust used | ||
| in calculating basic and diluted earnings per unit | 124,728 | (397,449) |
| (d) Weighted average number of units used as a denominator | ||
| Consolidated | ||
| 2010 | 2009 | |
| Units | Units | |
| Weighted average number of units outstanding used in calculation of | ||
| basic and diluted earnings per unit | 4,774,467,167 | 3,705,637,381 |
FINANCIAL STATEMENTS DEXUS OPERATIONS TRUST
(ARSN 110 521 223)
30 JUNE 2010
| Contents | Page |
|---|---|
| Directors' Report | 1 |
| Auditor's Independence Declaration | 7 |
| Statements of Comprehensive Income | 8 |
| Statements of Financial Position | 9 |
| Statements of Changes in Equity | 10 |
| Statements of Cash Flows | 11 |
| Notes to the Financial Statements | 12 |
| Directors' Declaration | 66 |
| Independent Auditor's Report | 67 |
DEXUS Property Group (DXS) (ASX Code: DXS), consists of DEXUS Diversified Trust (DDF), DEXUS Industrial Trust (DIT), DEXUS Office Trust (DOT), and DEXUS Operations Trust (DXO), collectively known as DXS or the Group.
Under Australian Accounting Standards, DDF has been deemed the parent entity for accounting purposes. Therefore the DDF consolidated Financial Statements include all entities forming part of DXS. The DDF consolidated Financial Statements are presented in separate Financial Statements.
All press releases, Financial Statements and other information are available on our website: www.dexus.com
DEXUS OPERATIONS TRUST Page 1 of 68 DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2010
The Directors of DEXUS Funds Management Limited (DXFM) as Responsible Entity of DEXUS Operations Trust and its consolidated entities (DXO or the Trust) present their Directors' Report together with the consolidated Financial Statements for the year ended 30 June 2010.
The Trust together with DEXUS Diversified Trust (DDF), DEXUS Industrial Trust (DIT) and DEXUS Office Trust (DOT) form the DEXUS Property Group (DXS or the Group) stapled security.
1. Directors and Secretaries
1.1 Directors
The following persons were Directors of DXFM at all times during the year and to the date of this Directors' report:
| Directors | Appointed |
|---|---|
| Christopher T Beare | 4 August 2004 |
| Elizabeth A Alexander AM | 1 January 2005 |
| Barry R Brownjohn | 1 January 2005 |
| John C Conde AO | 29 April 2009 |
| Stewart F Ewen OAM | 4 August 2004 |
| Victor P Hoog Antink | 1 October 2004 |
| Brian E Scullin | 1 January 2005 |
| Peter B St George | 29 April 2009 |
Particulars of the qualifications, experience and special responsibilities of current Directors at the date of this Directors' Report are set out in the Directors section of the DEXUS Property Group Annual Report and form part of this Directors' Report.
1.2 Company Secretaries
The names and details of the Company Secretaries of DXFM as at 30 June 2010 are as follows:
Tanya L Cox MBA MAICD FCIS (Company Secretary)
Appointed: 1 October 2004
Tanya is the Chief Operating Officer and Company Secretary of DXFM and is responsible for the delivery of company secretarial, operational, information technology, communications and administration services, as well as operational risk management systems and practices across the Group. Prior to joining DXS in July 2003, Tanya held various general management positions over the past 16 years, including Director and Chief Operating Officer of NM Rothschild & Sons (Australia) Ltd and General Manager – Finance, Operations and IT for Bank of New Zealand (Australia). Tanya is Chair of the Property Council of Australia National Risk Committee and is a non-executive director of a number of not-for-profit organisations. Tanya is a member of the Australian Institute of Company Directors and a fellow of the Institute of Chartered Secretaries and Administrators (ICSA) and Chartered Secretaries Australia (CSA). Tanya has an MBA from the Australian Graduate School of Management and a Graduate Diploma in Applied Corporate Governance.
Tanya is Chief Operating Officer and Company Secretary of DXFM, DEXUS Holdings Pty Limited (DXH) and DEXUS Wholesale Property Limited (DWPL) and is a member of the Board Compliance Committee.
DEXUS OPERATIONS TRUST Page 2 of 68 DIRECTORS' REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2010
1.2 Company Secretaries (continued)
John C Easy B Comm LLB ACIS (Company Secretary)
Appointed: 1 July 2005
John is the General Counsel and Company Secretary of DXFM. During his time with the Group he has been involved in the establishment and public listing of the Deutsche Office Trust, the acquisition of the Paladin and AXA property portfolios, and subsequent stapling and creation of DXS. Prior to joining DXS in November 1997, John was employed as a senior associate in the commercial property / funds management practices of law firms Allens Arthur Robinson and Gilbert & Tobin. John graduated from the University of New South Wales with Bachelor of Laws and Bachelor of Commerce (Major in Economics) degrees. He is a member of Chartered Secretaries Australia and holds a Graduate Diploma in Applied Corporate Governance.
John is General Counsel and Company Secretary for DXFM, DXH and DWPL and is a member of the Board Compliance Committee.
2. Attendance of Directors at Board meetings and Board Committee meetings
The number of Directors' meetings held during the year and each Director's attendance at those meetings is set out in the table below.
The Directors met thirteen times during the year. Ten Board meetings were main meetings and three meetings were held to consider specific business. While the Board continuously considers strategy, in March 2010 it met with the executive and senior management team over three days to consider DXS's strategic plans.
| Main meetings held |
Main meetings attended |
Specific meetings held |
Specific meetings attended |
|
|---|---|---|---|---|
| Christopher T Beare | 10 | 10 | 3 | 3 |
| Elizabeth A Alexander AM | 10 | 10 | 3 | 3 |
| Barry R Brownjohn | 10 | 10 | 3 | 3 |
| John C Conde AO | 10 | 10 | 3 | 3 |
| Stewart F Ewen OAM | 10 | 10 | 3 | 3 |
| Victor P Hoog Antink | 10 | 10 | 3 | 3 |
| Brian E Scullin | 10 | 10 | 3 | 2 |
| Peter B St George | 10 | 9 | 3 | 3 |
Special meetings are held at a time to enable the maximum number of Directors to attend and are generally held to consider specific items that cannot be held over to the next scheduled main meeting.
DEXUS OPERATIONS TRUST Page 3 of 68 DIRECTORS' REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2010
2. Attendance of Directors at Board meetings and Board Committee meetings (continued)
The table below sets out the number of Board Committee meetings held during the year for the Committees in place at the end of the year and each Directors' attendance at those meetings.
| Board Audit Committee |
Board Risk and Sustainability Committee2 |
Board Compliance Committee |
Board Nomination and Remuneration Committee |
Board Finance Committee |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Held | Attended | Held | Attended | Held | Attended | Held | Attended | Held | Attended | |
| Christopher T Beare | - | - | - | - | - | - | 5 | 5 | 5 | 5 |
| Elizabeth A Alexander AM | 7 | 7 | 4 | 4 | - | - | - | - | - | - |
| Barry R Brownjohn | 7 | 7 | 4 | 4 | - | - | - | - | 5 | 5 |
| John C Conde AO | - | - | - | - | 4 | 4 | 5 | 5 | - | - |
| Stewart F Ewen OAM | - | - | - | - | - | - | 5 | 5 | - | - |
| Victor P Hoog Antink | - | - | - | - | - | - | - | - | - | - |
| Brian E Scullin1 | - | - | - | - | 4 | 4 | 1 | 1 | - | - |
| Peter B St George | 7 | 7 | 4 | 4 | - | - | - | - | 5 | 5 |
1 Nomination and Remuneration Committee Member from 1 July 2009 to 31 August 2009. 2
Name changed from Board Risk Committee on 2 June 2010.
3. Directors' interests
The Board's policy on insider trading and trading in DXS securities or securities in any of the funds managed by DXS by any Director or employee is outlined in the Corporate Governance Statement in the DEXUS Property Group Annual Report.
While the trading policy described in the Corporate Governance Statement applies to Directors and Senior Executives, the Board has determined that Directors will not trade in any security managed by DXS.
Directors have made this decision because the Board of DXFM has responsibility for the Group itself as well as the third party business. Directors are obliged to act in the best interests of each group of investors independently of each other. Therefore, to minimise the appearance of conflict that may arise by being a Director of multiple funds, the Directors have determined that they will not invest in any fund managed by the Group including DXS securities. This position is periodically reviewed by the Board.
As a direct result of the Group's policy regarding Directors holding DXS securities, or securities in any of the funds managed by DXS, as at the date of this Directors' Report no Director directly or indirectly held:
- DXS securities; or
- Options over, or any other contractual interest in DXS securities; or
- An interest in any other fund managed by DXFM or any other entity that forms part of the Group.
DEXUS OPERATIONS TRUST Page 4 of 68 DIRECTORS' REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2010
4. Directors' directorships in other listed entities
The following table sets out directorships of other listed entities, not including DXFM, held by the Directors at any time in the three years immediately prior to the end of the year, and the period for which each directorship was held:
| Date resigned or ceased being | |||
|---|---|---|---|
| Directors | Company | Date appointed | a Director of a listed entity |
| Christopher T Beare | MNet Group Limited | 6 November 2009 | |
| Elizabeth A Alexander AM | CSL Limited | 12 July 1991 | |
| Boral Limited | 15 December 1999 | 24 October 2008 | |
| John C Conde AO | Whitehaven Coal Limited | 3 May 2007 | |
| Brian E Scullin | SPARK Infrastructure RE Limited1 | 1 November 2005 | 24 August 2007 |
| BT Investment Management Limited | 17 September 2007 | ||
| Peter B St George | Boart Longyear Limited | 21 February 2007 | |
| SPARK Infrastructure RE Limited1 | 8 November 2005 | 31 December 2008 | |
| First Quantum Minerals Limited2 | 20 October 2003 |
1 SPARK Infrastructure RE Limited has issued ASX listed stapled securities trading as SPARK Infrastructure Group (ASX: SKI). 2
Listed for trading on the Toronto Stock Exchange in Canada and the London Stock Exchange in the United Kingdom.
5. Principal activities
During the year the principal activity of the Trust was to be a trading trust. There were no significant changes in the nature of the Trust's activities during the year.
6. Total value of trust assets
The total value of the assets of Trust as at 30 June 2010 was \$500.4 million (2009: \$438.6 million). Details of the basis of this valuation are outlined in note 1 of the Notes to the Financial Statements and form part of this Directors' Report.
7. Review and results of operations
A review of the results and operations of the Group, which DXO forms part thereof, is set out in the Chief Executive Officer's Report of the DEXUS Property Group 2010 Security Holder Review and forms part of this Director's Report.
8. Likely developments and expected results of operations
In the opinion of the Directors, disclosure of any further information regarding business strategies and the future developments or results of the Trust, other than the information already outlined in this Directors' Report or the Financial Statements accompanying this Directors' Report would be unreasonably prejudicial to the Trust.
9. Significant changes in the state of affairs
The Directors are not aware of any matter or circumstance, not otherwise dealt with in this Directors' Report or the Financial Statements that has significantly or may significantly affect the operations of the Trust, the results of those operations, or the state of the Trust's affairs in future financial years.
10. Matters subsequent to the end of the financial year
Since the end of the financial year the Directors of DXFM are not aware of any matter or circumstance not otherwise dealt with in this Directors' Report or the Financial Statements that has significantly or may significantly affect the operations of the Trust, the results of those operations, or the state of the Trust's affairs in future financial years.
11. Dividends
Dividends paid or payable by the Trust for the year ended 30 June 2010 were nil (2009: nil).
DEXUS OPERATIONS TRUST Page 5 of 68 DIRECTORS' REPORT (continued) FOR THE YEAR ENDED 30 JUNE 2010
12. DXFM's fees and associate interests
Details of fees paid or payable by the Trust to DXFM for the year ended 30 June 2010 are outlined in note 33 of the Notes to the Financial Statements and form part of this Directors' Report.
The number of interests in the Trust held by DXFM or its associates as at the end of the financial year were nil (2009: nil).
13. Units on issue
The movement in units on issue in the Trust during the year and the number of units on issued at 30 June 2010 are detailed in note 27 of the Notes to the Financial Statements and form part of this Directors' Report.
The Trust did not have any options on issue at 30 June 2010 (2009: nil).
14. Environmental regulation
DXS senior management, through its Board Risk and Sustainability Committee, oversee the policies, procedures and systems that have been implemented to ensure the adequacy of its environmental risk management practices. It is the opinion of this Committee that adequate systems are in place for the management of its environmental responsibilities and compliance with its various licence requirements and regulations. Further, the Committee is not aware of any breaches of these requirements and to the best of its knowledge all activities have been undertaken in compliance with environmental requirements.
15. Indemnification and insurance
The insurance premium for a policy of insurance indemnifying Directors, officers and others (as defined in the relevant policy of insurance) is paid by DXH.
The Auditor, PricewaterhouseCoopers (PwC), is indemnified out of the assets of the Trust pursuant to the DEXUS specific Terms of Business agreed for all engagements with PwC, to the extent that the Trust inappropriately uses or discloses a report prepared by PwC. The Auditor, PwC, is not indemnified for the provision of services where such an indemnification is prohibited by the Corporations Act 2001.
16. Audit
16.1 Auditor
PricewaterhouseCoopers (PwC or the Auditor) continues in office in accordance with section 327 of the Corporations Act 2001.
16.2 Non-audit services
The Trust may decide to employ the Auditor on assignments additional to their statutory audit duties where the Auditors expertise and experience with the Trust and/or DXS are important.
Details of the amounts paid or payable to the Auditor, for audit and non-audit services provided during the year are set out in note 8 of the Notes to the Financial Statements.
The Board Audit Committee is satisfied that the provision of non-audit services provided during the year by the Auditor (or by another person or firm on the Auditor's behalf) is compatible with the standard of independence for auditors imposed by the Corporations Act 2001.
The reasons for the Directors being satisfied are:
- A Charter of Audit Independence was adopted during the year that provides guidelines under which the Auditor may be engaged to provide non-audit services without impairing the Auditor's objectivity or independence.
- The Charter states that the Auditor will not provide services where the Auditor may be required to review or audit its own work, including:
- the preparation of tax provisions, accounting records and financial statements;
- the design, implementation and operation of information technology systems;
- the design and implementation of internal accounting and risk management controls;
- conducting valuation, actuarial or legal services;
- consultancy services that include direct involvement in management decision making functions;
- investment banking, borrowing, dealing or advisory services;
- acting as trustee, executor or administrator of trust or estate;
- prospectus independent expert reports and being a member of the due diligence committee; and
- providing internal audit services.
DEXUS OPERATIONS TRUST Page 8 of 68 STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| Notes | \$'000 | \$'000 | \$'000 | \$'000 | |
| Revenue from ordinary activities | |||||
| Management fee revenue | 4 | 80,105 | 93,869 | - | - |
| Property revenue | 2 | 725 | 2,734 | - | - |
| Interest revenue | 3 | 626 | 874 | 8,755 | 12,738 |
| Total revenue from ordinary activities | 81,456 | 97,477 | 8,755 | 12,738 | |
| Other income | 522 | 121 | 837 | 470 | |
| Reversal of previous impairment | 22 | 13,307 | - | - | - |
| Total income | 95,285 | 97,598 | 9,592 | 13,208 | |
| Expenses | |||||
| Property expenses | (467) | (1,424) | - | - | |
| Responsible Entity fees | 33 | - | - | (436) | (581) |
| Finance costs | 5 | (9,940) | (24,288) | (24,584) | (24,270) |
| Depreciation and amortisation | (3,492) | (4,742) | (1) | (1) | |
| Impairment | (242) | (75,161) | - | (33,463) | |
| Employee benefits expense | (58,580) | (59,283) | - | - | |
| Net loss on sale of investment properties | (493) | - | - | - | |
| Net fair value loss of investment properties | (20,132) | - | (20,132) | - | |
| Other expenses | 7 | (11,804) | (10,124) | (342) | (624) |
| Total expenses | (105,150) | (175,022) | (45,495) | (58,939) | |
| Loss before tax | (9,865) | (77,424) | (35,903) | (45,731) | |
| Tax benefit/(expense) | |||||
| Income tax benefit/(expense) | 6 (a) | 1,604 | (2,682) | 348 | 3,701 |
| Total tax benefit/(expense) | 1,604 | (2,682) | 348 | 3,701 | |
| Loss after tax | (8,261) | (80,106) | (35,555) | (42,030) | |
| Total comprehensive loss for the year | (8,261) | (80,106) | (35,555) | (42,030) | |
| Earnings per unit | Cents | Cents | |||
| Basic earnings per unit on loss attributable to unitholders of | |||||
| the parent entity | |||||
| 38 | (0.17) | (2.16) | |||
| Diluted earnings per unit on loss attributable to unitholders of | |||||
| the parent entity | 38 | (0.17) | (2.16) |
The above Statements of Comprehensive Income should be read in conjunction with the accompanying notes.
DEXUS OPERATIONS TRUST Page 9 of 68 STATEMENTS OF FINANCIAL POSITION AS AT 30 JUNE 2010
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Notes | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Current assets | |||||
| Cash and cash equivalents | 9 | 12,897 | 13,765 | 19 | 259 |
| Receivables | 10 | 21,364 | 16,195 | 2,544 | 1,158 |
| Non current assets classified as held for sale | 12 | - | 55,000 | - | - |
| Loans with related parties | 13 | - | - | 10,284 | 10,062 |
| Other financial assets | 15 | - | - | 51,936 | 51,936 |
| Current tax assets | 3,547 | 1,422 | 3,548 | 802 | |
| Other | 16 | 357 | 649 | - | - |
| Total current assets | 38,165 | 87,031 | 68,331 | 64,217 | |
| Non-current assets | |||||
| Investment properties | 17 | 170,011 | - | 150,200 | - |
| Property, plant and equipment | 18 | 4,898 | 123,078 | - | 116,348 |
| Inventories | 11 | 45,470 | - | - | - |
| Investments in controlled entities | 19 | - | - | 98,751 | 98,751 |
| Other financial assets at fair value through profit and loss | 20 | - | - | - | - |
| Loans with related parties | 13 | - | - | 17,484 | 97,592 |
| Deferred tax assets | 21 | 16,248 | 15,152 | 5,074 | 5,796 |
| Intangible assets | 22 | 225,525 | 213,267 | - | - |
| Other | 23 | 66 | 66 | 62 | 62 |
| Total non-current assets | 462,218 | 351,563 | 271,571 | 318,549 | |
| Total assets | 500,383 | 438,594 | 339,902 | 382,766 | |
| Current liabilities | |||||
| Payables | 24 | 4,930 | 5,284 | 296 | 565 |
| Loans with related parties | 13 | 48,932 | 48,932 | 48,932 | 48,932 |
| Provisions | 25 | 16,389 | 13,089 | - | - |
| Derivative financial instruments | 14 | - | 9,520 | - | 9,520 |
| Total current liabilities | 70,251 | 76,825 | 49,228 | 59,017 | |
| Non-current liabilities | |||||
| Loans with related parties | 13 | 389,675 | 325,867 | 317,900 | 325,867 |
| Deferred tax liabilities | 26 | 9,627 | 6,360 | 6,559 | 2,670 |
| Provisions | 25 | 16,524 | 13,533 | - | - |
| Derivative financial instruments | 14 | 6,558 | - | 6,558 | - |
| Total non-current liabilities | 422,384 | 345,760 | 331,017 | 328,537 | |
| Total liabilities | 492,635 | 422,585 | 380,245 | 387,554 | |
| Net assets | 7,748 | 16,009 | (40,343) | (4,788) | |
| Equity | |||||
| Contributed equity | 27 | 26,335 | 26,335 | 26,335 | 26,335 |
| Reserves | 28 | 42,738 | 42,738 | - | - |
| Accumulated losses | 28 | (61,325) | (53,064) | (66,678) | (31,123) |
| Total equity | 7,748 | 16,009 | (40,343) | (4,788) |
The above Statements of Financial Position should be read in conjunction with the accompanying notes.
