GPT GROUP - Annual Report 2018 | FinancialReports.eu

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2017 ANNUAL FINANCIAL REPORT

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Contents
Annual Financial Report of The GPT Group	1
Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities	71
Supplementary Information	130
Corporate Directory	132

Corporate Governance

The GPT Group (GPT or the Group) comprises GPT Management Holdings Limited (ACN 113 510 188) (GPTMHL) and General Property Trust (Trust). GPT RE Limited (ACN 107 426 504) (GPTRE) AFSL (286511) is the Responsible Entity of the Trust. GPT’s stapled securities are listed on the Australian Securities Exchange (ASX).

The third edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (Principles) provides a framework for good corporate governance for listed entities. GPT’s Corporate Governance Statement sets out how the Group has complied with the Principles.

The Group’s Corporate Governance Statement is available on GPT’s website at:

www.gpt.com.au/About-GPT/Corporate-Governance/Principles-and-Policies . GPT has also lodged an Appendix 4G (Key to Disclosures – Corporate Governance Principles and Recommendations) with the ASX.

Annual Financial Report of The GPT Group

Year ended 31 December 2017

Directors’ Report ............................................................................................................................................................................ 2 Auditor’s Independence Declaration ............................................................................................................................................ 23 Financial Statements .................................................................................................................................................................... 24 Consolidated Statement of Comprehensive Income ............................................................................................................ 24 Consolidated Statement of Financial Position .................................................................................................................... 25 Consolidated Statement of Changes in Equity ..................................................................................................................... 26 Consolidated Statement of Cash Flows ............................................................................................................................... 27 Notes to the Financial Statements ..................................................................................................................................... 28 Result for the year ....................................................................................................................................................... 28 1. Segment information .............................................................................................................................................. 28 Operating assets and liabilities .................................................................................................................................. 33 2. Investment properties ............................................................................................................................................ 33 3. Equity accounted investments ................................................................................................................................ 36 4. Loans and receivables ............................................................................................................................................ 38 5. Intangible assets ..................................................................................................................................................... 39 6. Inventories .............................................................................................................................................................. 40 7. Payables .................................................................................................................................................................. 40 8. Provisions ............................................................................................................................................................... 40 9. Taxation ................................................................................................................................................................... 41 Capital structure .......................................................................................................................................................... 43 10. Equity and reserves ................................................................................................................................................ 44 11. Earnings per stapled security ................................................................................................................................ 46 12. Distributions paid and payable ............................................................................................................................... 47 13. Borrowings ............................................................................................................................................................. 47 14. Financial risk management ................................................................................................................................... 48 Other disclosure items ................................................................................................................................................ 52 15. Cash flow information ............................................................................................................................................ 52 16 Commitments ......................................................................................................................................................... 52 17. Contingent liabilities .............................................................................................................................................. 53 18. Security based payments ....................................................................................................................................... 53 19. Related party transactions .................................................................................................................................... 55 20. Auditor’s remuneration .......................................................................................................................................... 56 21. Parent entity financial information......................................................................................................................... 56 22. Fair value disclosures ............................................................................................................................................ 57 23. Accounting policies ................................................................................................................................................. 60 24. Events subsequent to reporting date ..................................................................................................................... 62 Directors’ Declaration ................................................................................................................................................................... 63 Independent Auditor’s Report ...................................................................................................................................................... 64

The GPT Group (GPT) comprises General Property Trust (Trust) and its controlled entities and GPT Management Holdings Limited (Company) and its controlled entities.

General Property Trust is a registered scheme, registered and domiciled in Australia. GPT RE Limited is the Responsible Entity of General Property Trust. GPT Management Holdings Limited is a company limited by shares, incorporated and domiciled in Australia. GPT RE Limited is a wholly owned controlled entity of GPT Management Holdings Limited.

Through our internet site, we have ensured that our corporate reporting is timely, complete and available globally at minimum cost to the Trust. All press releases, financial reports and other information are available on our website: www.gpt.com.au .

Annual Financial Report of The GPT Group

Directors’ Report

Year ended 31 December 2017

The Directors of GPT RE Limited, the Responsible Entity of General Property Trust, present their report together with the financial statements of the General Property Trust (the Trust) and its controlled entities (the consolidated entity) for the financial year ended 31 December 2017. The consolidated entity together with GPT Management Holdings Limited and its controlled entities form the stapled entity, The GPT Group (GPT).

General Property Trust is a registered scheme, GPT Management Holdings Limited is a company limited by shares, and GPT RE Limited is a company limited by shares, each of which is incorporated and domiciled in Australia. The registered office and principal place of business is the MLC Centre, Level 51, 19 Martin Place, Sydney NSW 2000.

1. Operating and financial review

About GPT

GPT is an owner and manager of a $12.3 billion diversified portfolio of high quality Australian retail, office and logistics property assets and together with GPT’s funds management platform the Group has $21.5 billion of property assets under management (AUM).

GPT owns some of Australia’s most significant real estate assets, including the MLC Centre and Australia Square in Sydney, Melbourne Central and Highpoint Shopping Centre in Melbourne and One One One Eagle Street in Brisbane.

Listed on the Australian Securities Exchange (ASX) since 1971, GPT is today one of Australia’s largest diversified listed property groups with a market capitalisation of approximately $9.2 billion. GPT is one of the top 50 listed stocks on the ASX by market capitalisation as at 31 December 2017.

GPT’s strategy is focussed on leveraging its extensive real estate experience to deliver strong returns through disciplined investment, asset management and development. The development capability has a focus on creating value for securityholders through the enhancement of the core investment portfolio and in the creation of new investment assets.

A key performance measure for GPT is Total Return. Total Return is calculated as the change in Net Tangible Assets (NTA) per security plus distributions per security declared over the year, divided by the NTA per security at the beginning of the year. This focus on Total Return is aligned with securityholders’ long term investment aspirations. In 2017 GPT achieved a Total Return of 15.2 per cent.

GPT targets a Management Expense Ratio (MER) of less than 45 basis points. MER is calculated as management expenses as a percentage of assets under management. In 2017 GPT achieved an MER of 34 basis points.

GPT focuses on maintaining a strong balance sheet. GPT has moderate gearing and significant investment capacity giving it the flexibility to execute on investment opportunities as they arise. In 2017 the Weighted Average Cost of Debt was 4.2 per cent with net gearing at 24.4 per cent at year end.

GPT Portfolio

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Retail 47%
Office 40%
Logistics 13%
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Retail Portfolio

13 shopping centres
940,000 sqm GLA*
3,200 + tenants
$5.9b portfolio
$9.6b AUM
Gross lettable area
** Net lettable area

Office Portfolio

22 assets
1,110,000 sqm NLA**
470 + tenants
$4.9b portfolio
$10.4b AUM

Logistics Portfolio

28 assets
780,000 sqm GLA
70 + tenants
$1.5b portfolio
$1.5b AUM

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

Review of operations

Funds from Operations (FFO) represents GPT’s underlying and recurring earnings from its operations. This is determined by adjusting statutory net profit after tax under Australian Accounting Standards for certain items which are non-cash, unrealised or capital in nature. FFO has been determined in accordance with the guidelines issued by the Property Council of Australia.

The reconciliation of FFO to net profit after tax is set out below:

The reconciliation of FFO to net profit after tax is set out below:
	31 Dec 17 $M 31 Dec 16 $M Change %
Retail – Operations net income – Development net income Office – Operations net income – Development net income Logistics – Operations net income – Development net income Funds management net income Corporate management expenses Net finance costs Income tax expense Non-core Funds from Operations (FFO) Other non-FFO items: Valuation increase Financial instruments mark to market and net foreign exchange loss Other items1 Net profit after tax FFO per ordinary stapled security (cents) Funds from Operations (FFO) Maintenance capex Lease incentives Adjusted Funds from Operations (AFFO) Distribution paid and payable Distribution per ordinary stapled security (cents)	313.1 288.3 8.6% 5.3 5.8 (8.6%)
	318.4 294.1 8.3% 247.8 223.9 10.7% 1.1 1.1 0.0%
	248.9 225.0 10.6% 93.3 92.7 0.6% 0.7 2.7 (74.1%)
	94.0 95.4 (1.5%) 37.0 61.0 (39.3%) (30.6) (29.8) (2.7%) (102.4) (100.0) (2.4%) (11.1) (14.0) 20.7% – 5.3 (100.0%)
	554.2 537.0 3.2%
	717.7 611.6 17.3% (2.9) (23.0) 87.4% 0.1 27.1 (99.6%)
	1,269.1 1,152.7 10.1%
	30.77 29.88 3.0% 554.2 537.0 3.2% (54.4) (45.4) (19.8%) (53.5) (70.1) 23.7%
	446.3 421.5 5.9%
	443.2 420.7 5.3% 24.6 23.4 5.1%

1 Other items include impairment and amortisation of intangibles, profit on disposal of assets and related tax impact.

Operating result

GPT delivered FFO of $554.2 million for the 2017 financial year, an increase of 3.2 per cent on the prior year. This translated into FFO per security of 30.77 cents, up 3.0 per cent. The result was driven by strong contributions from the investment portfolio of high quality Australian retail, office and logistics properties.

GPT’s statutory net profit after tax is $1,269.1 million, an increase of 10.1 per cent on the prior year, driven by $717.7 million in property valuation increases and a lower negative mark to market and net foreign exchange movement of financial instruments.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

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14.5%
12.5%
11.1% 11.2%
Retail Office Logistics Total Portfolio
(inc GPT Wholesale (inc GPT Wholesale (inc Equity
Shopping Centre Office Interests)
Fund Interest) Fund Interest)
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Total Return at the direct investment portfolio level was 12.5 per cent for 2017 with the split between portfolios detailed in the chart on the left.

GPT has maintained strong metrics across its core portfolios:

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Overall Portfolios Retail Portfolio Office Portfolio Logistics Portfolio
Value of Portfolio $5.85 billion portfolio $4.90 billion portfolio $1.55 billion portfolio
including GPT’s equity including GPT’s equity (2016: $1.40 billion)
interest in the GPT interest in the GPT
Wholesale Shopping Wholesale Office Fund
Centre Fund (2016: $4.34 billion)
(2016: $5.32 billion)
Occupancy 96.8% 99.6% 95.2% 96.1%
(2016: 97.1%) (2016: 99.6%) (2016: 97.0%) (2016: 95.3%)
Weighted average lease 5.2 years 4.1 years 5.6 years 7.6 years
expiry (WALE) (2016: 5.1 years) (2016: 4.0 years) (2016: 5.5 years) (2016: 7.9 years)
Structured rental reviews 74% of speciality income 91% of income subject to 91% of income subject to
subject to average average increases of 3.9% average increases of 3.3%
increases of 4.7% (2016: 90% subject to (2016: 93% subject to
(2016: 74% subject to average increases of 3.9%) average increases of 3.3%)
average increases of 4.7%)
Comparable income 4.4% 3.8% 5.0% 4.0%
growth (2016: 4.5%) (2016: 3.8%) (2016: 6.3%) (2016: 1.4%)
Weighted average 5.27% 5.10% 5.18% 6.31%
capitalisation rate (2016: 5.58%) (2016: 5.39%) (2016: 5.55%) (2016: 6.54%)
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The methodology to determine WALE at December 2017 has been revised to exclude holdovers.

Retail

Operations net income

The retail portfolio achieved a net revaluation uplift of $281.4 million in 2017, including GPT’s equity interest in the GPT Wholesale Shopping Centre Fund (GWSCF). The positive revaluation is predominantly the result of favourable valuations at Melbourne Central, Highpoint Shopping Centre and Westfield Penrith, in addition to the contribution from GWSCF. The positive revaluation across the portfolio has been driven by a combination of net income growth and firming in valuation metrics.

Like for like income growth of 3.8 per cent was driven by structured rental increases and continued strength in leasing metrics including a focus on active remixing. Retail sales have moderated over the 12 month period to December 2017 consistent with the broader market, with total centre sales up 1.7 per cent and specialty annual sales up 0.3 per cent. The portfolio remains well leased with occupancy at 99.6 per cent.

Development net income

The retail development team has focused on master planning and delivery of development opportunities within its $1.6 billion development pipeline. In 2017, this includes the delivery of the $68.0 million repositioning of Wollongong Central. The remix has introduced David Jones to the asset and was completed on schedule in October 2017. The $422.0 million (GPT share $211.0 million) Sunshine Plaza retail expansion is expected to be completed in the last quarter of 2018.

During 2017, retail development contributed $5.3 million to GPT’s FFO (2016: $5.8 million) from the sale of residential land parcels at Rouse Hill.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

Office

Operations net income

The office portfolio achieved a net revaluation uplift of $374.1 million in 2017, including GPT’s equity interest in the GPT Wholesale Office Fund (GWOF), as a result of continued high occupancy levels, market rental growth and firming investment metrics. The positive revaluation has been driven by favourable valuations at MLC Centre, Citigroup Centre, Australia Square and Farrer Place.

Like for like income growth of 5.0 per cent was achieved as a result of leasing success leading to strong rental growth and continued high levels of occupancy at 95.2 per cent (including signed leases). The assets which were the main contributors to income growth were Citigroup Centre, MLC Centre and One One One Eagle Street.

Development net income

The team has focused on progressing a number of repositioning projects at Melbourne Central Tower, CBW and 750 Collins Street in Melbourne and MLC Centre in Sydney. Progress is also being made on the planning approval for a new tower at Darling Park.

Logistics

Operations net income

The logistics portfolio achieved a net revaluation uplift of $62.1 million in 2017. This uplift is attributed to continued investor interest in quality logistics assets which led to a firming of investment metrics combined with positive leasing outcomes. The weighted average lease expiry has been maintained at a long duration of 7.6 years.

Development net income

In 2017 the logistics development business completed construction of four new logistics facilities totalling 70,000sqm at Seven Hills, Eastern Creek and Huntingwood in Sydney and Wacol in Brisbane. 100 per cent of this space has been leased. At the Huntingwood site, construction has commenced to develop an 11,000sqm warehouse on the adjoining land parcel to the existing building recently leased to IVE Group for 10 years. Planning approval is also in place and earthworks completed on Lot 21 Old Wallgrove Road site at Eastern Creek for a 30,000sqm facility.

Following the successful pre-commitment lease of 9,240sqm to the Rural Fire Service, construction has commenced on a 15,680sqm campus building on the 4 Murray Rose site at Sydney Olympic Park. Completion is expected in late 2018.

The acquisition of an office development site of 2,439sqm in the heart of Parramatta’s commercial district settled in March 2017. This site will provide the opportunity to develop an office building of over 26,000sqm, with the development application submitted.

Funds Management

Funds Management
As at and for the year ended 31 December 2017	GWOF	GWSCF	Total
Funds under Management	$7.1b	$4.9b	$12.0b
Number of Assets	17	8	25
GPT Interest	24.95%	28.80%	–
GPT Investment	$1,409.7m	$1,008.2m	$2,417.9m
One year Equity IRR (post-fees)	13.4%	12.5%	N/A
Share of profit – FFO	$68.8m	$46.5m	$115.3m
Funds Management fee income	$33.4m	$17.3m	$50.7m

The performance of the Wholesale Funds was strong, with GWOF achieving a one year equity IRR of 13.4 per cent and GWSCF achieving a one year equity IRR of 12.5 per cent.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

GWOF

GWOF’s portfolio value increased to $7.1 billion, up $0.5 billion compared to 2016. The management fee income earned from GWOF decreased by $23.0 million as compared to 2016, primarily due to performance fee income of $28.1 million being earned in 2016 which will not be earned in future in accordance with the revised Fund Terms. This was partially offset by higher base management fee income of $5.1 million due to strong upward revaluations across the portfolio, net new asset acquisitions and a higher base management fee structure compared with 2016.

In June 2017, GPT acquired a further 16.3 million securities in GWOF for $23.2 million, increasing GPT’s ownership interest from 24.53 per cent to 24.95 per cent.

GWSCF

GWSCF’s portfolio value increased to $4.9 billion, up $1.1 billion compared to 2016. This was primarily due to the acquisition of an additional 25 per cent interest in September 2017 in Highpoint Shopping Centre for $660.0 million and Homemaker City, Maribyrnong for $20.0 million coupled with upward revaluations across the portfolio. Management fee income earned from GWSCF of $17.3 million has remained stable as compared to 2016.

In May 2017, GPT acquired a further 115.6 million securities in GWSCF for $116.6 million, increasing GPT’s ownership interest from 25.29 per cent to 28.80 per cent.

Fund Terms Review

On 20 February 2017, GWSCF held an Extraordinary General Meeting (EGM) in relation to changes in the terms of GWSCF. At the EGM, investors approved all seven resolutions put to the meeting.

The key changes included:

Management expenses

Management expenses increased to $73.4 million (2016: $71.0 million) predominantly caused by lower intercompany income elimination and moderate expense increases. In 2017 GPT achieved an MER of 34 basis points (2016: 37 basis points).

Non-core operations

Joint venture

In October 2017, GPT received a return of capital of $10.7 million in respect of its 5.3 per cent interest in BGP Holding Plc (BGP). BGP was classified as an available for sale financial asset with a carrying value of $9.3 million at 31 December 2016. In 2017, following the return of capital the asset has been revalued and derecognised in the Consolidated Statement of Financial Position and $10.7 million has been recognised in the Consolidated Statement of Comprehensive Income as profit on derecognition of available for sale financial asset.

Distribution

GPT’s distribution policy is a payout ratio of approximately 95-105 per cent of Adjusted Funds from Operations (AFFO) which is broadly defined as FFO less maintenance capex and lease incentives.

For the financial year ended 31 December 2017, distributions paid and payable to stapled securityholders totalled $443.2 million (2016: $420.7 million), representing an annual distribution of 24.6 cents, up 5.1 per cent on 2016 (2016: 23.4 cents). This includes 12.3 cents ($221.6 million) in respect of the second half of 2017, which was declared on 20 December 2017 and is expected to be paid on 28 February 2018. The payout ratio for the year ended 31 December 2017 is 99.3 per cent (2016: 99.8 per cent).

removal of the performance fee structure from 1 April 2017;
introduction of an Investor Representation Committee; and
other amendments to operational policies and investor rights.

Investor Liquidity Review

On 31 March 2017, the first investor 10 year liquidity review concluded which allowed GWSCF securityholders to notify GPT Funds Management Limited (as Responsible Entity of GWSCF) whether they required liquidity. The outcome of the review was that binding requests for liquidity for a total of 78,474,213 securities, being 2.4 per cent of securities on issue, were submitted. This equated to $79.8 million at the 31 March 2017 current unit value of $1.0174. All requests for liquidity were met within the June 2017 quarter.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

Financial position

Financial position
	Net Assets 31 Dec 17 $M Net Assets 31 Dec 16 $M Change %
Core Retail Office Logistics Total core assets Non-core Financing and corporate assets Total assets Borrowings Other liabilities Total liabilities Net assets Total number of ordinary stapled securities (million) NTA ($)	5,938.4 5,391.4 10.1% 4,885.5 4,327.9 12.9% 1,639.3 1,485.4 10.4%
	12,463.2 11,204.7 11.2% – 39.7 (100.0%) 495.2 573.5 (13.7%)
	12,958.4 11,817.9 9.7%
	3,300.6 2,996.6 10.1% 550.8 539.1 2.2%
	3,851.4 3,535.7 8.9%
	9,107.0 8,282.2 10.0%
	1,801.6 1,798.0 0.2% 5.04 4.59 9.8%

Balance sheet

Total Return of 15.2 per cent (2016: 15.5 per cent) being the growth of NTA per stapled security of 45 cents to $5.04 plus the distribution paid/payable per stapled security of 24.6 cents, divided by the opening NTA per stapled security.
Total core assets increased by 11.2 per cent primarily due to development capital expenditure, positive property revaluations and further investment in the wholesale funds.
Total borrowings increased by $304.0 million due to net asset investments offset by fair value adjustments of $63.2 million to the carrying value of foreign currency debt.

Capital management

	31 Dec 17	31 Dec 16	Change
Cost of debt	4.20%	4.25%	Down by 5bps
Net gearing	24.4%	23.7%	Up by 70bps
Weighted average debt maturity	7.1 years	6.5 years	Up 0.6 years
Hedging	76%	57%	Up 19%
S&P/Moody’s credit rating	A stable/A2 stable	A stable/ A3 stable	Upgrade

GPT continues to maintain a strong focus on capital management, key highlights for the year include:

reduced weighted average cost of debt by 5 basis points due to lower fixed and floating interest rates offset by higher margins;
upgrade of GPT’s long term Moody’s rating from A3 (stable) to A2 (stable);
net gearing[1] increased to 24.4 per cent (2016: 23.7 per cent), which is slightly below GPT’s target gearing range of 25 to 35 per cent. This was a result of net asset investments and development expenditure during the year;
available liquidity through cash and undrawn facilities (inclusive of forward starting facilities available to GPT) is $1,095.1 million (2016: $785.8 million);
investment capacity at 30 per cent net gearing is $1,030.0 million (2016: $1,040.0 million);
net tangible assets were impacted by a $12.5 million loss on net mark to market movements on derivatives and borrowings. This is due to a decrease in market swap rates during the period and different valuation methodologies on the fair value of foreign debt and their associated hedging contracts.
1 Calculated net of cash and excludes any fair value adjustment on foreign bonds and their associated cross currency derivative asset positions.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

Cash flows

The cash balance as at December 2017 decreased to $49.9 million (2016: $56.3 million).

Operating activities

The following table shows the reconciliation from FFO to the cash flow from operating activities:

For the year ended	31 Dec 17 $M 31 Dec 16 $M Change %
FFO (Less)/add: non-cash items included in FFO Less: interest capitalised on developments Less: net movement in inventory Timing difference in receivables and payables Net cash inflows from operating activities Add: interest capitalised on developments Add: net movement in inventory Less: dividend income from available for sale investment Less: maintenance capex Less: lease incentives (excluding rent free) Free cash flow	554.2 537.0 3.2% (17.2) 2.7 (737.0%) (8.6) (8.5) (1.2%) (19.0) (5.3) (258.5%) 26.1 0.3 Lge
	535.5 526.2 1.8%
	8.6 8.5 1.2% 19.0 5.3 258.5% (30.4) – 100.0% (54.4) (45.4) (19.8%) (27.0) (41.5) 34.9%
	451.3 453.1 (0.4%)

The Non-IFRS information included above has not been audited in accordance with Australian Auditing Standards, but has been derived from note 1 and note 15 of the accompanying financial statements.

Prospects

Group

GPT is well positioned with high quality assets and high levels of occupancy. As at 31 December 2017, the Group’s balance sheet is in a strong position, with a smooth, long debt expiry profile and net gearing slightly below the Group’s target range of 25 to 35 per cent.

Retail

Australian retail sales grew 2.7 per cent for the year to 31 December 2017 led by the Eastern states. This has supported the performance of the GPT portfolio with more than 85 per cent of the portfolio located in NSW and VIC. Total centre sales grew 1.7 per cent whilst specialties sales per square metre grew 2.2 per cent.

Office

The Sydney and Melbourne office markets continued to deliver exceptional growth in net effective rents and asset valuations. The Sydney office market is expected to continue to enjoy favourable leasing conditions as supply remains limited through until 2020. The Melbourne office market is expected to see an elevated level of supply over the next 3 years however absorption is also expected to remain strong keeping vacancy rates low and upward pressure on net effective rents. GPT’s office portfolio weighting in the Sydney and Melbourne markets should benefit from these favourable market conditions.

Logistics

The investment market for institutional grade product has been strong over the past 24 months, with quality assets and portfolios transacting at yields firmer than at previous market peaks. Despite a modest rental growth outlook and increasing supply, assets with long WALE, good rent review structures and secure covenants have been well sought after. The medium term outlook is for a stabilisation of yields as this investment activity tapers off, while rents are likely to remain stable. GPT’s desire to increase exposure to the sector will see a continued focus on development.

Funds management

GPT has a strong funds management platform which has experienced significant growth over the past five years. The funds management team will continue to actively manage the existing portfolios, with new acquisitions, divestments and developments reviewed based on meeting the relevant investment objectives of the respective funds.

Guidance for 2018

In 2018 GPT expects to deliver approximately 3 per cent growth in FFO per ordinary security and approximately 3 per cent growth in distribution per ordinary security. Achieving this target is subject to risks detailed in the following section.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

Risks

The Board is ultimately accountable for corporate governance and the appropriate management of risk. The Board determines the risk appetite and oversees the risk profile to ensure activities are consistent with GPT’s strategy and values. The Sustainability and Risk Committee and the Audit Committee support the Board and are responsible for overseeing and reviewing the effectiveness of the risk management framework.

GPT has an active enterprise-wide risk management framework. Within this framework the Board has adopted a policy setting out the principles, objectives and approach established to maintain GPT’s commitment to integrated risk management. GPT recognises the requirement for effective risk management as a core capability and consequently all employees are expected to be managers of risk. GPT’s risk management approach incorporates culture, people, processes and systems to enable the organisation to realise potential opportunities whilst managing adverse effects. The approach is consistent with AS/NZS ISO 31000:2009: Risk Management.

Employees, contractors, the Leadership Team, the Sustainability and Risk Committee, the Audit Committee and through them, the Board:

report on or receive reports on GPT’s risk management practices and control systems including the effectiveness of GPT’s management of its material business risks;
promote risk awareness and assess the risk management culture;
develop and maintain internal specialist risk management expertise;
identify and assess risks in a timely and consistent manner;
design, embed and assess the effectiveness of controls;
provide transparency and assurance that the risk profile is aligned with GPT’s strategy, values and risk appetite.

The risk appetite considers the most significant, material risks to which GPT is exposed. The following table sets out material risks and issues, the potential strategic impact to GPT and the ways in which they may be mitigated:

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Risk Category Risk/Issue Potential Strategic Impact Mitigation
Investment Investments do not perform in • Investments deliver lower investment • Formal deal management process
mandate line with forecast performance than target • Active asset management including
• Credit rating downgrade regular forecasting and monitoring of
performance
• High quality property portfolio
• Development program to enhance
asset returns
• Comprehensive asset insurance program
Volatility and speed of adverse • Investments deliver lower investment • Holistic capital management
changes in market conditions, returns than target • Large multi asset portfolio
including competition and
digital disruption • Monitoring of asset concentration
• Digital strategy
Development Developments do not perform • Developments deliver lower returns • Formal development approval and
in line with forecast than target management process
Leasing Inability to lease assets in line • Investments deliver lower investment • Large and diversified tenant base
with forecast performance than target • High quality property portfolio
• Experienced leasing team
• Development program to enhance asset
returns
Capital Re-financing and liquidity risk • Limits ability to meet debt maturities • Diversity of funding sources and spreading
management, • Constrains future growth of debt maturities with a long weighted
including average debt term
macro- • Limits ability to execute strategy
economic • May impact distributions • Maintaining a minimum liquidity buffer
factors in cash and surplus committed credit
• Failure to continue as a going concern facilities for the forward rolling twelve-
month period
Interest rate risk – higher • Detrimental impact to investment • Interest rate exposures are actively hedged
interest rate cost than forecast performance
• Adversely affect GPT’s operating
results
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Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

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Risk Category Risk/Issue Potential Strategic Impact Mitigation
Health and Incidents causing injury • Criminal/civil proceedings and • Formalised health and safety management
safety to tenants, visitors to the resultant reputation damage system including policies and procedures
properties, employees and/or • Financial impact of remediation and for managing safety
contractors
restoration • Training and education of staff and
contractors
People Inability to attract, retain and • Limits the ability to deliver the • Competitive remuneration
develop talented people and business objectives and strategy • Structured development planning
provide an inclusive workplace
• Succession planning and talent
management
• Diversity & Inclusion Working Group
• Diversity & Inclusion policies, guidelines
and training
Environmental Inability to continue operating • Limits the ability to deliver the • Formalised environment and sustainability
and Social in a manner that does not business objectives and strategy management system including policies and
Sustainability compromise the health • Criminal/civil proceedings and procedures for managing environmental
of ecosystems and meets resultant reputation damage and social sustainability risks
accepted social norms
This includes the • Financial impact of remediation and
restoration
consideration of climate
change, energy (initiatives,
security and cost), community
and supply chain
Information Risk of loss of data, breach • Limits the ability to deliver the • Technology risk management framework
security of confidentiality, regulatory business objectives and strategy • Privacy policy, guidelines and procedures
breach (privacy) and/or • Criminal/civil proceedings and
reputational impact including
resultant reputation damage
as a result from a cyber attack
• Financial impact of remediation and
restoration
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2. Environmental regulation

GPT has policies and procedures in place that are designed to ensure that where operations are subject to any particular and significant environmental regulation under a law of Australia (for example property development and property management), those obligations are identified and appropriately addressed. This includes obtaining and complying with conditions of relevant authority consents and approvals and obtaining necessary licences. GPT is not aware of any breaches of any environmental regulations under the laws of the Commonwealth of Australia or of a State or Territory of Australia and has not incurred any significant liabilities under any such environmental legislation.

3. Events subsequent to reporting date

On 24 January 2018, GPT acquired 4 logistics assets in Sunshine, Victoria for a total consideration of $74.0 million.

Other than the above, the Directors are not aware of any matter or circumstances occurring since 31 December 2017 that has significantly or may significantly affect the operations of GPT, the results of those operations or the state of affairs of GPT in the subsequent financial years.

GPT is also subject to the reporting requirements of the National Greenhouse and Energy Reporting Act 2007 (“NGER Act”). The NGER Act requires GPT to report its annual greenhouse gas emissions and energy use. The measurement period for GPT is 1 July to 30 June each year. GPT has implemented systems and processes for the collection and calculation of the data required which enabled submission of its report to the Department of Climate Change and Energy Efficiency within the legislative deadline of 31 October each year. GPT has submitted its report to the Department of Climate Change and Energy Efficiency for the period ended 30 June 2017 within the required timeframe.

More information about GPT’s participation in the NGER program is available at www.gpt.com.au .

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

4. Directors and secretary

Information on directors

Rob Ferguson – Chairman

Rob joined the Board in May 2009 and is also a member of the Nomination and Remuneration Committee. He brings a wealth of knowledge and experience in finance, investment management and property as well as corporate governance.

Rob currently holds Non-Executive directorships in the following listed and other entities:

Primary Health Care Limited (since 2009) – Chairman
Watermark Market Neutral Fund Limited (since 2013)
Tyro Payments Limited (since 2005)
Smartward Limited (since 2012).

He was also a Non-Executive Chairman of IMF Bentham Limited from 2004 to January 2015.

As at the date of this report, he holds 207,628 GPT stapled securities.

Robert Johnston – Chief Executive Officer and Managing Director

Bob was appointed to the Board as Chief Executive Officer and Managing Director in September 2015. He has 29 years experience in the property sector including investment, development, project management and construction in Australia, Asia, the US and UK. Prior to joining GPT, Bob was the Managing Director of listed Australand Property Group which became Frasers Australand in September 2014.

As at the date of this report, he holds 343,264 GPT stapled securities.

Brendan Crotty

Brendan was appointed to the Board in December 2009 and is also a member of the Audit Committee and the Sustainability and Risk Committee. He brings extensive property industry experience to the Board, including 17 years as Managing Director of Australand until his retirement in 2007.

Brendan is currently a director of Brickworks Limited (since 2008) and Chairman of Cloud FX Pte Ltd. Brendan resigned from his role as Chairman of Western Sydney Parklands Trust on 31 December 2017.

As at the date of this report, he holds 67,092 GPT stapled securities.

Eileen Doyle

Eileen was appointed to the Board in March 2010. She is also the Chair of the Sustainability and Risk Committee and a member of the Nomination and Remuneration and Audit Committees. She has diverse and substantial business experience having held senior executive roles and directorships in a wide range of industries, including research, financial services, building and construction, steel, mining, logistics and export. Eileen is also a Fellow of the Australian Academy of Technological Sciences and Engineering.

Eileen currently holds the position of Non-Executive Director in the following listed and other entities:

Boral Limited (since 2010)
Oil Search Limited (since 2016).

Eileen was also previously a director of Bradken Limited from 2011 to November 2015.

As at the date of this report, she holds 45,462 GPT stapled securities.

Swe Guan Lim

Swe Guan was appointed to the Board in March 2015 and is also a member of the Audit Committee and the Sustainability and Risk Committee. Swe Guan brings significant Australian real estate skills and experience and capital markets knowledge to the Board, having spent most of his executive career as a Managing Director in the Government Investment Corporation (GIC) in Singapore.

Swe Guan is currently Chairman of Cromwell European REIT in Singapore (since 2017), a director of Sunway Berhad in Malaysia (since 2011) and Global Logistics Properties in Singapore (since 2012). Swe Guan is also a member of the Investment Committee of CIMB Trust Cap Advisors.

As at the date of this report, he holds 15,800 GPT stapled securities.

Michelle Somerville

Michelle was appointed to the Board in December 2015 and is also the Chair of the Audit Committee and a member of the Sustainability and Risk Committee. She was previously a partner of KPMG for nearly 14 years specialising in external audit and advising Australian and international clients both listed and unlisted primarily in the financial services market in relation to business, finance risk and governance issues.

Michelle currently holds the position of Non-Executive Director in the following entities:

Bank Australia Limited (since 2014)
Challenger Retirement and Investment Services Ltd (since 2014)
Save the Children (Australia) (since 2012)
Down Syndrome Australia (since 2011).

Michelle is also an independent consultant to the UniSuper Ltd Audit, Risk and Compliance Committee since 2015.