DEXUS OPERATIONS TRUST Page 10 of 68 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2010
Consolidated
| Contributed equity |
Asset revaluation reserve |
Accumulated losses |
Total equity | |||
|---|---|---|---|---|---|---|
| 2009 | Note | \$'000 | \$'000 | \$'000 | \$'000 | |
| Opening balance as at 1 July 2008 | 12,876 | 63,293 | 6,487 | 82,656 | ||
| Comprehensive loss for the year | - | - | (80,106) | (80,106) | ||
| Transactions with owners in their capacity as owners: | ||||||
| Contributions of equity, net of transaction costs | 27 | 13,459 | - | - | 13,459 | |
| Transfer to accumulated losses | - | (20,555) | 20,555 | - | ||
| Closing balance as at 30 June 2009 | 26,335 | 42,738 | (53,064) | 16,009 | ||
| 2010 | ||||||
| Opening balance as at 1 July 2009 | 26,335 | 42,738 | (53,064) | 16,009 | ||
| Comprehensive loss for the year | - | - | (8,261) | (8,261) | ||
| Transactions with owners in their capacity as owners: | ||||||
| Contributions of equity, net of transaction costs | 27 | - | - | - | - | |
| Closing balance as at 30 June 2010 | 26,335 | 42,738 | (61,325) | 7,748 |
Parent Entity
| Accumulated losses |
Total equity | |||||
|---|---|---|---|---|---|---|
| 2009 | Note | \$'000 | \$'000 | \$'000 | \$'000 | |
| Opening balance as at 1 July 2008 | 12,876 | - | 10,907 | 23,783 | ||
| Comprehensive loss for the year | - | - | (42,030) | (42,030) | ||
| Transactions with owners in their capacity as owners: | ||||||
| Contributions of equity, net of transaction costs | 27 | 13,459 | - | - | 13,459 | |
| Closing balance as at 30 June 2009 | 26,335 | - | (31,123) | (4,788) | ||
| 2010 | ||||||
| Opening balance as at 1 July 2009 | 26,335 | - | (31,123) | (4,788) | ||
| Comprehensive loss for the year | - | - | (35,555) | (35,555) | ||
| Transactions with owners in their capacity as owners: | ||||||
| Contributions of equity, net of transaction costs | 27 | - | - | - | - | |
| Closing balance as at 30 June 2010 | 26,335 | - | (66,678) | (40,343) |
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.
DEXUS OPERATIONS TRUST Page 11 of 68 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2010
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Notes | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Cash flows from operating activities | |||||
| Receipts in the course of operations (inclusive of GST) | 85,396 | 113,338 | - | 10 | |
| Payments in the course of operations (inclusive of GST) | (72,915) | (76,540) | (6,292) | (2,157) | |
| Payments for development property classified as inventory | (45,470) | - | - | - | |
| Interest received | 612 | 882 | 5,775 | 5,794 | |
| Finance costs paid to financial institutions | (4,015) | (1,930) | (3,998) | (1,913) | |
| Income tax received/(paid) | 1,650 | (7,241) | 6,082 | (98) | |
| Net cash (outflow)/inflow from operating activities | 36 | (34,742) | 28,509 | 1,567 | 1,636 |
| Cash flows from investing activities | |||||
| Payments for property, plant and equipment | (1,030) | (27,165) | - | (27,165) | |
| Payments for capital expenditure on investment properties | (22,349) | (44,906) | (22,205) | (41,711) | |
| Payments for investment properties | (40,040) | - | (20,373) | - | |
| Proceeds from sale of investment properties | 54,011 | - | - | - | |
| Net cash outflow from investing activities | (9,408) | (72,071) | (42,578) | (68,876) | |
| Cash flows from financing activities | |||||
| Establishment expenses and unit issue cost | - | (380) | - | (380) | |
| Borrowings provided to entities within DXS | (121,790) | (74,884) | (8,020) | (14,668) | |
| Borrowings provided by entities within DXS | 165,072 | 108,770 | 48,791 | 73,320 | |
| Issue of units | - | 12,275 | - | 12,275 | |
| Distributions paid to unitholders | - | (3,346) | - | (3,346) | |
| Net cash inflow from financing activities | 43,282 | 42,435 | 40,771 | 67,201 | |
| Net decrease in cash and cash equivalents | (868) | (1,127) | (240) | (39) | |
| Cash and cash equivalents at the beginning of the year | 13,765 | 14,892 | 259 | 298 | |
| Cash and cash equivalents at the end of the year | 9 | 12,897 | 13,765 | 19 | 259 |
DEXUS OPERATIONS TRUST Page 12 of 68 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies
(a) Basis of preparation
DEXUS Property Group stapled securities are quoted on the Australian Stock Exchange under the 'DXS' code and comprise one unit in each of DDF, DIT, DOT and DXO. Each entity forming part of DXS continues as a separate legal entity in its own right under the Corporations Act 2001 and is therefore required to comply with reporting and disclosure requirements under the Corporations Act 2001 and the Australian Accounting Standards.
DEXUS Funds Management Limited (DXFM) as Responsible Entity for each entity within DXS may only unstaple the Group if approval is obtained by a special resolution of the stapled security holders.
These general purpose Financial Statements for the year ended 30 June 2010 have been prepared in accordance with the requirements of the Trust's Constitution, the Corporations Act 2001, Australian Accounting Standards, other authoritative pronouncements of the Australia Accounting Standards Board and interpretations. Compliance with Australian Accounting Standards ensures that the consolidated and parent entity Financial Statements and notes also comply with International Financial Reporting Standards (IFRS).
These Financial Statements are prepared on a going concern basis and in accordance with historical cost conventions and have not been adjusted to take account of either changes in the general purchasing power of the dollar or changes in the values of specific assets, except for the valuation of certain non-current assets and financial instruments (refer notes 1(e), 1 (o), 1(q), 1(w) and 1(x)).
As at 30 June 2010, the Trust had a net current assets deficiency of \$32.1 million. The accounts have been prepared on a going concern basis due to the existence of cross guarantee arrangements with other entities within the DXS group. Gearing is managed centrally for DXS. The gearing ratio as disclosed in the DEXUS Property Group Financial Statements for the year ended 30 June 2010 is 30.4% (refer note 32 of the DXS Financial Statements).
The Trust has applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January 2009. The revised standard requires the separate presentation of a Statement of Comprehensive Income and a Statement of Changes in Equity. Comparative information has been re-presented so that it is also in conformity with the revised standard.
The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, unless otherwise stated.
Critical accounting estimates
The preparation of Financial Statements requires the use of certain critical accounting estimates and management to exercise its judgement in the process of applying the Trust's accounting policies. Other than the estimation described in notes 1(e), 1(o), 1(q), 1(w) and 1(x), no key assumptions concerning the future or other estimation of uncertainty at the reporting date have a significant risk of causing material adjustments to the Financial Statements in the next annual reporting period.
(b) Principles of consolidation
(i) Controlled entities
The Financial Statements have been prepared on a consolidated basis. The accounting policies of the subsidiaries are consistent with those of the parent.
Subsidiaries are all entities over which the Trust has power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Trust controls another entity.
The Financial Statements incorporate an elimination of inter-entity transactions and balances to present the Financial Statements on a consolidated basis. Where control of an entity is obtained during a financial year, its results are included in the Statements of Comprehensive Income from the date on which control is gained. The Financial Statements incorporate all the assets, liabilities and results of the parent and its controlled entities.
DEXUS OPERATIONS TRUST Page 13 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(c) Revenue recognition
(i) Rent
Rental revenue is brought to account on a straight-line basis over the lease term for leases with fixed rent review clauses. In all other circumstances rental revenue is brought to account on an accruals basis. Where rental revenue is recovered net of associated property expenses, the net amount is brought to account. If not received at the end of the reporting period, rental revenue is reflected in the Statements of Financial Position as a receivable. Recoverability of receivables is reviewed on an ongoing basis. Debts which are known to be not collectable are written off.
(ii) Management fee revenue
Management fees are brought to account on an accruals basis, and if not received at the end of the reporting period, are reflected in the Statements of Financial Position as a receivable.
(iii) Interest revenue
Interest revenue is brought to account on an accruals basis using the effective interest rate method and, if not received at the end of the reporting period, is reflected in the Statements of Financial Position as a receivable.
(iv) Dividends and distribution revenue
Revenue from dividends and distributions are recognised when declared. Amounts not received at the end of the reporting period are included as a receivable in the Statements of Financial Position.
(d) Expenses
Expenses are brought to account on an accruals basis and, if not paid at the end of the reporting period, are reflected in the Statements of Financial Position as a payable.
(i) Property expenses
Property expenses include rates, taxes and other property outgoings incurred in relation to investment properties and property, plant and equipment where such expenses are the responsibility of the Trust.
(ii) Borrowing costs
Borrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation or ancillary costs incurred in connection with arrangement of borrowings and foreign exchange losses net of hedged amounts on borrowings, including trade creditors and lease finance charges. Borrowing costs are expensed as incurred unless they relate to qualifying assets.
Qualifying assets are assets which take more than twelve months to get ready for their intended use or sale. In these circumstances, borrowing costs are capitalised to the cost of the asset during the period of time that is required to complete and prepare the asset for its intended use or sale. Where funds are borrowed generally, borrowing costs are capitalised using a weighted average capitalisation rate.
(e) Derivatives and other financial instruments
(i) Derivatives
The Trust's activities expose it to a variety of financial risks including interest rate risk. Accordingly, the Trust enters into various derivative financial instruments such as interest rate swaps to manage its exposure to certain risks. Written policies and limits are approved by the Board of Directors of the Responsible Entity, in relation to the use of financial instruments to manage financial risks. The Responsible Entity continually reviews the Trust's exposures and updates its treasury policies and procedures. The Trust does not trade in derivative instruments for speculative purposes. Even though derivative financial instruments are entered into for the purpose of providing the Trust with an economic hedge, the Trust has elected not to apply hedge accounting under AASB 139 Financial Instruments: Recognition and Measurement. Accordingly, derivatives including interest rate swaps are measured at fair value with any changes in fair value recognised in the Statements of Comprehensive Income.
DEXUS OPERATIONS TRUST Page 14 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
(e) Derivatives and other financial instruments (continued)
(ii) Debt and equity instruments issued by the Trust
Financial instruments issued by the Trust are classified as either liabilities or as equity in accordance with the substance of the contractual arrangements. Accordingly, ordinary units issued by DXO are classified as equity.
Interest and distributions are classified as expenses or as distributions of profit consistent with the Statements of Financial Position classification of the related debt or equity instruments.
Transaction costs arising on the issue of equity instruments are recognised directly in equity (net of tax) as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.
(iii) Financial guarantee contracts
Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where appropriate.
The fair value of financial guarantees is determined as the present value of the difference in the net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations. Where guarantees in relation to loans or other payables of subsidiaries or associates are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.
(iv) Other financial assets
Loans and other receivables are measured at amortised cost using the effective interest rate method less impairment.
(f) Goods and services tax/value added tax
Revenues, expenses and capital assets are recognised net of the amount of Goods and Services Tax (GST), except where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.
Cash flows are included in the Statements 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.
(g) Taxation
The Trust is liable for income tax and applies the following policy in determining the tax expense, assets and liabilities:
- The income tax expense for the year is the tax payable on the current year's taxable income based on a tax rate of 30% adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses;
- Deferred tax assets and liabilities are recognised for temporary differences arising from differences between the carrying amount of assets and liabilities and the corresponding tax base of those items. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax assets or liabilities. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss;
- Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses;
- Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future; and
- Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
DEXUS OPERATIONS TRUST Page 15 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(g) Taxation (continued)
Tax consolidation
In December 2009 the DXH tax consolidated group elected to deconsolidate and DXO elected to form a tax consolidated group comprising 20 Barrack Street Trust, DEXUS Holdings Pty Limited, DEXUS Funds Management Limited, DEXUS Property Services Pty Limited, DEXUS Financial Services Pty Limited and DEXUS Wholesale Property Limited, DEXUS CMBS Issuer Pty Limited and DWPL Nominees Pty Limited. The implementation date for the DXO tax consolidated group is 1 July 2008.
The entities in the DXO tax consolidated group entered into a Tax Sharing Deed effective 1 July 2008. In the opinion of the directors, this limits the joint and several liability of the wholly-owned entities in the case of a default by the head entity, DXO.
DXO and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. These notional tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right pursuant to the Tax Funding Deed effective 1 July 2008.
Under the Tax Funding Deed, the wholly owned entities fully compensate DXO for any current tax payable assumed and are compensated by DXO for any current tax receivable. The funding amounts are determined by reference to the amounts recognised in the wholly owned entities' Financial Statements and are recognised as current intercompany receivables or payables.
(h) Dividends
In accordance with the Trust's Constitution, the Trust distributes its distributable income to unitholders by cash or reinvestment. Dividends are provided for when they are approved by the Board of Directors and declared.
(i) Repairs and maintenance
Plant is required to be overhauled on a regular basis and is managed as part of an ongoing major cyclical maintenance program. The costs of this maintenance are charged as expenses as incurred, except where they relate to the replacement of a component of an asset, in which case the replaced component will be derecognised and the replacement costs capitalised in accordance with note 1(q). Other routine operating maintenance, repair costs and minor renewals are also charged as expenses as incurred.
(j) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
(k) Receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, which is based on the invoiced amount less provision for doubtful debts. Trade receivables are required to be settled within 30 days and are assessed on an ongoing basis for impairment. Receivables which are known to be uncollectible are written off. A provision for doubtful debts is established when there is objective evidence that the Trust will not be able to collect all amounts due according to the original terms of the receivables.
(l) Inventories
(i) Land and development property held for resale
Land and development property held for resale is stated at the lower of cost and net realisable value. Cost is assigned by specific identification and includes the cost of acquisition, and development and holding costs such as borrowing costs, rates and taxes. Holding costs incurred after completion of the development are expensed.
(ii) Net realisable value
Net realisable value is the estimated selling price in the ordinary course of business. Marketing and selling expenses are estimated and deducted to establish net realisable value.
DEXUS OPERATIONS TRUST Page 16 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(m) Non-current assets (or disposal groups) held for sale and discontinued operations
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement.
(n) Investments in controlled entities
Interests held by the Trust in controlled entities are measured at cost. The carrying amount of these investments is reviewed annually to ensure they are not in excess of the recoverable amount of the investments.
(o) Property, plant and equipment
Property, plant and equipment is stated at historical cost less depreciation and accumulated impairment. Historical cost includes expenditure that is directly attributable to its acquisition. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Trust and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Statements of Comprehensive Income during the financial period in which they are incurred.
Property, plant and equipment is tested for impairment whenever events or changes in circumstances indicate that the carrying amounts exceed their recoverable amounts (refer note 1 (v)).
(p) Depreciation of property, plant and equipment
Land is not depreciated. Depreciation on buildings (including fit-out) is calculated on a straight-line basis so as to write off the net cost of each non-current asset over its expected useful life. Estimates for remaining useful lives are reviewed on a regular basis for all assets and are as follows:
| Buildings (including fit-out) | 5-50 years |
|---|---|
| IT equipment | 3-5 years |
(q) Investment properties
During the period DXO adopted the amendments to AASB 140 Investment Property as set out in AASB 2008-5 Amendments to Australian Accounting Standards arising from the Annual Improvements Project effective for reporting periods beginning on or after 1 January 2009. Under this amendment, property that is under construction or development for future use as investment property falls within the scope of AASB 140. As such development property of this nature is no longer recognised and measured as property, plant and equipment but is included as investment property measured at fair value. Where fair value of investment property under construction is not reliably measurable, the property is measured at cost until the earlier of the date construction is completed and the date at which fair value becomes reliably measurable. As required by the standard, the amendments to AASB 140 have been applied prospectively from 1 July 2009.
Investment properties consist of properties held for long-term rental yields and/or capital appreciation and property that is being constructed or developed for future use as investment property. Investment properties are initially recognised at cost including transaction costs. Investment properties are subsequently recognised at fair value in the Financial Statements. Each valuation firm and its signatory valuer are appointed on the basis that they are engaged for no more than three consecutive valuations.
The basis of valuations of investment properties is fair value being the amounts for which the assets could be exchanged between knowledgeable willing parties in an arm's length transaction, based on current prices in an active market for similar properties in the same location and condition and subject to similar leases. In addition, an appropriate valuation method is used, which may include the discounted cashflow and the capitalisation method. Discount rates and capitalisation rates are determined based on industry expertise and knowledge, and where possible a direct comparison to third party rates for similar assets in a comparable location. Rental revenue from current leases and assumptions about future leases, as well as any expected operational cash outflows in relation to the property, are also reflected in fair value. In relation to development properties under construction for future use as investment property, where reliably measurable, fair value is determined based on the market value of the property on the assumption it had already been completed at the valuation date less costs still required to complete the project, including an appropriate adjustment for profit and risk.
DEXUS OPERATIONS TRUST Page 17 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(q) Investment properties (continued)
External valuations of the individual investments are carried out in accordance with the Constitution for DXO, or may be earlier where the Responsible Entity believes there is a potential for a material change in the fair value of the property.
Changes in fair values are recorded in the Statements of Comprehensive Income. The gain or loss on disposal of an investment property is calculated as the difference between the carrying amount of the asset at the date of disposal and the net proceeds from disposal and is included in the Statements of Comprehensive Income in the year of disposal.
Subsequent redevelopment and refurbishment costs (other than repairs and maintenance) are capitalised to the investment property where they result in an enhancement in the future economic benefits of the property.
(r) Leasing fees
Leasing fees incurred are capitalised and amortised over the lease periods to which they relate.
(s) Lease incentives
Prospective lessees may be offered incentives as an inducement to enter into operating leases. These incentives may take various forms including cash payments, rent free periods, or a contribution to certain lessee costs such as fit out costs or relocation costs.
The costs of incentives are recognised as a reduction of rental revenue on a straight-line basis from the earlier of the date which the tenant has effective use of the premises or the lease commencement date to the end of the lease term. The carrying amount of the lease incentives is reflected in the fair value of investment properties.
(t) Other financial assets at fair value through profit and loss
Interests held by the Trust in associates are measured at fair value through profit and loss to reduce a measurement or recognition inconsistency.