As at the date of this report, she holds 16,157 GPT stapled securities.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

Gene Tilbrook

Gene was appointed to the Board in May 2010 and is also the Chair of the Nomination and Remuneration Committee. He brings extensive experience in finance, corporate strategy, investments and capital management.

Gene currently holds the position of Non-Executive Director in the following listed entities:

Orica Limited (since 2013)

James Coyne – General Counsel and Company Secretary

James is responsible for the legal, compliance and company secretarial activities of GPT. He was appointed as the General Counsel and Company Secretary of GPT in 2004. His previous experience includes company secretarial and legal roles in construction, infrastructure, and the real estate funds management industry (listed and unlisted).

Woodside Petroleum Limited (since 2014).

Gene was also a Director of listed entities Transpacific Industries Group Limited from 2009 to 2013, Fletcher Building Limited from 2009 to April 2015, and Aurizon Holdings Limited from 2010 to February 2016.

As at the date of this report, he holds 48,546 GPT stapled securities.

Lisa Bau – Senior Legal Counsel and Company Secretary

Lisa was appointed as a Company Secretary of GPT in September 2015. Her previous experience includes legal roles in mergers and acquisitions, capital markets, funds management and corporate advisory.

Attendance of directors at meetings

The number of Board meetings, including meetings of Board Committees, held during the financial year and the number of those meetings attended by each Director is set out below:

	Board	Board	Audit Committee	Audit Committee	Nomination and Remuneration Committee	Nomination and Remuneration Committee	Sustainability and Risk Committee	Sustainability and Risk Committee
	Number of meetings attended	Number of meetings eligible to attend	Number of meetings attended	Number of meetings eligible to attend	Number of meetings attended	Number of meetings eligible to attend	Number of meetings attended	Number of meetings eligible to attend
Chair	Rob Ferguson Michelle Somerville Gene Tilbrook Eileen Doyle
Rob Ferguson	12 12 – – 6 6 – –
Robert Johnston	12 12 – – – – – –
Brendan Crotty	12 12 4 4 – – 4 4
Eileen Doyle	12 12 3 3 6 6 4 4
Swe Guan Lim	12 12 4 4 – – 4 4
Michelle Somerville	12 12 4 4 – – 3 3
Gene Tilbrook	12 12 – – 6 6 – –

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

5. Other disclosures

Indemnification and insurance of directors, officers and auditor

GPT provides a Deed of Indemnity and Access (Deed) in favour of each of the Directors and Officers of GPT and its subsidiary companies and each person who acts or has acted as a representative of GPT serving as an officer of another entity at the request of GPT. The Deed indemnifies these persons on a full indemnity basis to the extent permitted by law for losses, liabilities, costs and charges incurred as a Director or Officer of GPT, its subsidiaries or such other entities.

Subject to specified exclusions, the liabilities insured are for costs that may be incurred in defending civil or criminal proceedings that may be brought against Directors and Officers in their capacity as Directors and Officers of GPT, its subsidiary companies or such other entities, and other payments arising from liabilities incurred by the Directors and Officers in connection with such proceedings. GPT has agreed to indemnify the auditors out of the assets of GPT if GPT has breached the agreement under which the auditors are appointed.

During the financial year, GPT paid insurance premiums to insure the Directors and Officers of GPT and its subsidiary companies. The terms of the contract prohibit the disclosure of the premiums paid.

Non-audit services

During the year PricewaterhouseCoopers, GPT’s auditor, has performed other services in addition to their statutory duties. Details of the amounts paid to the auditor, which includes amounts paid for non-audit services and other assurance services, are set out in note 20 to the financial statements.

The Directors have considered the non-audit services and other assurance services provided by the auditor during the financial year. In accordance with advice received from the Audit Committee, the Directors are satisfied that the provision of non-audit services by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:

the Audit Committee reviewed the non-audit services and other assurance services at the time of appointment to ensure that they did not impact upon the integrity and objectivity of the auditor;
the Board’s own review conducted in conjunction with the Audit Committee concluded that the auditor independence was not compromised, having regard to the Board’s policy with respect to the engagement of GPT’s auditor; and
the fact that none of the non-audit services provided by PricewaterhouseCoopers during the financial year had the characteristics of management, decision-making, self-review, advocacy or joint sharing of risks.

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 on page 23 and forms part of the Directors’ Report.

Rounding of amounts

The amounts contained in this report and in the financial statements have been rounded to the nearest hundred thousand dollars unless otherwise stated (where rounding is applicable) under the option available to GPT under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. GPT is an entity to which the Instrument applies.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

6. Remuneration report

The Nomination & Remuneration Committee (the Committee) of the Board presents the Remuneration Report (Report) for the GPT Group. This Report has been audited in accordance with section 308(3C) of the Corporations Act 2001.

The Board aims to communicate the remuneration outcomes with full transparency; demonstrate that the GPT Group’s remuneration platform is both market competitive and fair to all stakeholders; and align performance measures to the achievement of GPT’s strategic objectives.

Governance

Governance
Who are the	The Committee consists of 3 Non-Executive Directors:
members of the	•Gene Tilbrook (Committee Chairman)
Committee?	•Eileen Doyle
	•Rob Ferguson.
What is the scope	The Committee provides advice and recommendations to the Board on:
of work of the	•Criteria for selection of Directors;
Committee?	•Nominations for appointment of Directors;
	•Criteria for reviewing the performance of Directors individually and the GPT Board collectively;
	•Remuneration policies for Directors and Committee members;
	•Remuneration amounts for Directors from within the overall Directors fee cap approved by securityholders;
	•Remuneration policy for the Chief Executive Officer (CEO) and employees;
	•Incentive plans for the CEO and employees, including exercising discretion where appropriate in determining
	short term incentive compensation (STIC) and long term incentive compensation (LTI) outcomes; and
	•Any other related matters regarding executives or the Board1.
Who is included in	GPT’s Key Management Personnel (KMP) are the individuals responsible for planning, controlling and managing
the Remuneration	the GPT Group (being the Non-Executive Directors, CEO, Chief Financial Officer (CFO), and the Chief Operating
Report?	Officer (COO)).

Committee key decisions and remuneration outcomes in 2017

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Platform component Key decisions and outcomes
Base pay (Fixed) • Implemented the annual review of employee base pay effective 1 January 2017, with an average increase of 3.6%.
• Implemented an average increase of 3.0% in Non-Executive Director base fees effective 1 January 2017. This
was the first review of base fees since 1 January 2015.
Short term incentive • The Group achieved an EPS growth outcome of 3.0% which generated a STIC pool of $13.8 million.
compensation (STIC)
Long term incentive • The Group achieved a compound annual Total Return [2] for the 2015-17 period of 14.05%, exceeding the maximum
(LTI) compensation target of 9.75%, and delivered a Total Security-holder Return (TSR) [3] of 44.34% which ranked 5th against the
comparator group.
• As a result, the vesting outcome for the 2015-17 LTI plan was 83.29% of the performance rights for each of the
23 participants in the LTI plan.
• Launched the 2017-2019 LTI with two performance measures, Total Return and Relative TSR.
• Strengthened the performance hurdle for vesting under the Total Return measure to commence at 8.5% and
reach maximum at 10%.
Other employee • Continued the General Employee Security Ownership Plan (GESOP) for 137 STIC eligible employees not in the
ownership plans LTI. Under GESOP each participant receives an amount equal to 10% of their STIC (less tax) delivered in GPT
securities, which must be held for at least 1 year.
• Continued the Broad Based Employee Security Ownership Plan (BBESOP) for 281 employees ineligible for
GESOP. Under BBESOP, participants receive $1,000 worth of GPT securities that cannot be transferred or sold
until the earlier of 3 years from the allocation date or cessation of employment (or $1,000 cash (less tax) at the
election of the individual).
Policy & governance • Utilised external advice on market compensation benchmarks and practice, prevailing regulatory and
governance standards, and drafting of incentive plan documentation from Ernst & Young and Conari Partners [4] .
Diversity • Completed an organisation wide gender pay equity audit and launched GPT’s Gender Equality Policy.
• GPT’s CEO Bob Johnston is a member of the Property Male Champions of Change, and was also appointed a
Gender Pay Equity Ambassador by the Workplace Gender Equality Agency (WGEA).
• Increased the percentage of females in senior leadership roles from 36.7% at the end of 2016 to 41.4%.
• Maintained participation of First Nations employees in the permanent workforce at 1%.
• Launched GPT’s LGBTI Strategy and established an ally network.
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1 Further information about the role and responsibility of the Committee is set out in its Charter which is available on GPT’s website ( www.gpt.com.au ).

2 Total Return is defined as the sum of the change in Net Tangible Assets (NTA) plus distributions over the performance period, divided by the NTA at the beginning of the performance period.

3 TSR represents an investor’s return, calculated as the percentage difference between an initial amount invested in stapled securities and the final value of those stapled securities at the end of the relevant period, assuming distributions were reinvested.

4 During 2017, no remuneration recommendations in relation to Key Management Personnel, as defined by Division 1 of Part 1.2 of Chapter 1 of the Corporations Act 2001, were made by these or other consultants.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

GPT’s vision and financial goals linked to remuneration structures

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GPT’s vision and financial goals
To be the most respected
property company in Australia
Generate competitive Relative Generate competitive EPS
in the eyes of our Investors, Total Return > 8.5%
Total Securityholder Return growth
People, Customers and
Communities
Total remuneration components
Base pay (Fixed) STIC (variable) LTI (variable) Other employee ownership plans
• Base level of reward. • Discretionary, at risk, and • Discretionary, at risk, and (variable)
• Set around Australian market with aggregate STIC funding aligned to overall Group GESOP
median using external aligned to overall Group financial outcomes. • For STIC eligible individuals
benchmark data (including financial outcomes. • Set around market median who are ineligible for LTI.
AON Hewitt and the Financial • Set around market median for target performance with
Institutions Remuneration for target performance with potential to achieve top • Equal to 10% of their STIC
Group (FIRG)). potential to achieve top quartile for stretch outcomes. (less tax) delivered in GPT
• Reviewed based on quartile for stretch outcomes. • Vesting determined by GPT securities, which must be
held for at least 1 year.
employee’s responsibilities, • Determined by GPT and performance against Total
experience, skill and individual performance Return and Relative TSR BBESOP
performance. against a mix of balanced financial performance. • For individuals ineligible for
• External & internal relativities scorecard measures which • Relative TSR is measured STIC or LTI.
considered. include financial & non- against ASX200 AREIT • GPT must achieve at least
financial measures. Accumulation Index
Target outcome on annual
• Financial measures include (including GPT).
EPS growth.
EPS growth, portfolio, fund • Assessed over a 3 year • A grant of $1,000 worth of
and/or property level metrics. performance period, no GPT securities which must
• Non-financial objectives focus re-testing. be held until the earlier of 3
on execution of strategy, • No value derived unless GPT years from the allocation date
delivery of key projects and meets or exceeds defined or cessation of employment
developments, and people performance measures. (or $1,000 cash (less tax) at
and culture objectives. • Delivered in GPT securities to the election of the individual).
• Delivered in cash, or align executive and security
(for senior executives), a holder interests.
combination of cash and
equity with deferred vesting
for 1 year.
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Attract, retain, motivate and reward high calibre executives to Align executive rewards to GPT’s performance and security holder deliver superior performance by providing: interests by: • Competitive rewards. • Assessing incentives against financial and non-financial business • Opportunity to achieve incentives beyond base pay based on measures that are aligned with GPT strategy. high performance. • Delivering a meaningful component of executive remuneration in the form of equity subject to performance hurdles being achieved.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

Employment Terms

1. Employment terms – Chief Executive Officer and Managing Director

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Term Conditions
Contract duration Open ended.
Termination by Executive 6 months’ notice. GPT may elect to make a payment in lieu of notice.
Remuneration Package Bob Johnston’s 2017 remuneration arrangements were as follows:
• Fixed pay: $1,435,000.
• STIC: $0 to $1,793,750 (i.e. 0% to 125% of base pay) based on performance and paid in an equal
mix of cash and deferred GPT securities, with the securities component vesting one year after the
conclusion of the performance year.
• LTI: A grant of performance rights with the face value at time of grant of $2,152,500 (i.e. 150% of base
pay) with vesting outcomes dependent on performance and continued service, and delivered in restricted
GPT securities.
Termination by Company for cause No notice requirement or termination benefits (other than accrued entitlements).
Termination by Company (other) 12 months’ notice. Treatment of unvested STIC and LTI will be at the Board’s discretion under the terms of
the relevant plans and GPT policy.
Post-employment restraints 6 months non-compete, and 12 months non-solicitation of GPT employees.
External Directorships Bob Johnston is a Director on the Boards of the Property Industry Foundation (PIF) and the Property Council
of Australia (PCA). He does not receive remuneration for these roles.
Clawback Policy All GPT employees who participate in STIC and LTI are subject to remuneration being clawed back if the
recipient has acted fraudulently, dishonestly, or where there has been a material misstatement or omission
in the Group’s financial statements leading to the receipt of an unfair benefit.
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2. Employment terms – Executive KMP

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Term Conditions
Contract duration Open ended.
Termination by Executive 3 months’ notice. GPT may elect to make a payment in lieu of notice.
Remuneration Package Component Mark Fookes Anastasia Clarke
Fixed pay $820,000 $750,000
STIC [5] $0 to $820,000 $0 to $750,000
LTI $0 to $820,000 $0 to $750,000
Termination by Company for cause No notice requirement or termination benefits (other than accrued entitlements).
Termination by Company (other) 3 months’ notice. Severance payments may be made subject to GPT policy and capped at the three year
average of the executive’s annual base (fixed) pay. Treatment of unvested STIC and LTI will be at the Board’s
discretion under the terms of the relevant plans and GPT policy.
Post-employment restraints 12 months non-solicitation of GPT employees.
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3. Compensation mix at maximum STIC and LTI outcomes

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Fixed remuneration Variable or “at risk” remuneration [6]
Executive KMP Position Base pay STI LTI
Bob Johnston Chief Executive Officer and Managing Director 26.7% 33.3% 40.0%
Anastasia Clarke Chief Financial Officer 33.4% 33.3% 33.3%
Mark Fookes Chief Operating Officer 33.4% 33.3% 33.3%
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5 The STIC is paid in an equal mix of cash and deferred GPT securities, with the securities component vesting 1 year after the conclusion of the performance year. 6 The percentage of each component of total remuneration is calculated with reference to maximum or stretch potential outcomes as set out under Remuneration Package in Tables 1 and 2 above.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

Group Financial Performance & Incentive Outcomes

1. Five year Group financial performance

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2017 2016 2015 2014 2013
Total Securityholder Return (TSR) % 6.6 10.1 15.4 34.5 4.1
Total Return % 15.2 15.5 11.5 9.6 8.5
NTA (per security) $ 5.04 4.59 4.17 3.94 3.79
FFO (per security) [7] cents 30.8 29.9 28.3 26.8 25.7
Security price at end of calendar year $ 5.11 5.03 4.78 4.35 3.40
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2. Summary of CEO Objectives and Performance Outcomes

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Performance measure Reason chosen Weighting Performance outcomes
Financial Earnings per security EPS is a key financial 70% The Group delivered EPS of 30.8 cents and EPS growth of
(EPS) and EPS growth measure of GPT’s 3.0% for 2017. This was consistent with budget but below
targets. performance. the stretch objective set by the Board.
Strategy Strategy objectives Developing, 15% Strategy plans have been developed and updated
focussed on exploring communicating and for each division, approved by the Board, and
growth opportunities implementing GPT’s implementation of plans is on-track.
for GPT group, as well strategy will underpin Acquisition opportunities consistent with strategy
as development and GPT’s medium term were targeted throughout the year but the Group was
implementation of strategy activities. unsuccessful in securing major new opportunities that
plans for each division. met the Group’s return expectations.
Performance Operational objectives Focus on delivery 10% GWSCF performance was a 1 year equity IRR of 12.5%,
focussed on driving of investment and and fund terms were successfully renewed.
performance of the fund performance, GWOF performance was a 1 year equity IRR of 13.4%,
investment portfolio and conversion of the and GPT acquired a further $23.2m worth of units to take
on fund term reviews, development pipeline the Group’s position to 25%.
fund performance, and operational The expansion of the Rouse Hill Town Centre was
key milestones in the efficiency to optimise delayed due to changing retail market conditions and
development pipeline, and GPT’s performance. authority delays have hampered progress on the mixed-
other projects. use opportunities at Sydney Olympic Park and Camellia.
The Darling Park Stage 4 opportunity has been further
advanced. $88.5m of Logistics development projects
were completed at Seven Hills, Huntingwood and Wacol,
with a further $126.5m of projects underway.
The Sunshine Plaza redevelopment is expected to be
completed successfully in the 4th Quarter of 2018. The
Group has also successfully completed the repositioning
of Wollongong Central.
People People objectives centred Maintaining a high 5% Employee engagement has been independently
on increasing employee performing executive assessed and the Group’s sustainable engagement score
engagement, driving our team and achieving increased 3% to 82%.
diversity and inclusion engagement and Gender diversity remained a focus for 2017 with female
agenda, and leadership diversity goals is key representation in senior leadership roles increasing
team performance. to GPT’s performance. to 41.4%.
Aboriginal and Torres Strait Islander representation in
the permanent workforce has remained steady at 1%.
Strategies have been implemented to ensure that GPT
is an inclusive organisation for all including our LGBTI,
Aboriginal and Torres Strait Islander employees.
The Leadership Team and senior cohort completed
Hogan Profiles as part of leadership development
activities to help drive business performance.
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3. 2017 STIC Framework

The CEO objectives are cascaded (in full or in part) to KMP and all STIC participants where applicable. Performance measures and weightings may vary according to areas of responsibility for each STIC participant. Group and segment financial KPI’s and performance KPI’s in relation to occupancy, leasing, progress on developments, investment performance and operational efficiency are included. Performance objectives are then measured to determine performance outcomes and recommended STIC.

For the Group, EPS Growth performance hurdles are set for the year. For 2017, with the Group delivering an EPS Growth outcome of 3.0 per cent, an amount of $13.8 million was derived for the STIC pool, representing 64 per cent of the aggregate of STIC participants’ maximum STIC potential (2016: 69 per cent). The proportion of the available STIC pool for each individual participant is then determined by the performance of the individual and their business unit/team against Group and individual KPI’s.

7 Represents Realised Operating Income (ROI) until 2013.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

Final allocation of the STIC pool for 2017 among the balance of the eligible employees[8] is to occur post the issue of the 2017 Remuneration Report in March 2018. The following table shows the distribution of 2016 STIC outcomes as a percentage of the individuals’ maximum STIC opportunity.

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2016 STIC Received as a % of STIC potential 0–50% 50–60% 60–70% 70–80% 80-–90% 90–100%
Percentage of STIC participants 6.0% 6.9% 31.9% 44.9% 10.3% 0.0%
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4. 2017 STIC outcomes by Executive KMP[9]

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Actual STIC % of maximum Equity component
Actual STIC awarded as a % of STIC award Cash (# of GPT
Executive KMP Position awarded maximum STIC forfeited component securities) [10]
Bob Johnston Chief Executive Officer and $1,142,000 63.67% 36.33% $571,000 119,958
Managing Director
Anastasia Clarke Chief Financial Officer $500,000 66.67% 33.33% $250,000 52,521
Mark Fookes Chief Operating Officer $540,000 65.85% 34.15% $270,000 56,723
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5. Group performance measures for LTI Plans

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LTI
performance Vesting % by
measurement Performance measure performance
LTI period Performance measure hurdle Weighting Results measure
2015 2015–17 Relative TSR versus 50% of rights vest at 51st 50% TSR of 44.34%. 66.58%
comparator group percentile, up to 100% at Relative TSR of 5th out of 11
the 75th percentile (pro rata participants, placing GPT at
vesting in between) the 58.96th percentile.
Total Return 25% of rights vest at 9% 50% Compound TR of 14.05% 100%
Total Return, up to 100%
at 9.75% Total Return (pro-
rata vesting in between)
2016 2016–18 Relative TSR versus 10% of rights vest at Index 50% N/A N/A
ASX200 AREIT performance, up to 100%
Accumulation Index at Index plus 10% (pro rata
(including GPT) vesting in between)
Total Return 0% of rights vest at 8% 50% N/A N/A
Total Return, up to 100% at
9.5% Total Return (pro-rata
vesting in between)
2017 2017–19 Relative TSR versus 10% of rights vest at Index 50% N/A N/A
ASX200 AREIT performance, up to 100%
Accumulation Index at Index plus 10% (pro rata
(including GPT) vesting in between)
Total Return 0% of rights vest at 8.5% 50% N/A N/A
Total Return, up to 100%
at 10.0% Total Return (pro-
rata vesting in between)
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6. 2015-2017 LTI outcomes by Executive KMP

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Executive KMP Performance rights granted Performance rights vested Performance rights lapsed
Bob Johnston 430,476 358,543 71,933
Chief Executive Officer and
Managing Director
Anastasia Clarke 104,981 87,439 17,542
Chief Financial Officer
Mark Fookes 194,747 162,205 32,542
Chief Operating Officer
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8 i.e. excluding the KMP.

9 Excluding the impact of movements in the GPT security price on deferred STIC value received.

10 The number of deferred GPT securities granted are calculated by dividing 50% of the Actual STIC awarded by GPT’s Q4 2016 VWAP of $4.76. The deferred GPT securities will vest subject to service on 31 December 2018.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

7. LTI outcomes – fair value and maximum value recognised in future years[11]

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Fair value per Performance Maximum value
performance rights granted as to be recognised
Executive KMP Year Grant date right at 31 Dec 17 Vesting date in future years
Bob Johnston 2017 22 May 17 $2.66 452,206 31 Dec 19 $955,709
Chief Executive Officer and
2016 16 May 16 $2.96 450,257 31 Dec 18 $903,120
Managing Director
Anastasia Clarke 2017 21 February 17 $2.66 157,563 31 Dec 19 $293,563
Chief Financial Officer
2016 16 May 16 $2.96 139,365 31 Dec 18 $314,439
Mark Fookes 2017 21 February 17 $2.66 172,269 31 Dec 19 $320,962
Chief Operating Officer 2016 16 May 16 $2.96 171,527 31 Dec 18 $387,004
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8. Reported remuneration – Executive KMP – Actual Amounts Received[12]

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Fixed pay Variable or “at risk” [13]
Executive KMP Year Base pay Superannuation Other [14] STIC LTI Total
Bob Johnston 2017 $1,415,168 $19,832 $3,299 $1,195,801 $1,867,471 $4,501,571
Chief Executive Officer and 2016 $1,300,883 $19,462 $5,677 $1,143,136 – $2,469,158
Managing Director
Anastasia Clarke 2017 $730,168 $19,832 $2,480 $523,556 $455,426 $1,731,462
Chief Financial Officer
2016 $630,538 $19,462 $2,334 $481,107 $517,555 $1,650,996
Mark Fookes 2017 $800,168 $19,832 $4,326 $565,442 $844,845 $2,234,613
Chief Operating Officer 2016 $780,538 $19,462 $6,999 $571,233 $979,499 $2,357,731
Total 2017 $2,945,504 $59,496 $10,105 $2,284,799 $3,167,742 $8,467,646
2016 $2,711,959 $58,386 $15,010 $2,195,476 $1,497,054 $6,477,885
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9. Reported remuneration – Executive KMP – AIFRS Accounting[15 ]

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Fixed pay Variable or “at risk”
Grant or
vesting of
STIC non STI or LTI
(cash plus LTI award performance
Executive KMP Year Base pay Superannuation Other accrual) [16] accrual [17] rights [18] Total
Bob Johnston 2017 $1,376,680 $19,832 $3,299 $1,219,543 $1,166,796 - $3,786,150
Chief Executive Officer and
2016 $1,390,757 $19,462 $5,677 $936,837 $694,626 $64,319 $3,111,678
Managing Director
Anastasia Clarke 2017 $775,348 $19,832 $2,480 $569,961 $382,324 - $1,749,945
Chief Financial Officer 2016 $633,714 $19,462 $2,334 $495,523 $290,933 - $1,441,966
Mark Fookes 2017 $840,325 $19,832 $4,326 $669,971 $515,208 - $2,049,662
Chief Operating Officer 2016 $784,411 $19,462 $6,999 $720,099 $481,598 - $2,012,569
Total 2017 $2,992,353 $59,496 $10,105 $2,459,475 $2,064,328 - $7,585,757
2016 $2,808,882 $58,386 $15,010 $2,152,459 $1,467,157 $64,319 $6,566,213
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11 For the avoidance of doubt, the GPT incentive plans (i.e. STIC and LTI) use face value grants of performance rights based on the volume weighted average security price (VWAP) of GPT securities for specified periods; reference to fair value per performance right is included in this table to comply with accounting standards.

12 This table discloses the cash and other benefit amounts actually received by GPT’s executive KMP, as distinct from the accounting expense. As a result, it does not align to Australian Accounting Standards.

13 Gross dollar values for the equity components have been calculated by multiplying the number of securities by GPT’s fourth quarter VWAP for the applicable year; 2017: $5.2085 (2016: $4.76).

14 Other may include death & total/permanent disability insurance premiums, service awards, GPT superannuation plan administration fees, and/or other benefits. 15 This table provides a breakdown of remuneration for executive KMP in accordance with statutory requirements and Australian Accounting Standards.

16 The accrual accounting valuation of the deferred securities in Mr. Johnston’s 2015 STIC are included in the 2016 number as they were approved for issue at the 2016 AGM.

17 This column records the amount of the fair value of performance rights under the various LTI plans expensed in the relevant financial years, and does not represent actual LTI awards made to executives or the face value grant method.

18 Grant or vesting of one-off non STI or LTI performance rights includes an accounting valuation of the sign on package for Mr. Johnston.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

10. GPT security ownership – Executive KMP as at 31 December 2017

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Employee Security Schemes
Sign on
(ESS)
GPT performance Purchase GPT
Holdings rights TOTAL /(Sales) Holdings Gross Value
(start of converting in 2017 2015-17 ESS for during (end of of GPT MSHR
Executive KMP period) [19] 2017 DSTIC LTI 2017 period [20] period) [21] Holdings [22] Guideline [23]
Bob Johnston 330,695 12,569 119,958 358,543 478,501 – 821,765 $4,280,163 $2,152,500
Chief Executive Officer and
Managing Director
Anastasia Clarke 486,402 – 52,521 87,439 139,960 (163,777) 462,585 $2,409,374 $750,000
Chief Financial Officer
Mark Fookes 1,008,431 – 56,723 162,205 218,928 (109,091) 1,118,268 $5,824,499 $820,000
Chief Operating Officer
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11. GPT performance rights – Executive KMP

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Performance rights
Performance rights that lapsed in 2017 [24] Performance rights still on foot at 31/12/17 [25]
Executive KMP (# of rights) (# of rights)
Bob Johnston 140,394 902,463
Chief Executive Officer and
Managing Director
Anastasia Clarke 43,802 296,928
Chief Financial Officer
Mark Fookes 61,953 343,796
Chief Operating Officer
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19 GPT Holdings (start of period) may include GPT securities obtained as sign on grants (Mr Johnston only), DSTIC up to and including 2016, LTI plans up to and including the 2014-16 LTI plan, and private holdings.

20 Movement in GPT security holdings as a result of the sale of vested, unrestricted security holdings and/or the sale or purchase of additional private holdings on the individuals own account during the 2017 calendar year.

21 GPT Holdings (end of period) is the sum of GPT Holdings (start of the period) plus DSTIC and LTI securities obtained under ESS and adjusted for any purchases or sales during the period.

22 The GPT Holdings (end of period) multiplied by GPT’s fourth quarter 2017 VWAP of $5.2085 to derive a dollar value.

23 GPT’s MSHR guideline requires the CEO to acquire and maintain a holding equal to 150% of base salary. For Leadership Team members the holding requirement is equal to 100% of base salary. Individuals have four years from commencement of employment to achieve the MSHR before it is assessed for the first time.

24 The sum of performance rights that were awarded to a participant in the 2015 LTI that did not vest at the end of the 2015-2017 performance period, and as a result, lapsed and/or performance rights granted under the 2017 DSTIC that also lapsed.

25 The total of unvested performance rights currently on foot excluding any GPT securities or performance rights that may have lapsed up to 31 December 2017. This represents the current maximum number of additional GPT securities to which the individual may become entitled subject to satisfying the applicable performance measures in the 2016-18 and 2017-19 LTI plans on foot; as such, these performance rights represent the incentive opportunity over multiple future years, are subject to performance and hence “at risk”, and as a result may never vest.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

Remuneration – Non-Executive Directors

What are the key elements	•The Board determines the remuneration structure for Non-Executive Directors based on
of the Non-Executive	recommendations from the Committee.
Director Remuneration Policy?	•Non-Executive Directors are paid one fee for participation as a Director in all GPT related companies (principally GPT RE Limited, the Responsible Entity of General Property Trust and GPT Management
	Holdings Limited).
	•Non-Executive Director remuneration is composed of three main elements:
	– Main Board fees
	– Committee fees
	– Superannuation contributions at the statutory superannuation guarantee contribution rate.
	•Non-Executive Directors do not participate in any short or long term incentive arrangements and are not
	entitled to any retirement benefits other than compulsory superannuation.
	•Non-Executive Director remuneration is set by reference to comparable entities listed on the ASX (based
	on GPT’s industry sector and market capitalisation).
	•External independent advice on remuneration levels for Non-Executive Directors is sought on an annual
	basis. In the event that a review is conducted, the new Board and Committee fees are effective from the 1st
	of January in the applicable year and advised in the ensuing Remuneration Report.
	•Fees (including superannuation) paid to Non-Executive Directors are subject to an aggregate limit of
	$1,800,000 per annum, which was approved by GPT security holders at the Annual General Meeting on 5
	May 2015. As an executive director, Mr Johnston does not receive fees from this pool as he is remunerated
	as one of GPT’s senior executives.

1. Board and committee fees[26,27]

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Nomination and
Sustainability and Remuneration
Year Board Base Fee Audit Committee Risk Committee Committee
Chairman 2017 $380,000 $36,000 $30,000 $30,000
2016 $362,500 $36,000 $30,000 $30,000
Members 2017 $148,000 $18,000 $15,000 $15,000
2016 $145,000 $18,000 $15,000 $15,000
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2. Reported remuneration – Non-Executive Directors – AIFRS accounting[28,29]

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Fixed pay
Non-Executive Director
– Current Year Salary and fees Superannuation Other [30] Total
Rob Ferguson 2017 $380,000 $19,832 – $399,832
Chairman 2016 $362,500 $19,462 – $381,962
Brendan Crotty 2017 $181,000 $17,195 – $198,195
2016 $181,333 $17,227 – $198,560
Eileen Doyle 2017 $203,500 $19,333 – $222,833
2016 $190,000 $18,050 – $208,050
Swe Guan Lim 2017 $181,000 $17,195 $287 $198,482
2016 $178,000 $16,910 $615 $195,525
Michelle Somerville 2017 $192,750 $18,311 - $211,061
2016 $174,723 $16,599 - $191,322
Gene Tilbrook 2017 $178,000 $16,910 $380 $195,290
2016 $175,000 $16,625 $767 $192,392
Non-Executive Director – Former
Anne McDonald [31] 2017 – – – –
2016 $62,422 $5,930 $641 $68,993
Total 2017 $1,316,250 $108,776 $667 $1,425,693
2016 $1,323,978 $110,803 $2,023 $1,436,804
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26 ‘Chairman’ used in this sense may refer to the chairperson of the board or a particular committee.

27 In addition to the fees noted in the table, all non-executive directors receive reimbursement for reasonable travel, accommodation and other expenses incurred while undertaking GPT business.

28 This table provides a breakdown of remuneration for Non-Executive Directors in accordance with statutory requirements and Australian Accounting Standards. 29 No termination benefits were paid during the financial year.

30 Other may include death & total/permanent disability insurance premiums and/or GPT superannuation plan administration fees.

31 Ms. McDonald retired from the GPT Board on 4 May 2016.

Annual Financial Report of The GPT Group

Directors’ Report – Year ended 31 December 2017

3. Non-Executive Director – GPT securityholdings

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Private holdings (# of securities) Minimum securityholding requirement (MSHR)
Non-Executive Director Balance 31/12/16 Purchase/(Sale) Balance 31/12/17 Gross value [32] MSHR guideline [33]
–
Rob Ferguson 207,628 207,628 $1,081,430 $380,000
–
Brendan Crotty 67,092 67,092 $349,449 $148,000
–
Eileen Doyle 45,462 45,462 $236,789 $148,000
Swe Guan Lim – 15,800 15,800 $82,294 $148,000
Michelle Somerville 2,912 13,245 16,157 $84,154 $148,000
Gene Tilbrook 48,546 – 48,546 $252,852 $148,000
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32 Non-Executive Directors holdings multiplied by GPT’s fourth quarter 2017 VWAP of $5.2085 to derive a dollar value.

33 The MSHR for Non-Executive Directors is equal to 100% of base fees. Individuals have four years from commencement of employment to achieve the MSHR before it is assessed for the first time.

The Directors’ Report, including the Remuneration Report, is signed in accordance with a resolution of the Directors of the GPT Group.

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Rob Ferguson Chairman

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Bob Johnston Chief Executive Officer and Managing Director

Sydney 13 February 2018

Annual Financial Report of The GPT Group

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

Annual Financial Report of The GPT Group

Financial Statements

Consolidated Statement of Comprehensive Income Year ended 31 December 2017

Note	31 Dec 17 $M 31 Dec 16 $M
Revenue Rent from investment properties Property and fund management fees Development revenue Development management fees Other income Fair value gain on investment properties Share of after tax profit of equity accounted investments Interest revenue Dividend income Derecognition of available for sale financial asset Net profit on disposal of assets Gain on financial liability at amortised cost Reversal of prior period impairment expense Total revenue and other income Expenses Property expenses and outgoings Management and other administration costs Development costs Depreciation expense Amortisation expense Impairment expense Finance costs Net loss on fair value movements of derivatives Net impact of foreign currency borrowings and associated hedging loss/(gain) Net foreign exchange loss Total expenses Profit before income tax expense Income tax expense 9(a) Profit after income tax expense Profit from discontinued operations Net profit for the year Other comprehensive income Items that may be reclassified to profit or loss, net of tax Changes in the fair value of cash flow hedges 10(b) Revaluation of available for sale financial asset 10(b) Net foreign exchange translation adjustments 10(b) Total other comprehensive income Total comprehensive income for the year Total comprehensive income for the year from continuing operations Total comprehensive income for the year from discontinued operations Net profit attributable to: – Securityholders of the Trust – Securityholders of other entities stapled to the Trust Total comprehensive income attributable to: – Securityholders of the Trust – Securityholders of other entities stapled to the Trust Basic earnings per unit attributable to ordinary securityholders of the Trust Earnings per unit (cents per unit) – profit from continuing operations 11(a) Basic earnings per stapled security attributable to ordinary stapled securityholders of the GPT Group Earnings per stapled security (cents per stapled security) – profit from continuing operations 11(b)	610.6 584.1 70.2 96.7 15.0 22.4 10.8 2.0
	706.6 705.2
	481.0 418.1 443.9 375.4 1.3 2.6 – 30.4 10.7 – – 12.8 2.2 1.6 – 0.4
	939.1 841.3
	1,645.7 1,546.5
	158.3 157.3 71.7 69.1 14.4 13.1 1.7 1.9 6.0 5.4 5.4 6.0 103.7 102.6 5.7 26.6 0.2 (2.2) – 0.1
	367.1 379.9
	1,278.6 1,166.6
	10.3 22.4
	1,268.3 1,144.2 0.8 8.5
	1,269.1 1,152.7
	(9.4) 14.5 (7.1) (1.5) – (0.8)
	(16.5) 12.2
	1,252.6 1,164.9
	1,251.8 1,157.2 0.8 7.7 1,249.3 1,048.8 19.8 103.9 1,239.9 1,061.5 12.7 103.4 69.3 57.9 70.4 63.7

The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

Annual Financial Report of The GPT Group

Consolidated Statement of Financial Position

As at 31 December 2017

Note	31 Dec 17 $M 31 Dec 16 $M
ASSETS Current assets Cash and cash equivalents Loans and receivables 4 Inventories 6 Derivative assets 14(a) Prepayments Other assets Total current assets Non-current assets Investment properties 2 Equity accounted investments 3 Intangible assets 5 Inventories 6 Property, plant and equipment Derivative assets 14(a) Deferred tax assets 9 Other assets Total non-current assets Total assets LIABILITIES Current liabilities Payables 7 Current tax liabilities 9 Borrowings 13 Derivative liabilities 14(a) Provisions 8 Total current liabilities Non-current liabilities Borrowings 13 Derivative liabilities 14(a) Provisions 8 Total non-current liabilities Total liabilities Net assets EQUITY Securityholders of the Trust (parent entity) Contributed equity 10(a) Reserves 10(b) Retained earnings 10(c) Total equity of Trust securityholders Securityholders of other entities stapled to the Trust Contributed equity 10(a) Reserves 10(b) Accumulated losses 10(c) Total equity of other stapled securityholders Total equity	49.9 56.3 118.9 149.2 11.8 4.5 3.4 – 7.0 4.7 – 9.3
	191.0 224.0
	8,745.7 7,944.9 3,562.9 3,120.2 30.9 35.3 140.4 131.4 9.9 13.5 257.7 337.2 16.9 7.5 3.0 3.9
	12,767.4 11,593.9
	12,958.4 11,817.9
	374.9 378.3 8.6 – 19.9 48.8 9.1 – 37.9 30.5
	450.4 457.6
	3,280.7 2,947.8 118.0 128.5 2.3 1.8
	3,401.0 3,078.1
	3,851.4 3,535.7
	9,107.0 8,282.2
	7,814.8 7,804.3 (40.6) (31.2) 1,829.5 1,022.8
	9,603.7 8,795.9
	325.7 325.5 57.0 59.5 (879.4) (898.7)
	(496.7) (513.7)
	9,107.0 8,282.2

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

Note	General Property Trust Other entities stapled to the General Property Trust
	Contributed equity $M Reserves $M Retained earnings $M Total $M Contributed equity $M Reserves $M Accumulated losses $M Total $M Total equity $M
Equity attributable to Securityholders At 1 January 2016 Revaluation of available for sale financial asset net of tax 10(b) Foreign currency translation reserve 10(b) Cash flow hedge reserve 10(b) Other comprehensive income for the year Profit for the year Total comprehensive income for the year Transactions with Securityholders in their capacity as Securityholders Issue of stapled securities 10(a) Reclassification of redemption deficit of exchangeable securities to retained earnings 10(a) Movement in employee incentive scheme reserve net of tax 10(b) Reclassification of employee incentive security scheme reserve to retained earnings/accumulated losses 10(c) Distributions paid and payable 12 At 31 December 2016 Equity attributable to Securityholders At 1 January 2017 Movement in available for sale reserve net of tax 10(b) Cash flow hedge reserve 10(b) Other comprehensive income for the year Profit for the year Total comprehensive income for the year Transactions with Securityholders in their capacity as Securityholders Issue of stapled securities 10(a) Movement in employee incentive scheme reserve net of tax 10(b) Reclassification of employee incentive security scheme reserve to retained earnings/accumulated losses 10(c) Distributions paid and payable 12 At 31 December 2017	7,709.4 (43.9) 477.8 8,143.3 325.3 59.1 (1,002.6) (618.2) 7,525.1
	– – – – – (1.5) – (1.5) (1.5) – (1.8) – (1.8) – 1.0 – 1.0 (0.8) – 14.5 – 14.5 – – – – 14.5
	– 12.7 – 12.7 – (0.5) – (0.5) 12.2 – – 1,048.8 1,048.8 – – 103.9 103.9 1,152.7
	– 12.7 1,048.8 1,061.5 – (0.5) 103.9 103.4 1,164.9
	10.4 – – 10.4 0.2 – – 0.2 10.6 84.5 – (84.5) – – – – – – – – – – – 0.9 – 0.9 0.9 – – 1.4 1.4 – – – – 1.4 – – (420.7) (420.7) – – – – (420.7)
	7,804.3 (31.2) 1,022.8 8,795.9 325.5 59.5 (898.7) (513.7) 8,282.2
	7,804.3 (31.2) 1,022.8 8,795.9 325.5 59.5 (898.7) (513.7) 8,282.2
	– – – – – (7.1) – (7.1) (7.1) – (9.4) – (9.4) – – – – (9.4)
	– (9.4) – (9.4) – (7.1) – (7.1) (16.5) – – 1,249.3 1,249.3 – – 19.8 19.8 1,269.1
	– (9.4) 1,249.3 1,239.9 – (7.1) 19.8 12.7 1,252.6
	10.5 – – 10.5 0.2 – – 0.2 10.7 – – – – – 4.6 – 4.6 4.6 – – 0.6 0.6 – – (0.5) (0.5) 0.1 – – (443.2) (443.2) – – – – (443.2)
	7,814.8 (40.6) 1,829.5 9,603.7 325.7 57.0 (879.4) (496.7) 9,107.0

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

Annual Financial Report of The GPT Group

Consolidated Statement of Cash Flows

Year ended 31 December 2017

Note	31 Dec 17 $M 31 Dec 16 $M
Cash flows from operating activities Receipts in the course of operations (inclusive of GST) Payments in the course of operations (inclusive of GST) Proceeds from sale of inventories Payment for inventories Distributions received from equity accounted investments Dividend received from available for sale investment Interest received Income taxes paid Finance costs paid Net cash inflows from operating activities 15 Cash flows from investing activities Acquisition of investment properties Payments for operating capital expenditure on investment properties Payments for development capital expenditure on investment properties Proceeds from disposal of assets Payments for property, plant and equipment Payments for intangibles Investment in equity accounted investments Capital return from available for sale financial asset Proceeds from disposal of equity accounted investments Proceeds from loan repayments Loans advanced Net cash outflows from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Payment for termination of derivatives Purchase of securities for the employee incentive scheme Distributions paid to securityholders Net cash outflows from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year	733.8 769.2 (267.3) (273.7) 7.6 12.6 (25.1) (16.1) 171.7 119.1 30.4 – 1.3 23.7 (6.9) – (110.0) (108.6)
	535.5 526.2
	(33.0) (70.4) (84.1) (82.9) (205.3) (124.6) 5.5 283.0 (1.1) (0.7) (4.8) (4.8) (158.3) (384.0) 10.7 – – 48.2 – 156.7 – (1.6)
	(470.4) (181.1)
	1,434.1 2,464.7 (1,066.9) (2,407.0) (3.1) (1.5) – (1.2) (435.6) (413.1)
	(71.5) (358.1)
	(6.4) (13.0) 56.3 69.3
	49.9 56.3

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

Annual Financial Report of The GPT Group

Notes to the Financial Statements Year ended 31 December 2017

These are the consolidated financial statements of the consolidated entity, GPT Group (GPT), which consists of General Property Trust (the Trust), GPT Management Holdings Limited (the Company) and their controlled entities.

The notes to these financial statements have been organised into sections to help users find and understand the information they need to know. Additional information has also been provided where it is helpful to understand GPT’s performance.

The notes to the financial statements are organised into the following sections:

Note 1 – Result for the year: focuses on results and performance of GPT.

Notes 2 to 9 – Operating assets and liabilities: provides information on the assets and liabilities used to generate GPT’s trading performance.

Notes 10 to 14 – Capital structure: outlines how GPT manages its capital structure and various financial risks.

Notes 15 to 24 – Other disclosure items: provides information on other items that must be disclosed to comply with Australian Accounting Standards and other regulatory pronouncements.

Key judgements, estimates and assumptions

In applying GPT’s accounting policies, management has made a number of judgements, estimates and assumptions regarding future events.

The following judgements and estimates have the potential to have a material impact on the financial statements:

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Area of judgements and
estimates Assumptions underlying Note
Management rights with Impairment trigger and 5
indefinite life recoverable amounts
IT development and software Impairment trigger and 5
recoverable amounts
Inventories Lower of cost and net 6
realisable value
Deferred tax assets Recoverability 9
Security based payments Fair value 18
Investment properties Fair value 22
Derivatives Fair value 22
Investment in equity Assessment of control 23(b)
accounted investments versus disclosure
guidance
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Result for the year

1. Segment information

GPT’s operating segments are described in the table below. The chief operating decision makers monitor the performance of the business on the basis of Funds from Operations (FFO) for each segment. FFO represents GPT’s underlying and recurring earnings from its operations, and is determined by adjusting the statutory net profit after tax for items which are non-cash, unrealised or capital in nature. FFO has been determined in accordance with guidelines issued by the Property Council of Australia.

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Types of products and services which generate
Segment the segment result
Retail Ownership, development (including mixed use)
and management of predominantly regional and
sub-regional shopping centres as well as GPT’s
equity investment in GPT Wholesale Shopping
Centre Fund.
Office Ownership, development (including mixed use)
and management of prime CBD office properties
with some associated retail space as well as GPT’s
equity investment in GPT Wholesale Office Fund.
Logistics Ownership, development (including mixed use)
and management of logistics and business park
assets as well as GPT’s equity investment in GPT
Metro Office Fund until GPT divested its interest on
1 July 2016.
Funds Management of two Australian wholesale
Management property funds in the retail and office sectors. And
management of one Australian listed property
fund in the metropolitan office and business park
sector until 30 September 2016.
Corporate Cash and other assets and borrowings and
associated hedges plus resulting net finance
costs, management operating costs and income
tax expense.
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Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

(a) Segment financial information

31 December 2017

The segment financial information provided to the chief operating decision maker for the year ended 31 December 2017 is set out below.

Financial performance by segment

Financial performance by segment
Note	Retail $M Office $M Logistics $M Funds Management $M Corporate $M Total Core $M Non-Core $M Total $M
Rent from investment properties b(ii) Property expenses and outgoings b(iii) Income from Funds b(iv) Fee income Management & administrative expenses b(v) Operations Net Income Development fees Development revenue b(vi) Development costs Development management expenses b(v) Development Net Income Interest income Finance costs Net Finance Costs Segment Result Before Tax Income tax expense b(vii) Funds from Operations (FFO) b(i)	360.1 239.2 112.5 – – 711.8 – 711.8 (98.8) (57.6) (17.4) – – (173.8) – (173.8) 46.5 68.8 – – – 115.3 – 115.3 15.0 4.4 0.1 50.7 – 70.2 – 70.2 (9.7) (7.0) (1.9) (13.7) (30.6) (62.9) – (62.9)
	313.1 247.8 93.3 37.0 (30.6) 660.6 – 660.6
	9.0 1.6 0.2 – – 10.8 – 10.8 10.8 – 10.4 – – 21.2 – 21.2 (5.2) – (9.2) – – (14.4) – (14.4) (9.3) (0.5) (0.7) – – (10.5) – (10.5)
	5.3 1.1 0.7 – – 7.1 – 7.1
	– – – – 1.3 1.3 – 1.3 – – – – (103.7) (103.7) – (103.7)
	– – – – (102.4) (102.4) – (102.4)
	318.4 248.9 94.0 37.0 (133.0) 565.3 – 565.3 – – – – (11.1) (11.1) – (11.1)
	318.4 248.9 94.0 37.0 (144.1) 554.2 – 554.2

Reconciliation of segment assets and liabilities to the Consolidated Statement of Financial Position

Current assets Current assets Total current assets Non-current assets Investment properties Equity accounted investments Inventories Other non-current assets Total non-current assets Total assets Current and non-current liabilities Total liabilities Net assets	– – 11.8 – 179.2 191.0 – 191.0
	– – 11.8 – 179.2 191.0 – 191.0
	4,818.7 2,379.4 1,547.6 – – 8,745.7 – 8,745.7 1,047.1 2,505.8 – – 10.0 3,562.9 – 3,562.9 62.4 – 78.0 – – 140.4 – 140.4 10.2 0.3 1.9 – 306.0 318.4 – 318.4
	5,938.4 4,885.5 1,627.5 – 316.0 12,767.4 – 12,767.4
	5,938.4 4,885.5 1,639.3 – 495.2 12,958.4 – 12,958.4
	– – – – 3,851.4 3,851.4 – 3,851.4
	– – – – 3,851.4 3,851.4 – 3,851.4
	5,938.4 4,885.5 1,639.3 – (3,356.2) 9,107.0 – 9,107.0

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

31 December 2016

The segment financial information provided to the chief operating decision maker for the year ended 31 December 2016 is set out below.

Financial performance by segment

Note	Retail $M Office $M Logistics $M Funds Management $M Corporate $M Total Core $M Non-Core $M Total $M
Rent from investment properties b(ii) Property expenses and outgoings b(iii) Income from Funds b(iv) Fee income Performance Fee income Management & administrative expenses b(v) Operations Net Income Development fees Development revenue b(vi) Development costs Share of profit from associate b(iv) Development management expenses b(v) Development Net Income Interest income Finance costs Net Finance Costs Segment Result Before Tax Income tax expense b(vii) Funds from Operations (FFO) b(i)	348.9 220.4 109.1 – – 678.4 – 678.4 (102.2) (52.6) (16.0) – – (170.8) – (170.8) 38.7 59.4 1.4 – – 99.5 – 99.5 14.6 5.7 0.8 47.5 – 68.6 – 68.6 – – – 28.1 – 28.1 – 28.1 (11.7) (9.0) (2.6) (14.6) (29.8) (67.7) – (67.7)
	288.3 223.9 92.7 61.0 (29.8) 636.1 – 636.1
	0.3 1.6 0.1 – – 2.0 – 2.0 8.1 – 15.8 – – 23.9 – 23.9 (2.3) – (10.8) – – (13.1) – (13.1) – – 0.1 – – 0.1 – 0.1 (0.3) (0.5) (2.5) – – (3.3) – (3.3)
	5.8 1.1 2.7 – – 9.6 – 9.6
	– – – – 2.6 2.6 5.3 7.9 – – – – (102.6) (102.6) – (102.6)
	– – – – (100.0) (100.0) 5.3 (94.7)
	294.1 225.0 95.4 61.0 (129.8) 545.7 5.3 551.0 – – – – (14.0) (14.0) – (14.0)
	294.1 225.0 95.4 61.0 (143.8) 531.7 5.3 537.0

Reconciliation of segment assets and liabilities to the Consolidated Statement of Financial Position

Current assets Current assets Total current assets Non-current assets Investment properties Equity accounted investments Inventories Other non-current assets Total non-current assets Total assets Current and non-current liabilities Total liabilities Net assets	– – 4.5 – 179.8 184.3 39.7 224.0
	– – 4.5 – 179.8 184.3 39.7 224.0
	4,468.6 2,071.5 1,404.8 – – 7,944.9 – 7,944.9 855.0 2,255.2 – – 10.0 3,120.2 – 3,120.2 57.4 – 74.0 – – 131.4 – 131.4 10.4 1.2 2.1 – 383.7 397.4 – 397.4
	5,391.4 4,327.9 1,480.9 – 393.7 11,593.9 – 11,593.9
	5,391.4 4,327.9 1,485.4 – 573.5 11,778.2 39.7 11,817.9
	– – – – 3,535.7 3,535.7 – 3,535.7
	– – – – 3,535.7 3,535.7 – 3,535.7
	5,391.4 4,327.9 1,485.4 – (2,962.2) 8,242.5 39.7 8,282.2

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

(b) Reconciliation of segment result to the Consolidated Statement of Comprehensive Income

	31 Dec 17 $M 31 Dec 16 $M
(i) FFO to Net profit for the year Segment result FFO Adjustments Fair value gain on investment properties Fair value gain and other adjustments to equity accounted investments Amortisation of lease incentives and costs Straightlining of leases Valuation increase Net loss on fair value movement of derivatives Net impact of foreign currency borrowings and associated hedging loss Net foreign exchange loss Gain on financial liability at amortised cost Financial instruments mark to market and net foreign exchange loss Dividend income Net gain on disposal of assets Impairment expense Other items Total other items Consolidated Statement of Comprehensive Income Net profit for the year (ii) Rent from investment properties Segment result Rent from investment properties Less: share of rent from investment properties in equity accounted investments Adjustments Amortisation of lease incentives and costs Straightlining of leases Consolidated Statement of Comprehensive Income Rent from investment properties (iii) Property expenses and outgoings Segment result Property expenses and outgoings Less: share of property expenses and outgoings in equity accounted investments Consolidated Statement of Comprehensive Income Property expenses and outgoings (iv) Share of after tax profit of equity accounted investments Segment result Income from Funds Share of rent from investment properties in equity accounted investments Share of property expenses and outgoings in equity accounted investments Share of profit from associate Development revenue Adjustment Fair value gain and other adjustments to equity accounted investments Consolidated Statement of Comprehensive Income Share of after tax profit of equity accounted investments	554.2 537.0 481.0 418.1 263.9 223.0 (38.9) (43.1) 11.7 13.6
	717.7 611.6 (5.7) (26.6) (0.2) 2.2 0.8 (0.2) 2.2 1.6
	(2.9) (23.0) – 30.4 10.7 15.9 (5.4) 0.6 (5.2) (19.8)
	0.1 27.1
	1,269.1 1,152.7
	711.8 678.4 (74.0) (64.8) (38.9) (43.1) 11.7 13.6
	610.6 584.1
	(173.8) (170.8) 15.5 13.5
	(158.3) (157.3)
	115.3 99.5 74.0 64.8 (15.5) (13.5) – 0.1 6.2 1.5 263.9 223.0
	443.9 375.4

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

	31 Dec 17 $M 31 Dec 16 $M
(v) Management and administration expenses Segment result Operations Development Less: depreciation expense Consolidated Statement of Comprehensive Income Management and administration expenses (vi) Development revenue Segment result Development revenue Share of after tax profit of equity accounted investments Consolidated Statement of Comprehensive Income Development revenue (vii) Income tax expense Segment result Income tax expense Adjustment Tax impact of reconciling items from segment result to net profit for the year Consolidated Statement of Comprehensive Income Income tax expense	(62.9) (67.7) (10.5) (3.3) 1.7 1.9
	(71.7) (69.1)
	21.2 23.9 (6.2) (1.5)
	15.0 22.4
	(11.1) (14.0) 0.8 (8.4)
	(10.3) (22.4)

(c) Net profit on disposal and derecognition of assets

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Non-core 31 Dec 17 31 Dec 16
$M $M $M
Details of disposals/capital returns during the year:
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Details of disposals/capital returns during the year:
Cash consideration Less: transaction costs Net consideration Carrying amount of net assets sold/derecognised Foreign exchange gain realised on disposal/derecognition Transfer from reserves Profit on sale and derecognition before income tax The carrying amounts of assets and liabilities as at the date of disposal/derecognition were: Investment properties Equity accounted investments Other assets Other liabilities Net assets	10.7 10.7 336.0 – – (4.2)
	10.7 10.7 331.8 (10.7) (10.7) (316.7) – – 0.8 10.7 10.7 –
	10.7 10.7 15.9
	– – 270.5 – – 39.2 10.7 10.7 8.3 – – (1.3)
	10.7 10.7 316.7

Revenue

Rental revenue from investment properties is recognised on a straightline basis over the lease term. An asset is also recognised as a component of investment properties relating to fixed increases in operating lease rentals in future periods. When GPT provides lease incentives to tenants, any costs are recognised on a straightline basis over the lease term. Contingent rental income is recognised as revenue in the period in which it is earned.

Property, development and fund management fee revenue is recognised on an accruals basis, in accordance with the terms of the relevant contracts.

Development revenue is recognised as and when GPT is entitled to the benefits.

Revenue from dividends and distributions is recognised when they are declared.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

Interest income is recognised on an accruals basis using the effective interest method.

Profit or loss on disposal of an asset is recognised as the difference between the carrying amount and the net proceeds from disposal. Where revenue is obtained from the sale of properties or assets, it is recognised when the significant risks and rewards have transferred to the buyer.

Expenses

Property expenses and outgoings which include rates, taxes and other property outgoings, are recognised on an accruals basis.

Finance costs

Finance costs include interest, amortisation of discounts or premiums relating to borrowings and amortisation of ancillary costs incurred in connection with the arrangement of borrowings. Finance costs are expensed as incurred unless they relate to a qualifying asset.

A qualifying asset is an asset under development which generally takes a substantial period of time to bring to its intended use or sale. Finance costs incurred for the acquisition and construction of a qualifying asset are capitalised to the cost of the asset for the period of time that is required to complete the asset. Where funds are borrowed specifically for a development project, finance costs associated with the development facility are capitalised. Where funds are used from group borrowings, finance costs are capitalised using an appropriate capitalisation rate.

Operating assets and liabilities

2. Investment properties

Note	31 Dec 17 $M 31 Dec 16 $M
Retail (a) Office (b) Logistics (c) Properties under development (d) Total investment properties (e) Ownership interest5 % Acquisition date Latest independent valuation date Valuer	4,818.7 4,468.6 2,306.8 2,068.1 1,498.6 1,317.3 121.6 90.9
	8,745.7 7,944.9
	Fair value 31 Dec 17 $M Fair value 31 Dec 16 $M
(a) Retail Casuarina Square, NT 50.0 Oct 1973 Sep 2017 CB Richard Ellis Pty Ltd Charlestown Square, NSW 100.0 Dec 1977 Jun 2017 M3 Property Pacific Highway, Charlestown, NSW 100.0 Oct 2002/Jul 2003 Jun 2017 M3 Property Highpoint Shopping Centre, VIC 16.7 Aug 2009 Sep 2017 Savills Australia Homemaker City, Maribyrnong, VIC 16.7 Aug 2009 Sep 2017 Savills Australia Westfield Penrith, NSW 50.0 Jun 1971 Jun 2017 Knight Frank Valuations Sunshine Plaza, QLD **50.0 Dec 1992/Sep 2004 Dec 2017 M3 Property Plaza Parade, QLD 50.0 Jun 1999 Dec 2017 M3 Property Rouse Hill Town Centre, NSW 100.0 Dec 2005 Dec 2017 M3 Property Melbourne Central, VIC – retail portion1 100.0 May 1999/May 2001 Dec 2017 CB Richard Ellis Pty Ltd	322.6 313.0 924.8 885.5 6.6 7.1 434.2 373.4 11.7 9.8 669.5 636.2 449.3 380.5 10.0 10.3 606.8 578.8 1,383.2 1,274.0
Total Retail	4,818.7 4,468.6
(b) Office Australia Square, Sydney, NSW 50.0 Sep 1981 Jun 2017 Colliers International MLC Centre, Sydney, NSW 50.0 Apr 1987 Jun 2017 Knight Frank Valuations One One One Eagle Street, Brisbane, QLD 33.3 Apr 1984 Dec 2017 CB Richard Ellis Pty Ltd Melbourne Central, VIC – office portion1 100.0 May 1999/May 2001 Jun 2017 Jones Lang LaSalle Corner of Bourke and William, VIC 50.0 Oct 2014 Dec 2017 Jones Lang LaSalle	444.2 402.6 662.2 531.5 293.7 284.2 546.7 513.5 360.0 336.3
Total Office	2,306.8 2,068.1

1 Melbourne Central: 71.7% Retail and 28.3% Office (31 Dec 2016: 71.3% Retail and 28.7% Office). Melbourne Central – Retail Includes 100% of Melbourne Central car park and 100% of 202 Little Lonsdale Street.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

				Latest
	Ownership			independent		Fair value	Fair value
		interest5	Acquisition	valuation		31 Dec 17	31 Dec 16
		%	date	date	Valuer	$M	$M
(c) Logistics
Citi-West Industrial Estate, Altona North, VIC		100.0	Aug 1994	Dec 2017	CB Richard Ellis Pty Ltd	81.6	70.6
Quad 1, Sydney Olympic Park, NSW		*100.0	Jun 2001	Jun 2017	M3 Property	24.0	23.4
Quad 4, Sydney Olympic Park, NSW		*100.0	Jun 2004	Jun 2017	M3 Property	51.5	49.3
6 Herb Elliott Avenue, Sydney Olympic Park, NSW		*100.0	Jun 2010	Jun 2017	Knight Frank Valuations	12.0	11.1
8 Herb Elliott Avenue, Sydney Olympic Park, NSW		*100.0	Aug 2004	Jun 2017	Knight Frank Valuations	11.7	11.3
3 Figtree Drive, Sydney Olympic Park, NSW		*100.0	Apr 2013	Jun 2017	Knight Frank Valuations	24.5	24.0
5 Figtree Drive, Sydney Olympic Park, NSW		*100.0	Jul 2005	Jun 2017	Knight Frank Valuations	26.7	26.5
7 Figtree Drive, Sydney Olympic Park, NSW		*100.0	Jul 2004	Jun 2017	Knight Frank Valuations	15.3	15.0
Rosehill Business Park, Camellia, NSW		100.0	May 1998	Dec 2017	CB Richard Ellis Pty Ltd	81.4	79.4
16–34 Templar Road, Erskine Park, NSW		100.0	Jun 2008	Dec 2017	Colliers International	58.3	54.5
67–75 Templar Road, Erskine Park, NSW		100.0	Jun 2008	Dec 2017	Savills Australia	24.2	23.5
Austrak Business Park, Somerton, VIC		50.0	Oct 2003	Dec 2017	Jones Lang LaSalle	170.5	165.4
4 Holker Street, Newington, NSW		100.0	Mar 2006	Dec 2017	CB Richard Ellis Pty Ltd	33.0	29.0
372–374 Victoria Street, Wetherill Park, NSW		100.0	Jul 2006	Dec 2017	CB Richard Ellis Pty Ltd	24.8	21.8
18–24 Abbott Road, Seven Hills, NSW2		100.0	Oct 2006	Jun 2017	CB Richard Ellis Pty Ltd	34.6	–
Citiport Business Park, Port Melbourne, VIC		100.0	Mar 2012	Jun 2017	Savills Australia	75.8	71.0
83 Derby Street, Silverwater, NSW		100.0	Aug 2012	Dec 2017	Jones Lang LaSalle	34.8	31.8
10 Interchange Drive, Eastern Creek, NSW		100.0	Aug 2012	Dec 2017	Jones Lang LaSalle	33.2	32.0
407 Pembroke Road, Minto, NSW		50.0	Oct 2008	Jun 2017	Jones Lang LaSalle	25.5	26.5
Corner Pine Road and Loftus Road, Yennora, NSW		100.0	Nov 2013	Jun 2017	M3 Property	52.9	52.2
16-28 Quarry Road, Yatala, QLD		100.0	Nov 2013	Dec 2017	CB Richard Ellis Pty Ltd	44.3	43.2
Toll NQX, Karawatha, QLD		100.0	Dec 2012	Jun 2017	CB Richard Ellis Pty Ltd	108.0	102.5
TNT, 29–55 Lockwood Road, Erskine Park, NSW		100.0	Jun 2008	Jun 2017	Savills Australia	98.1	85.5
RAND, 36–52 Templar Road, Erskine Park, NSW		100.0	Jun 2008	Jun 2017	Jones Lang LaSalle	98.3	97.0
RRM, 54–70 Templar Road, Erskine Park, NSW		100.0	Jun 2008	Jun 2017	M3 Property	145.0	138.0
1 Huntingwood Drive, Huntingwood, NSW		100.0	Oct 2016	Jun 2017	CB Richard Ellis Pty Ltd	50.9	32.8
Loscam Metroplex, Wacol, QLD2		100.0	Dec 2016	Jun 2017	Jones Lang LaSalle	15.0	–
Lot 2012 Eastern Creek Drive, Eastern Creek, NSW2		100.0	Apr 2016	Dec 2017	CB Richard Ellis Pty Ltd	42.7	–
Total Logistics						1,498.6	1,317.3
(d) Property under Development
Erskine Park, NSW3		100.0	Jun 2008	Jun 2015	CB Richard Ellis Pty Ltd	–	5.5
407 Pembroke Rd, Minto, NSW		50.0	Oct 2008	Jun 2016	M3 Property	5.6	5.5
Austrak Business Park, Somerton, VIC		50.0	Oct 2003	Dec 2017	Jones Lang LaSalle	21.7	19.4
18–24 Abbott Road, Seven Hills, NSW2		100.0	Oct 2006	Jun 2017	CB Richard Ellis Pty Ltd	–	14.7
4 Murray Rose Drive, Sydney Olympic Park, NSW		*100.0	May 2002	Dec 2017	CB Richard Ellis Pty Ltd	33.0	3.4
Lot 2012 Eastern Creek Drive, Eastern Creek, NSW2		100.0	Apr 2016	Dec 2017	CB Richard Ellis Pty Ltd	–	18.9
Lot 21 Old Wallgrove Road, Eastern Creek, NSW		100.0	Jun 2016	-	-	21.7	17.1
Loscam Metroplex, Wacol, QLD2		100.0	Dec 2016	Jun 2017	Jones Lang LaSalle	–	6.4
32 Smith, Parramatta, NSW4		100.0	Mar 2017	-	-	39.6	–
Total Properties under development						121.6	90.9

2 Following practical completion in April, May and October 2017 respectively, 18-24 Abbott Road, Seven Hills, Loscam Metroplex, Wacol and Lot 2012 Eastern Creek Drive, Eastern Creek have been reclassified from properties under development to investment property in the Logistics portfolio.

3 On 8 February 2017 GPT sold its 100% interest in Lot 101, 16 Lockwood Road, Erskine Park for a consideration of $5.5 million.

4 On 17 March 2017 GPT acquired a 100% interest in 32 Smith, Parramatta for a total consideration for $33.0 million (including transaction costs of $1.8 million).

5 Freehold, unless otherwise marked with a * which denotes leasehold and ** denotes a combination of freehold and leasehold respectively.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

(e) Reconciliation

(e) Reconciliation
	Retail $M Office $M Logistics $M Properties under development $M 31 Dec 17 $M 31 Dec 16 $M
Carrying amount at the beginning of the year Additions – operating capital expenditure Additions – development capital expenditure Additions – interest capitalised1 Asset acquisitions Transfers from properties under development Transfers from inventory Lease incentives Amortisation of lease incentives and costs Disposals Fair value adjustments Leasing costs Straightlining of leases Carrying amount at the end of the year	4,468.6 2,068.1 1,317.3 90.9 7,944.9 7,372.8 22.9 19.5 8.5 – 50.9 38.4 91.6 27.1 23.4 73.7 215.8 128.8 2.9 – 1.3 4.4 8.6 4.5 – – – 33.0 33.0 71.3 – – 76.1 (76.1) – – – – 2.8 – 2.8 (30.1) 14.3 14.4 7.6 – 36.3 47.3 (11.4) (21.4) (6.1) – (38.9) (42.5) – – – (5.5) (5.5) (82.4) 223.6 197.7 58.5 1.2 481.0 417.5 3.7 0.8 0.6 – 5.1 5.7 2.5 0.6 8.6 – 11.7 13.6
	4,818.7 2,306.8 1,498.6 121.6 8,745.7 7,944.9

1 A capitalisation interest rate of 5.4% (2016: 5.3%) has been applied when capitalising interest on qualifying assets.

Land and buildings which are held to earn rental income or for capital appreciation or for both, and which are not wholly occupied by GPT, are classified as investment properties.