(u) Business combinations
During the period DXO adopted the revised AASB 3 Business Combinations, AASB 127 Consolidated and Separate Financial Statements and AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 effective for annual reporting periods beginning on or after 1 July 2009,
The acquisition method of accounting is used to account for all business combinations. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Trust recognises any non-controlling interest in the acquiree at its proportionate share of the acquiree's net identifiable assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Trust's share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in Statements of Comprehensive Income as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
DEXUS OPERATIONS TRUST Page 18 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(v) Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
(w) Intangible assets
(i) Goodwill
Goodwill is recognised as of the acquisition date and is measured as the excess of the aggregate of the fair value of consideration transferred and the non-controlling interest's proportionate share of the acquiree's identifiable net assets over the fair value of the identifiable net assets acquired.
In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss.
The carrying value of the goodwill is tested for impairment at the end of each reporting period with any decrement in value taken to the Statements of Comprehensive Income as an expense.
(ii) Management rights
Management rights represent the asset management rights owned by the Trust which entitle it to management fee revenue from both finite and indefinite life trusts. Those rights that are deemed to have a finite useful life, are measured at cost and amortised using the straight-line method over their estimated useful lives which vary from six to twenty two years.
Management rights with indefinite life are not subject to amortisation and are tested for impairment at the end of each reporting period.
(x) Financial assets and liabilities
(i) Classification
The Trust has classified its financial assets and liabilities as follows:
| Financial Asset/Liability | Classification | Valuation Basis | Reference |
|---|---|---|---|
| Cash and cash equivalents | Fair value through profit or loss | Fair value | Refer note 1(j). |
| Receivables | Loans and receivables | Amortised cost | Refer note 1(k). |
| Investments in controlled entities | Loans and receivables | Amortised cost | Refer note 1(e). |
| Payables | Financial liability at amortised cost | Amortised cost | Refer note 1(y). |
| Interest bearing liabilities | Financial liability at amortised cost | Amortised cost | Refer note 1(z). |
| Derivatives | Fair value through profit or loss | Fair value | Refer note 1(e). |
Financial assets and liabilities are classified in accordance with the purpose for which they were acquired.
DEXUS OPERATIONS TRUST Page 19 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(x) Financial assets and liabilities (continued)
(ii) Fair value estimation of financial assets and liabilities
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement and for disclosure purposes.
The fair value of financial instruments traded in active markets (such as publicly traded derivatives) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Trust is the current bid price. The appropriate quoted market price for financial liabilities is the current ask price.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques including dealer quotes for similar instruments and discounted cash flows. In particular, the fair value of interest rate swaps and cross currency swaps are calculated as the present value of the estimated future cash flows, the fair value of forward exchange rate contracts is determined using forward exchange market rates at the Statements of Financial Position date, and the fair value of interest rate option contracts are calculated as the present value of the estimated future cash flows taking into account the time value and implied volatility of the underlying instrument.
(y) Payables
These amounts represent liabilities for amounts owing at the end of the reporting period. The amounts are unsecured and are usually paid within 30 days of recognition.
(z) Interest bearing liabilities
Subsequent to initial recognition at fair value, net of transaction costs incurred, interest bearing liabilities are measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Statements of Comprehensive Income over the period of the borrowings using the effective interest method. Interest bearing liabilities are classified as current liabilities unless the Trust has an unconditional right to defer the liability for at least twelve months after the end of each reporting peroid.
(aa) Employee benefits
(i) Wages, salaries and annual leave
Liabilities for employee benefits for wages, salaries and annual leave represent present obligations resulting from employees' services provided to the end of each reporting period, calculated at undiscounted amounts based on remuneration wage and salary rates that the Trust expects to pay at the end of each reporting period including related on-costs, such as workers compensation, insurance and payroll tax.
(ii) Long service leave
The provision for employee benefits for long service leave represents the present value of the estimated future cash outflows, to be made resulting from employees' services provided to the end of each reporting period.
The provision is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates based on turnover history and is discounted using the rates attaching to national government bonds at the end of each reporting period which most closely match the term of the maturity of the related liabilities. The unwinding of the discount is treated as long service leave expense.
(ab) Earnings per unit
Earnings per unit are determined by dividing the net profit attributable to unitholders of the parent entity by the weighted average number of ordinary units outstanding during the year.
Diluted earnings per unit are adjusted from the basic earnings per unit by taking into account the impact of dilutive potential units. The Trust did not have such dilutive potential units during the year.
DEXUS OPERATIONS TRUST Page 20 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 1. Summary of significant accounting policies (continued)
(ac) Operating segments
During the period the Trust adopted AASB 8 Operating Segments which replaced AASB 114 Segment Reporting. The new standard requires a 'management approach', under which segment information is presented in a manner that is consistent with internal reporting provided to the Chief Operating Decision Maker (CODM). The CODM who is responsible for allocating resources and assessing performance of the operating segments has been identified as the Board of Directors of DXFM. The Board of Directors are responsible for the strategic decision making for the Group which consists of DIT, DOT, DDF and DXO. Consistent with how the CODM manages the business the operating segments within the Group are reviewed on a consolidated basis rather than at an individual trust level. Disclosures concerning DXS's operating segments as well as the operating segments key financial information provided to the CODM are presented in the Group's Financial Statements.
(ad) Rounding of amounts
The Trust is the kind referred to in Class Order 98/0100, issued by the Australian Securities and Investment Commission, relating to the rounding off of amounts in the Financial Statements. Amounts in the Financial Statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar.
(ae) Presentation of parent entity Financial Statements
The Trust is a registered scheme of the kind referred to in Class Order 10/654, issued by the Australian Securities & Investments Commission, relating to the inclusion of parent entity Financial Statements in the consolidated Financial Statements. The Class Order provides relief from the Corporations Amendment (Corporate Reporting Reform) Act 2010 and the Trust continues to present the parent entity Financial Statements in the consolidated Financial Statements in accordance with that Class Order.
(af) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2010 reporting period. Our assessment of the impact of these new standards and interpretations is set out below:
- (i) AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 (effective from 1 January 2013). AASB 9 Financial Instruments addresses the classification and measurement of financial assets. Under the new guidance, a financial asset is to be measured at amortised cost only if it is held within a business model whose objective is to collect contractual cash flows and the contractual terms of the asset give rise on specific dates to cash flows that are payments solely of principal and interest on the principal amount outstanding. All other financial assets are to be measured at fair value. The standard is not applicable until 1 January 2013 but is available for early adoption. The Trust is currently assessing the impact of this standard but does not expect it to be significant.
- (ii) Revised AASB 124 Related Party Disclosures (effective from 1 January 2011). In December 2009 the AASB issued a revised AASB 124 Related Party Disclosures. It is effective for accounting periods beginning on or after 1 January 2011 and must be applied retrospectively. The amendment clarifies and simplifies the definition of a related party. The Trust will apply the amended standard from 1 July 2011. It is not expected to have any impact on the Trust's Financial Statements.
- (iii) AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project (effective from 1 January 2010). In May 2010, the AASB issued a number of improvements to existing Australian Accounting Standards. The Trust will apply the revised standards from 1 July 2010 where applicable. The Trust is currently assessing the impact of the revised rules but does not expect it to be significant.
- (iv) AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements (effective from 1 July 2013). On 30 June 2010 the AASB officially introduced a revised differential reporting framework in Australia. Under this framework, a two-tier differential reporting regime applies to all entities that prepare general purpose financial statements. The Trust, as part of DXS, is listed on the ASX and is therefore not eligible to adopt the new Australian Accounting Standards – Reduced Disclosure Requirements. As a consequence, the two standards will have no impact on the Financial Statements of the Trust.
DEXUS OPERATIONS TRUST Page 21 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 2. Property revenue
| Consolidated | Parent Entity | ||||||
|---|---|---|---|---|---|---|---|
| 2010 2009 |
2010 | 2009 | |||||
| \$'000 | \$'000 | \$'000 | \$'000 | ||||
| Rent and recoverable outgoings | 725 | 2,442 | - | - | |||
| Other revenue | - | 292 | - | - | |||
| Total property revenue | 725 | 2,734 | - | - |
Note 3. Interest revenue
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 2009 2010 |
|||||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Interest revenue from financial institutions | 626 | 874 | 62 | 81 | |
| Interest revenue from related parties | - | - | 8,693 | 12,657 | |
| Total interest revenue | 626 | 874 | 8,755 | 12,738 |
Note 4. Management fee revenue
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 2010 |
2009 | |||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Responsible Entity fees | 34,476 | 40,012 | - | - | |
| Asset management fees | 10,077 | 11,209 | - | - | |
| Property management fees | 20,478 | 19,985 | - | - | |
| Capital works and development fees | 5,966 | 9,851 | - | - | |
| Wages recovery and other fees | 9,108 | 12,812 | - | - | |
| Total management fee revenue | 80,105 | 93,869 | - | - |
Note 5. Finance costs
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Interest paid to related parties | 20,526 | 18,868 | 20,511 | 18,868 |
| Amount capitalised | (11,639) | (7,203) | (11,639) | (7,203) |
| Other finance costs1 | 19 | 19 | 14,678 | 1 |
| Net fair value loss of interest rate swaps | 1,034 | 12,604 | 1,034 | 12,604 |
| Total finance costs | 9,940 | 24,288 | 24,584 | 24,270 |
1 During the year, DXO forgave a loan with Barrack Street Trust, a wholly owned subsidiary of DXO, which resulted in a finance cost of \$14.7 million. The cost eliminates on consolidation.
The average capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation is 7.15% (2009: 6.90%).
DEXUS OPERATIONS TRUST Page 22 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 6. Income tax
(a) Income tax benefit
| Parent Entity | |||
|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 |
| \$'000 | \$'000 | \$'000 | \$'000 |
| (3,775) | 5,943 | (3,081) | - |
| 2,171 | (3,261) | 2,733 | (3,701) |
| (1,604) | 2,682 | (348) | (3,701) |
| Consolidated |
Deferred income tax expense/(benefit) included in income tax expense comprises:
| Decrease/(increase) in deferred tax assets | (1,096) | (5,403) | 722 | (5,657) |
|---|---|---|---|---|
| Increase/(decrease) in deferred tax liabilities | 3,267 | 2,142 | 3,889 | 1,956 |
| Tax loss assumed from related entities | - | - | (1,878) | - |
| Total deferred tax expense/(income) | 2,171 | (3,261) | 2,733 | (3,701) |
(b) Reconciliation of income tax benefit to net profit
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Loss before tax | (9,865) | (77,424) | (35,903) | (45,731) |
| Prima facie tax benefit at the Australian tax rate of 30% (2009: 30%) | (2,960) | (23,227) | (10,771) | (13,719) |
| Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: |
||||
| Depreciation and amortisation | 73 | 51 | - | - |
| Sundry items | 5 | 17 | (20) | (21) |
| Unused tax losses | (225) | 3,470 | - | - |
| Net fair value loss of investment properties | 6,040 | 22,371 | 6,040 | 10,039 |
| Reversal of previous impairment | (3,992) | - | - | - |
| Previous unrecognised tax losses utilised | (693) | - | - | - |
| Gain on sale of assets | 148 | - | - | - |
| Loan forgiveness | - | - | 4,403 | - |
| 1,356 | 25,909 | 10,423 | 10,018 | |
| Income tax (benefit)/expense | (1,604) | 2,682 | (348) | (3,701) |
DEXUS OPERATIONS TRUST Page 23 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 7. Other expenses
| Consolidated | Parent Entity | |||||
|---|---|---|---|---|---|---|
| Note | 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | |||
| Audit and other fees | 8 | 336 | 627 | 135 | 220 | |
| Custodian fees | 13 | 15 | 13 | 15 | ||
| Legal and other professional fees | 1,569 | 1,197 | 130 | 79 | ||
| Consultancy fees | 958 | 1,003 | - | - | ||
| Registry costs and listing fees | 64 | 65 | 64 | 65 | ||
| Occupancy expenses | 2,279 | 267 | - | - | ||
| Administration expenses | 3,196 | 3,987 | - | - | ||
| Other staff expenses | 2,665 | 2,417 | - | - | ||
| Other expenses | 724 | 546 | - | 245 | ||
| Total other expenses | 11,804 | 10,124 | 342 | 624 |
Note 8. Audit and advisory fees
During the year the auditor of the parent entity and its related practices earned the following remuneration:
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$ | \$ | \$ | \$ | |
| (a) Assurance services | ||||
| Audit services | ||||
| PwC audit and review of Financial Statements and | ||||
| other audit work under the Corporations Act 2001 | 227,967 | 204,094 | 127,504 | 131,121 |
| Remuneration for audit services to PwC | 227,967 | 204,094 | 127,504 | 131,121 |
| Fees paid to non-PwC audit firms | 75,075 | 180,455 | - | - |
| Total remuneration for assurance services | 303,042 | 384,549 | 127,504 | 131,121 |
| (b) Taxation services | ||||
| Fees paid to PwC Australia | 63,114 | 242,760 | 7,167 | 88,855 |
| Total remuneration for taxation services1 | 63,114 | 242,760 | 7,167 | 88,855 |
| Total audit and taxation fees | 366,156 | 627,309 | 134,671 | 219,976 |
| (c) Fees paid to PwC for transaction services | ||||
| PwC assurance services in respect of capital raisings | - | 7,563 | - | 7,563 |
| PwC taxation services | - | 1,449 | - | 1,449 |
| PwC other transaction and advisory fees | - | 53,841 | - | 53,841 |
| Total transaction service fees | - | 62,853 | - | 62,853 |
| Total audit, taxation and transaction service fees | 366,156 | 690,162 | 134,671 | 282,829 |
1 These services include general compliance work, one off project work and advice with respect to the management of day to day tax affairs of the Trust.
DEXUS OPERATIONS TRUST Page 24 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 9. Current assets – cash and cash equivalents
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Cash at bank | 2,843 | 3,079 | 19 | 259 |
| Short-term deposits | 10,054 | 10,686 | - | - |
| Total current assets - cash and cash equivalents | 12,897 | 13,765 | 19 | 259 |
Note 10. Current assets – receivables
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Fee receivable | 10,919 | 11,895 | - | - |
| GST receivable | 6,582 | 616 | 548 | 1,158 |
| Receivables from related entities | 3,812 | 3,386 | 1,879 | - |
| Interest receivable | 45 | 31 | - | - |
| Other receivables | 6 | 267 | 117 | - |
| Total current assets - receivables | 21,364 | 16,195 | 2,544 | 1,158 |
Note 11. Non-current assets – inventories
(a) Land and development property held for resale
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Land and development property held for resale | 45,470 | - | - | - |
| Total non-current asset - inventories | 45,470 | - | - | - |
(b) Reconciliation
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Opening balance as at 1 July | - | - | - | - |
| Acquisitions1 | 45,135 | - | - | - |
| Additions and other | 335 | - | - | - |
| Closing balance as at 30 June | 45,470 | - | - | - |
1 During the current year, DEXUS Projects Pty Limited (DXP), a wholly owned subsidiary of DXO, purchased the undeveloped land at Laverton VIC from DIT for \$64.8 million. DXP has initiated the development of part of the land (73.6 hectares valued at \$45.1 million) with an intention to sell and has therefore classified this portion of the asset as inventories. The balance of 39.9 hectares (valued at \$19.7 million) remains classified as investment property.
DEXUS OPERATIONS TRUST Page 25 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 12. Non-current assets classified as held for sale
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Property, plant and equipment held for sale | - | 55,000 | - | - |
| Total non-current assets classified as held for sale | - | 55,000 | - | - |
On 9 October 2009, 343 George Street, Sydney, NSW was disposed of for \$55.0 million.
Note 13. Loan with related parties
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Current assets - loan with related parties | ||||
| Non-interest bearing loans with controlled entities | - | - | 10,284 | 10,062 |
| Total current-assets - loans with related parties | - | - | 10,284 | 10,062 |
| Non-current assets - loan with related parties | ||||
| Interest bearing loans with controlled entities1 | - | - | 17,484 | 97,592 |
| Total non-current assets - loan with related parties | - | - | 17,484 | 97,592 |
| Current liabilities - loan with related parties | ||||
| Non-interest bearing loans with entities within DXS2 | 48,932 | 48,932 | 48,932 | 48,932 |
| Total current liabilities - loan with related parties | 48,932 | 48,932 | 48,932 | 48,932 |
| Non-current liabilities - loan with related parties | ||||
| Interest bearing loans with related parties3 | 389,675 | 325,867 | 317,900 | 325,867 |
| Total non-current liabilities - loan with related parties | 389,675 | 325,867 | 317,900 | 325,867 |
1 During the year, DXO forgave a loan with Barrack Street Trust, a wholly owned subsidiary of DXO (refer note 5). 2
Non-interest bearing loans with entities within DXS were created to effect the stapling of the Trust, DIT, DOT and DDF. These
loan balances eliminate on consolidation within DXS. 3 The interest bearing loans with related parties represent loans with DEXUS Finance Pty Limited (DXF). These loan balances eliminate on consolidation within DXS.
Note 14. Derivative financial instruments
| Parent Entity | |||
|---|---|---|---|
| 2010 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 |
| - | 9,520 | - | 9,520 |
| - | 9,520 | - | 9,520 |
| - | |||
| 6,558 | - | 6,558 | - |
| 9,520 | |||
| 6,558 6,558 |
Consolidated 2009 - 9,520 |
6,558 6,558 |
Refer note 30 for further discussion regarding derivative financial instruments.
DEXUS OPERATIONS TRUST Page 26 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 15. Other financial assets
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Loan notes receivable from DEXUS Holdings Pty Limited | - | - | 51,936 | 51,936 |
| Total current assets - other financial assets | - | - | 51,936 | 51,936 |
The loan notes pay a coupon of 11 percent per annum and mature on 1 October 2024.
Note 16. Current assets – other
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Prepayments | 357 | 649 | - | - | |
| Total current assets - other | 357 | 649 | - | - |
Note 17. Non-current assets – investment properties
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Opening balance as at 1 July | - | - | - | - |
| Additions | 33,745 | - | 33,611 | - |
| Acquisitions | 40,050 | - | 20,373 | - |
| Transfers from property, plant and equipment | 116,348 | - | 116,348 | - |
| Net fair value loss of investment properties | (20,132) | - | (20,132) | - |
| Closing balance as at 30 June | 170,011 | - | 150,200 | - |
(a) Key valuation assumptions
Details of key valuation assumptions in relation to investment properties are outlined in note 14 of the DXS Financial Statements.
(b) Acquisitions
On 30 June 2010, DXP, a wholly owned subsidiary of DXO, purchased the undeveloped land at Laverton VIC from DIT for \$64.8 million. DXP has initiated the development of part of the land (73.6 hectares valued at \$45.1 million) with an intention to sell and has therefore classified this portion of the asset in inventories. The balance of 39.9 hectares (valued at \$19.7 million) remains classified as investment property.
On 8 April 2010, DXO acquired the final stage of land at Greystanes Estate NSW, for \$20.4 million. The Greystanes Estate acquisition is now completed with a gross land area of 47.4 hectares purchased for a total of \$167.4 million.