Investment properties are initially recognised at cost and subsequently stated at fair value at each balance date. Fair value is based on the latest independent valuation adjusting for capital expenditure and capitalisation and amortisation of lease incentives since the date of the independent valuation report. Any change in fair value is recognised in the Consolidated Statement of Comprehensive Income in the period.

Properties under development are stated at fair value at each balance date. Fair value is assessed with reference to reliable estimates of future cash flows, status of the development and the associated risk profile. Finance costs incurred on properties undergoing development are included in the cost of the development.

Lease incentives provided by GPT to lessees are included in the measurement of fair value of investment property and are amortised over the lease term using a straightline basis.

Critical judgements are made by GPT in respect of the fair values of investment properties. Fair values are reviewed regularly by management with reference to independent property valuations, recent offers and market conditions, using generally accepted market practices. The valuation process, critical assumptions underlying the valuations and information on sensitivity are disclosed in note 22.

(f) Operating lease receivables

Non-cancellable operating lease receivables not recognised in the financial statements at balance date are as follows:

	Consolidated entity
	31 Dec 17 $M 31 Dec 16 $M
Due within one year Due between one and five years Due after five years Total operating lease receivables	467.5 460.4 1,285.6 1,234.5 979.9 942.2
	2,733.0 2,637.1

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

3. Equity accounted investments

3. Equity accounted investments
Note	31 Dec 17 $M 31 Dec 16 $M
Investments in joint ventures (a)(i) Investments in associates (a)(ii) Total equity accounted investments	1,135.0 1,004.4 2,427.9 2,115.8
	3,562.9 3,120.2

(a) Details of equity accounted investments

(a) Details of equity accounted investments
Name Principal Activity	Ownership Interest	31 Dec 17 $M 31 Dec 16 $M
	31 Dec 17 % 31 Dec 16 %
(i) Joint ventures 2 Park Street Trust1 Investment property 1 Farrer Place Trust1 Investment property Horton Trust Investment property Lendlease GPT (Rouse Hill) Pty Limited1,2 Property development DPT Operator Pty Limited Management Total investment in joint venture entities (ii) Associates GPT Wholesale Office Fund1,3 Investment property GPT Wholesale Shopping Centre Fund1,4 Investment property GPT Funds Management Limited Funds management Total investments in associates	50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 24.95 24.53 28.80 25.29 100.00 100.00	630.1 547.9 465.9 424.1 27.0 26.6 11.9 5.7 0.1 0.1
		1,135.0 1,004.4
		1,409.7 1,283.1 1,008.2 822.7 10.0 10.0
		2,427.9 2,115.8

1 The entity has a 30 June balance date.

2 GPT has a 50% interest in Lendlease GPT (Rouse Hill) Pty Limited, a joint venture developing residential and commercial land at Rouse Hill, in partnership with Urban Growth and the NSW Department of Planning.

3 In June 2017, GPT acquired an additional 16.3 million units in GWOF.

4 In May 2017, GPT acquired an additional 115.6 million units in GWSCF.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

(b) Summarised financial information for associates and joint ventures

The information disclosed reflects the amounts presented in the 31 December 2017 financial results of the relevant associates and joint ventures and not GPT’s share of those amounts. They have been amended to reflect adjustments made by GPT when using the equity method, including fair value adjustments and modifications for differences in accounting policies.

(i) Joint ventures

(i) Joint ventures
	2 Park Street Trust 1 Farrer Place Trust Others Total
	31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M
Current assets Cash and cash equivalents 9.8 5.5 10.9 12.3 17.6 17.1 38.3 34.9 Other current assets 1.8 1.2 7.1 4.9 8.2 1.4 17.1 7.5 Total current assets 11.6 6.7 18.0 17.2 25.8 18.5 55.4 42.4 Total non-current assets 1,260.0 1,109.0 953.5 870.2 63.9 67.6 2,277.4 2,046.8 Current liabilities Financial liabilities (excluding trade payables, other payables and provisions) 9.4 19.9 33.0 33.3 2.8 13.2 45.2 66.4 Other current liabilities 2.0 – 6.7 5.9 0.1 – 8.8 5.9 Total current liabilities 11.4 19.9 39.7 39.2 2.9 13.2 54.0 72.3 Non-current liabilities Financial liabilities (excluding trade payables, other payables and provisions) – – – – 8.8 8.1 8.8 8.1 Total non-current liabilities – – – – 8.8 8.1 8.8 8.1 Net assets 1,260.2 1,095.8 931.8 848.2 78.0 64.8 2,270.0 2,008.8 Reconciliation to carrying amounts: Opening net assets 1 January 1,095.8 984.9 848.2 730.8 64.8 61.6 2,008.8 1,777.3 Profit for the year 197.6 151.7 109.6 124.3 16.0 5.6 323.2 281.6 Issue of equity 24.6 8.9 11.4 27.4 – – 36.0 36.3 Distributions paid/payable (57.8) (49.7) (37.4) (34.3) (2.8) (2.4) (98.0) (86.4) Closing net assets 1,260.2 1,095.8 931.8 848.2 78.0 64.8 2,270.0 2,008.8 GPT’s share 630.1 547.9 465.9 424.1 39.0 32.4 1,135.0 1,004.4 Summarised statement of comprehensive income Revenue 73.0 60.4 62.4 76.8 4.6 23.2 140.0 160.4 Profit for the year 197.6 151.7 109.6 124.3 16.0 5.6 323.2 281.6 Total comprehensive income 197.6 151.7 109.6 124.3 16.0 5.6 323.2 281.6	9.8 5.5 10.9 12.3 17.6 17.1 38.3 34.9 1.8 1.2 7.1 4.9 8.2 1.4 17.1 7.5
	11.6 6.7 18.0 17.2 25.8 18.5 55.4 42.4 1,260.0 1,109.0 953.5 870.2 63.9 67.6 2,277.4 2,046.8 9.4 19.9 33.0 33.3 2.8 13.2 45.2 66.4 2.0 – 6.7 5.9 0.1 – 8.8 5.9
	11.4 19.9 39.7 39.2 2.9 13.2 54.0 72.3 – – – – 8.8 8.1 8.8 8.1
	– – – – 8.8 8.1 8.8 8.1 1,260.2 1,095.8 931.8 848.2 78.0 64.8 2,270.0 2,008.8
	1,095.8 984.9 848.2 730.8 64.8 61.6 2,008.8 1,777.3 197.6 151.7 109.6 124.3 16.0 5.6 323.2 281.6 24.6 8.9 11.4 27.4 – – 36.0 36.3 (57.8) (49.7) (37.4) (34.3) (2.8) (2.4) (98.0) (86.4)
	1,260.2 1,095.8 931.8 848.2 78.0 64.8 2,270.0 2,008.8
	630.1 547.9 465.9 424.1 39.0 32.4 1,135.0 1,004.4

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

(ii) Associates

	GPT Wholesale Office Fund GPT Wholesale Shopping Centre Fund Others Total
	31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M
Total current assets 72.6 137.3 51.8 44.5 10.0 10.0 134.4 191.8 Total non-current assets 7,032.8 6,461.4 4,799.6 3,714.3 – – 11,832.4 10,175.7 Total current liabilities 156.5 163.8 129.4 326.9 – – 285.9 490.7 Total non-current liabilities 1,299.1 1,204.2 1,221.5 178.9 – – 2,520.6 1,383.1 Net assets 5,649.8 5,230.7 3,500.5 3,253.0 10.0 10.0 9,160.3 8,493.7 Reconciliation to carrying amounts: Opening net assets 1 January 5,230.7 4,797.8 3,253.0 3,082.5 10.0 287.0 8,493.7 8,167.3 Profit for the year 688.6 685.7 400.6 348.6 – 33.0 1,089.2 1,067.3 Issue/(sale) of equity – – 7.2 – – (287.0) 7.2 (287.0) Distributions paid/payable (269.5) (252.8) (160.3) (178.1) – (23.0) (429.8) (453.9) Closing net assets 5,649.8 5,230.7 3,500.5 3,253.0 10.0 10.0 9,160.3 8,493.7 GPT’s share 1,409.7 1,283.1 1,008.2 822.7 10.0 10.0 2,427.9 2,115.8 Summarised statement of comprehensive income Revenue 500.3 507.9 294.9 304.3 – 18.1 795.2 830.3 Profit for the year 688.6 685.7 400.6 348.6 – 33.0 1,089.2 1,067.3 Total comprehensive income 688.6 685.7 400.6 348.6 – 33.0 1,089.2 1,067.3 Distributions received/receivable from their associates 39.5 44.8 – – – – 39.5 44.8	72.6 137.3 51.8 44.5 10.0 10.0 134.4 191.8 7,032.8 6,461.4 4,799.6 3,714.3 – – 11,832.4 10,175.7 156.5 163.8 129.4 326.9 – – 285.9 490.7 1,299.1 1,204.2 1,221.5 178.9 – – 2,520.6 1,383.1
	5,649.8 5,230.7 3,500.5 3,253.0 10.0 10.0 9,160.3 8,493.7

4. Loans and receivables

	31 Dec 17 $M 31 Dec 16 $M
Current assets Trade receivables Less: impairment of trade receivables Distributions receivable from joint ventures Distributions receivable from associates Dividends receivable from investments Related party receivables1 Levies asset Other receivables Total current loans and receivables	10.6 8.5 (0.9) (1.0)
	9.7 7.5 12.9 22.5 26.3 29.4 – 30.4 21.3 17.8 15.1 13.9 33.6 27.7
	118.9 149.2

1 The related party receivables are on commercial terms and conditions.

The table below shows the ageing analysis of GPT’s loans and receivables.

	31 Dec 17 0-30 days $M 31-60 days $M 61-90 days $M 90+ days $M Total $M	31 Dec 16
		0-30 days $M 31-60 days $M 61-90 days $M 90+ days $M Total $M
Current receivables Impairment of current receivables Total loans and receivables	116.3 0.8 0.1 2.6 119.8 – – – (0.9) (0.9) 116.3 0.8 0.1 1.7 118.9	146.3 0.5 0.1 3.3 150.2 – – – (1.0) (1.0)
		146.3 0.5 0.1 2.3 149.2

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

Loans and receivables are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method less any allowance for impairment. All loans and receivables with maturities greater than 12 months after balance date are classified as non-current assets.

Recoverability of trade receivables

Recoverability of trade receivables is assessed on an ongoing basis. Impairment is recognised in the Consolidated Statement of Comprehensive Income when there is objective evidence that GPT will not be able to collect the debts. Financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial re-organisation and default or delinquency in payments are considered objective evidence of impairment. See note 14(e) for more information on management of credit risk relating to trade receivables.

The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. Debts that are known to be uncollectable are written off when identified.

5. Intangible assets

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Management IT development
rights and software Total
$M $M $M
Costs
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Balance as at 31 December 2015 Additions Balance as at 31 December 2016 Additions Disposals Transfers Balance as at 31 December 2017 Accumulated amortisation and impairment Balance as at 31 December 2015 Amortisation Balance as at 31 December 2016 Amortisation Impairment Disposals Balance as at 31 December 2017 Carrying amounts Balance as at 31 December 2016 Balance as at 31 December 2017	55.8 61.9 117.7 – 5.2 5.2
	55.8 67.1 122.9 – 4.7 4.7 – (11.4) (11.4) – 2.8 2.8
	55.8 63.2 119.0 (44.8) (37.4) (82.2) (0.3) (5.1) (5.4)
	(45.1) (42.5) (87.6) (0.3) (5.7) (6.0) – (5.9) (5.9) – 11.4 11.4
	(45.4) (42.7) (88.1) 10.7 24.6 35.3 10.4 20.5 30.9

Management rights

Management rights include property management and development management rights. Rights are initially measured at cost and subsequently amortised over their useful life, which ranges from 5 to 10 years.

For the management rights of Highpoint Shopping Centre, management considers the useful life as indefinite as there is no fixed term included in the management agreement. Therefore, GPT tests for impairment at balance date. Assets are impaired if the carrying value exceeds their recoverable amount. The recoverable amount is determined using a multiples approach. A range of multiples from 10-15x have been used in the calculation.

IT development and software

Costs incurred in developing systems and acquiring software and licenses that will contribute future financial benefits are capitalised. These include external direct costs of materials and services and direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straightline basis over the length of time over which the benefits are expected to be received, generally ranging from 3 to 10 years.

IT development and software are assessed for impairment at each reporting date by evaluating if any impairment triggers exist. Where impairment triggers exist, management calculate the recoverable amount. The asset will be impaired if the carrying value exceeds the recoverable amount. Critical judgements are made by GPT in setting appropriate impairment triggers and assumptions used to determine the recoverable amount.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

6. Inventories

	31 Dec 17 $M 31 Dec 16 $M
Development properties Current inventories Development properties Non-current inventories Total inventories	11.8 4.5
	11.8 4.5 140.4 131.4
	140.4 131.4
	152.2 135.9

Development properties held as inventory to be sold are stated at the lower of cost and net realisable value.

Cost

Cost includes the cost of acquisition, development, finance costs and all other costs directly related to specific projects including an allocation of direct overhead expenses. Post completion of the development, finance costs and other holding charges are expensed as incurred.

Net realisable value (NRV)

The NRV is the estimated selling price in the ordinary course of business less estimated costs to sell. At each reporting date, management reviews these estimates by taking into consideration:

the most reliable evidence; and

• any events which confirm conditions existing at the year end and cause any fluctuations of selling price and costs to sell. The amount of any write down is recognised as an impairment expense in the Consolidated Statement of Comprehensive Income. An impairment expense reversal of $0.4 million has been recognised for the year ended 31 December 2017 (2016: Impairment expense of $6.0 million).

7. Payables

	31 Dec 17 $M 31 Dec 16 $M
Trade payables and accruals GST payables Distribution payable to stapled securityholders Interest payable Other payables Total payables	124.5 133.1 1.1 1.1 221.6 214.0 17.6 18.0 10.1 12.1
	374.9 378.3

Trade payables and accruals represent liabilities for goods and services provided to GPT prior to the end of the financial year which are unpaid. They are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.

8. Provisions

8. Provisions
	31 Dec 17 $M 31 Dec 16 $M
Current provisions Employee benefits Provision for levies Other Total current provisions Non-current provisions Employee benefits Total non-current provisions	10.1 9.0 15.1 13.9 12.7 7.6
	37.9 30.5
	2.3 1.8
	2.3 1.8

Provisions are recognised when:

GPT has a present obligation (legal or constructive) as a result of a past event;
it is probable that resources will be expended to settle the obligation; and
a reliable estimate can be made of the amount of the obligation.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the obligation.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

Provision for employee benefits

The provision for employee benefits represents annual leave and long service leave entitlements accrued for employees. The employee benefit liability expected to be settled within twelve months after the end of the reporting period is recognised in current liabilities.

Employee benefits expenses in the Consolidated Statement of Comprehensive Income

	31 Dec 17 $M 31 Dec 16 $M
Employee benefits expenses 9. Taxation	114.5 115.1
	31 Dec 17 $M 31 Dec 16 $M
(a) Income tax expense Current income tax expense 20.0 – Deferred income tax (credit)/expense (9.7) 22.4 Income tax expense in the Statement of Comprehensive Income 10.3 22.4 Income tax expense attributable to: Profit from continuing operations 10.3 22.4 Profit from discontinued operations – – Aggregate income tax expense 10.3 22.4 (b) Reconciliation of accounting profit to income tax expense and current tax liability Net profit for the year excluding income tax expense 1,279.4 1,175.1 Less: Trust profit not subject to tax (1,274.5) (1,132.6) Profit which is subject to taxation 4.9 42.5 Prima facie income tax at 30% tax rate (2016: 30%) 1.5 12.8 Tax effect of amounts not deductible/assessable in calculating income tax expense: Adjustments for income tax for prior years 0.2 0.5 Previously unrecognised tax losses (0.4) (15.2) Revaluation and amortisation 10.0 26.2 Non assessable income (6.1) (4.0) Other tax adjustments 5.1 2.1 Income tax expense 10.3 22.4 Add/(less) amounts to reconcile to current tax liability: Temporary differences: Employee benefits 0.7 0.7 Provisions and accruals (0.3) 0.3 Dividends received/(receivable) 9.1 (9.1) Other deferred tax asset charged to income 1.9 (0.9) Movement in reserves (1.7) (0.3) Opening balance: Tax losses transferred from deferred tax asset (2.0) – Tax losses and adjustments: Tax losses recognised – 15.2 Prior tax losses utilised – (27.8) Movement in reserves (2.5) – Prior year adjustments – (0.5) Tax payments made to tax authorities (6.9) – Current tax liability 8.6 –	20.0 – (9.7) 22.4
	10.3 22.4
	10.3 22.4 – –
	10.3 22.4
	4.9 42.5
	1.5 12.8 0.2 0.5 (0.4) (15.2) 10.0 26.2 (6.1) (4.0) 5.1 2.1
	10.3 22.4
	0.7 0.7 (0.3) 0.3 9.1 (9.1) 1.9 (0.9) (1.7) (0.3) (2.0) – – 15.2 – (27.8) (2.5) – – (0.5) (6.9) –
	8.6 –

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

	31 Dec 17 $M 31 Dec 16 $M
(c) Deferred tax assets Employee benefits Provisions and accruals Other Tax losses recognised Net deferred tax asset Movement in temporary differences during the year Opening balance at beginning of the year Credited to the Statement of Comprehensive Income Movement in reserves Utilisation of tax losses Closing balance at end of the year	15.4 14.7 2.9 3.2 (1.4) (12.4) – 2.0
	16.9 7.5
	7.5 30.2 9.7 6.6 1.7 (0.3) (2.0) (29.0)
	16.9 7.5

(d) Effective tax rate

Adoption of Voluntary Tax Transparency Code

The Board of Taxation has released a voluntary Tax Transparency Code (TTC). The TTC sets out a recommended set of principles and minimum standards regarding the disclosure of tax information for businesses. GPT is committed to the TTC. The non-IFRS income tax disclosures below and in note 9(b) include the recommended additional disclosures.

The Australian Accounting Standards Board have issued a Draft Appendix to the TTC outlining the method to calculate the effective tax rate as shown in the table below, using:

accounting profit before tax adjusted to exclude transactions which are not reflected in the calculation of income tax expense; and
tax expense adjusted to exclude carry forward tax losses that have been recognised and prior year under/overstatements.

	31 Dec 17 $M 31 Dec 16 $M
Net profit for the year excluding income tax expense Less: Trust profit not subject to tax Add: non-deductible revaluation items in the Company Less: equity accounted profits from joint ventures in the Company Profit used to calculate effective tax rate Income tax expense Add: carry forward tax losses recognised Less: prior year under/overstatements Income tax expense used to calculate effective tax rate Effective tax rate	1,279.4 1,175.1 (1,274.5) (1,132.6) 34.1 81.8 (6.2) (1.5)
	32.8 122.8 10.3 22.4 0.4 15.2 (0.2) (0.5)
	10.5 37.1
	32% 30%

Trusts

Property investments are held by the Trust for the purposes of earning rental income. Under current tax legislation, the Trust is not liable for income tax provided the taxable income of the Trust including realised capital gains is attributed in full to its securityholders each financial year. Securityholders are subject to income tax at their own marginal tax rates on amounts attributable to them.

Company and other taxable entities

Income tax expense for the financial year is the tax payable on the current year’s taxable income. This is adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

Deferred income tax liabilities and assets – recognition

Deferred income tax liabilities are recognised for all taxable temporary differences.

Deferred income tax assets are recognised for all deductible temporary differences, carried forward unused tax assets and unused tax losses, to the extent it is probable that taxable profit will be available to utilise them. The carrying amount of deferred income tax assets is reviewed and reduced to the extent that it is no longer probable that sufficient taxable profit will be available.

Deferred income tax liabilities and assets – measurement

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.

Deferred income tax is provided on temporary differences at the reporting date between accounting carrying amounts and the tax cost bases of assets and liabilities, other than for the following:

where taxable temporary differences relate to investments in subsidiaries, associates and interests in joint ventures:
deferred tax liabilities are not recognised if the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future;
deferred tax assets are not recognised if it is not probable that the temporary differences will reverse in the foreseeable future and taxable profit will not be available to utilise the temporary differences.

Tax relating to equity items

Income taxes relating to items recognised directly in equity are recognised in equity and not in the Consolidated Statement of Comprehensive Income.

Capital structure

Capital is defined as the combination of securityholders’ equity, reserves and net debt (borrowings less cash). The Board is responsible for monitoring and approving the capital management framework within which management operates. The purpose of the framework is to safeguard GPT’s ability to continue as a going concern while optimising its debt and equity structure. GPT aims to maintain a capital structure which includes net gearing levels within a range of 25 to 35 per cent (based on net debt, less fair value adjustment on foreign bonds to total tangible assets, less cash and cross currency derivative assets) that is consistent with a stable investment grade credit rating in the “A category”.

At 31 December 2017, GPT is credit rated A (stable)/A2 (stable) by Standard and Poor’s (S&P) and Moody’s Investor Services (Moody’s) respectively. The ratings are important as they reflect the investment grade credit rating of GPT which allows access to global capital markets to fund its development pipeline and future acquisition investment opportunities. The stronger ratings improve both the availability of capital, in terms of amount and tenor, and reduce the cost at which it can be obtained.

GPT is able to vary the capital mix by:

issuing stapled securities;
buying back stapled securities;
activating the distribution reinvestment plan;
adjusting the amount of distributions paid to stapled securityholders;
selling assets to reduce borrowings; or
increasing borrowings.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

10. Equity and reserves

(a) Contributed equity

(a) Contributed equity
	Number Trust $M Other entities stapled to GPT $M Total $M
(i) Ordinary stapled securities Opening securities on issue as at 1 January 2016 Securities issued – Long Term Incentive Plan Securities issued – Deferred Short Term Incentive Plan Securities issued – Broad Based Employee Security Ownership Plan Closing securities on issue as at 31 December 2016 Opening securities on issue as at 1 January 2017 Securities issued – Long Term Incentive Plan Securities issued – Deferred Short Term Incentive Plan Securities issued – Broad Based Employee Security Ownership Plan Securities issued – Employee Incentive Plan Closing securities on issue as at 31 December 2017 (ii) Exchangeable securities Opening securities on issue as at 1 January 2016 Transfer to retained earnings Closing securities on issue as at 31 December 2016 Total contributed equity – 31 December 2016 Total contributed equity – 31 December 2017	1,794,816,529 7,793.9 325.3 8,119.2 2,102,805 5.6 0.1 5.7 978,834 4.5 0.1 4.6 57,400 0.3 – 0.3
	1,797,955,568 7,804.3 325.5 8,129.8
	1,797,955,568 7,804.3 325.5 8,129.8 2,763,052 6.0 0.1 6.1 855,355 4.2 0.1 4.3 54,338 0.2 – 0.2 12,569 0.1 – 0.1
	1,801,640,882 7,814.8 325.7 8,140.5
	– (84.5) – (84.5) – 84.5 – 84.5
	– – – –

	– 7,804.3 325.5 8,129.8
	– 7,814.8 325.7 8,140.5

Ordinary stapled securities are classified as equity and recognised at the fair value of the consideration received by GPT. Any transaction costs arising on the issue and buy back of ordinary securities are recognised directly in equity as a reduction, net of tax, of the proceeds received.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

(b) Reserves

(b) Reserves
	Foreign currency translation reserve Cash flow hedge reserve Employee incentive scheme reserve Available for sale reserve Total reserve
	Trust $M Other entities stapled to GPT $M Trust $M Other entities stapled to GPT $M Trust $M Other entities stapled to GPT $M Trust $M Other entities stapled to GPT $M Trust $M Other entities stapled to GPT $M
Balance at 1 January 2016 Revaluation of available for sale financial asset, net of tax Net foreign exchange translation adjustments Changes in the fair value of cash flow hedges Security-based payment transactions, net of tax Balance at 31 December 2016 Balance at 1 January 2017 Revaluation of available for sale financial asset, net of tax Derecognition of available for sale financial asset, net of tax Changes in the fair value of cash flow hedges Security-based payment transactions, net of tax Balance at 31 December 2017	(24.6) 34.1 (19.3) – – 16.4 – 8.6 (43.9) 59.1 – – – – – – – (1.5) – (1.5) (1.8) 1.0 – – – – – – (1.8) 1.0 – – 14.5 – – – – – 14.5 – – – – – – 0.9 – – – 0.9
	(26.4) 35.1 (4.8) – – 17.3 – 7.1 (31.2) 59.5
	(26.4) 35.1 (4.8) – – 17.3 – 7.1 (31.2) 59.5 – – – – – – – 1.0 – 1.0 – – – – – – – (8.1) – (8.1) – – (9.4) – – – – – (9.4) – – – – – – 4.6 – – – 4.6
	(26.4) 35.1 (14.2) – – 21.9 – – (40.6) 57.0

Nature and purpose of reserves

Foreign currency translation reserve

The reserve is used to record exchange differences arising on translation of foreign controlled entities and associated funding of foreign controlled entities. The movement in the reserve is recognised in the net profit when the investment in the foreign controlled entity is disposed.

Cash flow hedge reserve

The reserve records the portion of the unrealised gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge relationship inclusive of share of cash flow hedge reserve of equity accounted investments.

Employee incentive scheme reserve

The reserve is used to recognise the fair value of equity-settled security based payments provided to employees, including key management personnel, as part of their remuneration. Refer to note 18 for further details of the security based payments.

Available for sale reserve

The reserve is used to recognise the changes in the fair value of the available for sale financial assets.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

(c) Retained earnings/accumulated losses

							Other entities	Other entities
				Trust			stapled to GPT		Total
	Note				$M			$M	$M
Consolidated entity
Balance at 1 January 2016				477.8				(1,002.6)	(524.8)
Net profit for the financial year				1,048.8				103.9	1,152.7
Less: Distributions paid/payable to ordinary stapled securityholders	12			(420.7)				–	(420.7)
Reclassification of redemption deficit of exchangeable securities to retained earnings				(84.5)				–	(84.5)
Reclassification of employee incentive security scheme reserve to retained earnings/ accumulated losses					1.4			–	1.4
Balance at 31 December 2016				1,022.8				(898.7)	124.1
Balance at 1 January 2017				1,022.8				(898.7)	124.1
Net profit for the financial year				1,249.3				19.8	1,269.1
Less: Distributions paid/payable to ordinary stapled securityholders	12			(443.2)				–	(443.2)
Reclassification of employee incentive security scheme reserve to retained earnings/ accumulated losses					0.6			(0.5)	0.1
Balance at 31 December 2017				1,829.5				(879.4)	950.1
11. Earnings per stapled security
		31		Dec 17	31		Dec 17	31 Dec 16	31 Dec 16
				Cents			Cents	Cents	Cents
(a) Attributable to ordinary securityholders of the Trust				Basic		Diluted		Basic	Diluted
Basic and diluted earnings per security – profit from continuing operations				69.3			69.2	57.9	57.8
Basic and diluted earnings per security – profit from discontinued operations				–			–	0.5	0.5
Total basic and diluted earnings per security attributable to ordinary securityholders of the Trust				69.3			69.2	58.4	58.3
(b) Attributable to ordinary stapled securityholders of GPT Group
Basic and diluted earnings per security – profit from continuing operations				70.4			70.3	63.7	63.6
Basic and diluted earnings per security – profit from discontinued operations				–			–	0.5	0.5
Total basic and diluted earnings per security attributable to ordinary stapled securityholders of The GPT Group				70.4			70.3	64.2	64.1
The earnings and weighted average number of ordinary securities (WANOS) used in the calculations of				basic and diluted earnings per ordinary
stapled security are as follows:
(c) Reconciliation of earnings used in calculating earnings per ordinary stapled security				$M			$M	$M	$M
Net profit from continuing operations attributable to the securityholders of the Trust			1,248.5			1,248.5		1,040.4	1,040.4
Net profit from discontinued operations attributable to the securityholders of the Trust				0.8			0.8	8.4	8.4
Basic and diluted earnings of the Trust			1,249.3			1,249.3		1,048.8	1,048.8
Add: Net profit from continuing operations attributable to the securityholders of other stapled entities				19.8			19.8	103.8	103.8
Add: Net profit from discontinued operations attributable to the securityholders of other stapled entities				–			–	0.1	0.1
Basic and diluted earnings of the Company				19.8			19.8	103.9	103.9
Basic and diluted earnings of The GPT Group			1,269.1			1,269.1		1,152.7	1,152.7
(d) WANOS			Millions		Millions			Millions	Millions
WANOS used as the denominator in calculating basic earnings per ordinary stapled security			1,801.1			1,801.1		1,797.4	1,797.4
Performance security rights at weighted average basis1							2.4		2.7
WANOS used as the denominator in calculating diluted earnings per ordinary stapled security						1,803.5			1,800.1

1 Performance security rights granted under the employee incentive schemes are only included in dilutive earnings per ordinary stapled security where the performance hurdles are met as at the year end.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

Calculation of earnings per stapled security

Basic earnings per stapled security is calculated as net profit attributable to ordinary stapled securityholders of GPT, divided by the weighted average number of ordinary stapled securities outstanding during the financial year which is adjusted for bonus elements in ordinary stapled securities issued during the financial year. Diluted earnings per stapled security is calculated as net profit attributable to ordinary stapled securityholders of GPT divided by the weighted average number of ordinary stapled securities and dilutive potential ordinary stapled securities. Where there is no difference between basic earnings per stapled security and diluted earnings per stapled security, the term basic and diluted earnings per stapled ordinary security is used.

12. Distributions paid and payable

Distributions are paid to GPT stapled securityholders half yearly.

	Cents per stapled security Total amount $M
Distributions paid/payable 2017 6 month period ended 30 June 2017 6 month period ended 31 December 20171 Total distributions paid/payable for the year 2016 6 month period ended 30 June 2016 6 month period ended 31 December 2016 Total distributions paid/payable for the year	12.3 221.6 12.3 221.6
	24.6 443.2
	11.5 206.7 11.9 214.0
	23.4 420.7

1 December 2017 half yearly distribution of 12.3 cents per stapled security has been declared on 20 December 2017 and is expected to be paid on 28 February 2018 based on the record date of 29 December 2017.

13. Borrowings

13. Borrowings
	31 Dec 17 $M 31 Dec 16 $M
Current borrowings at amortised cost – unsecured Current borrowings at amortised cost – secured Current borrowings Non-current borrowings at amortised cost – unsecured Non-current borrowings at fair value – unsecured Non-current borrowings at amortised cost – secured Non-current borrowings Total borrowings1 – carrying amount Total borrowings2 – fair value	– 30.0 19.9 18.8
	19.9 48.8
	1,911.9 1,920.5 1,280.5 940.0 88.3 87.3
	3,280.7 2,947.8
	3,300.6 2,996.6
	3,347.8 3,014.4

1 Including unamortised establishment costs, fair value and other adjustments.

2 For the majority of the borrowings, the carrying amount is a reasonable approximation of fair value. Where material difference arises, the fair value is calculated using market observable inputs (level 2) and unobservable inputs (level 3). This excludes unamortised establishment costs.

Borrowings are either initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method or at their fair value. Under the amortised cost method, any transaction fees, costs, discounts and premiums directly related to the borrowings are recognised in the Consolidated Statement of Comprehensive Income over the expected life of the borrowings unless there is an effective fair value hedge of the borrowings, in which case a fair value adjustment will be applied based on the mark to market movement in the benchmark component of the borrowings and this movement is recognised in the Consolidated Statement of Comprehensive Income.

All borrowings with maturities greater than 12 months after reporting date are classified as non-current liabilities.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

The maturity profile of borrowings is as follows:

The maturity profile of borrowings is as follows:
	Total facility1,2 $M Used facility1 $M	Unused facility2 $M
Due within one year Due between one and five years Due after five years Cash and cash equivalents Total financing resources available at the end of the year	32.2 20.0 2,178.5 1,495.5 1,606.8 1,606.8	12.2 683.0 –
	3,817.5 3,122.3	695.2 49.9
		745.1

1 Excluding unamortised establishment costs, and fair value and other adjustments. This reflects the contractual cashflows payable on maturity of the borrowings taking into account historical exchange rates under cross currency swaps entered into to hedge the foreign currency denominated borrowings.
2 There are a further $350 million of forward starting facilities available to GPT.

Cash and cash equivalents includes cash on hand, cash at bank and short term money market deposits.

Debt covenants

GPT’s borrowings are subject to a range of covenants, according to the specific purpose and nature of the loans. Most bank facilities include one or more of the following covenants:

Gearing: total debt must not exceed 50 per cent of total tangible assets; and
Interest coverage: the ratio of earnings before interest and taxes (EBIT) to finance costs is not to be less than 2 times.

A breach of these covenants may trigger consequences ranging from rectifying and/or repricing to repayment of outstanding amounts. GPT performed a review of debt covenants as at 31 December 2017 and no breaches were identified.

14. Financial risk management

The GPT Board approve GPT’s treasury policy which:

establishes a framework for the management of risks inherent to the capital structure;
defines the role of GPT’s treasury; and
sets out the policies, limits, monitoring and reporting requirements for cash, borrowings, liquidity, credit risk, foreign exchange, interest rate and other derivative instruments.

(a) Interest rate risk

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. GPT’s primary interest rate risk arises from borrowings. The table below provides a summary of GPT’s gross interest rate risk exposure as at 31 December 2017 on interest bearing borrowings as well as the net effect of interest rate risk management transactions. This excludes unamortised establishment costs and fair value and other adjustments.

	Gross exposure Net exposure
	31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M
Fixed rate interest-bearing borrowings Floating rate interest-bearing borrowings	2,056.8 1,653.3 2,370.0 1,575.0 1,065.5 1,098.4 752.3 1,176.7
	3,122.3 2,751.7 3,122.3 2,751.7

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

Interest rate risk – sensitivity analysis

The impact on interest expense and interest revenue of a 1 per cent increase or decrease in market interest rates is shown below. Interest expense is sensitive to movements in market interest rates on floating rate debt (net of any derivatives).

A 1 per cent increase or decrease is used for consistency of reporting interest rate risk across GPT and represents management’s assessment of the potential change in interest rates.

	31 Dec 17	31 Dec 17	31 Dec 16	31 Dec 16
	(+1%)	(-1%)	(+1%)	(-1%)
	$M	$M	$M	$M
Impact on statement of comprehensive income
Impact on interest revenue increase/(decrease)	0.5	(0.5)	0.7	(0.7)
Impact on interest expense (increase)/decrease	(7.5)	7.5	(11.8)	11.8

Hedging interest rate risk

Interest rate risk inherent on borrowings issued at floating rates is managed by entering into interest rate swaps that are used to convert a portion of floating interest rate borrowings to fixed interest rates, which reduces GPT’s exposure to interest rate volatility.

The derivative financial instruments used to hedge interest rate risk which are presented in the Consolidated Statement of Financial Position comprise the following:

	31 Dec 17 $M 31 Dec 16 $M
Current derivative assets Non-current derivative assets Total derivative assets Subject to master netting but not offset Net derivative assets post offset Current derivative liabilities Non-current derivative liabilities Total derivative liabilities Subject to master netting but not offset Net derivative liabilities post offset	3.4 – 257.7 337.2
	261.1 337.2 95.9 113.0
	165.2 224.2
	9.1 – 118.0 128.5
	127.1 128.5 95.9 113.0
	31.2 15.5

All of GPT’s derivatives were valued using market observable inputs (level 2) with the exception of a year on year inflation swap. For additional fair value disclosures refer to note 22.

Derivative financial assets and liabilities are not offset in the Consolidated Statement of Financial Position. Agreements with derivative counterparties are based on the ISDA (International Swap Derivatives Association) Master Agreement, which in certain circumstances (such as default) confers a right to set-off the position owing/receivable to a single counterparty to a net position as long as all outstanding derivatives with that counterparty are terminated. As GPT does not presently have a legally enforceable right to set-off, these amounts have not been offset in the Consolidated Statement of Financial Position, but have been presented separately.

Derivatives are carried in the Consolidated Statement of Financial Position at fair value and classified according to their contractual maturities. If they do not qualify for hedge accounting, changes in fair value are recognised in the Consolidated Statement of Comprehensive Income including gains or losses on maturity or close-out. Where derivatives qualify for hedge accounting and are designated in hedge relationships, the recognition of any gain or loss depends on the nature of the item being hedged. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. For cash flow hedges, the effective portion of changes in the fair value of derivatives is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.

GPT applies hedge accounting to borrowings denominated in foreign currencies only. GPT designates and documents the relationship between hedging instruments and hedged items and the proposed effectiveness of the risk management objective the hedge relationship addresses. On an ongoing basis, GPT documents its assessment of retrospective and prospective hedge effectiveness.

Hedge accounting is discontinued when the hedging instrument expires, is terminated, or is no longer in an effective hedge relationship.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

(b) Liquidity risk

Liquidity risk is the risk that GPT, as a result of its operations:

will not have sufficient funds to settle a transaction on the due date;
will be forced to sell financial assets at a value which is less than what they are worth; or
may be unable to settle or recover a financial asset at all.

GPT manages liquidity risk by:

maintaining sufficient cash;
maintaining an adequate amount of committed credit facilities;
maintaining a minimum liquidity buffer in cash and surplus committed facilities for the forward rolling twelve month period;
minimising debt maturity concentration risk by diversifying sources and spreading maturity dates of committed credit facilities and maintaining a minimum weighted average debt maturity of 4 years; and
maintaining the ability to close out market positions.

The following table provides an analysis of the undiscounted contractual maturities of liabilities which forms part of GPT’s assessment of liquidity risk:

	31 Dec 17 1 year or less $M Over 1 year to 2 years $M Over 2 years to 5 years $M Over 5 years $M Total $M	31 Dec 16
		1 year or less $M Over 1 year to 2 years $M Over 2 years to 5 years $M Over 5 years $M Total $M
Liabilities Non-derivatives Payables Current tax liabilities Borrowings Projected finance cost on borrowings1 Derivatives Projected finance cost on derivative liabilities1,2 Total liabilities Less cash and cash equivalents Total liquidity exposure Projected interest income on derivative assets2 Net liquidity exposure	374.9 – – – 374.9 8.6 – – – 8.6 20.0 513.5 982.0 1,606.8 3,122.3 128.2 114.2 279.1 433.6 955.1 23.8 21.7 36.5 6.8 88.8 555.5 649.4 1,297.6 2,047.2 4,549.7 49.9 – – – 49.9 505.6 649.4 1,297.6 2,047.2 4,499.8 34.3 31.6 59.5 64.4 189.8 471.3 617.8 1,238.1 1,982.8 4,310.0	378.3 – – – 378.3 – – – – – 48.8 375.0 1,074.6 1,253.3 2,751.7 110.4 109.6 231.9 338.7 790.6 20.0 24.9 47.4 17.3 109.6
		557.5 509.5 1,353.9 1,609.3 4,030.2
		56.3 – – – 56.3
		501.2 509.5 1,353.9 1,609.3 3,973.9
		14.5 22.1 35.7 42.2 114.5
		486.7 487.4 1,318.2 1,567.1 3,859.4

1 Projection is based on the likely outcome of contracts given the interest rates, margins, forecast exchange rates and interest rate forward curves as at 31 December 2017 and 31 December 2016 up until the contractual maturity of the contract. The projection is based on future non-discounted cash flows and does not ascribe any value to optionality on any instrument which may be included in the current market values. Projected interest on foreign currency borrowings is shown after the impact of associated hedging.

2 In accordance with AASB 7, the future value of contractual cash flows of non-derivative and derivative liabilities only is to be included in liquidity risk disclosures. As derivatives are exchanges of cash flows, the positive cash flows from derivative assets have been disclosed separately to provide a more meaningful analysis of GPT’s net liquidity exposure. The methodology used in calculating projected interest income on derivative assets is consistent with the above liquidity risk disclosures.

(c) Refinancing risk

Refinancing risk is the risk that credit is unavailable or available at unfavourable interest rates and credit market conditions resulting in an unacceptable increase in GPT’s interest cost. Refinancing risk arises when GPT is required to obtain debt to fund existing and new debt positions. GPT manages this risk by spreading sources and maturities of borrowings in order to minimise debt concentration risk, allow averaging of credit margins over time and reducing refinance amounts.

As at 31 December 2017, GPT’s exposure to refinancing risk can be monitored by the spreading of its contractual maturities on borrowings in the liquidity risk table above or with the information in note 13.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

(d) Foreign exchange risk

Foreign exchange risk refers to the risk that the value of a financial commitment, asset or liability will fluctuate due to changes in foreign exchange rates. GPT’s foreign exchange risk arises primarily from:

firm commitments of highly probable forecast transactions for receipts and payments settled in foreign currencies or with prices dependent on foreign currencies; and
investments in foreign assets.

The foreign exchange risk arising from borrowings denominated in foreign currency is managed with cross currency interest rate swaps which convert foreign currency exposures into Australian dollar exposures. Sensitivity to foreign exchange is deemed insignificant.

Foreign currency assets and liabilities

The following table shows the Australian dollar equivalents of amounts within the Consolidated Statement of Financial Position which are denominated in foreign currencies.

	Euros 31 Dec 17 $M 31 Dec 16 $M	United States Dollars 31 Dec 17 $M 31 Dec 16 $M	Hong Kong Dollars
			31 Dec 17 $M 31 Dec 16 $M
Assets Cash and cash equivalents Interests in unlisted investments Derivative financial instruments Liabilities Other liabilities Borrowings1	1.2 1.2 – 9.3 – –	0.1 0.2 – – 118.2 178.6	– – – – 24.1 35.8
	1.2 10.5	118.3 178.8	24.1 35.8
	0.3 0.3 – –	– – 1,096.1 746.2	– – 186.9 196.6
	0.3 0.3	1,096.1 746.2	186.9 196.6

1 Excluding unamortised establishment costs

(e) Credit risk

Credit risk is the risk that a contracting entity will not complete its obligations under a contractual agreement, resulting in a financial loss to GPT. GPT has exposure to credit risk on all financial assets included on the Consolidated Statement of Financial Position.

GPT manages this risk by:

establishing credit limits for financial institutions and monitoring credit exposures for customers to ensure that GPT only trades and invests with approved counterparties;
investing and transacting derivatives with multiple counterparties that have a minimum long term credit rating of A- from S&P, or equivalent if an S&P rating is not available, minimising exposure to any one counterparty;
providing loans into joint ventures, associates and third parties, only where GPT is comfortable with the underlying property exposure within that entity;
regularly monitoring loans and receivables balances;
regularly monitoring the performance of its associates, joint ventures and third parties; and
obtaining collateral as security (where appropriate).

Receivables are reviewed regularly throughout the year. A provision for doubtful debts is made where collection is deemed uncertain. GPT’s policy is to hold collateral as security over tenants via bank guarantees (or less frequently collateral such as bond deposits or cash).

The maximum exposure to credit risk as at 31 December 2017 is the carrying amounts of financial assets recognised on GPT’s Consolidated Statement of Financial Position. For more information refer to note 4.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

Other Disclosure Items

15. Cash flow information

(a) Cash flows from operating activities

Reconciliation of net profit after tax to net cash inflows from operating activities:

(a) Cash flows from operating activities Reconciliation of net profit after tax to net cash inflows from operating activities:
	31 Dec 17 $M 31 Dec 16 $M
Net profit for the year Fair value gain on investment properties Fair value loss on derivatives Net impact of foreign currency borrowings and associated hedging loss/(gain) Gain on financial liability at amortised cost Impairment expense Share of after tax profit of equity accounted investments (net of distributions) Derecognition of available for sale financial asset Net gain on disposal of assets Depreciation and amortisation Non-cash employee benefits – security based payments Non-cash revenue adjustments Interest capitalised Profit on sale of inventory Proceeds from sale of inventory Payment for inventories Decrease in operating assets Increase/(decrease) in operating liabilities Net foreign exchange (gain)/loss Reversal of prior period impairment Other Net cash inflows from operating activities	1,269.1 1,152.7 (481.0) (418.1) 5.7 26.6 0.2 (2.2) (2.2) (1.6) 5.4 6.0 (285.0) (236.9) (10.7) – – (15.9) 7.7 7.3 13.2 11.9 8.5 14.8 (8.6) (8.5) (1.5) (1.8) 7.6 12.6 (25.1) (16.1) 21.3 2.4 5.6 (9.0) (0.8) 0.2 – (0.4) 6.1 2.2
	535.5 526.2

(b) Net debt reconciliation

Reconciliation of net debt movements during the financial year:

	Cash $M Borrowings due within 1 year $M Borrowings due after 1 year $M Total $M
Net debt as at 31 December 2016 Cash flows Foreign exchange adjustments Other non-cash movements Net debt as at 31 December 2017	56.3 (48.8) (2,947.8) (2,940.3) (6.4) 28.8 (396.0) (373.6) – – 63.2 63.2 – 0.1 (0.1) –
	49.9 (19.9) (3,280.7) (3,250.7)

16 Commitments

(a) Capital expenditure commitments

Commitments arising from contracts principally relating to the purchase and development of investment properties contracted for at balance date but not recognised on the Consolidated Statement of Financial Position.

	31 Dec 17 $M 31 Dec 16 $M
Retail Office Logistics Properties under development Corporate Total capital expenditure commitments	101.2 144.7 23.1 40.4 6.1 4.6 48.3 9.9 1.4 0.4
	180.1 200.0

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

(b) Operating lease commitments

Operating lease commitments are contracted non-cancellable future minimum lease payments expected to be payable but not recognised on the Consolidated Statement of Financial Position.

not recognised on the Consolidated Statement of Financial Position.
	31 Dec 17 $M 31 Dec 16 $M
Due within one year Due between one and five years Over five years Total operating lease commitments	3.2 2.8 6.2 8.2 – –
	9.4 11.0

(c) Commitments relating to equity accounted investments

GPT’s share of equity accounted investments’ commitments at balance date are set out below:

	31 Dec 17 $M 31 Dec 16 $M
Capital expenditure Total joint ventures and associates’ commitments	31.8 22.6
	31.8 22.6

17. Contingent liabilities

A contingent liability is a liability that is not sufficiently certain to qualify for recognition as a provision where uncertainty may exist regarding the outcome of future events.

As at the end of 2017, GPT has no material contingent liabilities which need to be disclosed.

18. Security based payments

GPT currently has four employee security schemes – the General Employee Security Ownership Plan (GESOP), the Broad Based Employee Security Ownership Plan (BBESOP), the Deferred Short Term Incentive Plan (DSTI) and the Long Term Incentive (LTI) Scheme.

(a) GESOP

The Board believes in creating ways for employees to build an ownership stake in the business. As a result, the Board introduced the GESOP in March 2010 for individuals who do not participate in the LTI.

Under the plan individuals who participate receive an additional benefit equivalent to 10 per cent of their short term incentives (STIC) which is (after the deduction of income tax) invested in GPT securities to be held for a minimum of 1 year.

(b) BBESOP

Under the plan individuals who are not eligible to participate in any other employee security scheme may receive $1,000 worth of GPT securities or $1,000 cash if GPT achieves at least target level performance. Securities must be held for the earlier of 3 years or the end of employment.

(c) DSTI

converting to restricted GPT stapled securities to the extent the performance conditions are met. For the 2014 and 2015 plans, half of the awarded stapled securities will vest one year after conversion with the remaining half vesting two years after conversion, subject to continued employment up to the vesting dates. For the 2016 and 2017 plans, all the awarded stapled securities will vest one year after conversion, subject to continued employment up to the vesting date.

(d) LTI

At the 2009 AGM, GPT securityholders approved the introduction of a LTI plan based on performance rights. Any subsequent amendments to the LTI plan have been approved by GPT securityholders.

The LTI plan covers each 3 year period. Awards under the LTI to eligible participants are in the form of performance rights which convert to GPT stapled securities for nil consideration if specified performance conditions for the applicable 3 year period are satisfied. Please refer to the Remuneration Report for detail on the performance conditions.

The Board determines those executives eligible to participate in the plan and, for each participating executive, grants a number of performance rights calculated as a percentage of their base salary divided by GPT’s volume weighted average price (VWAP) for the final quarter of the year preceding the plan launch.

Fair value of performance rights issued under DSTI and LTI

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

benefit expense recognised each reporting period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the Consolidated Statement of Comprehensive Income with a corresponding adjustment to equity.

Fair value of the performance rights issued under LTI is determined using the Monte Carlo simulation and the Black Scholes methodologies then applying a discount on lack of marketability. Fair value of the performance rights issued under DSTI is determined using the security price then applying a discount on lack of marketability. The following key inputs are taken into account:

into account:
	2017 LTI	2017 DSTI
Fair value of rights	$2.66	$4.86
Security price at valuation date	$4.88	$5.11
Total Securityholder Return	6.6%	N/A
Grant dates	21 February 2017	21 February 2017
Expected vesting dates	31 December 2019	31 December 2018
Security price at the grant date	$4.88	$4.88
Expected life	3 years (2 years remaining)	2 years (1 year remaining)
Distribution yield	4.8%	4.8%
Risk free interest rate	2.0%	N/A
Volatilty1	18.4%	N/A

1 The volatility is based on the historic volatility of the security.

(e) Summary table of all employee security schemes

(e) Summary table of all employee security schemes
	Number of rights
	DSTI LTI Total
Rights outstanding at 1 January 2016 Rights granted during 2016 Rights forfeited during 2016 Rights converted to GPT stapled securities during 20161 Rights outstanding at 31 December 2016 Rights outstanding at 1 January 2017 Rights granted during 2017 Rights forfeited during 2017 Rights converted to GPT stapled securities during 20172 Rights outstanding at 31 December 2017	1,282,432 8,917,888 10,200,320 1,313,947 3,024,264 4,338,211 (345,461) (977,775) (1,323,236) (1,038,279) (2,356,843) (3,395,122)
	1,212,639 8,607,534 9,820,173
	1,212,639 8,607,534 9,820,173 1,338,498 2,854,675 4,193,173 (357,284) (323,771) (681,055) (855,355) (2,792,225) (3,647,580)
	1,338,498 8,346,213 9,684,711

1 Rights under the 2015 DSTI plan were converted to GPT stapled securities on 21 March 2016 and rights under the 2013 LTI Plan were converted to GPT stapled securities on 18 February 2016.

2 Rights under the 2016 DSTI plan were converted to GPT stapled securities on 20 March 2017 and rights under the 2014 LTI Plan were converted to GPT stapled securities on 14 February 2017.

	Number of stapled securities
	GESOP BBESOP Total
Securities outstanding at 1 January 2016 Securities granted during 2016 Securities vested during 2016 Securities outstanding at 31 December 2016 Securities outstanding at 1 January 2017 Securities granted during 2017 Securities vested during 2017 Securities outstanding at 31 December 2017	67,728 53,846 121,574 72,985 57,400 130,385 (79,957) (18,485) (98,442)
	60,756 92,761 153,517
	60,756 92,761 153,517 53,982 48,480 102,462 (60,756) (17,688) (78,444)
	53,982 123,553 177,535

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

19. Related party transactions

General Property Trust is the ultimate parent entity.

Equity interests in joint ventures and associates are set out in note 3. Loans provided to joint ventures and associates as part of the funding of those arrangements are set out in note 4.

Key management personnel

Key management personnel compensation was as follows:

	31 Dec 17 $’000 31 Dec 16 $’000
Short term employee benefits Post employment benefits Long term incentive award accrual Other long term benefits Total key management personnel compensation	6,778.9 6,302.4 168.3 169.2 2,064.3 1,467.2 – 64.3
	9,011.5 8,003.1

Information regarding individual Directors’ and Senior Executives’ remuneration is provided in the Remuneration Report.

There have been no other transactions with key management personnel during the year.

Transactions with related parties

Consolidated entity

31 Dec 17
$’000
31 Dec 16
$’000

Transactions with related parties other than associates and joint ventures
Expenses
Contributions to superannuation funds on behalf of employees
Transactions with associates and joint ventures
Revenue and expenses
Responsible Entity fees from associates
Property management fees
Development management fees from associates
Rent expense
Management fees from associates
Performance fee from associate
Distributions received/receivable from joint ventures
Distributions received/receivable from associates
Payroll costs recharged to associates
Other transactions
Loans advanced to joint ventures
Loan repayments from joint ventures
Increase in units in joint ventures
Increase in units in associates
Divestment of units in associate

(5,704.0)
(5,766.6)
50,744.1
46,800.5
15,660.8
14,622.4
6,963.9
6,200.4
(597.3)
(462.5)
6,441.7
6,003.3
–
28,121.6
48,783.5
44,472.3
110,030.9
95,284.1
9,396.8
9,065.3
–
(1,593.9)
146.0
18,700.0
(17,915.2)
(18,078.4)
(139,818.3)
(365,966.6)
–
38,998.2

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

20. Auditor’s remuneration

	31 Dec 17 $’000 31 Dec 16 $’000
Audit services PricewaterhouseCoopers Australia Statutory audit and review of financial reports Total remuneration for audit services Other assurance services PricewaterhouseCoopers Australia Regulatory and contractually required audits Total remuneration for other assurance services Total remuneration for audit and assurance services Non audit related services PricewaterhouseCoopers Australia Other services Taxation services Total remuneration for non audit related services Total auditor’s remuneration	1,245.2 1,142.8
	1,245.2 1,142.8
	208.5 220.7
	208.5 220.7
	1,453.7 1,363.5
	58.0 18.0 3.5 –
	61.5 18.0
	1,515.2 1,381.5

21. Parent entity financial information

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Parent entity
31 Dec 17 31 Dec 16
$M $M
Assets
Current assets 148.2 161.5
Non-current assets 12,965.3 11,775.7
Total assets 13,113.5 11,937.2
Liabilities
Current liabilities 383.8 439.2
Non-current liabilities 3,424.6 3,019.0
Total liabilities 3,808.4 3,458.2
Net assets 9,305.1 8,479.0
Equity
Equity attributable to secutityholders of the parent entity
Contributed equity 7,833.9 7,816.1
Reserves (13.5) (4.8)
Retained earnings 1,484.7 667.7
Total equity 9,305.1 8,479.0
Profit attributable to members of the parent entity 1,259.4 1,217.8
Total comprehensive income for the year, net of tax, attributable to members of the parent entity 1,259.4 1,217.8
Capital expenditure commitments
Retail 92.4 141.9
Office 11.8 26.5
Logistics 3.9 2.5
Properties under development 48.3 –
Total capital expenditure commitments 156.4 170.9
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As at 31 December 2017, the parent entity had a deficiency of current net assets of $235.6 million (2016: $277.7 million) arising as a result of the inclusion of the provision for distribution payable to stapled securityholders. The parent has access to undrawn financing facilities of $1,045.2 million as set out in note 13.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

22. Fair value disclosures

The most significant categories of assets for which fair values are used are investment properties and financial instruments. Information about how those values are calculated, including the valuation process, critical assumptions underlying the valuations, information on sensitivity and other information required by the accounting standards, is provided in this note.

(a) Fair value measurement, valuation techniques and inputs

A description of the valuation techniques and key inputs are included in the table below:

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Unobservable Unobservable
Class of Fair value Valuation Inputs used to inputs inputs
assets/liabilities hierarchy [1] technique measure fair value 31 Dec 2017 31 Dec 2016
Retail [2] Level 3 Discounted 10 year average specialty market 3.0% – 3.7% 3.2% – 3.9%
cash flow (DCF) rental growth
and income
Gross market rent (per sqm p.a.) $1,280 – $2,252 $1,254 – $2,127
capitalisation
method Adopted capitalisation rate 4.3% – 5.5% 4.8% – 5.8%
Adopted terminal yield 4.5% – 5.8% 5.0% – 6.0%
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	and income capitalisation method Gross market rent (per sqm p.a.) $1,280 – $2,252 $1,254 – $2,127 Adopted capitalisation rate 4.3% – 5.5% 4.8% – 5.8% Adopted terminal yield 4.5% – 5.8% 5.0% – 6.0%
	Adopted discount rate 6.3% – 7.3% 7.3% – 7.8%
Office	Level 3 DCF and income capitalisation method Net market rent (per sqm p.a.) $420 – $1,450 $400 – $1,400 10 year average market rental growth 3.1% – 4.0% 3.2% – 4.1% Adopted capitalisation rate 5.0% – 5.5% 5.2% – 5.8% Adopted terminal yield 5.3% – 5.8% 5.6% – 6.1% Adopted discount rate 6.6% – 7.0% 6.8% – 7.3% Lease incentives (gross) 23.3% – 35.0% 23.3% – 37.5%
Logistics	Level 3 DCF and income capitalisation method Net market rent (per sqm p.a.) $68- $385 $63- $500 10 year average market rental growth 2.8% – 3.4% 2.8% – 3.7% Adopted capitalisation rate 5.5% – 8.0% 5.8% – 8.3% Adopted terminal yield 6.0% – 8.3% 6.3% – 8.5% Adopted discount rate 7.0% – 8.5% 7.3% – 8.5% Lease incentives (gross) 10.0% – 25.0% 10.0% – 25.0%
Properties under development	Level 3 Income capitalisation method, or land rate Net market rent (per sqm p.a.) $115 – $410 $53 – $410 Adopted capitalisation rate 5.8% – 6.8% 6.0% – 6.8% Land rate (per sqm) $122 – $945 $108 – $672
Derivative financial instruments	Level 2 Discounted cash flow (DCF) (adjusted for counterparty creditworthiness) Interest rates Not applicable – all inputs are market observable inputs Basis CPI Volatility Foreign exchange rates
	Level 3 Interest rates Not applicable – market observable input CPI volatility 0.91% 0.94%
Foreign currency borrowings	Level 2 DCF Interest rates Not applicable – all inputs are market observable inputs Foreign exchange rates
Available for sale financial assets	2016: Level 3 DCF Discount rate Not applicable 20% Foreign exchange rates Not applicable Not applicable – market observable input

1 Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

2 Excludes Homemaker City, Maribyrnong in order not to skew the range of inputs.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

DCF method	Under the DCF method, the fair value is estimated using explicit assumptions regarding the benefits and liabilities of
	ownership over the assets’ or liabilities’ life including an exit or terminal value. The DCF method involves the projection
	of a series of cash flows from the assets or liabilities. To this projected cash flow series, an appropriate, market-
	derived discount rate is applied to establish the present value of the cash flow stream associated with the assets or
	liabilities.
Income capitalisation	This method involves assessing the total net market income receivable from the property and capitalising this in
method	perpetuity to derive a capital value, with allowances for capital expenditure and reversions.
Gross market rent	A gross market rent is the estimated amount of rent for which a property or space within a property should lease
	between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper
	marketing and wherein the parties have each acted knowledgeably, prudently and without compulsion. The gross
	market rent is all inclusive and takes into account outgoings and potential turnover rent.
Net market rent	A net market rent is the estimated amount for which a property or space within a property should lease between a
	willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing
	and wherein the parties have each acted knowledgeably, prudently and without compulsion. In a net rent, the owner
	recovers outgoings from the tenant on a pro-rata basis (where applicable).
10 year average	An average of a 10 year period of forecast annual percentage growth rates in Retail specialty tenancy rents. Specialty
specialty market rental growth	tenants are those tenancies with a gross lettable area of less than 400 square metres (excludes ATMs and kiosks).
10 year average market rental growth	The expected annual rate of change in market rent over a 10 year forecast period.
Adopted capitalisation	The rate at which net market income is capitalised to determine the value of a property. The rate is determined with
rate	regards to market evidence and the prior external valuation.
Adopted terminal yield	The capitalisation rate used to convert income into an indication of the anticipated value of the property at the end of
	the holding period when carrying out a discounted cash flow calculation. The rate is determined with regards to market
	evidence and the prior external valuation.
Adopted discount rate	The rate of return used to convert a monetary sum, payable or receivable in the future, into present value. Theoretically
	it should reflect the opportunity cost of capital, that is, the rate of return the capital can earn if put to other uses having
	similar risk. The rate is determined with regards to market evidence and the prior external valuation.
Land rate (per sqm)	The land rate is the market land value per sqm.
Lease incentives	A lease incentive is often provided to a lessee upon the commencement of a lease. Incentives can be a combination of,
	or, one of the following: a rent free period, a fit-out contribution, a cash contribution or rental abatement.
Counterparty credit	Credit value adjustments are applied to derivatives assets based on that counterparty’s credit risk using the observable
worthiness	credit default swaps curve as a benchmark for credit risk.
	Debit value adjustments are applied to derivatives liabilities based on GPT’s credit risk using GPT’s credit default
	swaps curve as a benchmark for credit risk.

(b) Valuation process – investment properties

GPT manages the semi-annual valuation process to ensure that investment properties are held at fair value in GPT’s accounts and that GPT is compliant with applicable regulations (for example the Corporations Act 2001 and ASIC regulations), the GPT RE Constitution and Compliance Plan.

GPT has a Valuation Committee (committee) which is comprised of the Chief Operating Officer, Chief Financial Officer, Head of Funds Management and Head of Capital Transactions.

The purpose of the committee is to:

approve the panel of independent valuers;
review valuation inputs and assumptions;
provide an escalation process where there are differences of opinion from various team members responsible for the valuation;
oversee the finalisation of the valuations; and
review the external valuation sign-off and any comments that have been noted.

All external valuations and internal tolerance checks are reviewed by the valuation committee prior to these being presented to the Board for approval.

External valuations

GPT’s external valuations are performed by independent professionally qualified valuers who hold recognised relevant professional qualifications and have specialised expertise in the investment properties being valued. Selected independent valuation firms form part of a panel approved by the committee. Each valuation firm is limited to undertaking consecutive valuations of a property for a maximum period of two years.

The Valuation Policy requires an external valuation at least annually for all completed investment properties. Properties under development with value of $100 million or greater are externally valued at least every six months. Unimproved land is externally valued at least every three years.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

Internal tolerance checks

Every six months, with the exception of properties externally valued, an internal tolerance check is prepared. The internal tolerance check involves the preparation of a DCF and income capitalisation valuation for each investment property. These are produced using a capitalisation rate, terminal yield and discount rates based on comparable market evidence and recent external valuation parameters. The tolerance measurement will typically be a mid-point of these two approaches.

These internal tolerance checks are used to determine whether the book value is in line with the fair value or whether an external valuation is required.

The valuation of the properties under development is determined by a development feasibility analysis for each parcel of land within each asset. The development feasibility is prepared on an “as if complete” basis and is a combination of the income capitalisation method and where appropriate, the discounted cash flow method. The cost to complete the development includes development costs, finance costs and an appropriate profit and risk margin. These costs are deducted from the “as if complete” valuation to determine the “as is” basis or “current fair value.”

Fair value of vacant land parcels is based on the market land value per square metre.

Highest and best use

Fair value for investment properties is calculated for the highest and best use whether or not current use reflects highest and best use. For all GPT investment properties current use equates to the highest and best use, with the exception of the following:

3 Figtree Drive, Sydney Olympic Park;
7 Figtree Drive, Sydney Olympic Park;
6 Herb Elliott Avenue, Sydney Olympic Park; and
8 Herb Elliott Avenue, Sydney Olympic Park.

After the zoning application is approved, the underlying zoning of 3 and 7 Figtree Drive and 6 and 8 Herb Elliott Avenue, all located at Sydney Olympic Park, will allow for mixed use development which would provide significantly higher floor space ratio than what is currently being achieved. These properties are currently being leased and any potential redevelopment is subject to the expiry of these leases.

(c) Sensitivity information – investment properties

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Fair value measurement sensitivity to Fair value measurement sensitivity to
Significant inputs significant increase in input significant decrease in input
Net market rent
Increase Decrease
10 year average specialty market rental growth
10 year average market rental growth
Adopted capitalisation rate
Adopted terminal yield
Decrease Increase
Adopted discount rate
Lease incentives
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Generally, if the assumption made for the adopted capitalisation rate changes, the adopted terminal yield will change in the same direction. The adopted capitalisation rate forms part of the income capitalisation approach and the adopted terminal yield forms part of the discounted cash flow approach. The mid-point of the two valuations is then typically adopted.

Discounted cash flow approach

When assessing a discounted cash flow, the adopted discount rate and adopted terminal yield have a strong interrelationship because the discount rate will determine the rate at which the terminal value is discounted to the present value. In theory, an increase (softening) in the adopted discount rate and a decrease (tightening) in the adopted terminal yield could potentially offset the impact on fair value, and vice versa. If both the discount rate and terminal yield moved in the same direction, the impact on fair value would be magnified.

Income capitalisation approach

When calculating income capitalisation, the net market rent has a strong interrelationship with the adopted capitalisation rate. This is because the methodology involves assessing the total net market income receivable from the property and capitalising this in perpetuity to derive a capital value. In theory, an increase in the net market rent and an increase (softening) in the adopted capitalisation rate could potentially offset the impact to the fair value, and vice versa. If the net market rent increases but the capitalisation rate goes down (or vice versa), this may magnify the impact on fair value.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

(d) Financial instruments

The following table presents the changes in level 3 instruments for recurring fair value measurements. GPT’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

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Available for sale Derivative
financial asset liabilities Total
$M $M $M
Opening balance 1 January 2016 8.6 (18.4) (9.8)
Fair value movements in profit or loss – 6.1 6.1
Fair value movements in other comprehensive income 0.7 – 0.7
Closing balance 31 December 2016 9.3 (12.3) (3.0)
Opening balance 1 January 2017 9.3 (12.3) (3.0)
Fair value movements in profit or loss – 7.2 7.2
Transfers from level 3 to level 2 (9.3) – (9.3)
Closing balance 31 December 2017 – (5.1) (5.1)
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Sensitivities

The table below summarises the impact from the change of significant inputs on GPT’s profit and on equity for the year.

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31 Dec 17 31 Dec 16
Change of significant input $M $M
Fair value of level 3 derivatives (5.1) (12.3)
1% increase in interest rates – gain 1.4 3.5
1% decrease in interest rates – loss (1.5) (3.5)
Fair value of level 3 available for sale financial asset – 9.3
5% increase in discount rate – loss – (0.6)
5% decrease in discount rate – gain – 0.6
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23. Accounting policies

(a) Basis of preparation

The financial report has been prepared:

in accordance with the requirements of the Trust’s Constitution, Corporations Act 2001, Australian Accounting Standards (AAS) and other authoritative pronouncements of the Australian Accounting Standards Board and International Financial Reporting Standards;
on a going concern basis in the belief that GPT will realise its assets and settle its liabilities and commitments in the normal course of business and for at least the amounts stated in the financial statements. The net deficiency of current assets over current liabilities at 31 December 2017 of $259.4 million arises as a result of the inclusion of the provision for distribution payable to stapled securityholders. GPT has access to undrawn financing facilities of $1,045.2 million as set out in note 13;
under the historical cost convention, as modified by the revaluation for financial assets and liabilities and investment properties at fair value through the Consolidated Statement of Comprehensive Income;
using consistent accounting policies with adjustments to bring into line any dissimilar accounting policies being adopted by the controlled entities, associates or joint ventures; and
in Australian dollars with all values rounded in the nearest hundred thousand dollars in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, unless otherwise stated.