DEXUS OPERATIONS TRUST Page 27 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 18. Non-current assets – property, plant and equipment
(a) Property, plant and equipment
| Co oli da ns |
ted | Pa t E nti ren |
ty | |||||
|---|---|---|---|---|---|---|---|---|
| 30 Ju 20 10 ne |
La nd d an |
La nd d an |
||||||
| Co tio n i nst ruc n |
fre eh old |
IT d an |
Co tio n i nst ruc n |
fre eh old |
IT d an |
|||
| pro gre ss |
bu ild ing s |
off ice |
To tal |
pro gre ss |
bu ild ing s |
off ice |
To tal |
|
| \$ '00 0 |
\$ '00 0 |
\$ '00 0 |
\$ '00 0 |
\$ '00 0 |
\$ '00 0 |
\$ '00 0 |
\$ '00 0 |
|
| Op ing ba lan 1 J uly 20 09 at en ce as |
47 624 , |
69 695 , |
5, 75 9 |
123 07 8 , |
47 62 4 , |
68 72 4 , |
- | 116 34 8 , |
| Ad diti on s |
- | - | 76 9 |
76 9 |
- | - | - | - |
| De cia tio ha pre n c rge |
- | ( 809 ) |
( 1, 792 ) |
( 2, 60 1) |
- | - | - | - |
| nsf off Tra to IT a nd ice er |
- | ( ) 162 |
162 | - | - | - | - | - |
| Tra nsf inv ies to est nt p ert er me rop |
( 47 624 ) , |
( 68 72 4) , |
- | ( 116 34 8) , |
( 47 624 ) , |
( 68 72 4) , |
- | ( 116 34 8) , |
| Clo sin ba lan at 30 Ju 20 10 g ce as ne |
- | - | 898 4, |
4, 89 8 |
- | - | - | - |
| Co st |
114 61 1 , |
90 155 , |
547 10 , |
21 5, 31 3 |
47 62 4 , |
68 72 4 , |
- | 116 34 8 , |
| Ac ula ted de cia tion cum pre |
- | ( ) 809 |
( 5, 1) 81 |
( 0) 6, 62 |
- | - | - | - |
| Tra nsf IT a nd off ice to er |
- | ( ) 162 |
162 | - | - | - | - | - |
| Tra nsf inv ies to est nt p ert er me rop |
( 114 61 1) , |
( 89 184 ) , |
- | ( 20 3, 79 5) |
( 47 624 ) , |
( 68 72 4) , |
- | ( 116 34 8) , |
| Ne t b k v alu t 3 0 J e 2 01 0 oo e a s a un |
- | - | 898 4, |
4, 89 8 |
- | - | - | - |
| Co oli da ns |
ted | nti Pa t E ren |
ty | |||||
| Ju 30 20 09 ne |
La nd d an |
La nd d an |
||||||
| Co tio n i nst ruc n |
fre eh old |
IT d an |
Co tio n i nst ruc n |
fre eh old |
IT d an |
|||
| pro gre ss \$ '00 0 |
bu ild ing s \$ '00 0 |
off ice \$ '00 0 |
To tal \$ '00 0 |
pro gre ss \$ '00 0 |
bu ild ing s \$ '00 0 |
off ice \$ '00 0 |
To tal \$ '00 0 |
|
| Op ing ba lan 1 J uly 20 08 at en ce as |
999 31 |
873 97 |
6, 03 9 |
135 91 1 |
31 99 9 |
41 50 0 |
- | 73 49 9 |
| Ad diti on s |
, 088 49 |
, 617 29 |
1, 52 1 |
, 80 22 6 |
, 49 08 8 |
, 27 22 4 |
- | , 76 312 |
| De cia tio ha pre n c rge |
, - |
, ( ) 2, 375 |
( 1) 1, 80 |
, ( ) 4, 176 |
, - |
, - |
- | , - |
| Tra nsf las sifi ed he ld f sal to nt a ts c er non cu rre sse as or e |
- | ( ) 55 000 |
- | ( 0) 55 00 |
- | - | - | - |
| Imp air nt me |
( 3) 33 46 , |
, ( 0) 42 |
- | , ( 3) 33 88 , |
( 3) 33 46 , |
- | - | ( 3) 33 46 , |
| Clo sin ba lan 30 Ju 20 09 at |
116 34 8 |
|||||||
| g ce as ne |
47 624 , |
69 695 , |
5, 75 9 |
123 07 8 , |
47 624 , |
724 68 , |
- | , |
| Co st |
81 087 , |
78 21 1 , |
145 8, |
167 44 3 , |
81 08 7 , |
724 68 , |
- | 149 81 1 , |
| Ac ula ted de cia tion cum pre |
- | ( ) 8, 096 |
( 6) 2, 38 |
( 2) 10, 48 |
- | - | - | - |
| Imp air nt me |
( 3) 33 46 , |
( 0) 42 |
- | ( 3) 33 88 , |
( 3) 33 46 , |
- | - | ( 3) 33 46 , |
| Ne t b k v alu t 3 0 J e 2 00 9 oo e a s a un |
47 624 , |
69 695 , |
5, 75 9 |
123 07 8 , |
47 624 , |
724 68 , |
- | 116 34 8 , |
DEXUS OPERATIONS TRUST Page 28 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 18. Non-current assets – property, plant and equipment (continued)
(a) Property, plant and equipment (continued)
In the current year, based on the revised AASB 140 Investment Property, development properties being developed for future use as investment properties have been included in investment properties and were fair valued at the end of the reporting period (refer to note 17).
(b) Impairment
In 2009, DXO carried out a review of the recoverable amount of its development properties that were classified as property, plant and equipment prior to the adoption of the revised AASB 140 Investment Property. An impairment of \$33.9 million was recognised in the profit or loss.
Note 19. Non-current assets – investments in controlled entities
| Name of entity | Principal activity | Ownership Interest | Parent Entity | |||
|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||
| % | % | \$'000 | \$'000 | |||
| Held by parent entity | ||||||
| Barrack Street Trust | Office property investment | 100.0 | 100.0 | 99 | 99 | |
| DEXUS Holdings Pty Limited | Asset, property and development management |
100.0 | 100.0 | 98,652 | 98,652 | |
| DEXUS Projects Pty Limited | Office and industrial development | 100.0 | - | - | - | |
| Total non-current assets - investments in controlled entities | 98,751 | 98,751 |
On 18 June 2010, DXO acquired two units in DEXUS Projects Pty Limited for \$2.00. Both the parent entity and the subsidiary entities were formed in Australia.
Note 20. Non-current assets – other financial assets at fair value through profit and loss
| Name of entity | Principal activity | Ownership Interest | Parent Entity | ||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| % | % | \$'000 | \$'000 | ||
| Held by parent entity | |||||
| DEXUS Finance Pty Limited | Financial services | 25.0 | 25.0 | - | - |
| Total non-current assets - other financial assets | - | - |
DEXUS Finance Pty Limited (DXF) is owned jointly by DDF, DIT, DOT and DXO. Both the parent entity and DXF were formed in Australia.
DEXUS OPERATIONS TRUST Page 29 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 21. Non-current assets – deferred tax assets
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| The balance comprises: | |||||
| Derivative financial instruments | 1,967 | 2,650 | 1,967 | 2,650 | |
| Employee provision | 10,365 | 8,390 | - | - | |
| Impairment | 231 | - | - | - | |
| Other | 652 | 1,031 | 74 | 65 | |
| Deferred tax asset arising from temporary differences | 13,215 | 12,071 | 2,041 | 2,715 | |
| Deferred tax arising on tax losses | 3,033 | 3,081 | 3,033 | 3,081 | |
| Total non-current assets - deferred tax assets | 16,248 | 15,152 | 5,074 | 5,796 | |
| Movements | |||||
| Opening balance at 1 July | 15,152 | 9,749 | 5,796 | 139 | |
| Reversal of previously recognised tax losses | (3,081) | - | (3,081) | - | |
| Recognition of tax losses | 3,033 | 3,081 | 3,033 | 3,081 | |
| Movement in deferred tax asset arising from temporary | |||||
| differences | 1,144 | 2,322 | (674) | 2,576 | |
| Credited/(charged) to the Statements of Comprehensive Income |
1,096 | 5,403 | (722) | 5,657 | |
| Closing balance at 30 June | 16,248 | 15,152 | 5,074 | 5,796 |
DEXUS OPERATIONS TRUST Page 30 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 22. Intangible assets
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Management rights | ||||
| Opening balance as at 1 July | 210,500 | 252,176 | - | - |
| Amortisation charge | (807) | (566) | - | - |
| Impairment | - | (41,110) | - | - |
| Reversal of previous impairment | 13,307 | - | - | - |
| Closing balance as at 30 June | 223,000 | 210,500 | - | - |
| Cost | 252,382 | 252,382 | - | - |
| Accumulated amortisation | (1,579) | (772) | - | - |
| Accumulated impairment | (27,803) | (41,110) | - | - |
| Total management rights | 223,000 | 210,500 | - | - |
Management rights represent the asset management rights owned by DXH which entitle it to management fee revenue from both finite life trusts (\$8,415,850) and indefinite life trusts (\$214,584,150). Those rights that are deemed to have a finite useful life are measured at cost and amortised using the straight-line method over their estimated useful lives which vary from six to twenty two years.
Impairment of management rights
During the period, DXO carried out a review of the recoverable amount of its management rights. As part of this process, the estimated fair value of assets under management, which are used to derive the future expected management fee income, have been adjusted to better reflect the current market conditions. This has resulted in the recognition through the Statements of Comprehensive Income of a reversal of a previous impairment of \$13.3 million (2009: impairment of \$41.1 million).
The value in use has been determined using management forecasts in a five year discounted cash flow model. Forecasts were based on projected returns of the business in light of current market conditions. The performance in year five has been used as a terminal value. The cash flows have been discounted at 8.6%.
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Goodwill | ||||
| Opening balance as at 1 July | 2,767 | 2,937 | - | - |
| Impairment | (242) | (170) | - | - |
| Closing balance as at 30 June | 2,525 | 2,767 | - | - |
| Cost | 2,998 | 2,998 | - | - |
| Accumulated impairment | (473) | (231) | - | - |
| Total goodwill | 2,525 | 2,767 | - | - |
| Total intangible assets | 225,525 | 213,267 | - | - |
DEXUS OPERATIONS TRUST Page 31 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 23. Non-current assets – other
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 2009 |
2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Tenant and other bonds | 5 | 5 | - | - |
| Other | 61 | 61 | 62 | 62 |
| Total non-current assets – other | 66 | 66 | 62 | 62 |
Note 24. Current liabilities – payables
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Trade creditors | 48 | 297 | 4 | 19 |
| Accruals | 2,726 | 1,904 | 252 | 267 |
| Accrued capital expenditure | 140 | 1,048 | - | 233 |
| Prepaid income | - | 374 | - | - |
| Responsible Entity fee payable | - | - | 40 | 46 |
| Employee related expenses | 2,016 | 1,661 | - | - |
| Total current liabilities – payables | 4,930 | 5,284 | 296 | 565 |
Note 25. Provisions
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Current | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Provision for employee benefits | 16,389 | 13,089 | - | - | |
| Total current liabilities - provisions | 16,389 | 13,089 | - | - | |
| Consolidated | Parent Entity | ||||
| Non-current | 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Provision for employee benefits | 16,524 | 13,533 | - | - | |
| Total non-current liabilities - provisions | 16,524 | 13,533 | - | - |
DEXUS OPERATIONS TRUST Page 32 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 26. Non-current liabilities – deferred tax liabilities
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| The balance comprises temporary differences attributable to: | ||||
| Goodwill | 2,525 | 2,767 | - | - |
| Property, plant and equipment | 7,089 | 2,670 | 6,559 | 2,670 |
| Other | 13 | 923 | - | - |
| Total non-current liabilities - deferred tax liabilities | 9,627 | 6,360 | 6,559 | 2,670 |
| Movements | ||||
| Opening balance at 1 July | 6,360 | 4,218 | 2,670 | 714 |
| Credited/(charged) to Statements of Comprehensive Income | 3,267 | 2,142 | 3,889 | 1,956 |
| Closing balance at 30 June | 9,627 | 6,360 | 6,559 | 2,670 |
Note 27. Contributed equity
(a) Contributed equity
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Opening balance as at 1 July | 26,335 | 12,876 | 26,335 | 12,876 |
| Distributions reinvested | - | 1,564 | - | 1,564 |
| Issue of units | - | 12,275 | - | 12,275 |
| Cost of issuing units | - | (380) | - | (380) |
| Closing balance as at 30 June | 26,335 | 26,335 | 26,335 | 26,335 |
(b) Number of units on issue
| Consolidated | |||
|---|---|---|---|
| 2010 | 2009 | ||
| No. of units | No. of units | ||
| Opening balance as at 1 July | 4,700,841,666 | 3,040,019,487 | |
| Distributions reinvested | 119,980,133 | 100,368,579 | |
| Issue of units | - | 1,560,453,600 | |
| Closing balance as at 30 June | 4,820,821,799 | 4,700,841,666 |
Terms and conditions
Each stapled security ranks equally with all other stapled securities for the purposes of distributions and on termination of the Trust.
Each stapled security entitles the holder to one vote, either in person or by proxy, at a meeting of each of the DXO, DDF, DIT and DOT.
DEXUS OPERATIONS TRUST Page 33 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 27. Contributed equity (continued)
(c) Distribution reinvestment plan
Under the distribution reinvestment plan (DRP), stapled security holders may elect to have all or part of their distribution entitlements satisfied by the issue of new stapled securities, rather than being paid in cash.
On 28 August 2009, 65,251,600 units were issued at a unit price of nil in relation to the June 2009 distribution period.
On 26 February 2010, 54,728,533 units were issued at a unit price of nil in relation to the December 2009 distribution period.
Approval of issues of Stapled Securities to an underwriter in connection with issues under a Distribution Reinvestment Plan
At the Extraordinary General Meeting held on 6 February 2009 by DXFM, as Responsible Entity for DDF, DIT, DOT and DXO, security holders resolved to authorise DXFM, as Responsible Entity, to issue stapled securities, each comprising a unit in each of the above mentioned trusts (Stapled Securities), to an underwriter or persons procured by an underwriter within a period of twenty four months from the date of the meeting in connection with any issue of Stapled Securities under the DXS distribution reinvestment plan.
Such an issue will not be counted for the purposes of the calculation of the 15% limit under the ASX Listing Rule 7.1.
Note 28. Reserves and accumulated losses
(a) Reserves
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Asset revaluation reserve | 42,738 | 42,738 | - | - |
| Total reserves | 42,738 | 42,738 | - | - |
| Movements: | ||||
| Asset revaluation reserve | ||||
| Opening balance as at 1 July | 42,738 | 63,293 | - | - |
| Transfer to accumulated losses | - | (20,555) | - | - |
| Total movement in asset revaluation reserve | - | (20,555) | - | - |
| Closing balance as at 30 June | 42,738 | 42,738 | - | - |
Nature and purpose of asset revaluation reserves
The asset revaluation reserve is used to record the fair value adjustment arising on a business combination.
DEXUS OPERATIONS TRUST Page 34 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 28. Reserves and accumulated losses (continued)
(b) Accumulated losses
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Opening balance as at 1 July | (53,064) | 6,487 | (31,123) | 10,907 |
| Net loss attributable to unitholders | (8,261) | (80,106) | (35,555) | (42,030) |
| Transfer from revaluation reserve | - | 20,555 | - | - |
| Closing balance as at 30 June | (61,325) | (53,064) | (66,678) | (31,123) |
Note 29. Dividends paid and payable
Dividends paid or payable by the Trust for the year ended 30 June 2010 were nil (2009: nil).
Franking credits
The franked portions of the final dividends recommended after 30 June 2010 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ended 30 June 2010.
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| Franking credits | 2010 | 2009 | 2010 | 2009 |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Opening balance as at 1 July | 21,380 | 14,139 | 6,953 | 6,855 |
| Franking credits arising during the year on payment of | ||||
| tax at 30% | 4,996 | 10,774 | 564 | 1,488 |
| Franking debits arising during the year on receipt of tax | ||||
| refund at 30% | (6,646) | (3,533) | (6,646) | (1,390) |
| Closing balance as at 30 June | 19,730 | 21,380 | 871 | 6,953 |
Note 30. Financial risk management
To ensure the effective and prudent management of the Trust's capital and financial risks, DXO (as part of DXS) has a well established framework consisting of a Board Finance Committee and a Capital Markets Committee. The Board Finance Committee is accountable to and primarily acts as an advisory body to the DXFM Board and includes three Directors of the DXFM Board. Its responsibilities include reviewing and recommending financial risk management polices and funding strategies for approval.
The Capital Markets Committee is a management committee that is accountable to both the Board Finance Committee and the Group Management Committee. It convenes at least quarterly and conducts a review of financial risk management exposures including liquidity, funding strategies and hedging. It is also responsible for the development of financial risk management policies and funding strategies for recommendation to the Board Finance Committee, and the approval of treasury transactions within delegated limits and powers.
Further information on the DXS governance structure, including terms of reference, is available at www.dexus.com
DEXUS OPERATIONS TRUST Page 35 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Financial risk management (continued)
(1) Capital risk management
The Trust manages its capital to ensure that entities within the Trust will be able to continue as a going concern while maximising the return to owners through the optimisation of the debt and equity balance.
The capital structure of the Trust consists of debt (see note 13), cash and cash equivalents, and equity attributable to unitholders. The capital structure is monitored and managed in consideration of a range of factors including:
- The cost of capital and the financial risks associated with each class of capital;
- Gearing levels and other covenants;
- Potential impacts on net tangible assets and security holder's equity; and
- Other market factors and circumstances.
The gearing ratio at 30 June 2010 was 150.7% (as detailed below).
| Parent Entity | |||
|---|---|---|---|
| 2010 \$'000 |
2009 \$'000 |
2010 \$'000 |
2009 \$'000 |
| 389,675 | 325,867 | 317,900 | 325,867 |
| 258,610 | 208,753 | 334,828 | 256,951 126.8% |
| 150.7% | Consolidated 156.1% |
94.9% |
- 1 Interest bearing liabilities excludes deferred borrowing costs as reported internally to management. 2 Total tangible assets comprise total assets less intangible assets, derivatives and deferred tax balances as reported internally to management.
- 3 Gearing is managed centrally for DXS. The gearing ratio as disclosed in the DEXUS Property Group Financial Statements 2010 is 30.4% (refer note 32 of the DXS Financial Statements).
The Trust is not rated by ratings agencies, however, DXS is rated BBB+ by Standard and Poor's and Baa1 by Moody's. The Trust considers potential impacts upon the rating when assessing the strategy and activities of the Trust and regards those impacts as an important consideration in its management of the Trust's capital structure.
The Responsible Entity for DXO, DXFM (a wholly owned entity) has been issued with an Australian Financial Services License (AFSL). The license is subject to certain capital requirements including the requirement to hold minimum net tangible assets (of \$5 million), and maintaining a minimum level of surplus liquid funds. Furthermore, the Responsible Entity maintains trigger points in accordance with the requirements of the license. These trigger points maintain a headroom value above the AFSL requirements and the entity has in place a number of processes and procedures should a trigger point be reached.
DEXUS Wholesale Property Limited (DWPL), a wholly owned entity, has also been issued with an AFSL as it is the responsible entity for DEXUS Wholesale Property Fund. It is subject to the same requirements.