In accordance with Australian Accounting Standards, the stapled entity reflects the consolidated entity. Equity attributable to other stapled entities is a form of non-controlling interest and, in the consolidated entity column, represents the contributed equity of the Company.

As a result of the stapling, investors in GPT will receive payments from each component of the stapled security comprising distributions from the Trust and dividends from the Company.

The financial report was approved by the Board of Directors on 13 February 2018.

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

(b) Basis of consolidation

Controlled entities

The consolidated financial statements of GPT report the assets, liabilities and results of all controlled entities for the financial year.

Controlled entities are all entities over which GPT has control. GPT controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.

Controlled entities are consolidated from the date on which control is obtained to the date on which control is disposed. The acquisition of controlled entities is accounted for using the acquisition method of accounting. All intercompany balances and transactions, income and expenses and profits and losses resulting from intra-group transactions have been eliminated.

Associates

Associates are entities over which GPT has significant influence but not control, generally accompanying a shareholding of between 10% and 50% of the voting rights. Management considered if GPT controls its associates (GPT Wholesale Shopping Centre Fund and GPT Wholesale Office Fund) and concluded that it does not based on the following considerations.

GPT has a 24.95% equity interest in GPT Wholesale Office Fund (GWOF) and 28.80% equity interest in GPT Wholesale Shopping Centre Fund (GWSCF) as at 31 December 2017. GPT Funds Management Limited (GPTFM), which is wholly owned by the GPT Group is the responsible entity (RE) of the Funds. The Board of GPT FM comprises six directors, of which GPT can only appoint two. As a result, the Group has significant influence over GPT FM and accordingly accounts for it as an associate using the equity method. The Group also has significant influence over the Fund’s and accounts for its interests in them using the equity method.

Investments in associates are accounted for using the equity method. Under this method, GPT’s investment in associates is carried in the Consolidated Statement of Financial Position at cost plus post acquisition changes in GPT’s share of net assets. GPT’s share of the associates’ result is reflected in the Consolidated Statement of Comprehensive Income. Where GPT’s share of losses in associates equals or exceeds its interest in the associate, including any other unsecured long term receivables, GPT does not recognise any further losses, unless it has incurred obligations or made payments on behalf of the associate.

Joint arrangements

Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has, rather than the legal structure of the joint arrangement. GPT has assessed the nature of its joint arrangements and determined it has both joint operations and joint ventures.

Joint operations

GPT has significant co-ownership interests in a number of properties through unincorporated joint ventures. These interests are held directly and jointly as tenants in common. GPT recognises its direct share of jointly held assets, liabilities, revenues and expenses in the consolidated financial statements under the appropriate headings. The

investment properties that are directly owned as tenants in common are disclosed in note 2.

Joint ventures

Investments in joint ventures are accounted for in the Consolidated Statement of Financial Position using the equity method which is the same method adopted for associates.

(c) Other accounting policies

Significant accounting policies that summarise the recognition and measurement basis used and are relevant to an understanding of the financial statements are provided throughout the notes to the financial statements.

Other accounting policies include:

(i) Available for sale financial assets

Available for sale financial assets are recognised at fair value. Gains/losses arising from changes in the fair value of the carrying amount of available for sale financial assets are recognised in other comprehensive income.

(ii) Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of the GPT entities are measured using the currency of the primary economic environment in which they operate (‘the functional currency’).

Transactions and balances

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 year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Statement of Comprehensive Income.

Foreign operations

Non-monetary items that are measured in terms of historical cost are converted using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences of non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss.

Exchange differences arising on monetary items that form part of the net investment in a foreign operation are taken against a foreign currency translation reserve on consolidation.

Where forward foreign exchange contracts are entered into to cover any anticipated excesses of revenue less expenses within foreign joint ventures, they are converted at the ruling rates of exchange at the reporting period. The resulting foreign exchange gains and losses are taken to the Consolidated Statement of Comprehensive Income.

(iii) Goods and Services Tax (GST)

Annual Financial Report of The GPT Group

Notes to the Financial Statements – Year ended 31 December 2017

of the amount of GST. The net amount of GST receivable from, or payable to, the taxation authority is included with other receivables or payables in the Consolidated Statement of Financial Position.

Cash flows are presented on a gross basis in the Statement of Cash flows. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(d) New and amended accounting standards and interpretations adopted from 1 January 2017

There are no significant changes to GPT’s financial performance and position as a result of the adoption of the new and amended accounting standards and interpretations effective for annual reporting periods beginning on or after 1 January 2017.

(e) New accounting standards and interpretations issued but not yet adopted

The following standards and amendments to standards are relevant to GPT.

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Application of
Reference Description Standard
AASB 9 Financial Instruments AASB 9 addresses the classification, measurement and de-recognition of financial assets 1 January 2018
and financial liabilities, introduces expanded disclosure requirements, a new impairment
(expected credit loss) model and changes in presentation. When adopted, this could change
the classification and measurement of financial assets and financial liabilities.
The new expected credit loss model for calculating impairment on financial assets will not
have a material impact on the provision for doubtful debts.
The new hedging rules align hedge accounting more closely with the reporting entity’s risk
management practices. As a general rule it will be easier to apply hedge accounting going
forward. Changes in own credit risk in respect of liabilities designated at fair value through
profit and loss must now be presented in other comprehensive income.
Debt modifications where the impact results in a change in the present value of expected
cashflows of less than 10%, taking into account other qualitative factors, will be taken
immediately through the Consolidated Statement of Comprehensive Income unless the
modifications are reset or entered at market rates. This will not have a material impact for
GPT, as all previous modifications have been entered at market rates.
GPT will apply the standard from 1 January 2018.
AASB 15 Revenue from AASB 15 will replace AASB 118 Revenue and AASB 111 Construction Contracts. It is based 1 January 2018
Contracts with Customers on the principle that revenue is recognised when control of a good or service is transferred
to a customer. It contains a single model that applies to contracts with customers and two
approaches to recognising revenue: at a point in time or over time. The model features a
contract–based five-step analysis of transactions to determine whether, how much and
when revenue is recognised. It applies to all contracts with customers except leases,
financial instruments and insurance contracts. It requires reporting entities to provide users
of financial statements with more informative and relevant disclosures.
GPT will apply the standard from 1 January 2018. It is not expected that the application of
this standard will have a material impact on the financial results, however some changes in
the presentation of certain revenue items and additional disclosures will be required. The
disclosure changes will have a greater impact on GPT from 1 January 2019 as there are
certain revenue streams such as outgoings income that will continue to be accounted for
under AASB 117 Leases until the adoption of AASB 16 Leases from 1 January 2019.
AASB 16 Leases AASB 16 will change the way lessees account for leases by eliminating the current dual 1 January 2019
accounting model which distinguishes between on-balance sheet finance leases and
off-balance sheet operating leases. Instead, there will be a single, on-balance sheet
accounting model that is similar to the current finance lease accounting. Where GPT is the
lessee, this new treatment will result in recognition of a right of use asset along with the
associated lease liability in the balance sheet and both a depreciation and interest charge in
the Consolidated Statement of Comprehensive Income. In contrast, lessor accounting will
remain similar to current practice.
The new leasing model requires the recognition of operating leases on the balance sheet. If
GPT had adopted the new standard from 1 January 2017, management estimates that net
profit before tax for the 12 months to 31 December 2017 would decrease by approximately
$0.1 million. Assets at 31 December 2017 would increase by approximately $4.0 million and
liabilities would increase by $6.3 million.
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24. Events subsequent to reporting date

On 24 January 2018, GPT acquired 4 logistics assets in Sunshine, Victoria for a total consideration of $74.0 million.

Other than the above, the Directors are not aware of any matter or circumstance occurring since 31 December 2017 that has significantly or may significantly affect the operations of GPT, the results of those operations or the state of affairs of GPT in subsequent financial years.

Annual Financial Report of The GPT Group

Directors’ Declaration

Year ended 31 December 2017

In the Directors of the Responsible Entity’s opinion:

(a) The consolidated financial statements and notes set out on pages 24 to 62 are in accordance with the Corporations Act 2001, including:
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
giving a true and fair view of GPT’s financial position as at 31 December 2017 and of its performance for the financial year ended on that date; and
(b) the consolidated financial statements and notes comply with International Financial Reporting Standards as disclosed in note 23 to the financial statements.
(c) There are reasonable grounds to believe that GPT will be able to pay its debts as and when they become due and payable. The net deficiency of current assets over current liabilities at 31 December 2017 of $259.4 million arises as a result of the inclusion of the provision for distribution payable to stapled securityholders. GPT has access to undrawn financing facilities of $1,045.2 million as set out in note 13 to the financial statements.

The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer as required by Section 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the Directors.

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Rob Ferguson Chairman

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Bob Johnston Chief Executive Officer and Managing Director

GPT RE Limited Sydney 13 February 2018

Annual Financial Report of The GPT Group

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Annual Financial Report of The GPT Group

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   

  

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  
•  •  •             −    
  

•   −     •  
  
  
 
 
 
 
•   
 
   
       



Annual Financial Report of The GPT Group

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 •           
•         
•          



    

	
	
	
	
35	
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	
 	 
	
	
	

Annual Financial Report of The GPT Group

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       




        



  
   
  
  



   

    

          

 

 
    





   
   
  



     

Annual Financial Report of The GPT Group

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

  



      8  51

      

     

 

 
  
  
  

      

 

 
   
        

     

   

   
      

Annual Financial Report of The GPT Group

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  

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   

 

   

 

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   

 

Annual Financial Report of The GPT Group

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

      

   





42 

 



   

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   

 

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Year ended 31 December 2017

Directors’ Report .......................................................................................................................................................................... 72 Auditor’s Independence Declaration ............................................................................................................................................ 89 Financial Statements .................................................................................................................................................................... 90 Consolidated Statement of Comprehensive Income ............................................................................................................ 90 Consolidated Statement of Financial Position ..................................................................................................................... 91 Consolidated Statement of Changes in Equity ..................................................................................................................... 92 Consolidated Statement of Cash Flows ............................................................................................................................... 93 Notes to the Financial Statements ....................................................................................................................................... 94 Result for the year ....................................................................................................................................................... 94 1. Segment information .............................................................................................................................................. 94 Operating assets and liabilities .................................................................................................................................. 95 2. Equity accounted investments ................................................................................................................................ 95 3. Loans and receivables ............................................................................................................................................ 97 4. Intangible assets ..................................................................................................................................................... 98 5. Inventories .............................................................................................................................................................. 99 6. Property, plant and equipment............................................................................................................................. 100 7. Other assets ......................................................................................................................................................... 101 8. Payables ................................................................................................................................................................ 101 9. Provisions ............................................................................................................................................................. 101 10. Taxation ................................................................................................................................................................. 102 Capital Structure ....................................................................................................................................................... 104 11. Equity and reserves .............................................................................................................................................. 104 12. Earnings per share ............................................................................................................................................... 106 13. Dividends paid and payable .................................................................................................................................. 106 14. Borrowings ........................................................................................................................................................... 106 15. Financial risk management ................................................................................................................................. 107 Other disclosure items .............................................................................................................................................. 110 16. Cash flow information .......................................................................................................................................... 110 17. Commitments ....................................................................................................................................................... 111 18. Contingent liabilities ............................................................................................................................................ 111 19. Security based payments ..................................................................................................................................... 111 20. Related party transactions .................................................................................................................................. 113 21. Auditors remuneration ......................................................................................................................................... 115 22. Parent entity financial information....................................................................................................................... 115 23. Fair value disclosures .......................................................................................................................................... 116 24. Discontinued operations and available for sale financial assets ......................................................................... 117 25. Accounting policies ............................................................................................................................................... 118 26. Events subsequent to reporting date ................................................................................................................... 120 Directors’ Declaration ................................................................................................................................................................. 121 Independent Auditor’s Report .................................................................................................................................................... 122

This financial report covers both GPT Management Holdings Limited (the Company) as an individual entity and the Consolidated Entity consisting of GPT Management Holdings Limited and its controlled entities.

GPT Management Holdings Limited is a company limited by shares, incorporated and domiciled in Australia.

Through our internet site, we have ensured that our corporate reporting is timely, complete and available globally at minimum cost to the Company. All press releases, financial reports and other information is available on our website: www.gpt.com.au .

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report

Year ended 31 December 2017

The Directors of GPT Management Holdings Limited (the Company), present their report together with the financial statements of GPT Management Holdings Limited and its controlled entities (the Consolidated Entity) for the financial year ended 31 December 2017. The Consolidated Entity is stapled to the General Property Trust and the GPT Group (GPT or the Group) financial statements include the results of the stapled entity as a whole.

GPT Management Holdings Limited is a company limited by shares, incorporated and domiciled in Australia. The registered office and principal place of business is MLC Centre, Level 51, 19 Martin Place, Sydney NSW 2000.

1. Operating and financial review

About GPT

GPT’s strategy is focused on leveraging its extensive real estate experience to deliver strong returns through disciplined investment, asset management and development. The development capability has a focus on creating value for securityholders through the enhancement of the core investment portfolio and in the creation of new investment assets.

Review of operations

The Consolidated Entity’s financial performance for the year ended 31 December 2017 is summarised below. The net loss after tax for the year ended 31 December 2017 is $14,222,000 (2016: net profit of $19,821,000).

	31 Dec 17 $’000 31 Dec 16 $’000 Change %
Property management fees Development management fees and revenue Fund management fees Management costs recharged Proceeds from sale of inventory Other income Expenses Profit from continuing operations before income tax expense Income tax expense (Loss)/profit after income tax for continuing operations Loss from discontinued operations Net (loss)/profit for the year	38,863 41,227 (6%) 32,039 69,232 (54%) 77,206 99,044 (22%) 32,334 33,009 (2%) 10,358 12,532 (17%) 18,368 48,173 (62%) (203,315) (231,697) 12%
	5,853 71,520 (92%) (6,406) (22,649) 72%
	(553) 48,871 (101%) (13,669) (29,050) 53%
	(14,222) 19,821 (172%)

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

Consolidated Entity result

The decrease in earnings after tax compared with 2016 is mainly attributable to decreases in development management revenue, performance management fees earned for GPT Wholesale Office Fund (GWOF), proceeds from sale of inventory and other income. This is partially offset by a decrease in expenses.

Property management

Retail

The Consolidated Entity is responsible for property management activities across the retail sector. Property management fees decreased to $28,986,000 in 2017 as a result of lower development leasing fees due to the completion of a redevelopment in 2016 and lower energy income.

Office

The Consolidated Entity is responsible for property management activities across the office sector. Property management fees increased to $7,920,000 in 2017 as a result of higher membership income from Space & Co.

Logistics

The Consolidated Entity is responsible for property management activities across the logistics sector. Property management fees decreased to $1,957,000 in 2017 as a result of lower occupancy in the portfolio.

Development management

Retail

During 2017, retail development contributed $5.3 million to profit from continuing operations before income tax expense (2016: $5.8 million) from the sale of residential land parcels at Rouse Hill.

Office

The office development team has focused on progressing a number of repositioning projects at Melbourne Central Tower, CBW and 750 Collins Street in Melbourne and MLC Centre in Sydney. Progress is also being made on the planning approval for a new tower at Darling Park.

Logistics

In 2017, the logistics development business completed construction of four new logistics facilities totalling 70,000sqm at Seven Hills, Eastern Creek and Huntingwood in Sydney and Wacol in Brisbane. 100 per cent of this space has been leased. At the Huntingwood site, construction has commenced to develop an 11,000sqm warehouse on the adjoining land parcel to the existing building recently leased to IVE Group for 10 years. Planning approval is also in place and earthworks completed on Lot 21 Old Wallgrove Road site at Eastern Creek for a 30,000sqm facility.

Funds Management

GPT Wholesale Office Fund (GWOF)

GWOF’s portfolio value increased to $7.1 billion, up $0.5 billion compared to 2016. The management fee income earned from GWOF decreased by $23.0 million as compared to 2016, primarily due to performance fee income of $28.1 million being earned in 2016 which will not be earned in the future in accordance with the revised Fund Terms. This was partially offset by higher base management fee income of $5.1 million due to strong upward revaluations across the portfolio, net new asset acquisitions and a higher base management fee structure compared with 2016.

In June 2017, GPT acquired a further 16.3 million securities in GWOF for $23.2 million, increasing GPT’s ownership interest from 24.53 per cent to 24.95 per cent.

GPT Wholesale Shopping Centre Fund (GWSCF)

In May 2017, GPT acquired a further 115.6 million securities in GWSCF for $116.6 million, increasing GPT’s ownership interest from 25.29 per cent to 28.80 per cent.

Fund Terms Review

On 20 February 2017, GWSCF held an Extraordinary General Meeting (EGM) in relation to changes in the terms of GWSCF. At the EGM, investors approved all seven resolutions put to the meeting.

The key changes included:

removal of the performance fee structure from 1 April 2017;
introduction of an Investor Representation Committee; and
other amendments to operational policies and investor rights.

The acquisition of an office development site of 2,439sqm in the heart of Parramatta’s commercial district settled in March 2017. This site will provide the opportunity to develop an office building of over 28,000sqm, with the development application submitted.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

Investor Liquidity Review

On 31 March 2017, the first investor liquidity 10 year review concluded which allowed GWSCF securityholders to notify GPT Funds Management Limited (as Responsible Entity of GWSCF) whether they required liquidity. The outcome of the review was that binding requests for liquidity for a total of 78,474,213 securities, being 2.4 per cent of securities on issue, were submitted. This equated to $79.8 million at the 31 March 2017 current unit value of $1.0174. All requests for liquidity were met within the June 2017 quarter.

Management expenses

Management expenses increased to $73.4 million (2016: $71.0 million) predominantly caused by lower intercompany income elimination and moderate expense increases. In 2017, GPT achieved an MER of 34 basis points (2016: 37 basis points).

Non-core operations

Joint venture

In October 2017, the Consolidated Entity received a return of capital of $10.7 million in respect of its 5.3 per cent interest in BGP Holding Plc (BGP). BGP was classified as an available for sale financial asset with a carrying value of $9.3 million at 31 December 2016. In 2017, following the return of capital the asset has been revalued and derecognised in the Consolidated Statement of Financial Position and $10.7 million has been recognised in the Consolidated Statement of Comprehensive Income as profit on derecognition of available for sale financial asset.

Financial position

Financial position
	31 Dec 17 $’000 31 Dec 16 $’000 Change %
Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets	133,715 134,583 (1%) 266,955 249,851 7%
	400,670 384,434 4% 129,304 104,536 24% 115,471 98,080 18%
	244,775 202,616 21%
	155,895 181,818 (14%)

Total assets remains in line with prior year at $400,670,000 in 2017 (2016: $384,434,000).

Capital management

The Consolidated Entity has an external loan relating to the Metroplex joint venture.

The Consolidated Entity has non-current, related party borrowings from GPT Trust and its subsidiaries. Under Australian Accounting Standards, the loans must be revalued to fair value each reporting period.

Cash flows

The cash balance as at 31 December 2017 increased to $20,033,000 (2016: $17,842,000).

Operating activities

Net cash inflows from operating activities have decreased in 2017 to $13,943,000 (2016: $55,605,000) due to the removal of the performance fee structure and reduced funds management fees resulting from the sale of GPT Metro Office Fund (GMF) in 2016.

The following table shows the reconciliation from net (loss)/profit to the cash flow from operating activities:

	31 Dec 17 $’000 31 Dec 16 $’000 Change %
Net (loss)/profit for the year Non-cash items included in net (loss)/profit Capital return from available for sale financial asset Timing difference Net cash flows from operating activities	(14,222) 19,822 (172%) 62,207 76,880 (19%) (10,699) (12,429) 14% (23,343) (28,668) 19%
	13,943 55,605 (75%)

Investing activities

Net cash inflows from investing activities have increased to $6,165,000 in 2017 (2016: $5,048,000) due to a decline in property, plant and equipment acquisitions during the year.

Financing activities

Net cash outflows from financing activities have decreased to $17,917,000 in 2017 (2016: $73,191,000) due to a decline in the repayment of related party borrowings.

Dividends

The Directors have not declared any dividends for the year ended 31 December 2017 (2016: nil).

Total liabilities increased by 21 per cent to $244,775,000 in 2017 (2016: $202,616,000) due to increased borrowings to fund inventory development.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

Prospects

Group

Retail

Office

Logistics

Risks

Employees, contractors, the Leadership Team, the Sustainability and Risk Committee, the Audit Committee and through them, the Board:

report on or receive reports on GPT’s risk management practices and control systems including the effectiveness of GPT’s management of its material business risks;
promote risk awareness and assess the risk management culture;
develop and maintain internal specialist risk management expertise;
identify and assess risks in a timely and consistent manner;
design, embed and assess the effectiveness of controls; and
provide transparency and assurance that the risk profile is aligned with GPT’s strategy, values and risk appetite.

Funds management

Guidance for 2018

In 2018, GPT expects to deliver approximately 3 per cent growth in Funds From Operations (FFO) per ordinary security and approximately 3 per cent growth in distribution per ordinary security. Achieving this target is subject to risks detailed in the following section.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

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Risk Category Risk/Issue Potential Strategic Impact Mitigation
Investment Investments do not perform in line • Investments deliver lower • Formal deal management process
mandate with forecast investment performance • Active asset management
than target including regular forecasting and
• Credit rating downgrade monitoring of performance
• High quality property portfolio
• Development program to enhance
asset returns
• Comprehensive asset
insurance program
Volatility and speed of adverse changes • Investments deliver lower • Holistic capital management
in market conditions, including investment returns than target • Large multi asset portfolio
competition and digital disruption • Monitoring of asset concentration
• Digital strategy
Development Developments do not perform in line • Developments deliver lower • Formal development approval and
with forecast returns than target management process
Leasing Inability to lease assets in line with • Investments deliver lower • Large and diversified tenant base
forecast investment performance than target • High quality property portfolio
• Experienced leasing team
• Development program to enhance
asset returns
Capital Re-financing and liquidity risk • Limits ability to meet debt • Diversity of funding sources and
management, maturities spreading of debt maturities with a
including macro- • Constrains future growth long weighted average debt term
economic factors • Limits ability to execute strategy • Maintaining a minimum liquidity
• May impact distributions buffer in cash and surplus
committed credit facilities for the
• Failure to continue as a
forward rolling twelve-month period
going concern
Interest rate risk – higher interest rate • Detrimental impact to • Interest rate exposures are
cost than forecast investment performance actively hedged
• Adversely affect GPT’s
operating results
Health and safety Incidents causing injury to tenants, • Criminal/civil proceedings and • Formalised Health and Safety
visitors to the properties, employees resultant reputation damage management system including
and/or contractors • Financial impact of remediation policies and procedures for
and restoration managing safety
• Training and education of staff
and contractors
People Inability to attract, retain and develop • Limits the ability to deliver the • Competitive remuneration
talented people and provide an business objectives and strategy • Structured development planning
inclusive workplace • Succession planning and talent
management
• Diversity & Inclusion Working Group
• Diversity & Inclusion policies,
guidelines and training
Environmental Inability to continue operating in a • Limits the ability to deliver the • Formalised Environment and
and social manner that does not compromise business objectives and strategy Sustainability management system
sustainability the health of ecosystems and meets • Criminal/civil proceedings and including policies and procedures
accepted social norms resultant reputation damage for managing environmental and
This includes the consideration of • Financial impact of remediation social sustainability risks
climate change, energy (initiatives, and restoration
security and cost), community and
supply chain
Information Risk of loss of data, breach of • Limits the ability to deliver the • Technology risk management
security confidentiality, regulatory breach business objectives and strategy framework
(privacy) and/or reputational • Criminal/civil proceedings and • Privacy policy, guidelines and
impact including as a result from a resultant reputation damage procedures
cyber attack
• Financial impact of remediation
and restoration
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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

2. Environmental regulation

More information about GPT’s participation in the NGER program is available at www.gpt.com.au .

3. Events subsequent to reporting date

On 15 January 2018, the Consolidated Entity sold vacant land at 368 Wembley Road, Berrinba for a total consideration of $4,100,000.

Other than the above, the Directors are not aware of any matter or circumstances occurring since 31 December 2017 that has significantly or may significantly affect the operations of the Consolidated Entity, the results of those operations or the state of affairs of the Consolidated Entity in the subsequent financial years.

4. Directors and secretary

Information on directors

Rob Ferguson – Chairman

Rob currently holds Non-Executive directorships in the following listed and other entities:

Primary Health Care Limited (since 2009) – Chairman
Watermark Market Neutral Fund Limited (since 2013)
Tyro Payments Limited (since 2005)
Smartward Limited (since 2012).

He was also a Non-Executive Chairman of IMF Bentham Limited from 2004 to January 2015.

As at the date of this report, he holds 207,628 GPT stapled securities.

Robert Johnston – Chief Executive Officer and Managing Director

As at the date of this report, he holds 343,264 GPT stapled securities.

Brendan Crotty

Brendan is currently a director of Brickworks Limited (since 2008) and Chairman of Cloud FX Pte Ltd. Brendan resigned from his role as Chairman of Western Sydney Parklands Trust on 31 December 2017.

As at the date of this report, he holds 67,092 GPT stapled securities.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

Eileen Doyle

Eileen currently holds the position of Non-Executive Director in the following listed and other entities:

Boral Limited (since 2010)
Oil Search Limited (since 2016).

Eileen was also previously a director of Bradken Limited from 2011 to November 2015.

As at the date of this report, she holds 45,462 GPT stapled securities.

Swe Guan Lim

Gene Tilbrook

Gene currently holds the position of Non-Executive Director in the following listed entities:

Orica Limited (since 2013)
Woodside Petroleum Limited (since 2014).

As at the date of this report, he holds 48,546 GPT stapled securities.

James Coyne – General Counsel and Company Secretary

Lisa Bau – Senior Legal Counsel and Company Secretary

Lisa was appointed as a Company Secretary of GPT in September 2015. Her previous experience includes legal roles in mergers and acquisitions, capital markets, funds management and corporate advisory.

As at the date of this report, he holds 15,800 GPT stapled securities.

Michelle Somerville

Michelle currently holds the position of Non-Executive Director in the following entities:

Bank Australia Limited (since 2014)
Challenger Retirement and Investment Services Ltd (since 2014)
Save the Children (Australia) (since 2012)
Down Syndrome Australia (since 2011).

Michelle is also an independent consultant to the UniSuper Ltd Audit, Risk and Compliance Committee since 2015.

As at the date of this report, she holds 16,157 GPT stapled securities.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

Attendance of directors at meetings

The number of Board meetings, including meetings of Board Committees, held during the financial year and the number of those meetings attended by each Director is set out below:

	Board	Board	Audit Committee	Audit Committee	Nomination and Remuneration Committee	Nomination and Remuneration Committee	Sustainability and Risk Committee	Sustainability and Risk Committee
	Number of meetings attended	Number of meetings eligible to attend	Number of meetings attended	Number of meetings eligible to attend	Number of meetings attended	Number of meetings eligible to attend	Number of meetings attended	Number of meetings eligible to attend
Chair	Rob Ferguson Michelle Somerville Gene Tilbrook Eileen Doyle
Rob Ferguson	12 12 – – 6 6 – –
Robert Johnston	12 12 – – – – – –
Brendan Crotty	12 12 4 4 – – 4 4
Eileen Doyle	12 12 3 3 6 6 4 4
Swe Guan Lim	12 12 4 4 – – 4 4
Michelle Somerville	12 12 4 4 – – 3 3
Gene Tilbrook	12 12 – – 6 6 – –

5. Other disclosures

Indemnification and insurance of directors, officers and auditor

Non-audit services

the Audit Committee reviewed the non-audit services and other assurance services at the time of appointment to ensure that they did not impact upon the integrity and objectivity of the auditor;
the Board’s own review conducted in conjunction with the Audit Committee concluded that the auditor independence was not compromised, having regard to the Board’s policy with respect to the engagement of GPT’s auditor; and
the fact that none of the non-audit services provided by PricewaterhouseCoopers during the financial year had the characteristics of management, decision-making, self-review, advocacy or joint sharing of risks.

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 on page 89 and forms part of the Directors’ Report.

Rounding of amounts

The amounts contained in this report and in the financial statements have been rounded to the nearest thousand dollars unless otherwise stated (where rounding is applicable) under the option available to the Consolidated Entity under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Consolidated Entity is an entity to which the Instrument applies.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

6. Remuneration report

Governance

Who are the	The Committee consists of 3 Non-Executive Directors:
members of the	•Gene Tilbrook (Committee Chairman)
Committee?	•Eileen Doyle
	•Rob Ferguson
What is the scope	The Committee provides advice and recommendations to the Board on:
of work of the	•Criteria for selection of Directors;
Committee?	•Nominations for appointment of Directors;
	•Criteria for reviewing the performance of Directors individually and the GPT Board collectively;
	•Remuneration policies for Directors and Committee members;
	•Remuneration amounts for Directors from within the overall Directors fee cap approved by securityholders;
	•Remuneration policy for the Chief Executive Officer (CEO) and employees;
	•Incentive plans for the CEO and employees, including exercising discretion where appropriate in determining
	short term incentive compensation (STIC) and long term incentive compensation (LTI) outcomes; and
	•Any other related matters regarding executives or the Board1.
Who is included in	GPT’s Key Management Personnel (KMP) are the individuals responsible for planning, controlling and managing
the Remuneration	the GPT Group (being the Non-Executive Directors, CEO, Chief Financial Officer (CFO), and the Chief Operating
Report?	Officer (COO)).

Committee key decisions and remuneration outcomes in 2017

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Platform component Key decisions and outcomes
Base pay (Fixed) • Implemented the annual review of employee base pay effective 1 January 2017, with an average increase of
3.6 per cent.
• Implemented an average increase of 3.0 per cent in Non-Executive Director base fees effective 1 January 2017.
This was the first review of base fees since 1 January 2015.
Short term incentive • The Group achieved an EPS growth outcome of 3.0 per cent which generated a STIC pool of $13.8 million.
compensation (STIC)
Long term incentive • The Group achieved a compound annual Total Return [2] for the 2015-17 period of 14.05 per cent, exceeding the
(LTI) compensation maximum target of 9.75 per cent, and delivered a Total Securityholder Return (TSR) [3] of 44.34 per cent which
ranked 5th against the comparator group.
• As a result, the vesting outcome for the 2015-17 LTI plan was 83.29 per cent of the performance rights for each
of the 23 participants in the LTI plan.
• Launched the 2017-2019 LTI with two performance measures, Total Return and Relative TSR.
• Strengthened the performance hurdle for vesting under the Total Return measure to commence at 8.5 per cent
and reach maximum at 10 per cent.
Other employee • Continued the General Employee Security Ownership Plan (GESOP) for 137 STIC eligible employees not in the
ownership plans LTI. Under GESOP each participant receives an amount equal to 10 per cent of their STIC (less tax) delivered in
GPT securities, which must be held for at least 1 year.
• Continued the Broad Based Employee Security Ownership Plan (BBESOP) for 281 employees ineligible for
GESOP. Under BBESOP, participants receive $1,000 worth of GPT securities that cannot be transferred or sold
until the earlier of 3 years from the allocation date or cessation of employment (or $1,000 cash (less tax) at the
election of the individual).
Policy & governance • Utilised external advice on market compensation benchmarks and practice, prevailing regulatory and governance
standards, and drafting of incentive plan documentation from Ernst & Young and Conari Partners [4] .
Diversity • Completed an organisation wide gender pay equity audit and launched GPT’s Gender Equality Policy.
• GPT’s CEO Bob Johnston is a member of the Property Male Champions of Change, and was also appointed a
Gender Pay Equity Ambassador by the Workplace Gender Equality Agency (WGEA).
• Increased the percentage of females in senior leadership roles from 36.7 per cent at the end of 2016 to 41.4 per cent.
• Maintained participation of First Nations employees in the permanent workforce at 1 per cent.
• Launched GPT’s LGBTI Strategy and established an ally network.
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1 Further information about the role and responsibility of the Committee is set out in its Charter which is available on GPT’s website ( www.gpt.com.au ). 2 Total Return is defined as the sum of the change in Net Tangible Assets (NTA) plus distributions over the performance period, divided by the NTA at the beginning of the performance period.

3 TSR represents an investor’s return, calculated as the percentage difference between an initial amount invested in stapled securities and the final value of those stapled securities at the end of the relevant period, assuming distributions were reinvested.