DEXUS OPERATIONS TRUST Page 36 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Financial risk management (continued)
(2) Financial risk management
The Trust's activities expose it to a variety of financial risks: credit risk, market risk (interest rate risk), and liquidity risk. Financial risk management is not managed at the individual trust level, but holistically as part of DXS. DXS' overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Trust.
Accordingly, the Trust enters into various derivative financial instruments such as interest rate swaps, to manage its exposure to certain risks. The Trust does not trade in derivative instruments for speculative purposes. The Trust uses different methods to measure the different types of risks to which it is exposed, including monitoring the current and forecast levels of exposure, and conducting sensitivity analyses.
Risk management is implemented by a centralised treasury department (Group Treasury) whose members act under written policies that are endorsed by the Board Finance Committee and approved by the Board of Directors of the Responsible Entity. Group Treasury identifies, evaluates and hedges financial risks in close cooperation with the Trust's business units. The treasury policies approved by the Board of Directors cover overall treasury risk management, as well as policies and limits covering specific areas such as liquidity risk, interest rate risk, foreign exchange risk, credit risk and the use of derivatives and other financial instruments. In conjunction with its advisers, the Responsible Entity continually reviews the Trust's exposures and (at least annually) updates its treasury policies and procedures.
(a) Liquidity risk
Liquidity risk is the risk that the Trust will not have sufficient available funds to meet financial obligations in an orderly manner when they fall due or at an acceptable cost.
The Trust identifies and manages liquidity risk across short, medium and long-term categories:
- Short-term liquidity management includes continuously monitoring forecast and actual cash flows;
- Medium-term liquidity management includes maintaining a level of committed borrowing facilities above the forecast committed debt requirements (liquidity headroom buffer). Committed debt includes future expenditure that has been approved by the Board or Investment Committee (as required within delegated limits), and may also include projects that have a very high probability of proceeding, taking into consideration risk factors such as the level of regulatory approval, tenant pre-commitments and portfolio considerations; and
- Long-term liquidity risk is managed through ensuring an adequate spread of maturities of borrowing facilities so that refinancing risk is not concentrated, and ensuring an adequate diversification of funding sources where possible subject to market conditions.
Refinancing risk
A key liquidity risk is the Trust's ability to refinance its current debt facilities. As the Trust's debt facilities mature, they are usually required to be refinanced by extending the facility or replacing the facility with an alternative form of capital.
The refinancing of existing facilities may also result in margin price risk, whereby market conditions may result in an unfavourable change in credit margins on the refinanced facilities. The Trust's key risk management strategy for margin price risk on refinancing is to spread the maturities of debt facilities over different time periods to reduce the volume of facilities to be refinanced and the exposure to market conditions in any one period.
An analysis of the contractual maturities of the Trust's interest bearing liabilities and derivative financial instruments are shown in the table below. The amounts in the table represent undiscounted cash flows.
DEXUS OPERATIONS TRUST Page 37 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Financial risk management (continued)
(2) Financial risk management (continued)
(a) Liquidity risk (continued)
| Consolidated | 2010 | 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
| Expiring | Expiring | Expiring | Expiring | |||||
| Expiring | between one | between two | Expiring | Expiring | between one | between two | ||
| within one | and two | and five | after five | within one | and two | and five | Expiring after | |
| year | years | years | years | year | years | years | five years | |
| \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | \$'000 | |
| Receivables | 21,364 | - | - | - | 16,195 | - | - | - |
| Payables | 4,930 | - | - | 438,607 | 5,284 | - | - | 374,799 |
| 16,434 | - | - | (438,607) | 10,911 | - | - | (374,799) | |
| Derivative financial instruments |
||||||||
| Derivative assets | - | - | - | - | 3,591 | 1,234 | - | - |
| Derivative liabilities | 3,661 | 1,239 | 1,331 | - | 4,841 | 5,975 | 5,860 | 49 |
| Total net derivative | ||||||||
| financial instruments1 | (3,661) | (1,239) | (1,331) | - | (1,250) | (4,741) | (5,860) | (49) |
1 For interest rate swaps, only the net interest cash flows (not the notional principal) are included. For derivative assets and liabilities that have floating interest cash flows, future cash flows have been calculated using static interest rates prevailing at 30 June 2010. Refer to note 14 Derivative Financial Instruments for fair value of derivatives. For financial guarantees refer Contingent Liabilities (note 31).
| Parent Entity | 2010 | 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
| Expiring | Expiring between one |
Expiring between two |
Expiring | Expiring | Expiring between one |
Expiring between two |
||
| within one year \$'000 |
and two years \$'000 |
and five years \$'000 |
after five years \$'000 |
within one year \$'000 |
and two years \$'000 |
and five years \$'000 |
Expiring after five years \$'000 |
|
| Receivables | 12,828 | - | - | - | 11,220 | - | - | - |
| Payables | 296 12,532 |
- - |
- - |
366,831 (366,831) |
565 10,655 |
- - |
- - |
374,799 (374,799) |
| Derivative financial instruments Derivative assets |
- | - | - | - | 3,591 | 1,234 | - | - |
| Derivative liabilities Total net derivative |
3,661 | 1,239 | 1,331 | - | 4,841 | 5,975 | 5,860 | 49 |
| financial instruments1 | (3,661) | (1,239) | (1,331) | - | (1,250) | (4,741) | (5,860) | (49) |
1 For interest rate swaps, only the net interest cash flows (not the notional principal) are included. For derivative assets and liabilities that have floating interest cash flows, future cash flows have been calculated using static interest rates prevailing at 30 June 2010. Refer to note 14 Derivative Financial Instruments for fair value of derivatives. For financial guarantees refer Contingent Liabilities (note 31).
DEXUS OPERATIONS TRUST Page 38 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Financial risk management (continued)
(2) Financial risk management (continued)
(b) Market risk
Market risk is the risk that the fair value or future cash flows of the Trust's financial instruments will fluctuate because of changes in market prices. The market risks that the Trust is exposed to are detailed further below.
(i) Interest rate risk
Interest rate risk is the risk that fluctuating interest rates will cause an adverse impact on interest payable (or receivable), or an adverse change on the capital value (present market value) of long-term fixed rate instruments.
Interest rate risk for the Trust arises from interest bearing financial assets and liabilities that the Trust holds. Borrowings issued at variable rates expose the Trust to cash flow interest rate risk. Borrowings issued at fixed rates expose the Trust to fair value interest rate risk.
The primary objective of the Trust's risk management policy for interest rate risk is to minimise the effects of interest rate movements on the Trust's portfolio of financial assets and liabilities and financial performance. The policy sets out the minimum and maximum hedging amounts for the Trust which is managed on a portfolio basis.
Cash flow interest rate risk on borrowings is managed through the use of interest rate swaps, whereby a floating interest rate exposure is converted to a fixed interest rate exposure. Fair value interest rate risk on borrowings is also managed through the use of interest rate swaps, whereby a fixed interest exposure is converted to a floating interest rate exposure. The mix of fixed and floating rate exposures is monitored regularly to ensure that the interest rate exposure on the Trust's cash flows is managed within the parameters defined by the Group Treasury Policy.
The net notional amount of fixed rate debt and interest rate swaps in place in each year and the weighted average effective hedge rate is set out in the next table.
| Consolidated 30 June 2010 | June 2011 | June 2012 | June 2013 | June 2014 | > June 2015 |
|---|---|---|---|---|---|
| Fixed rate debt | |||||
| AUDm fixed rate debt 1 | - | - | - | - | - |
| Interest rate swaps | |||||
| AUDm hedged 1 | 33,333 | 50,000 | 50,000 | 50,000 | - |
| AUD hedge rate (%) 2 | 6.71% | 6.77% | 6.75% | 6.75% | 0.00% |
1 Average amounts for the period. Hedged amounts above do not include potential hedges that are cancellable at the counterparty's option. 2 The above hedge rates do not include margins payable on borrowings.
Sensitivity on interest expense
The table below shows the impact on unhedged net interest expense (excluding non-cash items) of a 50 basis point increase or decrease in short-term and long-term market interest rates. The sensitivity on cash flow arises due to the impact that a change in interest rates will have on the Trust's floating rate debt and derivative cash flows. Net interest expense is only sensitive to movements in markets rates to the extent that floating rate debt is not hedged.
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | ||
| + / - 0.50% (50 basis points) | AUD | 2,286 | 1,079 | 2,286 | 1,079 |
The increase or decrease in interest expense is proportional to the increase or decrease in interest rates.
DEXUS OPERATIONS TRUST Page 39 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Financial risk management (continued)
(2) Financial risk management (continued)
(b) Market risk (continued)
Sensitivity on fair value of interest rate swaps
The table below shows the impact on the Statements of Comprehensive Income for changes in the fair value of interest rate swaps for a 50 basis point increase and decrease in short-term and long-term market interest rates. The sensitivity on the fair value arises from the impact that changes in market rates will have on the mark-to-market valuation of the interest rate swaps. The fair value of interest rate swaps is calculated as the present value of estimated future cash flows on the instruments. Cash flows are discounted using the forward price curve of interest rates at the end of the reporting period. Although interest rate swaps are transacted for the purpose of providing the Trust with an economic hedge, the Trust has elected not to apply hedge accounting to its interest rate derivatives. Accordingly, gains or losses arising from changes in the fair value are reflected in the Statements of Comprehensive Income.
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | (+/-) \$'000 | ||
| + / - 0.50% (50 basis points) | AUD | 756 | 1,736 | 756 | 1,736 |
(c) Credit risk
Credit risk is the risk of loss to the Trust in the event of non-performance by the Trust's financial instrument counterparties. Credit risk arises from cash and cash equivalents, loans and receivables, and derivative financial instruments. The Trust and parent entity have exposure to credit risk on all financial assets.
The Trust manages this risk by:
- Adopting a process for determining an approved counterparty, with consideration of qualitative factors as well as the counterparty's rating;
- Regularly monitoring counterparty exposure within approved credit limits that are based on the lower of a S&P, Moody's and Fitch credit rating. The exposure includes the current market value of in-the-money contracts as well as potential exposure, which is measured with reference to credit conversion factors as per APRA guidelines;
- Entering into ISDA Master Agreements once a financial institution counterparty is approved;
- Ensuring tenants, together with approved credit limits, are approved and ensuring that leases are undertaken with a large number of tenants;
- For some trade receivables, obtaining collateral where necessary in the form of bank guarantees and tenant bonds; and
- Regularly monitoring loans and receivables on an ongoing basis.
DEXUS OPERATIONS TRUST Page 40 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Financial risk management (continued)
(2) Financial risk management (continued)
(c) Credit risk (continued)
A minimum S&P rating of A– (or Moody's or Fitch equivalent) is required to become or remain an approved counterparty. As at 30 June 2010, the lowest rating of counterparties that the Trust is exposed to was A (S&P).
Financial instrument transactions are spread among a number of approved financial institutions within specified credit limits to minimise the Trust's exposure to any one counterparty. As a result, there is no significant concentration of credit risk for financial instruments.
The maximum exposure to credit risk at 30 June 2010 and 30 June 2009 is the carrying amount of financial assets recognised on the Statements of Financial Position of the Trust and parent entity.
As at 30 June 2010 and 30 June 2009, the Trust and the parent have no significant concentrations of credit risk for trade receivables. Trade receivable balances and the credit quality of trade debtors are consistently monitored on an ongoing basis. As a result, the Trust and parent entity's exposure to bad debts is not significant.
For the consolidated entity, the ageing analysis of loans and receivables net of provisions at 30 June 2010 is (\$'000): 21,364 (0- 30 days), nil (31-60 days), nil (61-90 days), nil (91+ days). The ageing analysis of loans and receivables net of provisions at 30 June 2009 is (\$'000): 16,189 (0-30 days), 6 (31-60 days), nil (61-90 days), nil (91+ days). Amounts over 31 days are past due, however, no receivables are impaired.
For the parent entity, the ageing analysis for loans and receivables net of provisions at 30 June 2010 is (\$'000): 12,828 (0-30 days), nil (31-60 days), nil (61-90 days), nil (91+ days). The ageing analysis of loans and receivables net of provisions for the parent entity at 30 June 2009 is (\$'000): 11,220 (0-30 days), nil (31-60 days), nil (61-90 days), nil (91+ days). Amounts over 31 days are past due, however, no receivables are impaired.
The credit quality of financial assets that are neither past due nor impaired is consistently monitored to ensure that there are no adverse changes in credit quality.
DEXUS OPERATIONS TRUST Page 41 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Financial risk management (continued)
(2) Financial risk management (continued)
(d) Fair value of financial instruments
Fair value interest rate risk is the risk of an adverse change in the net fair (or market) value of an asset or liability due to movements in interest rates.
At 30 June 2010, the carrying amounts and fair value of financial assets and liabilities are shown as follows:
| Consolidated | Consolidated | |||
|---|---|---|---|---|
| 2010 | 2010 | 2009 | 2009 | |
| Carrying | Carrying | |||
| amount 1 | Fair value 2 | amount 1 | Fair value 2 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Financial assets | ||||
| Cash and cash equivalents | 12,897 | 12,897 | 13,765 | 13,765 |
| Loans and receivables (current) | 21,364 | 21,364 | 16,195 | 16,195 |
| Derivative assets | - | - | - | - |
| Total financial assets | 34,261 | 34,261 | 29,960 | 29,960 |
| Financial liabilities | ||||
| Trade payables | 4,930 | 4,930 | 5,284 | 5,284 |
| Derivative liabilities | 6,558 | 6,558 | 9,520 | 9,520 |
| Loans with related parties | 48,932 | 48,932 | 48,932 | 48,932 |
| Interest bearing liabilities | ||||
| Interest bearing loans with related parties | 389,675 | 389,675 | 325,867 | 325,867 |
| Total financial liabilities | 450,095 | 450,095 | 389,603 | 389,603 |
| Parent Entity | Parent Entity | |||
| 2010 | 2010 | 2009 | 2009 | |
| Carrying | Carrying | |||
| amount 1 | Fair value 2 | amount 1 | Fair value 2 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Financial assets | ||||
| Cash and cash equivalents | 19 | 19 | 259 | 259 |
| Loans and receivables (current) | 12,828 | 12,744 | 11,220 | 11,220 |
| Loans with related parties | 69,420 | 108,604 | 149,528 | 175,218 |
| Derivative assets | - | - | - | - |
| Total financial assets | 82,267 | 121,367 | 161,007 | 186,697 |
| Financial liabilities | ||||
| Trade payables | 296 | 296 | 565 | 565 |
| Derivative liabilities | 6,558 | 6,558 | - | - |
| Loans with related parties | 48,932 | 48,932 | 48,932 | 48,932 |
| Interest bearing loans with related parties | 317,900 | 317,900 | 325,867 | 325,867 |
| Total financial liabilities | 373,686 | 373,686 | 375,364 | 375,364 |
1
Carrying value is equal to the value of the financial instruments on the Statements of Financial Position. 2 Fair value is the amount for which the financial instrument could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction, however, not recognised on the Statements of Financial Position.
DEXUS OPERATIONS TRUST Page 42 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 30. Financial risk management (continued)
(2) Financial risk management (continued)
(d) Fair value of financial instruments (continued)
The fair value of fixed rate interest bearing liabilities have been determined by discounting the expected future cash flows by the relevant market rates. The discount rates applied range from 4.71% to 6.17% for AUD. Refer note 1(x) for fair value methodology for financial assets and liabilities.
Determination of fair value
The Trust uses methods in the determination and disclosure of the fair value of financial instruments. These methods comprise: Level 1: the fair value is calculated using quoted prices in active markets.
Level 2: the fair value is determined using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: the fair value is estimated using inputs for the asset or liability that are not based on observable data.
| Consolidated | Level 1 \$'000 |
Level 2 \$'000 |
Level 3 \$'000 |
2010 \$'000 |
|---|---|---|---|---|
| Financial liabilities | ||||
| Derivative liabilities - Interest rate derivatives |
- | 6,558 | - | 6,558 |
| Parent Entity | Level 1 | Level 2 | Level 3 | 2010 |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Financial assets | ||||
| Loans with related parties | - | 108,604 | - | 108,604 |
| Financial liabilities | ||||
| Derivative liabilities | ||||
| - Interest rate derivatives | - | 6,558 | - | 6,558 |
Note 31. Contingent liabilities
The Trust together with DDF, DIT and DOT is also a guarantor of a US\$210.0 million (A\$246.4 million) syndicated bank debt facility and a total of A\$1,182.5 million and US\$120.0 million (A\$140.8 million) of bank bi-lateral facilities, a total of A\$361.1 million of medium term notes, a total of US\$400.0 million (A\$469.3 million) of privately placed notes, and a total of US\$300.0 million (A\$352.0 million) of public 144a senior notes, which have all been negotiated to finance the Trust and other entities within DXS. The guarantees have been given in support of debt outstanding and drawn against these facilities, and may be called upon in the event that a borrower under the above facilities does not comply with certain loan conditions, such as, failure to meet interest payments or failure to repay a borrowing, whichever is earlier. During the period none of the guarantees were called.
The Trust together with DIT, DOT and DDF is also a guarantor, on a subordinated basis, of RENTS (Real-estate perpetual ExchaNgable sTep-up Securities). The guarantee has been given in support of payments that become due and payable to the RENTS holders and ranks ahead of DXS's distribution payments, but subordinated to the claims of senior creditors.
The guarantees are issued in respect of the Trust and do not constitute an additional liability to those already existing in interest bearing liabilities on the Statements of Financial Position.
The Directors of the Responsible Entity are not aware of any other contingent liabilities in relation to the Trust, other than those disclosed in the Financial Statements, which should be brought to the attention of unitholders.
DEXUS OPERATIONS TRUST Page 43 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 32. Commitments
(a) Capital commitments
The following amounts represent capital expenditure on investment properties contracted at the end of each reporting period but not recognised as liabilities payable:
| 2010 2009 \$'000 \$'000 20,106 27,174 20,106 27,174 2,000 - 2,000 - 22,106 27,174 |
2010 \$'000 20,106 20,106 - - |
2009 \$'000 27,174 27,174 - - |
|---|---|---|
| 20,106 | 27,174 | |
| \$'000 \$'000 |
\$'000 | 2009 \$'000 |
| - | ||
| - | ||
| - | ||
| - 14,906 |
- | - |
| - - - |
Consolidated 2010 2009 4,790 10,116 - |
Parent Entity 2010 - - - |
The future minimum lease payments payable by the Trust are: 2010 2009 2010 2009 \$'000 \$'000 \$'000 \$'000 Within one year 2,085 - - - Later than one year but not later than five years 9,210 - - - Later than five years - - - - Total lease payable commitments 11,295 - - - Consolidated Parent Entity
Payments made under operating leases are expensed on a straight line basis over the term if the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased property.
The Trust has a commitment for ground rent payable in respect of a leasehold property included in investment properties and a commitment for its Head Office premise at 343 George Street Sydney.
No provisions have been recognised in respect of non-cancellable operating leases.
DEXUS OPERATIONS TRUST Page 44 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties
Responsible Entity
DXFM is the Responsible Entity of the Trust.
DXFM is also the Responsible Entity of Gordon Property Trust, Gordon Property Investment Trust, Northgate Property Trust and Northgate Property Investment Trust, collectively known as "the Syndicates". On 31 May 2010 Northgate Property Trust and Northgate Property Investment Trust were wound up.
DXH is the parent entity of DWPL, the Responsible Entity for DWPF.
Responsible Entity fees
Under the terms of the Trust's Constitutions, the Responsible Entities are entitled to receive fees in relation to the management of the Trust. DXFM's parent entity, DXH, is entitled to be reimbursed for administration expenses incurred on behalf of the Trust. DEXUS Property Services Pty Limited (DXPS), a wholly owned subsidiary of DXH is entitled to property management fees from the Trust.
Related party transactions
Responsible entity fees in relation to DXS assets are on a cost recovery basis. Agreements with third party funds are conducted under normal commercial terms and conditions.
DEXUS Funds Management Limited and its related entities
There were a number of transactions and balances between the Trust and the Responsible Entity and its related entities as detailed below:
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$ | \$ | \$ | \$ | |
| Responsible Entity fees paid and payable | - | - | 436,175 | 580,797 |
| Loan note interest income | - | - | 5,712,993 | 5,712,993 |
| Property management fees paid | - | - | 1,062,314 | 946,667 |
| Recovery of administration expenses | - | - | 223,100 | 715,755 |
| Aggregate amounts payable to the Responsible Entity at | ||||
| the end of each reporting period | - | - | 311,749 | 45,889 |
| Loan notes receivable at the end of each reporting period | - | - | 51,936,300 | 51,936,300 |
| Non interest bearing loan receivable at the end of each reporting period |
- | - | 10,284,418 | 10,062,075 |
| Transactions with DEXUS Diversified Trust | ||||
| Responsible Entity fee revenue | 5,174,882 | 6,358,061 | - | - |
| Property management fee revenue | 3,422,924 | 2,409,931 | - | - |
| Recovery of administration expenses Aggregate amount receivable at the end of each reporting |
4,445,229 | 4,269,966 | - | - |
| period (included above) | 1,149,223 | 1,569,309 | - | - |
| Transactions with DEXUS Industrial Trust | ||||
| Responsible Entity fee revenue | 4,438,726 | 5,598,240 | - | - |
| Property management fee revenue | 3,888,555 | 3,417,185 | - | - |
| Recovery of administration expenses Aggregate amount receivable at the end of each reporting |
3,640,256 | 4,198,336 | - | - |
| period (included above) | 1,695,924 | 1,336,709 | - | - |
| Purchase of land (refer note 11 and 17) | 64,800,000 | - | - | - |
DEXUS OPERATIONS TRUST Page 45 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$ | \$ | \$ | \$ | ||
| Transactions with DEXUS Office Trust | |||||
| Responsible Entity fee revenue | 8,998,139 | 10,169,291 | - | - | |
| Property management fee revenue | 5,279,268 | 4,307,740 | - | - | |
| Recovery of administration expenses | 5,272,669 | 7,623,664 | - | - | |
| Aggregate amount receivable at the end of each | |||||
| reporting period (included above) | 2,365,876 | 2,010,744 | - | - | |
| Net rental income receivable from Southgate Trust | 382,593 | - | - | - | |
| Transactions with DEXUS Finance Pty Limited | |||||
| Management fee revenue | 840,922 | 932,594 | - | - | |
| Recovery of administration expenses | 180,043 | 255,229 | - | - | |
| Aggregate amount receivable at the end of each | |||||
| reporting period (included above) | 211,376 | 11,830 | - | - | |
| Interest bearing loan payable at the end of each | |||||
| reporting period | 389,674,914 | 325,866,893 | 317,899,580 | 325,866,893 | |
| Transactions with DEXUS Wholesale Property Fund | |||||
| Responsible Entity fee revenue | 15,065,861 | 16,164,383 | - | - | |
| Property management fee revenue | 5,878,083 | 5,800,897 | - | - | |
| Recovery of administration expenses | 1,404,968 | 674,901 | - | - | |
| Aggregate amount receivable at the end of each | |||||
| reporting period (included above) | 1,898,703 | 2,043,432 | - | - | |
| Transactions with the Syndicates | |||||
| Responsible Entity fee revenue | 2,710,925 | 1,722,262 | - | - | |
| Property management fee revenue | 962,108 | 1,830,193 | - | - | |
| Recovery of administration expenses | 388,551 | 196,542 | - | - | |
| Aggregate amount receivable at the end of each | |||||
| reporting period (included above) | 106,152 | 759,443 | - | - | |
| Bent Street Trust | |||||
| Property management fee revenue | 1,403,196 | 5,418,913 | - | - | |
| Recovery of administration expenses | 5,885 | 17,928 | - | - | |
| Transactions with Kent Street Joint Venture | |||||
| Responsible Entity fee revenue | 253,969 | 292,969 | - | - | |
| Property management fee revenue | 323,058 | 326,048 | - | - | |
| Recovery of administration expenses | 254,743 | 303,602 | - | - | |
| Aggregate amount receivable at the end of each | |||||
| reporting period (included above) | 182,987 | 157,269 | - | - | |
| Transactions with Barrack Street Trust | |||||
| Loan forgiven (refer notes 5 and 13) | - | - | 14,675,751 | - | |
| Transactions with DEXUS US Management LLC | |||||
| Recovery of administration expenses | 648,682 | - | - | - | |
| Aggregate amount receivable at the end of each | |||||
| reporting period (included above) | 648,682 | - | - | - |
DEXUS OPERATIONS TRUST Page 46 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
The following persons were Directors of DXFM at all times during the year and to the date of this report:
Directors
- C T Beare, BSc, BE (Hons), MBA, PhD, FAICD1,4,5
- E A Alexander AM, BComm, FCA, FAICD, FCPA1,2,6
- B R Brownjohn, BComm1,2,5,6
- J C Conde AO, BSc, BE(Hons), MBA 1,3,4
- S F Ewen OAM1,4
- V P Hoog Antink, BComm, MBA, FCA, FAPI, FRICS, MAICD
- B E Scullin, BEc1,3,7
- P B St George, CA(SA), MBA 1,2,5,6
- 1 Independent Director 2
- Audit Committee Member 3
- Compliance Committee Member 4 Nomination and Remuneration Committee Member
- 5 Finance Committee Member
- 6 Risk & Sustainability Committee Member (name changed from Board Risk Committee on 2 June 2010) 7
- Nomination and Remuneration Committee Member from 1 July 2009 to 31 August 2009
No Directors held an interest in the Trust for the years ended 30 June 2010 and 30 June 2009.
Other key management personnel
In addition to the Directors listed above the following persons were deemed by the Board Nomination and Remuneration Committee to be key management personnel during all or part of the financial year:
| Name | Position |
|---|---|
| Victor P Hoog Antink | Chief Executive Officer |
| Tanya L Cox | Chief Operating Officer |
| Patricia A Daniels | Head of Human Resources |
| John C Easy | General Counsel |
| Jane Lloyd | Head of US Investments |
| Louise J Martin | Head of Office |
| Craig D Mitchell | Chief Financial Officer |
| Paul G Say | Head of Corporate Development |
| Mark F Turner | Head of Funds Management |
| Andrew P Whiteside | Head of Industrial |
No key management personnel or their related parties held an interest in the Trust for the years ended 30 June 2010 and 30 June 2009.
There were no loans or other transactions with key management personnel or their related parties during the years ended 30 June 2010 and 30 June 2009.
| 2010 | 2009 | |
|---|---|---|
| \$ | \$ | |
| Compensation | ||
| Short term employee benefits | 9,174,298 | 7,910,223 |
| Post employment benefits | 328,058 | 563,665 |
| Other long term benefits | 3,797,553 | 1,509,929 |
| 13,299,909 | 9,983,817 |
DEXUS OPERATIONS TRUST Page 47 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
Remuneration Report
1 Introduction
This Remuneration Report has been prepared in accordance with AASB 124 Related Party Disclosures and section 300A of the Corporations Act 2001 for the year ended 30 June 2010. The information provided in this Report has been audited in accordance with the provisions of section 308 (3C) of the Corporations Act 2001.
Changes to this Report, compared to the previous year, include a clearer description of the structure and nature of the Long Term Incentive Plan (known this year as DEXUS Deferred Performance Payments). DEXUS has also disclosed the outcome of fixed remuneration reviews for Executives for the 2010/11 year, and the outcome of the fee review for Directors.
Key Management Personnel
In this report, Key Management Personnel ("KMP") are those people having the authority and responsibility for planning, directing and controlling the activities of DEXUS, either directly or indirectly. They comprise Non-Executive Directors, the CEO and other members of the Executive Committee. Within this report the term 'Executive' encompasses the CEO and other members of the Executive Committee.
KMP (including the five highest paid Executives) of DEXUS for the year ended 30 June 2010 are set out below.
| Name | Title | Date of qualification as a KMP |
|---|---|---|
| Non-Executive Directors | ||
| Christopher T Beare | Non-Executive Chair | Appointed 1 October 2004 |
| Elizabeth A Alexander AM | Non-Executive Director | Appointed 1 January 2005 |
| Barry R Brownjohn | Non-Executive Director | Appointed 1 January 2005 |
| John C Conde AO | Non-Executive Director | Appointed 29 April 2009 |
| Stewart F Ewen OAM | Non-Executive Director | Appointed 1 October 2004 |
| Charles B Leitner III 1 | Non-Executive Director | Resigned 29 April 2009 |
| Brian E Scullin | Non-Executive Director | Appointed 1 January 2005 |
| Peter B St George | Non-Executive Director | Appointed 29 April 2009 |
1 Mr Leitner was appointed on 10 March 2005. Simultaneous with Mr Leitner's resignation, Mr Fay resigned as Mr Leitner's alternate.
DEXUS OPERATIONS TRUST Page 48 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
1 Introduction
Key Management Personnel (continued)
| Name Title |
Date of qualification as a KMP | |
|---|---|---|
| Executives | ||
| Victor P Hoog Antink | Chief Executive Officer | Appointed 1 October 2004 |
| Tanya L Cox | Chief Operating Officer | Appointed 1 October 2004 |
| Patricia A Daniels | Head of Human Resources | Appointed 14 January 2008 |
| John C Easy | General Counsel | Appointed 1 October 2004 |
| Jane Lloyd | Head of US Investments | Appointed 14 July 2008 |
| Louise J Martin | Head of Office | Appointed 27 March 2008 |
| Craig D Mitchell | Chief Financial Officer | Appointed 17 September 2007 |
| Paul G Say | Head of Corporate Development | Appointed 19 March 2007 |
| Mark F Turner | Head of Funds Management | Appointed 1 October 2004 |
| Andrew P Whiteside | Head of Industrial | Appointed 28 April 2008 |
Following a streamlining of the Group's executive structure in July 2010 the DEXUS Executive Committee was replaced by a new, smaller Group Management Committee. This change will impact those positions which qualify as Key Management Personnel in the 2010/11 year.
2 Board oversight of remuneration
The Board Nomination and Remuneration Committee ("Committee") oversees the remuneration of Directors and Executives. The Committee is responsible for reviewing and recommending Executive remuneration policies and structures to the Board.
The Committee assesses the appropriateness of the structure and quantum of Director and Executive remuneration on an annual basis by reference to relevant regulatory and market conditions, and individual and company performance. The Committee engages external consultants to provide independent advice when required.
Further information about the role and responsibility of the Committee is set out in the Corporate Governance Statement which may be found at http://www.DEXUS.com/Corporate-Governance.aspx.
During the reporting period Nomination and Remuneration Committee members were Messrs Conde (Member until 31 August 2009, Chair with effect from 1 September 2009), Beare (Chair until 31 August 2009, Member with effect from 1 September 2009), Scullin (Member until 31 August 2009) and Ewen.
3 Non-Executive Directors' remuneration framework
The objectives of the Non-Executive Directors' remuneration framework are to ensure Non-Executive Directors' fees reflect the responsibilities of Non-Executive Directors and are market competitive. Non-Executive Directors' fees are reviewed annually.
Non-Executive Directors, other than the Chair, receive a base fee plus additional fees for membership of Board Committees. The table below outlines the fee structure for the reporting period.
| Committee | Chair | Member |
|---|---|---|
| Non-Executive Director | \$300,000 | \$130,000 |
| Board Audit & Risk | \$30,000 | \$15,000 |
| DWPL Board | \$30,000 | \$15,000 |
| Board Finance | \$15,000 | \$7,500 |
| Board Compliance | \$15,000 | \$7,500 |
| Board Nomination & Remuneration | \$15,000 | \$7,500 |
DEXUS OPERATIONS TRUST Page 49 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
3 Executive Directors' remuneration framework (continued)
Further to the Committee fee structure outlined above, Mr Ewen has been paid an additional fixed fee of \$30,000 per annum for assuming responsibilities involved in attending property inspections, reviewing property investment proposals and participating in informal management meetings.
Recognising the greater responsibility and time commitment required the Board Chair receives a higher fee than other Non-Executive Directors, which is benchmarked to the market median of comparably sized ASX listed entities. The Chair receives no Board Committee fees, nor is the Chair present during any discussion relating to the determination of the Chair's fees.
Non-Executive Directors are not eligible to receive performance based remuneration or accrue separate retirement benefits beyond statutory superannuation entitlements.
Fees paid to Non-Executive Directors are paid from a remuneration pool of \$1,750,000 per annum, which was approved by DEXUS security holders at its Annual General Meeting held in October 2008. Non-Executive Directors' fees were last adjusted in July 2007 and Non-Executive Directors have received no increase in fees since that time. At its meeting on 20 May 2010, following analysis of Non-Executive Director market remuneration data, the Nomination and Remuneration Committee determined that fees paid to its Non-Executive Directors had fallen below the market median of comparably sized ASX listed entities. Similarly, the Committee determined that fees paid to its Chair had fallen significantly below this peer group. Following consideration by the full Board, fees paid to DEXUS Non-Executive Directors for the year commencing 1 July 2010 will increase to \$150,000 per annum and fees paid to the Chair will increase to \$350,000 per annum. Committee fees will remain unchanged.
4 Approach to Executive remuneration
4.1 Executive remuneration principles
The Directors believe that achievement of DEXUS's strategic plans will create superior security holder value, through the delivery of consistent returns, generated with relatively moderate risk. The Directors consider that an appropriately skilled and qualified Executive team is essential to achieve this objective. DEXUS's approach to the principles, structure and quantum of Executive remuneration is therefore designed to attract, motivate and retain such an Executive team.
In establishing DEXUS's remuneration principles, the Directors are cognisant that DEXUS's business is based on long term property investments and similarly longer term tenant relationships. Furthermore, property market investment returns tend to be cyclical, particularly when coupled with financial structures that act to enhance returns.
Taking these factors into account, the Executive remuneration structure is based on the following criteria:
- (a) market competitiveness and reasonableness;
- (b) alignment of Executive performance payments with achievement of the Group's financial and operational objectives, within its risk framework and cognisant of its values-based culture; and
- (c) an appropriate target mix of remuneration components, including performance payments linked to security holder returns over the longer term.
(a) Market competitiveness and reasonableness
For the purposes of determining market competitive remuneration, DEXUS obtains external executive remuneration benchmarks and analyses information from a range of sources, including:
-
- publicly available data from the annual reports of constituents of the S&P/ASX 100 index;
-
- independent remuneration consultants, including Hart Consulting Group, Financial Institutions Remuneration Group, Hewitt and the Avdiev Group regarding property organisations of a similar market capitalisation; and
-
- various recruitment and consulting agencies who are informed sources of market remuneration trends.
DEXUS OPERATIONS TRUST Page 50 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
4. Approach to Executive remuneration (continued)
(b) Alignment of Executive performance payments with achievement of the Group's objectives
In 2009, DEXUS introduced a new method for determining key performance indicators (KPIs) and assessing individual performance known as the Balanced Scorecard performance framework. The Balanced Scorecard prescribes clearly the performance indicators that will be measured in order to 'balance' the financial perspective. The Balanced Scorecard is a performance management method that enables DEXUS to measure the execution of its strategy and reflect this performance in its incentive payments. It also provides targets and measurements around internal business processes and external outcomes in order to achieve strategic performance objectives and results. The Balanced Scorecard focuses on performance in four areas, which reflect each Executive's role, responsibility, accountability and strategy delivery.
| DEXUS Balanced Scorecard - Typical Objectives | ||||||
|---|---|---|---|---|---|---|
| Financial Performance | Business Development and Business Management | |||||
| • | Earnings per security | • | Delivery of strategic projects on time and on budget | |||
| • | Distributions per security | • | Corporate responsibility and sustainability initiatives | |||
| • | Third party funds performance | • | Achievement of international operations strategies | |||
| • | Total security holder return, relative to peers | |||||
| Stakeholder Satisfaction | Leadership | |||||
| • | Investor relations | • | Executive succession | |||
| • | Tenant satisfaction | • | Talent management | |||
| • | Employee engagement | • | Role modelling DEXUS cultural values | |||
| • | Executive development |
Objectives are selected based on the key drivers to achieve superior security holder returns over time and are tailored and weighted according to the individual Executive's role. The typical objectives listed above may therefore not be common to all Executive roles.
The Committee reviews and approves Executive KPIs against Group objectives at the commencement of each financial year and reviews achievement against KPIs at the end of each financial year. The Committee's review of Executive performance, in conjunction with data provided from benchmarking total remuneration levels, provides the Committee with the information necessary to determine the quantum of Performance Payments to be awarded to Executives.