4 During 2017, no remuneration recommendations in relation to Key Management Personnel, as defined by Division 1 of Part 1.2 of Chapter 1 of the Corporations Act 2001 , were made by these or other consultants.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

GPT’s vision and financial goals linked to remuneration structures

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GPT’s vision & financial goals
To be the most respected
property company in Australia
Generate competitive Relative Generate competitive
in the eyes of our Investors, Total Return > 8.5 per cent
Total Securityholder Return EPS growth
People, Customers
and Communities
Total remuneration components
Base pay (Fixed) STIC (variable) LTI (variable) Other employee ownership plans
• Base level of reward. • Discretionary, at risk, and • Discretionary, at risk, and (variable)
• Set around Australian market with aggregate STIC funding aligned to overall Group GESOP
median using external aligned to overall Group financial outcomes. • For STIC eligible individuals
benchmark data (including financial outcomes. • Set around market median who are ineligible for LTI.
AON Hewitt and the Financial • Set around market median for target performance with • Equal to 10 per cent of their
Institutions Remuneration for target performance with potential to achieve top STIC (less tax) delivered in
Group (FIRG)). potential to achieve top quartile for stretch outcomes. GPT securities, which must be
• Reviewed based on quartile for stretch outcomes. • Vesting determined by GPT held for at least 1 year.
employee’s responsibilities, • Determined by GPT and performance against Total BBESOP
experience, skill and individual performance Return and Relative TSR
performance. against a mix of balanced financial performance. • For individuals ineligible for
• External & internal scorecard measures which • Relative TSR is measured STIC or LTI.
relativities considered. include financial and non- against ASX200 AREIT • GPT must achieve at least
financial measures. Accumulation Index Target outcome on annual
• Financial measures include (including GPT). EPS growth.
EPS growth, portfolio, fund • Assessed over a 3 year • A grant of $1,000 worth of
and/or property level metrics. performance period, no GPT securities which must
• Non-financial objectives focus re-testing. be held until the earlier of
on execution of strategy, • No value derived unless GPT 3 years from the allocation
delivery of key projects and meets or exceeds defined date or cessation of
developments, and people and performance measures. employment (or $1,000 cash
(less tax) at the election of
culture objectives.
• Delivered in GPT securities the individual).
• Delivered in cash, or (for senior
to align executive and
executives), a combination of
securityholder interests.
cash and equity with deferred
vesting for 1 year.
Attract, retain, motivate and reward high calibre executives to Align executive rewards to GPT’s performance and securityholder
deliver superior performance by providing: interests by:
• Competitive rewards. • Assessing incentives against financial and non-financial
• Opportunity to achieve incentives beyond base pay based on business measures that are aligned with GPT strategy.
high performance. • Delivering a meaningful component of executive remuneration in
the form of equity subject to performance hurdles being achieved.
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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

Employment Terms

1. Employment terms – Chief Executive Officer and Managing Director

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Term Conditions
Contract duration Open ended.
Termination by Executive 6 months’ notice. GPT may elect to make a payment in lieu of notice.
Remuneration Package Bob Johnston’s 2017 remuneration arrangements were as follows:
• Fixed pay: $1,435,000.
• STIC: $0 to $1,793,750 (i.e. 0 per cent to 125 per cent of base pay) based on performance and paid in an
equal mix of cash and deferred GPT securities, with the securities component vesting one year after the
conclusion of the performance year.
• LTI: A grant of performance rights with the face value at time of grant of $2,152,500 (i.e. 150 per cent
of base pay) with vesting outcomes dependent on performance and continued service, and delivered in
restricted GPT securities.
Termination by Company No notice requirement or termination benefits (other than accrued entitlements).
for cause
Termination by Company 12 months’ notice. Treatment of unvested STIC and LTI will be at the Board’s discretion under the terms of the
(other) relevant plans and GPT policy.
Post-employment restraints 6 months non-compete, and 12 months non-solicitation of GPT employees.
External Directorships Bob Johnston is a Director on the Boards of the Property Industry Foundation (PIF) and the Property Council of
Australia (PCA). He does not receive remuneration for these roles.
Clawback Policy All GPT employees who participate in STIC and LTI are subject to remuneration being clawed back if the
recipient has acted fraudulently, dishonestly, or where there has been a material misstatement or omission in
the Group’s financial statements leading to the receipt of an unfair benefit.
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2. Employment terms – Executive KMP

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Term Conditions
Contract duration Open ended.
Termination by Executive 3 months’ notice. GPT may elect to make a payment in lieu of notice.
Remuneration Package Component Mark Fookes Anastasia Clarke
Fixed pay $820,000 $750,000
STIC [5] $0 to $820,000 $0 to $750,000
LTI $0 to $820,000 $0 to $750,000
Termination by Company No notice requirement or termination benefits (other than accrued entitlements).
for cause
Termination by Company 3 months’ notice. Severance payments may be made subject to GPT policy and capped at the three year average
(other) of the executive’s annual base (fixed) pay. Treatment of unvested STIC and LTI will be at the Board’s discretion
under the terms of the relevant plans and GPT policy.
Post-employment restraints 12 months non-solicitation of GPT employees.
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3. Compensation mix at maximum STIC and LTI outcomes

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5 The STIC is paid in an equal mix of cash and deferred GPT securities, with the securities component vesting 1 year after the conclusion of the performance year.

6 The percentage of each component of total remuneration is calculated with reference to maximum or stretch potential outcomes as set out under Remuneration Package in Tables 1 and 2 above.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

Group Financial Performance & Incentive Outcomes

1. Five year Group financial performance

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2017 2016 2015 2014 2013
Total Securityholder Return (TSR) (%) 6.6 10.1 15.4 34.5 4.1
Total Return (%) 15.2 15.5 11.5 9.6 8.5
NTA (per security) ($) 5.04 4.59 4.17 3.94 3.79
FFO (per security) [7] (cents) 30.8 29.9 28.3 26.8 25.7
Security price at end of calendar year ($) 5.11 5.03 4.78 4.35 3.40
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2. Summary of CEO Objectives and Performance Outcomes

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Performance measure Reason chosen Weighting Performance outcomes
Financial Earnings per security EPS is a key 70% The Group delivered EPS of 30.8 cents and EPS growth of
(EPS) and EPS growth financial 3.0 per cent for 2017. This was consistent with budget but
targets. measure of GPT’s below the stretch objective set by the Board.
performance.
Strategy Strategy objectives Developing, 15% Strategy plans have been developed and updated for each
focussed on exploring communicating division, approved by the Board, and implementation of
growth opportunities and implementing plans is on-track.
for GPT group, as well GPT’s strategy Acquisition opportunities consistent with strategy
as development & will underpin were targeted throughout the year but the Group was
implementation of strategy GPT’s medium unsuccessful in securing major new opportunities that
plans for each division. term activities. met the Group’s return expectations.
Performance Operational objectives Focus on delivery 10% GWSCF performance was a 1 year equity IRR of
focused on driving of investment 12.5 per cent, and fund terms were successfully renewed.
performance of the and fund GWOF performance was a 1 year equity IRR of
investment portfolio and performance, 13.4 per cent, and GPT acquired a further $23.2m worth
on fund term reviews, conversion of of units to take the Group’s position to 25 per cent.
fund performance, the development
The expansion of the Rouse Hill Town Centre was delayed
key milestones in the pipeline and
due to changing retail market conditions and authority
development pipeline, operational
delays have hampered progress on the mixed-use
and other projects. efficiency to
opportunities at Sydney Olympic Park and Camellia.
optimise GPT’s
performance. The Darling Park Stage 4 opportunity has been further
advanced. $88.5m of Logistics development projects were
completed at Seven Hills, Huntingwood and Wacol, with a
further $126.5m of projects underway.
The Sunshine Plaza redevelopment is expected to be
completed successfully in the 4th Quarter of 2018. The
Group has also successfully completed the repositioning
of Wollongong Central.
People People objectives centred Maintaining a 5% Employee engagement has been independently assessed
on increasing employee high performing and the Group’s sustainable engagement score increased
engagement, driving our executive team 3 per cent to 82 per cent.
diversity and inclusion and achieving Gender diversity remained a focus for 2017 with female
agenda, and leadership engagement and representation in senior leadership roles increasing to
team performance. diversity goals 41.4 per cent.
is key to GPT’s
Aboriginal and Torres Strait Islander representation in the
performance.
permanent workforce has remained steady at 1 per cent.
Strategies have been implemented to ensure that GPT
is an inclusive organisation for all including our LGBTI,
Aboriginal and Torres Strait Islander employees.
The Leadership Team and senior cohort completed Hogan
Profiles as part of leadership development activities to
help drive business performance.
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7 Represents Realised Operating Income (ROI) until 2013.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

3. 2017 STIC Framework

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2016 STIC Received as a % of STIC potential 0–50% 50–60% 60–70% 70–80% 80–90% 90–100%
Percentage of STIC participants 6.0% 6.9% 31.9% 44.9% 10.3% 0.0%
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4. 2017 STIC outcomes by Executive KMP[9]

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Actual STIC % of maximum Equity component
Actual STIC awarded as a % of STIC award Cash (# of GPT
Executive KMP Position awarded maximum STIC forfeited component securities) [10]
Bob Johnston Chief Executive Officer $1,142,000 63.67% 36.33% $571,000 119,958
and Managing Director
Anastasia Clarke Chief Financial Officer $500,000 66.67% 33.33% $250,000 52,521
Mark Fookes Chief Operating Officer $540,000 65.85% 34.15% $270,000 56,723
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8 i.e. excluding the KMP.

9 Excluding the impact of movements in the GPT security price on deferred STIC value received.

10 The number of deferred GPT securities granted are calculated by dividing 50 per cent of the Actual STIC awarded by GPT’s Q4 2016 VWAP of $4.76. The deferred GPT securities will vest subject to service on 31 December 2018.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

5. Group performance measures for LTI Plans

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LTI
performance Vesting % by
measurement performance
LTI period Performance measure Performance measure hurdle Weighting Results measure
2015 2015-17 Relative TSR versus 50 per cent of rights vest at 51st 50% TSR of 66.58%
comparator group percentile, up to 100 per cent 44.34 per cent.
at the 75th percentile (pro rata Relative TSR
vesting in between) of 5th out of 11
participants,
placing GPT at the
58.96th percentile.
Total Return 25 per cent of rights vest at 9 per 50% Compound TR of 100%
cent Total Return, up to 100 per 14.05 per cent.
cent at 9.75 per cent Total Return
(pro-rata vesting in between)
2016 2016-18 Relative TSR versus ASX200 10 per cent of rights vest at Index 50% N/A N/A
AREIT Accumulation Index performance, up to 100 per cent
(including GPT) at Index plus 10 per cent (pro rata
vesting in between)
Total Return 0 per cent of rights vest at 8 per 50% N/A N/A
cent Total Return, up to 100 per
cent at 9.5 per cent Total Return
(pro-rata vesting in between)
2017 2017-19 Relative TSR versus ASX200 10 per cent of rights vest at Index 50% N/A N/A
AREIT Accumulation Index performance, up to 100 per cent
(including GPT) at Index plus 10 per cent (pro rata
vesting in between)
Total Return 0 per cent of rights vest at 8.5 per 50% N/A N/A
cent Total Return, up to 100 per
cent at 10.0 per cent Total Return
(pro-rata vesting in between)
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6. 2015-2017 LTI outcomes by Executive KMP

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Performance Performance Performance
Senior Executive Position rights granted rights vested rights lapsed
Bob Johnston Chief Executive Officer and 430,476 358,543 71,933
Managing Director
Anastasia Clarke Chief Financial Officer 104,981 87,439 17,542
Mark Fookes Chief Operating Officer 194,747 162,205 32,542
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7. LTI outcomes – fair value and maximum value recognised in future years[11]

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Performance Maximum value to
LTI Fair value per rights granted as at be recognised in
Executive KMP Outcome Grant date performance right 31 Dec 17 Vesting date future years
Bob Johnston 2017 22 May 2017 $2.66 452,206 31 Dec 19 $955,709
Chief Executive Officer 2016 16 May 2016 $2.96 450,257 31 Dec 18 $903,120
and Managing Director
Anastasia Clarke 2017 21 February 2017 $2.66 157,563 31 Dec 19 $293,563
Chief Financial Officer 2016 16 May 2016 $2.96 139,365 31 Dec 18 $314,439
Mark Fookes 2017 21 February 2017 $2.66 172,269 31 Dec 19 $320,962
Chief Operating Officer 2016 16 May 2016 $2.96 171,527 31 Dec 18 $387,004
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11 For the avoidance of doubt, the GPT incentive plans (i.e. STIC and LTI) use face value grants of performance rights based on the volume weighted average security price (VWAP) of GPT securities for specified periods; reference to fair value per performance right is included in this table to comply with accounting standards.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

8. Reported remuneration – Executive KMP – Actual Amounts Received[12]

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Fixed pay Variable or “at risk” [13]
Executive KMP Year Base pay Superannuation Other [14] STIC LTI Total
Bob Johnston 2017 $1,415,168 $19,832 $3,299 $1,195,801 $1,867,471 $4,501,571
Chief Executive Officer 2016 $1,300,883 $19,462 $5,677 $1,143,136 – $2,469,158
and Managing Director
Anastasia Clarke 2017 $730,168 $19,832 $2,480 $523,556 $455,426 $1,731,462
Chief Financial Officer 2016 $630,538 $19,462 $2,334 $481,107 $517,555 $1,650,996
Mark Fookes 2017 $800,168 $19,832 $4,326 $565,442 $844,845 $2,234,613
Chief Operating Officer 2016 $780,538 $19,462 $6,999 $571,233 $979,499 $2,357,731
Total 2017 $2,945,504 $59,496 $10,105 $2,284,799 $3,167,742 $8,467,646
2016 $2,711,959 $58,386 $15,010 $2,195,476 $1,497,054 $6,477,885
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9. Reported remuneration – Executive KMP – AIFRS Accounting[15]

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Fixed pay Variable or “at risk” Grant or
vesting of
STIC non STI or LTI
(cash plus LTI award performance
Executive KMP Year Base pay Superannuation Other accrual) [16] accrual [17] rights [18] Total
Bob Johnston 2017 $1,376,680 $19,832 $3,299 $1,219,543 $1,166,796 – $3,786,150
Chief Executive Officer and 2016 $1,390,757 $19,462 $5,677 $936,837 $694,626 $64,319 $3,111,678
Managing Director
Anastasia Clarke 2017 $775,348 $19,832 $2,480 $569,961 $382,324 – $1,749,945
Chief Financial Officer 2016 $633,714 $19,462 $2,334 $495,523 $290,933 – $1,441,966
Mark Fookes 2017 $840,325 $19,832 $4,326 $669,971 $515,208 – $2,049,662
Chief Operating Officer 2016 $784,411 $19,462 $6,999 $720,099 $481,598 – $2,012,569
Total 2017 $2,992,353 $59,496 $10,105 $2,459,475 $2,064,328 – $7,585,757
2016 $2,808,882 $58,386 $15,010 $2,152,459 $1,467,157 $64,319 $6,566,213
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10. GPT security ownership – Executive KMP as at 31 December 2017

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Sign on Employee Security Schemes
GPT performance (ESS) Purchase GPT Gross
Holdings rights /(Sales) Holdings Value
(start of converting 2017 2015- TOTAL ESS during (end of of GPT MSHR
Executive KMP period) [19] in 2017 DSTIC 17 LTI for 2017 period [20] period) [21] Holdings [22] Guideline [23]
Bob Johnston 330,695 12,569 119,958 358,543 478,501 – 821,765 $4,280,163 $2,152,500
Chief Executive Officer
and Managing Director
Anastasia Clarke 486,402 – 52,521 87,439 139,960 (163,777) 462,585 $2,409,374 $750,000
Chief Financial Officer
Mark Fookes 1,008,431 – 56,723 162,205 218,928 (109,091) 1,118,268 $5,824,499 $820,000
Chief Operating Officer
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12 This table discloses the cash and other benefit amounts actually received by GPT’s executive KMP, as distinct from the accounting expense. As a result, it does not align to Australian Accounting Standards.

13 Gross dollar values for the equity components have been calculated by multiplying the number of securities by GPT’s fourth quarter VWAP for the applicable year; 2017: $5.2085 (2016: $4.76).

14 Other may include death & total/permanent disability insurance premiums, service awards, GPT superannuation plan administration fees, and/or other benefits.

15 This table provides a breakdown of remuneration for executive KMP in accordance with statutory requirements and Australian Accounting Standards.

16 The accrual accounting valuation of the deferred securities in Mr. Johnston’s 2015 STIC are included in the 2016 number as they were approved for issue at the 2016 AGM. 17 This column records the amount of the fair value of performance rights under the various LTI plans expensed in the relevant financial years, and does not represent actual LTI awards made to executives or the face value grant method.

18 Grant or vesting of one-off non STI or LTI performance rights includes an accounting valuation of the sign on package for Mr. Johnston.

19 GPT Holdings (start of period) may include GPT securities obtained as sign on grants (Mr Johnston only), DSTIC up to and including 2016, LTI plans up to and including the 2014-16 LTI plan, and private holdings.

20 Movement in GPT security holdings as a result of the sale of vested, unrestricted security holdings and/or the sale or purchase of additional private holdings on the individuals own account during the 2017 calendar year.

21 GPT Holdings (end of period) is the sum of GPT Holdings (start of the period) plus DSTIC and LTI securities obtained under ESS and adjusted for any purchases or sales during the period.

22 The GPT Holdings (end of period) multiplied by GPT’s fourth quarter 2017 VWAP of $5.2085 to derive a dollar value.

23 GPT’s MSHR guideline requires the CEO to acquire and maintain a holding equal to 150 per cent of base salary. For Leadership Team members the holding requirement is equal to 100 per cent of base salary. Individuals have four years from commencement of employment to achieve the MSHR before it is assessed for the first time.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

11. GPT performance rights – Executive KMP

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Performance rights
Performance rights that lapsed Performance rights still on foot
Executive KMP Position in 2017 [24] (# of rights) at 31/12/17 [25] (# of rights)
Bob Johnston Chief Executive Officer and Managing Director 140,394 902,463
Anastasia Clarke Chief Financial Officer 43,802 296,928
Mark Fookes Chief Operating Officer 61,953 343,796
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Remuneration – Non-Executive Directors

What are the key	•The Board determines the remuneration structure for Non-Executive Directors based on recommendations
elements of the Non-	from the Committee.
Executive Director Remuneration Policy?	•Non-Executive Directors are paid one fee for participation as a Director in all GPT related companies (principally GPT RE Limited, the Responsible Entity of General Property Trust and GPT Management Holdings Limited).
	•Non-Executive Director remuneration is composed of three main elements:
	– Main Board fees
	– Committee fees
	– Superannuation contributions at the statutory superannuation guarantee contribution rate.
	•Non-Executive Directors do not participate in any short or long term incentive arrangements and are not
	entitled to any retirement benefits other than compulsory superannuation.
	•Non-Executive Director remuneration is set by reference to comparable entities listed on the ASX (based on
	GPT’s industry sector and market capitalisation).
	•External independent advice on remuneration levels for Non-Executive Directors is sought on an annual
	basis. In the event that a review is conducted, the new Board and Committee fees are effective from the 1st of
	January in the applicable year and advised in the ensuing Remuneration Report.
	•Fees (including superannuation) paid to Non-Executive Directors are subject to an aggregate limit of
	$1,800,000 per annum, which was approved by GPT securityholders at the Annual General Meeting on
	5 May 2015. As an executive director, Mr Johnston does not receive fees from this pool as he is remunerated
	as one of GPT’s senior executives.

1. Board and committee fees[26, 27]

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Sustainability and Nomination and
Year Board Base Fee Audit Committee Risk Committee Remuneration Committee
Chairman 2017 $380,000 $36,000 $30,000 $30,000
2016 $362,500 $36,000 $30,000 $30,000
Members 2017 $148,000 $18,000 $15,000 $15,000
2016 $145,000 $18,000 $15,000 $15,000
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24 The sum of performance rights that were awarded to a participant in the 2015 LTI that did not vest at the end of the 2015-2017 performance period, and as a result, lapsed and/or performance rights granted under the 2017 DSTIC that also lapsed.

25 The total of unvested performance rights currently on foot excluding any GPT securities or performance rights that may have lapsed up to 31 December 2017. This represents the current maximum number of additional GPT securities to which the individual may become entitled subject to satisfying the applicable performance measures in the 2016-18 and 2017-19 LTI plans on foot; as such, these performance rights represent the incentive opportunity over multiple future years, are subject to performance and hence “at risk”, and as a result may never vest.

26 ‘Chairman’ used in this sense may refer to the chairperson of the board or a particular committee.

27 In addition to the fees noted in the table, all non-executive directors receive reimbursement for reasonable travel, accommodation and other expenses incurred while undertaking GPT business.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Report – Year ended 31 December 2017

2. Reported remuneration – Non-Executive Directors – AIFRS accounting[28, 29]

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Fixed pay
Non-Executive Director – Current Year Salary & fees Superannuation Other [30] Total
Rob Ferguson 2017 $380,000 $19,832 – $399,832
Chairman 2016 $362,500 $19,462 – $381,962
Brendan Crotty 2017 $181,000 $17,195 – $198,195
2016 $181,333 $17,227 – $198,560
Eileen Doyle 2017 $203,500 $19,333 – $222,833
2016 $190,000 $18,050 – $208,050
Swe Guan Lim 2017 $181,000 $17,195 $287 $198,482
2016 $178,000 $16,910 $615 $195,525
Michelle Somerville 2017 $192,750 $18,311 – $211,061
2016 $174,723 $16,599 – $191,322
Gene Tilbrook 2017 $178,000 $16,910 $380 $195,290
2016 $175,000 $16,625 $767 $192,392
Non-Executive Director – Former
Anne McDonald [31] 2017 – – – –
2016 $62,422 $5,930 $641 $68,993
Total 2017 $1,316,250 $108,776 $667 $1,425,693
2016 $1,323,978 $110,803 $2,023 $1,436,804
3. Non-Executive Director – GPT securityholdings
Private holdings (# of securities) Minimum securityholding requirement (MSHR)
Non-Executive Director Balance 31/12/16 Purchase/(Sale) Balance 31/12/17 Gross value [32] MSHR guideline [33]
–
Rob Ferguson 207,628 207,628 $1,081,430 $380,000
–
Brendan Crotty 67,092 67,092 $349,449 $148,000
–
Eileen Doyle 45,462 45,462 $236,789 $148,000
Swe Guan Lim – 15,800 15,800 $82,294 $148,000
Michelle Somerville 2,912 13,245 16,157 $84,154 $148,000
Gene Tilbrook 48,546 – 48,546 $252,852 $148,000
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28 This table provides a breakdown of remuneration for non-executive directors in accordance with statutory requirements and Australian accounting standards. 29 No termination benefits were paid during the financial year.

30 Other may include death & total/permanent disability insurance premiums and/or GPT superannuation plan administration fees.

31 Ms. McDonald retired from the GPT Board on 4 May 2016.

32 Non-executive directors holdings multiplied by GPT’s fourth quarter 2017 VWAP of $5.2085 to derive a dollar value.

33 The MSHR for non-executive directors is equal to 100 per cent of base fees. Individuals have four years from commencement of employment to achieve the MSHR before it is assessed for the first time.

The Directors’ Report, including the Remuneration Report, is signed in accordance with a resolution of the Directors of the GPT Group.

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Rob Ferguson Chairman

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Bob Johnston Chief Executive Officer and Managing Director

Sydney 13 February 2018

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

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

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Financial Statements

Consolidated Statement of Comprehensive Income

Year ended 31 December 2017

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31 Dec 17 31 Dec 16
Note $’000 $’000
Revenue
Fund management fees 77,206 99,044
Property management fees 38,863 41,227
Development management fees 24,601 15,144
Development revenue 7,438 54,088
Other revenue 331 1,442
Management costs recharged 32,334 33,009
180,773 243,954
Other income
Share of after tax profit of equity accounted investments 2(c) 6,237 1,532
Dividend income – 30,437
Interest revenue 572 1,889
Reversal of prior period impairment expense 525 411
Derecognition of available for sale financial asset 10,699 –
Profit on the sale of other assets 4 12,462
Proceeds from sale of inventory 10,358 12,532
28,395 59,263
Total revenue and other income 209,168 303,217
Expenses
Remuneration expenses 123,124 120,972
Cost of sale of inventory 8,976 10,822
Property expenses and outgoings 8,879 8,550
Development expenses 8,237 2,156
Repairs and maintenance 4,597 3,885
Professional fees 5,098 7,800
Depreciation 1,867 2,112
Amortisation 6,041 5,401
Revaluation of financial arrangements 20,164 52,619
Impairment expense 5,859 5,952
Finance costs 2,332 3,277
Other expenses 8,141 8,151
Total expenses 203,315 231,697
Profit before income tax 5,853 71,520
Income tax expense 10(a) 6,406 22,649
(Loss)/profit after income tax for continuing operations (553) 48,871
Loss from discontinued operations 24(b) (13,669) (29,050)
Net (loss)/profit for the year (14,222) 19,821
Other comprehensive income from discontinued operations
Items that may be reclassified to profit and loss
Net foreign exchange translation adjustments 11(b) 30 907
Revaluation of available for sale financial asset 11(b) (7,125) 458
Total comprehensive income for the year (21,317) 21,186
Net (loss)/profit attributable to:
– Members of the Company (18,776) 15,399
– Non-controlling interest 4,554 4,422
Total comprehensive income attributable to:
– Members of the Company (25,871) 16,764
– Non-controlling interest 4,554 4,422
Basic earnings per share attributable to the ordinary equity holders of the Company
Basic earnings per share (cents per share) from continuing operations 12(a) (0.28) 2.47
Basic earnings per share (cents per share) – Total 12(a) (1.04) 0.85
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The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Consolidated Statement of Financial Position

As at 31 December 2017

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31 Dec 17 31 Dec 16
Note $’000 $’000
Assets
Current assets
Cash and cash equivalents 20,033 17,842
Loans and receivables 3 100,557 99,055
Inventories 5 11,808 7,304
Prepayments 1,317 1,086
Available for sale financial asset – 9,296
Total current assets 133,715 134,583
Non-current assets
Intangible assets 4 30,901 35,256
Property, plant and equipment 6 9,910 14,900
Inventories 5 177,410 128,607
Equity accounted investments 2 21,988 15,752
Loans and receivables 3 – 37,033
Deferred tax assets 10(c) 17,763 7,550
Deferred acquisition costs 1,198 1,852
Other assets 7 7,785 8,901
Total non-current assets 266,955 249,851
Total assets 400,670 384,434
Liabilities
Current liabilities
Payables 8 62,109 49,449
Current tax liability 10(b) 8,559 –
Provisions 9 38,715 28,690
Borrowings 14 19,921 18,812
Deferred revenue – 7,585
Total current liabilities 129,304 104,536
Non-current liabilities
Borrowings 14 99,146 82,426
Provisions 9 10,250 9,217
Other liabilities 6,075 6,437
Total non-current liabilities 115,471 98,080
Total liabilities 244,775 202,616
Net assets 155,895 181,818
Equity
Contributed equity 11(a) 325,703 325,512
Reserves 11(b) 37,803 44,683
Accumulated losses 11(c) (220,275) (201,041)
Total equity attributable to Company members 143,231 169,154
Non-controlling interests 12,664 12,664
Total equity 155,895 181,818
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The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Consolidated Statement of Changes in Equity

Year ended 31 December 2017

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Total equity $’000 165,200 458 907 1,365 19,821 21,186 184 (424) (4,328) 181,818 181,818 983 (8,108) 30 (7,095) (14,222) (21,317) 191 (243) – (4,554) 155,895
Total $’000 12,570 – – – 4,422 4,422 – – (4,328) 12,664 12,664 – – – – 4,554 4,554 – – – (4,554) 12,664
Accumulated losses $’000 (9,490) – – – 4,422 4,422 – – (4,328) (9,396) (9,396) – – – – 4,554 4,554 – – – (4,554) (9,396)
Non-controlling interests $’000 – – – – – – – – – – – – – – – – – – – – – –
Reserves
Contributed equity $’000 22,060 – – – – – – – – 22,060 22,060 – – – – – – – – – – 22,060
Total $’000 152,630 458 907 1,365 15,399 16,764 184 (424) – 169,154 169,154 983 (8,108) 30 (7,095) (18,776) (25,871) 191 (243) – – 143,231
Accumulated losses $’000 (216,440) – – – 15,399 15,399 – – – (201,041) (201,041) – – – – (18,776) (18,776) – – (458) – (220,275)
Reserves $’000 43,742 458 907 1,365 – 1,365 – (424) – 44,683 44,683 983 (8,108) 30 (7,095) – (7,095) – (243) 458 – 37,803
Company members
Contributed equity $’000 325,328 – – – – – 184 – – 325,512 325,512 – – – – – – 191 – – – 325,703
Note 11(b) 11(b) 11(c) 11(a) 11(b) 11(c) 11(b) 11(b) 11(b) 11(c) 11(a) 11(b) 11(b) 11(c)
Equity attributable to Company Members At 1 January 2016 Revaluation of available for sale financial asset Foreign currency translation reserve Other comprehensive income for the year Profit for the year Total comprehensive income for the year Transactions with Members in their capacity as Members Issue of securities Movement in employee incentive security scheme reserve net of tax Distributions paid At 31 December 2016 Equity attributable to Company Members At 1 January 2017 Revaluation of available for sale financial asset Derecognition of available for sale financial asset Foreign currency translation reserve Other comprehensive income for the year (Loss)/profit for the year Total comprehensive income for the year Transactions with Members in their capacity as Members Issue of securities Movement in employee incentive security scheme reserve net of tax Reclassification of employee incentive security scheme reserve to accumulated losses Distributions paid At 31 December 2017
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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Consolidated Statement of Cash Flows

Year ended 31 December 2017

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31 Dec 17 31 Dec 16
Note $’000 $’000
Cash flows from operating activities
Receipts in the course of operations (inclusive of GST) 149,423 223,472
Payments in the course of operations (inclusive of GST) (155,245) (149,121)
Payments for inventories (51,951) (48,298)
Proceeds from sale of inventories 10,358 12,532
Receipts from development activities 41,686 16,621
Payments for development activities (3,904) –
Income taxes paid (6,442) –
Dividend received from available for sale financial asset 30,437 –
Interest received 572 1,892
Finance costs paid (991) (1,493)
Net cash inflows from operating activities 16 13,943 55,605
Cash flows from investing activities
Payments for property, plant and equipment (1,119) (2,594)
Payments for intangibles (4,694) (4,786)
Proceeds from the sale of property, plant and equipment 1,279 –
Proceeds from the sale of other assets – 11,177
Proceeds on disposal of equity accounted investment – 1,251
Capital return from available for sale financial asset 10,699 –
Net cash inflows from investing activities 6,165 5,048
Cash flows from financing activities
Loan to related parties – (29,486)
Proceeds from repayment of related party loans – 18,697
Repayment of related party borrowings (35,181) (100,677)
Proceeds from related party borrowings 16,256 40,995
Proceeds from borrowings 15,705 7,177
Repayments of borrowings (14,681) (8,707)
Purchase of securities for the employee incentive scheme (16) (1,190)
Net cash outflows from financing activities (17,917) (73,191)
Net decrease in cash and cash equivalents 2,191 (12,538)
Cash and cash equivalents at the beginning of the year 17,842 30,380
Cash and cash equivalents at the end of the year 20,033 17,842
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The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements

Year ended 31 December 2017

These are the consolidated financial statements of GPT Management Holdings Limited and its controlled entities (the Consolidated Entity).

The notes to the financial statements are organised into the following sections:

Note 1 – Result for the year: focuses on results and performance of the Consolidated Entity.

Notes 2 to 10 – Operating assets and liabilities: provides information on the assets and liabilities used to generate the Consolidated Entity’s trading performance.

Notes 11 to 15 – Capital structure: outlines how the Consolidated Entity manages its capital structure and various financial risks.

Notes 16 to 26 – Other disclosure items: provides information on other items that must be disclosed to comply with Australian Accounting Standards and other regulatory pronouncements.

Key judgements, estimates and assumptions

In applying the Consolidated Entity’s accounting policies, management has made a number of judgements, estimates and assumptions regarding future events.

The following judgements and estimates have the potential to have a material impact on the financial statements:

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Area of judgements
and estimates Assumptions underlying Note
Loan receivables Recoverability 3
Management rights with Impairment trigger and 4
indefinite life recoverable amounts
IT development and software Impairment trigger and 4
recoverable amounts
Inventories Lower of cost and net 5
realisable value
Deferred tax assets Recoverability 10
Security based payments Fair value 19
Investment in financial Fair value 23
assets
Investment in equity Assessment of control 25(b)
accounted investments versus disclosure guidance
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Result for the year

1. Segment information

The chief operating decision makers monitor the performance of the business in a manner consistent with that of the financial report. Refer to the Consolidated Statement of Comprehensive Income for the segment financial performance and the Consolidated Statement of Financial Position for the total assets and liabilities.

Revenue

Rental revenue from investment properties is recognised on a straightline basis over the lease term. An asset is also recognised as a component of investment properties relating to fixed increases in operating lease rentals in future periods. When the Company provides lease incentives to tenants, any costs are recognised on a straightline basis over the lease term. Contingent rental income is recognised as revenue in the period in which it is earned.

Property, development and fund management fee revenue is recognised on an accruals basis, in accordance with the terms of the relevant contracts.

Development revenue is recognised as and when the Company is entitled to the benefits.

Revenue from dividends and distributions is recognised when they are declared.

Interest income is recognised on an accruals basis using the effective interest method.

Expenses

Property expenses and outgoings which include rates, taxes and other property outgoings, are recognised on an accruals basis.