DEXUS OPERATIONS TRUST Page 51 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
4 Approach to Executive remuneration (continued)
(c) Executive remuneration structure
i. Executive Remuneration Components
The DEXUS Executive remuneration structure comprises the following remuneration components:
| TOTAL REMUNERATION | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| • • • |
delivered through fixed and variable components targeted at the market median awarded on a variable scale, which may result in a total remuneration range from lower quartile to upper quartile, reflecting differing levels of experience, role structure and contribution |
|||||||||
| FIXED REMUNERATION |
Salary Superannuation |
• Consists of cash salary and salary sacrificed fringe benefits, such as motor vehicles • Prescribed and salary sacrifice superannuation contributions, including insurance premiums (if applicable) |
• Targeted at Australian market median using external benchmark data and varies according to Executives' skills and depth of experience • Reviewed annually by the Board, effective 1 July, including internal and external relativities and gender pay equity |
|||||||
| VARIABLE REMUNERATION Performance Payments |
Single pool funded annually from underlying profits to meet Performance Payments |
• The aim of Performance Payments is to attract, motivate and retain appropriately skilled and qualified executives to achieve the strategic objectives of the business, measured through the achievement of KPIs • Strategic objectives incorporate financial and non-financial measures of performance at Group, business unit and individual level and represent key drivers for the success of the business and for delivering long term value to security holders • The achievement of KPIs is assessed through a Balanced Scorecard approach • Individual awards are determined on a range of factors, including achievement of KPIs and relative market remuneration positioning |
• Reviewed annually by the Board • The pool is funded to enable total remuneration to be paid at market median, based on external benchmark data • Performance Payments are delivered as immediate and deferred elements in accordance with the targeted remuneration mix set out in the table below • The award of any Performance Payment to an Executive is dependant upon achieving minimum threshold performance targets |
|||||||
| DEXUS Performance Payments ("DPP") DEXUS Deferred Performance Payments ("DDPP") |
• Delivery of DPP is immediate • Delivery of DDPP is deferred for three years, as described below |
• Awarded annually as a cash payment in September • Granted annually • Grants vest after three years • Delivered as a cash payment in accordance with the plan design described below • Unvested grants are forfeited upon Executive initiated termination (ie resignation) unless otherwise determined by the Nomination & Remuneration Committee |
DEXUS OPERATIONS TRUST Page 52 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
4 Approach to Executive remuneration (continued)
Performance payment pool
A single pool of funds is made available to meet all Performance Payments. The pool of funds available is sufficient to ensure that DEXUS is able to achieve its total remuneration positioning target, relative to the market. The Board may exercise its discretion to vary the size of the available pool by reference to such factors as:
- three year absolute total security holder return;
- management costs and revenue of DEXUS Holdings; and
- performance against budgeted earnings and distributions per security
ii. Target mix of remuneration components
The target remuneration mix for Executives, expressed as a percentage of total remuneration, is provided in the table below.
| 2010 | 2009 | |||||
|---|---|---|---|---|---|---|
| Remuneration component | CEO | CFO | Other Executives |
CEO | CFO | Other Executives |
| Total fixed | 35% | 40% | 50% | 35% | 40% | 50% |
| DEXUS Performance Payment ("DPP") |
30% | 30% | 25% | 30% | 30% | 25% |
| DEXUS Deferred Performance Payment ("DDPP") |
35% | 30% | 25% | 35% | 30% | 25% |
The Directors consider that allocating Performance Payments evenly between immediate payments and deferred payments is appropriate for Executives other than the CEO, whose Performance Payment is weighted to the longer term to reflect relatively greater alignment with long term returns to security holders.
iii. DEXUS Deferred Performance Payment ("DDPP") plan
The DDPP plan operates as follows:
- Following allocation, Deferred Performance Payments are subject to a three year vesting period from allocation date;
- The DDPP allocation value is notionally invested during the vesting period in DEXUS securities (50 percent of DDPP value) and its unlisted funds and mandates (50 percent of DDPP value);
- During the vesting period, DDPP allocation values fluctuate in line with changes in the "Composite Total Return" (simulating the notional investment exposure), comprising 50 percent of the total return of DEXUS securities and 50 percent of the combined asset weighted total return of its unlisted funds and mandates; and
- At the conclusion of the three year vesting period, if the Composite Total Return meets or exceeds the Composite Performance Benchmark, the Board may approve the application of a performance factor to the final DDPP allocation value:
- The "Composite Performance Benchmark" is 50 percent of the S&P/ASX 200 Property Accumulation Index and 50 percent of the Mercer Unlisted Property Fund Index over the 3-year vesting period;
- For performance up to 100% of the Composite Performance Benchmark, executives receive a DDPP allocation reflecting the Composite Total Return of the preceding 3 year vesting period; and
- For performance between 100% and 130% of the Composite Performance Benchmark a performance factor may be applied, ranging from 1.1 to a maximum of 1.5 times.
Provisions regarding the vesting of DDPP in the event of termination of service agreements are outlined in section 7 below.
DEXUS OPERATIONS TRUST Page 53 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
4 Approach to Executive remuneration (continued)
Equity options scheme
DEXUS does not operate an equity option scheme as part of its Executive remuneration structure. The Committee has considered the introduction of such a scheme, but has determined that it would not be, at the present time, an appropriate component of DEXUS's remuneration structure.
Equity and loan schemes
DEXUS does not operate a security participation plan or a loan plan for Executives or Directors.
The deferred element of DEXUS's Performance Payment is designed to simulate an equity plan, but does not provide Executives with direct equity exposure.
Hedging policy
DEXUS does not permit Executives to hedge their DDPP allocation.
5 Executive remuneration arrangements for the year ended 30 June 2010
This section outlines how the approach to Executive remuneration described above has been implemented in the 2009/10 financial year.
Decisions taken impacting executive remuneration for the year ended 30 June 2010 only
- No increase in base salaries in 2009/10 for Executives or employees with the exception of adjustments for a limited number of employees whose roles and responsibilities markedly increased.
- No increase in Non-Executive Director fees for 2008/09 and 2009/10.
Decisions taken impacting executive remuneration for the year ended 30 June 2010 and future years
- Accelerated DDPP vesting on termination for reasons outside of the Executive's control was discontinued, but can be applied by exception with the approval of the Nomination and Remuneration Committee.
- Automatic application of the DDPP performance multiplier was removed, impacting all current unvested awards and all future allocations.
- Eligibility of DDPP was restricted to Executives and senior management.
- Balanced Scorecard performance approach was introduced for Executives incorporating four key areas of focus financial performance, business development & business management, stakeholder satisfaction and leadership.
- Remuneration mix guidelines were adopted for all employees to provide greater transparency in the determination of the size of the performance payment pool.
Decisions taken impacting executive remuneration for the year ending 30 June 2011 and future years
- KPI performance weightings were introduced.
- The effectiveness of existing incentive plans was, and will continue to be reviewed.
At its meeting on 21 July 2010 the Nomination and Remuneration Committee determined that the fixed remuneration paid to a number of Executives had fallen below the market median of comparably sized ASX listed entities. Following consideration by the full Board, the fixed remuneration paid to specific Executives for the year commencing 1 July 2010 will increase in line with comparable market medium positions.
DEXUS OPERATIONS TRUST Page 54 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
6 Group performance and the link to remuneration
Total return analysis
The table below sets out the DEXUS total security holder return since inception, relative to the S&P/ASX 200 Property Accumulation Index. It also sets out DEXUS's Composite Total Return since inception, relative to the Composite Performance Benchmark. The DEXUS Composite Total Return is 50 percent of the total return of DEXUS securities, plus 50 percent of the combined asset weighted total return of its unlisted funds and mandates and the Composite Performance Benchmark is 50 percent of the S&P/ASX 200 Property Accumulation Index and 50 percent of Mercers' Unlisted Property Fund Index.
| Period to 30 June 2010 | 1 year (% per annum) |
2 years (% per annum) |
3 years (% per annum) |
Since 1 October 20041 (% per annum) |
|---|---|---|---|---|
| DEXUS Property Group | 9.4% | -17.2% | -19.6% | -0.5% |
| S&P/ASX 200 Property Accumulation Index |
20.4% | -16.6% | -23.8% | -5.6% |
| DEXUS Composite Total Return | 8.0% | -10.0% | -9.1% | 4.1% |
| Composite Performance Benchmark | 11.6% | -10.8% | -11.3% | 1.4% |
1 DEXUS's inception date is 1 October 2004.
In determining the construction of the Composite Total Return and in particular the relative weighting between the returns of the DEXUS Property Group and its unlisted funds and mandates, the Board considered the following factors:
- the desire of DEXUS Property Group to attract and retain third party funds and mandates based on the assurance that incentives are in place to ensure their equitable treatment;
- the economic contribution to DEXUS Property Group of management fees arising from third party funds under management;
- the increased investment in its management team and infrastructure, enabled by third party funds management fees, including in-house research, valuations and sustainability teams, the cost of which is defrayed by those fees; and
- the greater market presence and relevance the third party business brings to the DEXUS Property Group.
The Board also considered whether the construction of the Composite Total Return should reflect the actual value of the unlisted funds and mandates, and DEXUS Property Group's own funds under management.
Cognisant of all the above factors, the Board determined that a 50/50 allocation, rather than an allocation varying according to asset weighting, most fairly reflects the value contribution of third party funds to the DEXUS Property Group and provides the greatest assurance that all investors are treated equitably.
During the year DEXUS did not buy back or cancel any of its securities.
DEXUS OPERATIONS TRUST Page 55 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
6 Group performance and the link to remuneration (continued)
Total return of DEXUS securities
The graph below illustrates DEXUS' total security holder return relative to the S&P/ASX 200 Property Accumulation Index.
DEXUS has outperformed the S&P ASX 200 Property Accumulation index on a rolling three year basis each period since inception in October 2004. In addition, the DEXUS Composite Total Return has outperformed the Composite Performance Benchmark on a rolling three year basis each period since inception.
While the Directors recognise that improvement is always possible, they consider that DEXUS's business model, which aims to deliver consistent returns with relatively moderate risk, has been central to DEXUS's relative out-performance, and that its approach to Executive remuneration, with a focus on consistent out-performance of objectives, is aligned with and supports the superior execution of DEXUS's strategic plans.
DEXUS OPERATIONS TRUST Page 56 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
7 Service agreements
The employment arrangements for Executives are set out below.
CEO - Victor P Hoog Antink
The current employment contract commenced on 1 October 2004. The principal terms of the employment contract are as follows:
- the CEO is employed under a rolling contract;
- the CEO may resign from his position and thus terminate this contract by giving six months written notice. On resignation any unvested DDPP will be forfeited subject to the discretion of the Board;
- the Group may terminate the CEO's employment agreement by providing six months written notice or payment in lieu of the notice period (based on the fixed component of CEO's remuneration). Additionally, the Group may provide a performance payment for the period of the last review date (being 1 July) until the last day of the notice period;
- in the event that the Group initiates termination for reasons outside the control of the CEO, a severance payment equal to 100% of fixed remuneration is payable;
- on termination by the Group, any DDPP awards will vest in accordance with the vesting schedule of the DDPP Plan, subject to the discretion of the Board; and
- the Group may terminate the contract of the CEO at any time without notice if serious misconduct has occurred. In the event of termination for cause, the CEO is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination for cause any unvested DDPP awards will immediately be forfeited.
Executives (other than the CEO)
The principal terms of Executive employment contracts are as follows:
- all Executives have rolling contracts;
- an Executive may resign from their position and thus terminate their contract by giving three months written notice. On resignation any unvested DDPP will be forfeited subject to the discretion of the Board;
- the Group may terminate an Executive's employment agreement by providing three months written notice or providing payment in lieu of the notice period (based on the fixed component of the Executive's remuneration). In the event that the Group initiates the termination for reasons outside the control of the Executive, a severance payment equal to a maximum of 75% of fixed remuneration will be made;
- on termination by the Group, any DDPP awards will vest in accordance with the vesting schedule of the DDPP Plan, subject to the discretion of the Board; and
- the Group may terminate the contract at any time without notice if serious misconduct has occurred. Where termination for cause occurs the Executive is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination for cause any unvested DDPP awards will immediately be forfeited.
DEXUS OPERATIONS TRUST Page 57 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
8 Remuneration of Key Management Personnel
(a) Cash Accounting Method
In response to the Productivity Commission's recommendation to improve the transparency of remuneration reports by disclosing actual remuneration received by executives, the following table provides details of actual cash and other benefits received by Executives in the years ending 30 June 2009 and 30 June 2010. This table includes details of the five highest paid Directors or Executives.
The amounts detailed in the cash accounting table vary to the amounts detailed in the statutory accounting table because performance payments are paid to Executives in the year following the performance period to which they relate. Furthermore, DDPP allocations and movement in prior year DDPP allocation values detailed in the statutory accounting table do not reflect what will be paid to the Executive when the DDPP vests as the award will be revalued at that time.
| Name | Cash Salary including Superannuation |
DEXUS Performance Payments |
DEXUS Deferred Performance Payments |
Other Short Term Benefits 1 |
Total | |
|---|---|---|---|---|---|---|
| (\$) | (\$) | (\$) | (\$) | (\$) | ||
| Victor P Hoog Antink | 2010 | 1,300,000 | 785,000 | 339,375 | - | 2,424,375 |
| 2009 | 1,300,000 | 900,000 | 391,584 | - | 2,591,584 | |
| Tanya L Cox | 2010 | 400,000 | 150,000 | 81,450 | - | 631,450 |
| 2009 | 400,000 | 200,000 | 20,885 | - | 620,885 | |
| Patricia A Daniels 2 | 2010 | 261,333 | 90,000 | - | - | 351,333 |
| 2009 | 261,334 | 60,000 | - | - | 321,334 | |
| John C Easy | 2010 | 375,000 | 163,000 | 67,875 | - | 605,875 |
| 2009 | 375,000 | 150,000 | 26,106 | - | 551,106 | |
| Jane Lloyd | 2010 | 369,916 | 113,000 | - | 123,107 | 606,023 |
| 2009 | 375,000 | - | - | - | 375,000 | |
| Louise J Martin | 2010 | 500,000 | 175,000 | - | - | 675,000 |
| 2009 | 500,000 | 225,000 | - | - | 725,000 | |
| Craig D Mitchell | 2010 | 550,000 | 325,000 | - | - | 875,000 |
| 2009 | 550,000 | 250,000 | - | - | 800,000 | |
| Paul G Say | 2010 | 500,000 | 200,000 | - | - | 700,000 |
| 2009 | 500,000 | 225,000 | - | - | 725,000 | |
| Mark F Turner | 2010 | 450,000 | 135,000 | 95,025 | - | 680,025 |
| 2009 | 450,000 | 200,000 | 20,885 | - | 670,885 | |
| Andrew P Whiteside | 2010 | 475,000 | 135,000 | - | - | 610,000 |
| 2009 | 475,000 | 200,000 | - | - | 675,000 | |
| Total | 2010 | 5,181,249 | 2,271,000 | 583,725 | 123,107 | 8,159,081 |
| 2009 | 5,186,334 | 2,410,000 | 459,460 | - | 8,055,794 |
1 Other short-term benefits include expatriate assignment benefits such as relocation and housing allowances, relocation consultant assistance, health insurance premiums and associated taxes on these benefits. 2 Patricia A Daniels actual remuneration received is for a four day week.
DEXUS OPERATIONS TRUST Page 58 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
(b) Statutory accounting method
In accordance with Australian Accounting Standard AASB 124 details of the structure and quantum of each component of remuneration for Executives for the years ended 30 June 2009 and 30 June 2010 are set out in the following table.
| S ho Te t r rm |
Em loy Be f i ts p ee ne |
Po Em loy t s p me n Be f i ts ne |
O he Lo Te Be f i t t ts r ng rm ne |
To l ta |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Na me |
Ca Sa h lar d s y an Fe es |
S fo D E X U Pe r rm an ce Pa ts y me n |
S O t he ho t Te r r rm 4 Be f i ts ne |
ion Pe d ns an Su Be f i ts p er ne |
S fe D E X U De d rre Pe fo r rm an ce Pa t y me n 2 A l loc ion t a s |
in ior Mo t Pr ve me n Ye De fe d ar rre Pe fo r rm an ce Pa t y me n 3 A l loc ion Va lue t a s |
O t he Lo r ng Te Be f i ts rm ne |
|||
| \$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
|||
| V ic P Ho An in k to t r og |
||||||||||
| 2 0 1 0 |
1, 2 5 2, 5 3 9 |
1, 1 0 0, 0 0 0 |
- | 4 7, 4 6 1 |
1, 2 0 0, 0 0 0 |
3 6 3, 9 5 7 |
- | 3, 9 6 3, 9 5 7 |
||
| 2 0 0 9 |
1, 2 0 0, 0 0 0 |
7 8 5, 0 0 0 |
- | 1 0 0, 0 0 0 |
9 1 5, 0 0 0 |
( ) 4 1 6, 6 0 0 |
- | 2, 5 8 3, 4 0 0 |
||
| Ta L Co ny a x |
3 8 5, 5 3 9 |
1 8 0, 0 0 0 |
- | 1 4, 4 6 1 |
1 8 0, 0 0 0 |
6 2, 5 3 3 |
- | 8 2 2, 5 3 3 |
||
| 2 0 1 0 |
3 8 5, 5 3 9 |
1 8 0, 0 0 0 |
- | 1 4, 4 6 1 |
1 8 0, 0 0 0 |
6 2, 5 3 3 |
- | 8 2 2, 5 3 3 |
||
| 2 0 0 9 |
3 2, 0 8 6 5 |
1 0, 0 0 0 5 |
- | 4 9 1 4 7, |
1 0, 0 0 0 5 |
( 8 0, 3 ) 7 7 |
- | 6 1 9, 2 2 7 |
||
| 1 Pa ic ia A Da ie ls tr n |
||||||||||
| 2 0 1 0 |
2 4 6, 8 7 2 |
1 0 4, 0 0 0 |
- | 1 4, 4 6 1 |
1 0 4, 0 0 0 |
1 3, 0 2 3 |
- | 4 8 2, 3 5 6 |
||
| 2 0 0 9 |
2 4 8 9 7, 5 |
9 0, 0 0 0 |
- | 1 3, 4 7 5 |
9 0, 0 0 0 |
( 2 4, 2 0 ) 5 |
- | 4 1 0 8 4 7, |
||
| Jo hn C Ea sy |
||||||||||
| 2 0 1 0 |
3 6 0, 5 3 9 |
1 8 7, 0 0 0 |
- | 1 4, 4 6 1 |
1 8 8, 0 0 0 |
4 7, 4 3 7 |
- | 7 9 7, 4 3 7 |
||
| 2 0 0 9 |
3 4 3, 2 5 5 |
1 6 3, 0 0 0 |
- | 3 1, 4 7 5 |
1 6 2, 0 0 0 |
( 6 8 8 ) 5 7, |
- | 6 4 2, 3 1 2 |
||
| Ja L loy d ne |
||||||||||
| 2 0 1 0 |
5 5, 5 5 3 4 |
1 6 2, 0 0 0 |
1 2 3, 1 0 7 |
1 4, 4 6 1 |
1 6 3, 0 0 0 |
1 0, 0 1 2 |
- | 5 8 2 8, 0 3 |
||
| 2 0 0 9 |
3 6 1, 2 5 5 |
1 1 3, 0 0 0 |
- | 1 3, 4 7 5 |
1 1 2, 0 0 0 |
- | - | 6 0 0, 0 0 0 |
||
DEXUS OPERATIONS TRUST Page 59 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
| S ho Te t r rm |
Em loy Be f i ts p ee ne |
Po Em loy t t s p me n Be f i ts ne |
O he Lo t r |
Te Be f i ts ng rm ne |
To l ta |
||||
|---|---|---|---|---|---|---|---|---|---|
| Na me |
Ca Sa h lar d s y an Fe es |
S D E X U Pe fo r rm an ce Pa ts y me n |
S O he ho Te t t r r rm 4 Be f i ts ne |
Pe ion d ns an Su Be f i ts p er ne |
S D E X U De fe d rre Pe fo r rm an ce Pa t me n y 2 A l loc ion t a s |
Mo in Pr ior t ve me n Ye De fe d ar rre Pe fo r rm an ce Pa t me n y 3 A l loc ion Va lue t a s |
O he Lo t r ng Te Be f i ts rm ne |
||
| \$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
\$ ( ) |
||
| Lo ise J Ma in t u r |
|||||||||
| 2 0 1 0 |
4 8 5, 5 3 9 |
2 0 0, 0 0 0 |
- | 1 4, 4 6 1 |
2 0 0, 0 0 0 |
4, 4 1 5 7 |
- | 9 4, 4 1 5 7 |
|
| 2 0 0 9 |
4 0 5, 0 0 0 |
1 7 5, 0 0 0 |
- | 9 5, 0 0 0 |
1 7 5, 0 0 0 |
( 6 0, 6 2 5 ) |
- | 7 8 9, 3 7 5 |
|
| Cr ig i D M tc he l l a |
|||||||||
| 2 0 1 0 |
5 3 5, 5 3 9 |
4 0 0, 0 0 0 |
- | 1 4, 4 6 1 |
4 0 0, 0 0 0 |
4 0, 5 2 8 |
- | 1, 3 9 0, 5 2 8 |
|
| 2 0 0 9 |
5 0 0, 0 0 0 |
3 2 5, 0 0 0 |
- | 5 0, 0 0 0 |
3 2 5, 0 0 0 |
( ) 6 0, 6 2 5 |
- | 1, 1 3 9, 3 7 5 |
|
| Pa l G Sa u y |
|||||||||
| 2 0 1 0 |
4 8 5, 5 3 9 |
2 5 0, 0 0 0 |
- | 1 4, 4 6 1 |
2 5 0, 0 0 0 |
3 0, 5 6 5 |
- | 1, 0 3 0, 5 6 5 |
|
| 2 0 0 9 |
4 8 6, 2 5 5 |
2 0 0, 0 0 0 |
- | 1 3, 4 7 5 |
2 0 0, 0 0 0 |
( 6 0, 6 2 ) 5 |
- | 8 3 9, 3 7 5 |
|
| Ma k F Tu r rn er |
|||||||||
| 2 0 1 0 |
4 0 1, 3 3 9 |
1 4 0, 0 0 0 |
- | 4 8, 6 6 1 |
1 4 0, 0 0 0 |
8 8, 4 3 7 |
- | 8 1 8, 4 3 7 |
|
| 2 0 0 9 |
4 0 0, 0 1 5 |
1 3 5, 0 0 0 |
- | 4 9, 9 8 5 |
1 3 5, 0 0 0 |
( 1 0 3, 6 3 5 ) |
- | 6 1 6, 3 6 5 |
|
| i i An dr P W h tes de ew |
|||||||||
| 2 0 1 0 |
4 6 0, 5 3 9 |
2 2 5, 0 0 0 |
- | 1 4, 4 6 1 |
2 2 5, 0 0 0 |
1 6, 6 1 0 |
- | 9 4 1, 6 1 0 |
|
| 2 0 0 9 |
4 6 1, 2 5 5 |
1 3 5, 0 0 0 |
- | 1 3, 7 4 5 |
1 3 5, 0 0 0 |
( ) 2 4, 2 5 0 |
- | 7 2 0, 7 5 0 |
|
| T O T A L |
|||||||||
| 2 0 1 0 |
4, 9 6 9, 4 3 9 |
2, 9 4 8, 0 0 0 |
1 2 3, 1 0 7 |
2 1 1, 8 1 0 |
3, 0 5 0, 0 0 0 |
7 4 7, 5 5 3 |
- | 1 2, 0 4 9, 9 0 9 |
|
| 2 0 0 9 |
4, 7 5 6, 7 1 0 |
2, 2 7 1, 0 0 0 |
- | 4 2 9, 6 2 4 |
2, 3 9 9, 0 0 0 |
( ) 8 8 9, 0 7 1 |
- | 8, 9 6 7, 2 6 3 |
1Patricia A Daniels actual remuneration received is for a four day week. 2
This is the DDPP allocation for the current year which is deferred for three years as described on page 60. 3 This is the notional change in value of all unvested DDPP allocations from prior year. 4
Other short-term benefits include expatriate assignment benefits such as relocation and housing allowances, relocation consultant assistance, health insurance premiums and associated taxes on these benefits.
DEXUS OPERATIONS TRUST Page 60 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
Deferred Performance Payments
The table below sets out details of previous DDPP allocations and current valuations.
| Name | Year of Grant |
DDPP Allocation Value |
Movement in DDPP Allocation Value (Since Grant Date) |
Closing DDPP Allocation Value as at 30 June 2010 |
Movement in DDPP Allocation Value at Vesting Date (Due to |
Vested DDPP as at 30 June 2010 |
Year that DDPP will Vest |
|---|---|---|---|---|---|---|---|
| Performance | |||||||
| (\$) | (\$) | (\$) | (\$) | Multiplier) (\$) |
(\$) | (\$) | |
| Victor P Hoog Antink | 2010 | 1,200,000 | - | - | - | - | 2013 |
| 2009 | 915,000 | 72,926 | 987,926 | - | - | 2012 | |
| 2008 | 900,000 | (165,600) | 734,400 | - | - | 2011 | |
| 2007 | 650,000 | (142,285) | - | 203,086 | 710,801 | 2010 | |
| Tanya L Cox | 2010 | 180,000 | - | - | - | - | 2013 |
| 2009 | 150,000 | 11,955 | 161,955 | - | - | 2012 | |
| 2008 | 175,000 | (32,200) | 142,800 | - | - | 2011 | |
| 2007 | 110,000 | (24,079) | - | 34,368 | 120,289 | 2010 | |
| Patricia A Daniels | 2010 | 104,000 | - | - | - | - | 2013 |
| 2009 | 90,000 | 7,173 | 97,173 | - | - | 2012 | |
| 2008 | 100,000 | (18,400) | 81,600 | - | - | 2011 | |
| John C Easy | 2010 | 188,000 | - | - | - | - | 2013 |
| 2009 | 162,000 | 12,911 | 174,911 | - | - | 2012 | |
| 2008 | 120,000 | (22,080) | 97,920 | - | - | 2011 | |
| 2007 | 75,000 | (16,418) | - | 23,433 | 82,015 | 2010 | |
| Jane Lloyd 1 | 2010 | 163,000 | - | - | - | - | 2013 |
| 2009 | 112,000 | 8,926 | 120,926 | - | - | 2012 | |
| 2008 | - | - | - | - | - | 2011 | |
| 2007 | 20,000 | (4,378) | - | 6,249 | 21,871 | 2010 | |
| Louise J Martin 2 | 2010 | 200,000 | - | - | - | - | 2013 |
| 2009 | 175,000 | 13,948 | 188,948 | - | - | 2012 | |
| 2008 | 250,000 | (46,000) | 204,000 | - | - | 2011 | |
| 2007 | 125,000 | (27,636) | - | 39,054 | 136,688 | 2010 | |
| Craig D Mitchell | 2010 | 400,000 | - | - | - | - | 2013 |
| 2009 | 325,000 | 25,903 | 350,903 | - | - | 2012 | |
| 2008 | 250,000 | (46,000) | 204,000 | - | - | 2011 | |
| Paul G Say | 2010 | 250,000 | - | - | - | - | 2013 |
| 2009 | 200,000 | 15,940 | 215,940 | - | - | 2012 | |
| 2008 | 250,000 | (46,000) | 204,000 | - | - | 2011 | |
| Mark F Turner | 2010 | 140,000 | - | - | - | - | 2013 |
| 2009 | 135,000 | 10,760 | 145,760 | - | - | 2012 | |
| 2008 | 200,000 | (36,800) | 163,200 | - | - | 2011 | |
| 2007 | 180,000 | (39,402) | - | 56,239 | 196,837 | 2010 | |
| Andrew P Whiteside | 2010 | 225,000 | - | - | - | - | 2013 |
| 2009 | 135,000 | 10,760 | 145,760 | - | - | 2012 | |
| 2008 | 100,000 | (18,400) | 81,600 | - | - | 2011 | |
| 1 |
Jane Lloyd qualified as a KMP on 14 July 2008. 2
Louise J Martin qualified as a KMP on 27 March 2008.
DEXUS OPERATIONS TRUST Page 61 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
Non-Executive Director board and committee fees
Board and Committee fees paid to Non-Executive Directors for the years ended 30 June 2009 and 30 June 2010 are set out in the table below. Note: In 2009/10 two additional paid Board members were in place for the full twelve months to 30 June 2010, compared to only two months the preceding year.
| Directors Fees |
Committee Fees | |||||||
|---|---|---|---|---|---|---|---|---|
| Name | Board | DWPL | Board Audit |
Board Risk |
Board Compliance |
Board Nom & Rem |
Board Finance |
|
| (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | (\$) | |
| Christopher T Beare | ||||||||
| 2010 | 300,000 | - | - | - | - | - | - | 300,000 |
| 2009 | 300,000 | - | - | - | - | - | - | 300,000 |
| Elizabeth A Alexander AM1 | ||||||||
| 2010 | 130,000 | 17,500 | 8,750 | 8,750 | - | - | - | 165,000 |
| 2009 | 130,000 | - | 15,000 | 15,000 | 6,250 | - | 6,250 | 172,500 |
| Barry R Brownjohn 2 | ||||||||
| 2010 | 130,000 | - | 13,750 | 13,750 | - | - | 8,750 | 166,250 |
| 2009 John C Conde AO 3 |
130,000 | - | 7,500 | 7,500 | - | - | 15,000 | 160,000 |
| 2010 | 130,000 | - | - | - | 7,500 | 13,750 | - | 151,250 |
| 2009 | 22,652 | - | - | - | 1,250 | 1,250 | - | 25,152 |
| Stewart F Ewen OAM | ||||||||
| 2010 | 130,000 | - | - | - | - | 7,500 | - | 137,500 |
| 2009 | 130,000 | - | - | - | - | 7,500 | - | 137,500 |
| Charles B Leitner III 4 | ||||||||
| 2010 | - | - | - | - | - | - | - | - |
| 2009 | - | - | - | - | - | - | - | - |
| Brian E Scullin 5 | ||||||||
| 2010 | 130,000 | 25,000 | - | - | 15,000 | 1,250 | - | 171,250 |
| 2009 | 130,000 | 30,000 | 6,250 | 6,250 | 15,000 | 7,500 | - | 195,000 |
| Peter B St. George 6 | ||||||||
| 2010 | 130,000 | - | 7,500 | 7,500 | - | - | 13,750 | 158,750 |
| 2009 | 22,652 | - | 1,250 | 1,250 | - | - | 1,250 | 26,402 |
| Total | ||||||||
| 2010 | 1,080,000 | 42,500 | 30,000 | 30,000 | 22,500 | 22,500 | 22,500 | 1,250,000 |
| 2009 | 865,304 | 30,000 | 30,000 | 30,000 | 22,500 | 16,250 | 22,500 | 1,016,554 |
1 Elizabeth A Alexander became a member of the Board Audit and Board Risk Committees on 1 September 2009. Elizabeth was previously the Chair of both Committees. Elizabeth became a Director of the DWPL Board on 1 September 2009 and became Chair of that Board on 1 March 2010. 2 Barry R Brownjohn became a member of the Board Finance Committee on 1 September 2009. Barry was previously the Chair of that
Committee. Barry became Chair of the Board Audit and Board Risk Committees on 1 September 2009. Barry was previously a member of both Committees. 3
John C Conde became Chair of the Board Nomination and Remuneration Committee on 1 September 2009. John was previously a member of that Committee. 4 As an employee of the Deutsche Bank group, Mr Leitner waived his right to receive Director's fees. Accordingly, Mr Leitner's Alternate
Director, Mr Fay did not receive Director's fees when acting as his alternate. Mr Leitner ceased to be a Non-Executive Director on 29 April 2009. Accordingly, Mr Fay ceased to be Mr Leitner's Alternate Director on 29 April 2009. 5
Brian Scullin ceased to be a member of the Board Nomination and Remuneration Committee on 31 August 2009. Brian became a Director of the DWPL Board on 1 March 2010. Brian was previously Chair of the DWPL Board. 6 Peter B St George became Chair of the Board Finance Committee on 1 September 2009. Peter was previously a member of that
Committee.
DEXUS OPERATIONS TRUST Page 62 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 33. Related parties (continued)
All Non-Executive Directors also receive reimbursement for reasonable travel, accommodation and other expenses incurred whilst undertaking DEXUS business.
The Chief Executive Officer, Victor P Hoog Antink, does not receive fees in respect of his role as a Director, but does receive remuneration as a Senior Executive of the DEXUS Property Group.
Commencing 1 April 2009 Mr Ewen earned a fixed fee of \$30,000 per annum, in addition to his Director's fee, as compensation for the added responsibilities assumed in attending property inspections, reviewing property investment proposals and participating in informal management meetings.
Non-Executive Director Remuneration
Details of the structure and quantum of each component of remuneration for each Non-Executive Director for the years ended 30 June 2009 and 30 June 2010 are set out in the following table.
| Name | Short Term Employee Benefits |
Post Employment Benefits1 |
Other Long Term Benefits |
Total | |
|---|---|---|---|---|---|
| (\$) | (\$) | (\$) | (\$) | ||
| Christopher T Beare | |||||
| 2010 | 285,539 | 14,461 | - | 300,000 | |
| 2009 | 286,255 | 13,745 | - | 300,000 | |
| Elizabeth A Alexander AM | |||||
| 2010 | 151,376 | 13,624 | - | 165,000 | |
| 2009 | 157,844 | 14,656 | - | 172,500 | |
| Barry R Brownjohn | |||||
| 2010 | 152,523 | 13,727 | - | 166,250 | |
| 2009 | 146,789 | 13,211 | - | 160,000 | |
| John C Conde AO | |||||
| 2010 | 138,761 | 12,489 | - | 151,250 | |
| 2009 | 23,075 | 2,077 | - | 25,152 | |
| Stewart F Ewen OAM | |||||
| 2010 | 102,700 | 34,800 | - | 137,500 | |
| 2009 | 63,073 | 74,427 | - | 137,500 | |
| Brian E Scullin | |||||
| 2010 | 157,211 | 14,039 | - | 171,250 | |
| 2009 | 181,255 | 13,745 | - | 195,000 | |
| Peter B St George | |||||
| 2010 | 145,642 | 13,108 | - | 158,750 | |
| 2009 | 24,222 | 2,180 | - | 26,402 | |
| Total | 2010 | 1,133,752 | 116,248 | - | 1,250,000 |
| Total | 2009 | 882,513 | 134,041 | - | 1,016,554 |
1 Post-employment benefits represent compulsory and salary sacrificed superannuation benefits.
DEXUS OPERATIONS TRUST Page 63 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 34. Events occurring after reporting date
On the 27 July 2010, DXO entered into a project delivery agreement with Fujitsu Limited for the development of a 17,025m2 data centre warehouse at Greystanes, NSW.
On 11 August 2010, DXP entered into an agreement with Loscam Limited for development of a 31,400m2 warehouse facility at Laverton, VIC.
On 16 August 2010, DXP acquired a 7.6 hectares parcel of vacant industrial development land located at Erskine Park, NSW for \$15 million (GST exclusive).
Since the end of the year, other than the matter discussed above, Directors are not aware of any matter or circumstance not otherwise dealt with in their Directors' Report or the Financial Statements that has significantly or may significantly affect the operations of the Trust, the results of those operations, or state of the Trust's affairs in future financial periods.
Note 35. Operating segments
The Chief Operating Decision Maker (CODM) has been identified as the Board of Directors of DXFM as they are responsible for the strategic decision making for the Group. The Group's operating segments have been identified based on the segments analysed within the management reports reviewed by the CODM in order to monitor performance across the Group and to appropriately allocate resources. The operating segments of the Group have been identified as follows:
| Office - Australia and New Zealand | This operating segment comprises office space with any associated retail space; as well as car-parks and office developments in Australia and New Zealand. |
|---|---|
| Industrial - Australia | This operating segment comprises domestic industrial properties, industrial estates and industrial developments. |
| Industrial - North America | This comprises industrial properties, industrial estates and industrial developments in the United States as well as one industrial asset in Canada. |
| Management Company | The domestic and US based management companies are responsible for asset, property and development management of Office, Industrial and Retail properties for DXS and the third party funds management business. |
| Financial Services | The treasury function of DXS is managed through a centralised treasury department. As a result, all treasury related financial information relating to borrowings, finance costs as well as fair value movements in derivatives, are prepared and monitored separately. |
| All other segments | This comprises the European industrial and retail portfolios. These operating segments do not meet the quantitative thresholds set out in AASB 8 Operating Segments due to their relatively small scale. As a result these non-core operating segments have been included in 'all other segments' in the operating segment information. |
Consistent with how the CODM manages the business, the operating segments within the Group are reviewed on a consolidated basis and are not monitored at an individual trust level. The results of the individual trusts are not limited to any one of the segments described above.
Disclosures concerning the Group's operating segments as well as the operating segments key financial information provided to the CODM are presented in the DEXUS Property Group Annual Report (refer note 38 in the DEXUS Property Group Financial Statements).
DEXUS OPERATIONS TRUST Page 64 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 36. Reconciliation of net profit to net cash inflow from operating activities
Reconciliation
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| \$'000 | \$'000 | \$'000 | \$'000 | |
| Net loss | (8,261) | (80,106) | (35,555) | (42,030) |
| Capitalised interest | (11,639) | (7,203) | (11,639) | (7,203) |
| Depreciation and amortisation | 3,492 | 4,742 | 1 | 1 |
| Impairments | 242 | 75,161 | - | 33,463 |
| Reversal of previous impairment | (13,307) | - | - | - |
| Net fair value gain of derivatives | - | 10,007 | - | 10,007 |
| Net loss on sale of investment properties | 493 | - | - | - |
| Net fair value loss of investments properties | 20,132 | - | 20,132 | - |
| Change in operating assets and liabilities | ||||
| (Increase)/decrease in receivables | (5,169) | 5,553 | (1,608) | (498) |
| Increase in inventories | (45,470) | - | - | - |
| Decrease/(increase) in prepaid expenses | 292 | (276) | - | - |
| Increase in current tax assets | (2,125) | (1,298) | (2,746) | (100) |
| Decrease/(increase) in deferred tax assets | (1,096) | (5,403) | 722 | (5,657) |
| Increase/(decrease) in payables | 551 | 757 | (37) | (454) |
| (Decrease)/increase in current liabilities | (6,220) | 1,850 | (9,520) | 687 |
| Increase in other non-current liabilities | 30,076 | 22,583 | 37,928 | 11,464 |
| Increase in deferred tax liabilities | 3,267 | 2,142 | 3,889 | 1,956 |
| Net cash (outflow)/inflow from operating activities | (34,742) | 28,509 | 1,567 | 1,636 |
Note 37. Non-cash financing and investing activities
| Note | Consolidated | Parent Entity | |||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| \$'000 | \$'000 | \$'000 | \$'000 | ||
| Distributions reinvested | 27 | - | 1,564 | - | 1,564 |
DEXUS OPERATIONS TRUST Page 65 of 68 NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 30 JUNE 2010
Note 38. Earnings per unit
(a) Basic earnings per unit on net loss attributable to unitholders
| Consolidated 2010 cents |
2009 cents |
|
|---|---|---|
| (0.17) | (2.16) | |
| (b) Diluted earnings per unit on net loss attributable to unitholders | ||
| Consolidated | ||
| 2010 | 2009 | |
| cents | cents | |
| (0.17) | (2.16) | |
| (e) Reconciliation of earnings used in calculating earnings per unit | ||
| Consolidated | ||
| 2010 | 2009 | |
| \$'000 | \$'000 | |
| Net loss | (8,261) | (80,106) |
| Net loss attributable to the unitholders of the Trust used in | ||
| calculating basic and diluted earnings per unit | (8,261) | (80,106) |
| (f) Weighted average number of units used as a denominator | ||
| Consolidated | ||
| 2010 | 2009 | |
| Units | Units | |
| Weighted average number of units outstanding used in calculation of | ||
| basic and diluted earnings per unit | 4,774,467,167 | 3,705,637,381 |