Finance costs

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

Operating assets and liabilities

2. Equity accounted investments

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31 Dec 17 31 Dec 16
Note $’000 $’000
Investments in joint ventures and associates (a) 21,988 15,752
Total equity accounted investments 21,988 15,752
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(a) Details of equity accounted investments

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Ownership Interest
2017 2016 31 Dec 17 31 Dec 16
Name Principal Activity % % $’000 $’000
(i) Joint ventures
DPT Operator Pty Limited Managing property 50.00 50.00 89 88
Lendlease GPT (Rouse Hill) Pty Limited [1,2] Property development 50.00 50.00 11,896 5,660
Chullora Trust 1 [3] Property development – 50.00 – 2
Erskine Park Trust Property development 50.00 50.00 3 2
Total investment in joint ventures 11,988 5,752
(ii) Associates
GPT Funds Management Limited Funds management 100.00 100.00 10,000 10,000
Total investment in associates 10,000 10,000
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1 The Consolidated Entity has a 50 per cent interest in Lendlease GPT (Rouse Hill) Pty Limited, a joint venture developing residential and commercial land at Rouse Hill, in partnership with Urban Growth and the NSW Department of Planning.

2 The Consolidated Entity’s interest is held through a subsidiary that is 52 per cent owned by GMH and 48 per cent owned by GPT Trust.

3 Chullora Trust 1 was wound up on 13 December 2017.

(b) Summarised financial information for joint ventures and associates

The information disclosed reflects the amounts presented in the financial results of the relevant joint ventures and associates and not the Consolidated Entity’s share of those amounts. They have been amended to reflect adjustments made by the entity when using the equity method, including fair value adjustments and modifications for differences in accounting policy.

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31 Dec 17 31 Dec 16
$’000 $’000
Cash and cash equivalents 25,966 26,538
Other assets 18,635 19,540
Property investments and loans 17,408 14,400
Total assets 62,009 60,478
Liabilities 28,180 38,974
Total liabilities 28,180 38,974
Net assets 33,829 21,504
Consolidated entity’s share 21,988 15,752
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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

(c) Share of joint ventures and associates’ net profits

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31 Dec 17 31 Dec 16
$’000 $’000
Revenue 12,478 23,129
Expenses (3) (20,068)
Profit before income tax expense 12,475 3,061
Income tax expense (1) (1)
12,474 3,060
Negative net assets not recognised – 4
Total net profit 12,474 3,064
Share of net profits of joint ventures and associated interests 6,237 1,532
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(d) Share of joint ventures and associates commitments and contingent liabilities

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31 Dec 17 31 Dec 16
$’000 $’000
Capital expenditure commitments 168 1,084
Total joint venture commitments 168 1,084
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The capital expenditure commitments in the Consolidated Entity’s joint ventures at 31 December 2017 relate to Lendlease GPT (Rouse Hill) Pty Limited (2016: Lendlease GPT (Rouse Hill) Pty Limited).

(e) Reconciliation of the carrying amount of investments in joint ventures and associates

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31 Dec 17 31 Dec 16
$’000 $’000
Carrying amount at the beginning of the year 15,752 14,274
Reversal of negative net assets – (2)
Share of joint venture entities’ net operating profit 6,237 1,532
Distributions received/receivable from joint ventures (1) (52)
Carrying amount at the end of the year 21,988 15,752
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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

3. Loans and receivables

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31 Dec 17 31 Dec 16
$’000 $’000
Current assets
Trade receivables [1] 23,950 20,866
Less: impairment of trade receivables (12) (1)
23,938 20,865
Dividends receivable from other investments – 30,437
Other debtors 2,104 3,297
Related party receivables [2] 37,483 44,456
–
Loans to related parties 37,032
Total current loans and receivables 100,557 99,055
Non-current assets
Loans to related parties – 37,033
Total non-current loans and receivables – 37,033
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1 The trade receivables balance includes amounts receivable from GWOF and GWSCF. See note 20 for more details on related party transactions.

2 The related party receivables are from GPT Trust and have been agreed on commercial terms and conditions.

The table below shows the ageing analysis of the Consolidated Entity’s loans and receivables.

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31 Dec 17 31 Dec 16
0-30 31-60 61-90 90+ Not 0-30 31-60 61-90 90+
Not Due days days days days Total Due days days days days Total
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Current loans and
receivables 37,032 59,767 504 – 3,254 100,557 – 96,137 584 32 2,302 99,055
Non-current loans and
receivables – – – – – – 37,033 – – – – 37,033
Total loans and receivables 37,032 59,767 504 – 3,254 100,557 37,033 96,137 584 32 2,302 136,088
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Recoverability of trade receivables

Recoverability of trade receivables is assessed on an ongoing basis. Impairment is recognised in the Consolidated Statement of Comprehensive Income when there is objective evidence that the Consolidated Entity will not be able to collect the debts. Financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial re-organisation and default or delinquency in payments are considered objective evidence of impairment. See note 15(e) for more information on management of credit risk in relation to trade receivables.

Recoverability of loan receivables

At the end of each reporting period, the Consolidated Entity assesses whether there is objective evidence that a loan receivable is impaired. The amount of the impairment is measured as the difference between the loan receivable’s carrying amount and the present value of estimated future cash flows discounted at the loan receivable’s original effective interest rate. The carrying amount of the loan receivable is reduced and the amount of the loss is recognised in the Consolidated Statement of Comprehensive Income. In a subsequent period, if the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in the Consolidated Statement of Comprehensive Income.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

4. Intangible assets

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Management IT development
rights and software Total
$’000 $’000 $’000
Cost
At 1 January 2016 55,817 62,050 117,867
Additions 8 4,918 4,926
Transfers – 189 189
At 31 December 2016 55,825 67,157 122,982
Additions – 4,702 4,702
Transfers – 2,843 2,843
–
Disposals (11,467) (11,467)
At 31 December 2017 55,825 63,235 119,060
Accumulated amortisation and impairment
At 1 January 2016 (44,751) (37,574) (82,325)
Amortisation (343) (5,058) (5,401)
At 31 December 2016 (45,094) (42,632) (87,726)
Amortisation (326) (5,715) (6,041)
Disposals – 11,467 11,467
–
Impairment (5,859) (5,859)
At 31 December 2017 (45,420) (42,739) (88,159)
Carrying amounts
At 31 December 2016 10,731 24,525 35,256
At 31 December 2017 10,405 20,496 30,901
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Management rights

Management rights include property management and development management rights. Rights are initially measured at cost and rights with a definite life are subsequently amortised over their useful life, which ranges from 5 to 10 years.

For the management rights of Highpoint Shopping Centre, management considers the useful life as indefinite as there is no fixed term included in the management agreement. Therefore, the Consolidated Entity tests for impairment at balance date. Assets are impaired if the carrying value exceeds their recoverable amount. The recoverable amount is determined using a multiples approach. A range of multiples from 10-15x have been used in the calculation.

IT development and software

IT development and software are assessed for impairment at each reporting date by evaluating if any impairment triggers exist. Where impairment triggers exist, management calculate the recoverable amount. The asset will be impaired if the carrying amount exceeds the recoverable amount. Critical judgements are made by management in setting appropriate impairment triggers and assumptions used to determine the recoverable amount.

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

5. Inventories

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31 Dec 17 31 Dec 16
$’000 $’000
Development properties 11,808 7,304
Current inventories 11,808 7,304
Development properties 177,410 128,607
Non-current inventories 177,410 128,607
Total inventories 189,218 135,911
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Development properties held as inventory to be sold are stated at the lower of cost and net realisable value.

Cost

Net realisable value (NRV)

The NRV is the estimated selling price in the ordinary course of business less estimated costs to sell. At each reporting date, management reviews these estimates by taking into consideration:

the most reliable evidence; and
any events which confirm conditions existing at the year end and cause any fluctuations of selling price and costs to sell.

The amount of any inventories write down is recognised as an impairment expense in the Consolidated Statement of Comprehensive Income. An impairment expense reversal of $357,000 has been recognised for the year ended 31 December 2017 (2016: Impairment expense of $5,952,000).

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

6. Property, plant and equipment

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31 Dec 17 31 Dec 16
$’000 $’000
Computers
At cost 15,092 15,069
Less: accumulated depreciation and impairment (11,077) (10,062)
Total computers 4,015 5,007
Office, fixtures and fittings
At cost 12,683 15,828
Less: accumulated depreciation and impairment (6,788) (5,935)
Total office, fixtures and fittings 5,895 9,893
Total property, plant and equipment 9,910 14,900
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Reconciliations of the carrying amount of property, plant and equipment at the beginning and end of the financial year are set out below:

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Office fixtures &
Computers fittings Total
$’000 $’000 $’000
At 1 January 2016
Opening carrying value 4,827 9,308 14,135
Additions 1,605 1,463 3,068
– – –
Disposals
Transfers (189) – (189)
Depreciation (1,236) (878) (2,114)
At 31 December 2016 5,007 9,893 14,900
At 1 January 2017
Opening carrying value 5,007 9,893 14,900
Additions 980 81 1,061
–
Disposals (1,341) (1,341)
Transfers 383 (3,226) (2,843)
Depreciation (1,014) (853) (1,867)
At 31 December 2017 4,015 5,895 9,910
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The value of property, plant and equipment is measured as the cost of the asset less depreciation and impairment. The cost of the asset includes acquisition costs and any costs directly attributable to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. 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 Consolidated Entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Consolidated Statement of Comprehensive Income during the financial period in which they are incurred.

Depreciation

Items of property, plant and equipment are depreciated on a straightline basis over their useful lives. The estimated useful life is between 3 and 40 years.

Impairment

The Consolidated Entity tests property, plant and equipment for impairment where there is an indicator that the asset may be impaired. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Disposals

Gains and losses on disposals are determined by comparing proceeds from disposals with the carrying amount of the property, plant and equipment and are included in the Consolidated Statement of Comprehensive Income in the year of disposal.

100

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

7. Other assets

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31 Dec 17 31 Dec 16
$’000 $’000
Lease incentive asset 3,493 4,083
Investment in financial asset 4,292 4,818
Total other assets 7,785 8,901
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8. Payables

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31 Dec 17 31 Dec 16
$’000 $’000
Trade payables [1] 27,813 14,041
Accruals 27,689 28,029
Other payables 6,607 7,379
Total payables 62,109 49,449
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1 Includes a $10,461,283 distribution payable (2016: $5,907,633) to General Property Trust (Trust) for the Trust’s 48 per cent ownership of GPT Residential (Rouse Hill) Trust of which the Consolidated Entity has control.

Trade payables and accruals represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial year which are unpaid. They are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.

9. Provisions

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31 Dec 17 31 Dec 16
$’000 $’000
Current provisions
Employee benefits 29,159 25,608
Other 9,556 3,082
Total current provisions 38,715 28,690
Non-current provisions
Employee benefits 9,553 8,615
Other 697 602
Total non-current provisions 10,250 9,217
Employee
benefits Other Total
$’000 $’000 $’000
As at 1 January 2016 31,395 3,628 35,023
Arising during the year 30,826 772 31,598
Utilised during the year (27,998) (716) (28,714)
As at 31 December 2016 34,223 3,684 37,907
As at 1 January 2017 34,223 3,684 37,907
Arising during the year 29,337 7,143 36,480
Utilised during the year (24,848) (574) (25,422)
As at 31 December 2017 38,712 10,253 48,965
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Provisions are recognised when:

the Consolidated Entity has a present obligation (legal or constructive) as a result of a past event;
it is probable that resources will be expended to settle the obligation; and
a reliable estimate can be made of the amount of the obligation.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the obligation.

101

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

Provision for employee benefits

The provision for employee benefits represents annual leave, long service leave and parental leave entitlements accrued for employees. The employee benefit liability expected to be settled within twelve months after the end of the reporting period is recognised in current liabilities. The non-current provision relates to entitlements, including long service leave, which are due to be payable after more than twelve months from the balance sheet date. It is measured as the present value of expected future payments for the service provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at balance date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Employee benefit on-costs are recognised together with the employee benefits and included in employee benefit liabilities.

10. Taxation

(a) Income tax expense

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31 Dec 17 31 Dec 16
$’000 $’000
Current income tax expense 17,012 –
Deferred income tax (credit)/expense (10,606) 22,648
Income tax expense in the Statement of Comprehensive Income 6,406 22,648
Income tax expense/(credit) attributable to:
Profit from continuing operations 6,406 22,649
Loss from discontinued operations – (1)
Aggregate income tax expense 6,406 22,648
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(b) Reconciliation of income tax (credit)/expense to prima facie tax payable

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31 Dec 17 31 Dec 16
$’000 $’000
Profit from continuing operations before income tax expense 5,853 71,520
Loss from discontinued operations before income tax expense (13,669) (29,051)
Net (loss)/profit before income tax expense (7,816) 42,469
Prima facie income tax (credit)/expense at 30% tax rate (2016: 30%) (2,345) 12,741
Tax effect of amounts not deductible/assessable in calculating income tax expense:
Prior year adjustments 175 484
Previously unrecognised tax losses (421) (13,186)
Revaluation and amortisation 10,028 26,235
Non assessable income:
Derecognition of available for sale financial asset (3,210) –
Other non-assessable income (2,865) (3,985)
Other tax adjustments:
Release of gain from available for sale reserve 2,592 –
Other income 1,480 –
Permanent differences arising from non-deductible amounts 972 359
Income tax expense 6,406 22,648
Add/(less) amounts to reconcile to current tax liability:
Temporary differences:
Employee benefits 713 766
Provisions and accruals (236) 309
Dividends received/(receivable) 9,131 (9,131)
Other deferred tax asset charged to income 2,616 1,167
Movement in reserves (1,618) (39)
Opening balance:
Tax losses transferred from deferred tax asset (2,011) –
Tax losses and adjustments:
Tax losses recognised – 13,186
Prior tax losses recognised – (28,424)
Prior year adjustments – (482)
Tax payments made to tax authorities (6,442) –
Current tax liability 8,559 –
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102

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

(c) Deferred tax assets

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31 Dec 17 31 Dec 16
$’000 $’000
Employee credits 15,449 14,736
Provisions and accruals 2,947 3,183
Other (633) (12,380)
Tax losses recognised – 2,011
Net deferred tax asset 17,763 7,550
Movement in temporary differences during the year
Opening balance at the beginning of the year 7,550 30,240
Credited to the Consolidated Statement of Comprehensive Income 10,606 6,335
Movement in reserves 1,618 (39)
Utilisation of tax losses (2,011) (28,986)
Closing balance at the end of the year 17,763 7,550
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(d) Effective tax rate

Adoption of Voluntary Tax Transparency Code

The Board of Taxation has released a voluntary Tax Transparency Code (TTC). The TTC sets out a recommended set of principles and minimum standards regarding the disclosure of tax information for businesses. The Consolidated Entity is committed to the TTC. The non-IFRS income tax disclosures below and in note 10(b) include the recommended additional disclosures.

The Australian Accounting Standards Board have issued a Draft Appendix to the TTC outlining the method to calculate the effective tax rate as shown in the table below, using:

accounting profit before tax adjusted to exclude transactions which are not reflected in the calculation of income tax expense; and
tax expense adjusted to exclude carry forward tax losses that have been recognised and prior year under/overstatements.

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31 Dec 17 31 Dec 16
$’000 $’000
Net (loss)/profit for the year excluding income tax expense (7,816) 42,469
Add: non-deductible revaluation items 33,657 81,772
Less: equity accounted profits from joint ventures (6,237) (1,478)
Profit used to calculate effective tax rate 19,604 122,763
Income tax expense 6,406 22,648
Add: carry forward tax losses recognised 421 13,186
Less: prior year under/overstatements (175) (484)
Income tax expense used to calculate effective tax rate 6,652 35,350
Effective tax rate 34% 29%
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Income tax expense

Deferred income tax liabilities and assets – recognition

Deferred income tax liabilities are recognised for all taxable temporary differences.

Deferred income tax assets and liabilities – measurement

103

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

Deferred income tax is provided on temporary differences at the reporting date between accounting carrying amounts and the tax cost bases of assets and liabilities, other than for the following:

where taxable temporary differences relate to investments in subsidiaries, associates and interests in joint ventures:
deferred tax liabilities are not recognised if the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future;
deferred tax assets are not recognised if it is not probable that the temporary differences will reverse in the foreseeable future and taxable profit will not be available to utilise the temporary differences.

Tax relating to equity items

Income taxes relating to items recognised directly in equity are recognised in equity and not in Consolidated Statement of Comprehensive Income.

Capital Structure

11. Equity and reserves

(a) Contributed equity

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Number $’000
Ordinary stapled securities
Opening securities on issue as at 1 January 2016 1,794,816,529 325,328
Securities issued – Long Term Incentive Plan 2,102,805 100
Securities issued – Deferred Short Term Incentive Plan 978,834 79
Securities issued – Broad Based Employee Security Ownership Plan 57,400 5
Closing securities on issue as at 31 December 2016 1,797,955,568 325,512
Opening securities on issue as at 1 January 2017 1,797,955,568 325,512
Securities issued – Long Term Incentive Plan 2,763,052 109
Securities issued – Deferred Short Term Incentive Plan 855,355 76
Securities issued – Broad Based Employee Security Ownership Plan 54,338 5
Securities issued – Employee Incentive Plan 12,569 1
Closing securities on issue as at 31 December 2017 1,801,640,882 325,703
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Ordinary securities are classified as equity and recognised at the fair value of the consideration received by the Consolidated Entity. Any transaction costs arising on the issue and buy back of ordinary securities are recognised directly in equity as a reduction, net of tax, of the proceeds received.

104

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

(b) Reserves

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Foreign Currency Employee Incentive Fair Value Total
Translation Reserve Scheme Reserve Reserve Reserve
$’000 $’000 $’000 $’000
Balance at 1 January 2016 34,006 3,069 6,667 43,742
Net foreign exchange translation adjustments 907 – – 907
Employee incentive schemes expense – 788 – 788
Tax on incentives valued at reporting date – 157 – 157
Purchase of securities – (1,190) – (1,190)
Issue of securities – (179) – (179)
Revaluation of available for sale financial asset, net of tax – – 458 458
Balance at 31 December 2016 34,913 2,645 7,125 44,683
Balance at 1 January 2017 34,913 2,645 7,125 44,683
Net foreign exchange translation adjustments 30 – – 30
Reclassification to accumulated losses – 458 – 458
Employee incentive schemes expense – 624 – 624
Tax on incentives valued at reporting date – (552) – (552)
Purchase of securities – (131) – (131)
Issue of securities – (184) – (184)
Revaluation of available for sale financial asset, net of tax – – 983 983
Derecognition of available for sale financial asset, net of tax – – (8,108) (8,108)
Balance at 31 December 2017 34,943 2,860 – 37,803
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Nature and purpose of reserves

Foreign currency translation reserve

Employee incentive scheme reserve

The reserve is used to recognise the fair value of equity-settled security-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to note 19 for further details of security based payments.

Fair value reserve

The fair value reserve comprises the cumulative net change in available for sale financial assets until the assets are derecognised or impaired.

(c) Accumulated losses

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Non-controlling
Company interest Total
$’000 $’000 $’000
Balance at 1 January 2016 (216,440) (9,490) (225,930)
Net profit for the year 15,399 4,422 19,821
Distributions payable – (4,328) (4,328)
Balance at 31 December 2016 (201,041) (9,396) (210,437)
Balance at 1 January 2017 (201,041) (9,396) (210,437)
Net (loss)/profit for the year (18,776) 4,554 (14,222)
Reclassification from employee incentive security scheme (458) – (458)
Distributions payable – (4,554) (4,554)
Balance at 31 December 2017 (220,275) (9,396) (229,671)
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105

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

12. Earnings per share

(a) Basic and diluted earnings per share

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31 Dec 17 31 Dec 16
Cents Cents
Basic and diluted earnings per share – (loss)/profit from continuing operations (0.28) 2.47
Basic and diluted loss per share – loss from discontinued operations (0.76) (1.62)
Total basic and diluted earnings per ordinary share (1.04) 0.85
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(b) The profit used in the calculation of the basic and diluted earnings per share is as follows:

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31 Dec 17 31 Dec 16
(Loss)/profit reconciliation – basic and diluted $’000 $’000
(Loss)/profit from continuing operations (5,107) 44,449
Loss from discontinued operations (13,669) (29,050)
Profit attributed to external non-controlling interest 4,554 4,422
(14,222) 19,821
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(c) WANOS

The earnings and weighted average number of ordinary shares (WANOS) used in the calculations of basic and diluted earnings per ordinary share are as follows:

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Number of Number of
shares shares
‘000s ‘000s
WANOS used as denominator in calculating basic earnings per ordinary share 1,801,095 1,797,440
Performance security rights (weighted average basis) [1] 2,410 2,733
WANOS used as denominator in calculating diluted earnings per ordinary share 1,803,505 1,800,173
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1 Performance security rights granted under the Long Term Incentive plan are only included in dilutive earnings per ordinary share where the performance hurdles are met as at the year end.

Calculation of earnings per share

Basic earnings per share is calculated as net profit or loss attributable to ordinary shareholders of the Company, divided by the weighted average number of ordinary shares outstanding during the financial year which is adjusted for bonus elements in ordinary shares issued during the financial year.

Diluted earnings per share is calculated as net profit or loss attributable to ordinary shareholders of the Company divided by the weighted average number of ordinary shares and dilutive potential ordinary securities. Where there is no difference between basic earnings per share and diluted earnings per share, the term basic and diluted earnings per ordinary share is used.

13. Dividends paid and payable

No dividends have been paid or declared for the 2017 financial year (2016: nil).

14. Borrowings

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31 Dec 17 31 Dec 16
Carrying Carrying
amount [1] Fair value [2] amount [1] Fair value [2]
$’000 $’000 $’000 $’000
Current borrowings – secured 19,921 19,980 18,812 18,822
Current borrowings 19,921 19,980 18,812 18,822
Related party borrowings from GPT Trust 99,146 99,625 82,426 82,962
Non-current borrowings 99,146 99,625 82,426 82,962
Total borrowings 119,067 119,605 101,238 101,784
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1 Including unamortised establishment costs.

2 For the majority of borrowings, the carrying amount approximates its fair value. The fair value of fixed rate interest-bearing borrowings is estimated by discounting the future contractual cash flows at the current market interest rate curve. Excluding unamortised establishment costs.

106

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

The unsecured borrowings are provided by GPT Trust and its subsidiaries and have been revalued based on an adjusted working capital calculation at 31 December 2017, in accordance with the loan agreement. As a result, a revaluation loss of $34,097,679 for both continuing ($20,458,608) and discontinued ($13,639,071) operations has been recognised in the Consolidated Statement of Comprehensive Income (2016: loss of $82,134,865). The following borrowings were revalued to nil at 31 December 2017 (Dec 2016: nil):

loan facility to GPT Management Holdings Limited was drawn to $348,797,027 (Dec 2016: $355,616,562). The facility expires on 31 December 2030;
loan facility to GPT Property Management Ltd was drawn to $9,922,998 (Dec 2016: $16,742,534). This facility expires on 31 December 2030;
loan facility to GPT International Pty Limited was drawn to $75,628,519 (Dec 2016: $82,448,055). This facility expires on 12 June 2032;
loan facility to Voyages Hotels & Resorts (Loan 1) was drawn to $32,616,333 (Dec 2016: $39,435,869). This facility expires on 30 June 2032;
loan facility to Voyages Hotels & Resorts (Loan 2) was drawn to $47,952,860 (Dec 2016: $54,772,395). This facility expires on 3 January 2035.

No interest is payable in connection with the above loans from 3 September 2015. The loans are non-revolving interest free borrowings that are revalued each reporting date in accordance with accounting standards.

Borrowings are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method. Under this method, any transaction fees, costs, discounts and premiums directly related to the borrowings are recognised in the Consolidated Statement of Comprehensive Income over the expected life of the borrowings.

All borrowings with maturities greater than 12 months after reporting date are classified as non-current liabilities.

The maturity profile of borrowings is provided below:

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Total facility [1] Used facility [1] Unused facility
$’000 $’000 $’000
Due within one year 32,220 19,980 12,240
Due between one and five years 80,924 67,577 13,347
Due after five years 559,918 546,487 13,431
673,062 634,044 39,018
Cash and cash equivalents 20,033
Total financing resources available at the end of the year 59,051
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1 Excludes unamortised establishment costs.

Cash and cash equivalents includes cash on hand, cash at bank and short term money market deposits.

15. Financial risk management

The Board approve the Consolidated Entity’s treasury policy which:

establishes a framework for the management of risks inherent to the capital structure;
defines the role of the Consolidated Entity’s treasury; and
sets out the policies, limits, monitoring and reporting requirements for cash, borrowings, liquidity, credit risk, foreign exchange and interest rate instruments.

(a) Interest rate risk

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Consolidated Entity’s primary interest rate risk arises from interest bearing borrowings. The table below provides a summary of the Consolidated Entity’s gross interest rate risk exposure as at 31 December 2017 on interest bearing borrowings together with the net effect of interest rate risk management transactions. This excludes unamortised establishment costs.

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Gross exposure Net exposure
2017 2016 2017 2016
$’000 $’000 $’000 $’000
Fixed rate interest-bearing borrowings 48,353 32,000 48,353 32,000
Floating rate interest-bearing borrowings 70,715 69,248 70,715 69,248
119,068 101,248 119,068 101,248
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107

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

The impact on interest expense and interest revenue of a 1 per cent increase or decrease in market interest rates is shown below.

A 1 per cent increase or decrease is used for consistency of reporting interest rate risk across the Consolidated Entity and represents management’s assessment of the potential change in interest rates.

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2017 2017 2016 2016
(+1%) (-1%) (+1%) (-1%)
$’000 $’000 $’000 $’000
Impact on Statement of Comprehensive Income
Impact on interest revenue increase/(decrease) 200 (200) 278 (278)
Impact on interest expense (increase)/decrease (708) 708 (692) 692
(508) 508 (414) 414
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(b) Liquidity risk

Liquidity risk is the risk that the Consolidated Entity, as a result of its operations:

will not have sufficient funds to settle a transaction on the due date;
will be forced to sell financial assets at a value which is less than what they are worth; or
may be unable to settle or recover a financial asset at all.

The Consolidated Entity manages liquidity risk by:

maintaining sufficient cash;
maintaining an adequate amount of committed credit facilities;
maintaining a minimum liquidity buffer in cash and surplus committed facilities for the forward rolling twelve month period; and
maintaining the ability to close out market positions.

The table below shows an analysis of the undiscounted contractual maturities of liabilities which forms part of the Consolidated Entity’s assessment of liquidity risk.

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31 Dec 17 31 Dec 16
Over 1 Over 2 Over 1 Over 2
1 year year to years to Over 5 1 year year to years to Over 5
or less 2 years 5 years years Total or less 2 years 5 years years Total
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Liabilities
Non-derivatives
Payables 62,109 – – – 62,109 49,449 – – – 49,449
Current tax liability 8,559 – – – 8,559 – – – – –
Borrowings [1] 19,980 28,353 39,224 546,487 634,044 18,822 – 51,224 580,217 650,263
Projected interest cost on borrowings 7,646 4,804 5,928 5,669 24,047 5,042 4,817 8,232 7,799 25,890
Total liabilities 98,294 33,157 45,152 552,156 728,759 73,313 4,817 59,456 588,016 725,602
Less cash and cash equivalents 20,033 – – – 20,033 17,842 – – – 17,842
Total liquidity exposure 78,261 33,157 45,152 552,156 708,726 55,471 4,817 59,456 588,016 707,760
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1 Excluding unamortised establishment costs and fair value adjustments. Includes unsecured borrowings provided by GPT Trust and its subsidiaries which have been revalued to nil as per note 14.

(c) Refinancing risk

Refinancing risk is the risk that credit is unavailable or available at unfavourable interest rates and credit market conditions result in an unacceptable increase in the Consolidated Entity’s interest cost. Refinancing risk arises when the Consolidated Entity is required to obtain debt to fund existing and new debt positions. The Consolidated Entity manages this risk by spreading sources and maturities of borrowings in order to minimise debt concentration risk, allow averaging of credit margins over time and reducing refinance amounts.

As at 31 December 2017, the Consolidated Entity’s exposure to refinancing risk can be monitored by the spreading of its contractual maturities on borrowings in the liquidity risk table above or with the information in note 14.

108

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

(d) Foreign exchange risk

Foreign exchange risk refers to the risk that the value of a financial commitment, asset or liability will fluctuate due to changes in foreign exchange rates. The Consolidated Entity’s foreign exchange risk arises primarily from:

firm commitments of highly probable forecast transactions for receipts and payments settled in foreign currencies or with prices dependent on foreign currencies; and
investments in foreign assets.

Sensitivity to foreign exchange is deemed insignificant.

Foreign currency assets and liabilities

The following table shows the Australian dollar equivalents of amounts within the Consolidated Statement of Financial Position which are denominated in foreign currencies.

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Euros United States Dollars
31 Dec 17 31 Dec 16 31 Dec 17 31 Dec 16
$’000 $’000 $’000 $’000
Assets
Cash and cash equivalents 1,151 1,152 133 145
Interests in unlisted investments – 9,296 – –
1,151 10,448 133 145
Liabilities
Other liabilities 304 302 – –
304 302 – –
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(e) Credit risk

Credit risk is the risk that a contracting entity will not complete its obligations under a contractual agreement, resulting in a financial loss to the Consolidated Entity. The Consolidated Entity has exposure to credit risk on all financial assets included in the Consolidated Statement of Financial Position.

The Consolidated Entity manages this risk by:

establishing credit limits for financial institutions and monitoring credit exposures for customers to ensure that the Consolidated Entity only trades and invests with approved counterparties;
providing loans to joint ventures, associates and third parties, only where the Consolidated Entity is comfortable with the underlying property exposure within that entity;
regularly monitoring loans and receivables balances;
regularly monitoring the performance of its associates, joint ventures and third parties; and
obtaining collateral as security (where appropriate).

Receivables are reviewed regularly throughout the year. A provision for doubtful debts is made where collection is deemed uncertain.

The maximum exposure to credit risk as at 31 December 2017 is the carrying amounts of financial assets recognised on the Consolidated Statement of Financial Position. For more information, refer to note 3.

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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

Other disclosure items

16. Cash flow information

(a) Cash flows from operating activities

Reconciliation of net profit after tax to net cash inflows from operating activities:

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31 Dec 17 31 Dec 16
$’000 $’000
Net (loss)/profit for the year (14,222) 19,821
Share of after tax profit of equity accounted investments (net of distributions) (6,237) (7,602)
Proceeds from the sale of other assets – (11,177)
Proceeds from the disposal of equity accounted investment – (1,252)
Loss on disposal of assets 62 93
Capital return from available for sale financial asset (10,699) –
Impairment expense 5,501 5,773
Non-cash employee benefits – security based payments 21,781 16,552
Fair value movement of investment in Trust (295) (361)
Lease incentive amortisation 224 275
Interest capitalised (10,486) (2,941)
Deferred interest (3,252) –
Amortisation of rental abatement 476 561
Depreciation expense 1,867 2,114
Amortisation expense 6,041 5,401
Amortisation of deferred acquisition costs 654 654
Finance costs 11,394 4,164
Revaluation of financial arrangements 34,098 82,133
Profit on the sale of inventory (1,382) (1,710)
Payment for inventories (51,951) (48,298)
Proceeds from inventories 10,358 14,242
Dividends receivable – (30,437)
Decrease in operating assets 18,534 3,062
Increase in operating liabilities 1,100 4,038
Other 377 500
Net cash inflows from operating activities 13,943 55,605
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(b) Net debt reconciliation

Reconciliation of net debt movements during the financial year:

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Borrowings Borrowings
due within due after
Cash 1 year 1 year Total
$’000 $’000 $’000 $’000
Net debt as at 31 December 2016 17,842 (18,812) (82,426) (83,396)
Cash flows 2,191 (1,024) 18,925 20,092
Other non-cash movements – (85) (35,645) (35,730)
Net debt as at 31 December 2017 20,033 (19,921) (99,146) (99,034)
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110

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

17. Commitments

(a) Capital expenditure commitments

The capital expenditure commitments at 31 December 2017 were $1,401,000 (2016: $717,000). Commitments are arising from purchase of plant and equipment and intangibles, which have been approved but not recognised as liabilities in the Consolidated Statement of Financial Position.

(b) Operating lease commitments

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31 Dec 17 31 Dec 16
$’000 $’000
Due within one year 6,430 5,270
Due between one and five years 15,049 15,816
Over five years 5,495 892
Total operating lease commitments 26,974 21,978
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Operating lease commitments are contracted non-cancellable future minimum lease payments on office premises and equipment expected to be payable but not recognised in the Consolidated Statement of Financial Position.

18. Contingent liabilities

A contingent liability is a liability that is not sufficiently certain to qualify for recognition as a provision where uncertainty may exist regarding the outcome of future events.

GPT Management Holdings Ltd has provided guarantees over GPT RE Limited as responsible entity of the General Property Trust’s obligations under the note purchase and guarantee agreements in relation to US Private Placement issuances totalling US$850,000,000 until July 2032.

Apart from the matter referred to above, there are no other material contingent liabilities at reporting date.

19. Security based payments

(a) GESOP

(b) BBESOP

(c) DSTI

Since 2014, STIC is delivered to the senior executives as 50 per cent in cash and 50 per cent in GPT stapled securities (a deferred component). The deferred component is initially awarded in the form of performance rights, with the rights converting to restricted GPT stapled securities to the extent the performance conditions are met. For the 2014 and 2015 plans, half of the awarded stapled securities will vest one year after conversion with the remaining half vesting two years after conversion, subject to continued employment up to the vesting dates. For the 2016 and 2017 plans, all the awarded stapled securities will vest one year after conversion, subject to continued employment up to the vesting date.

111

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

(d) LTI

At the 2009 AGM, GPT securityholders approved the introduction of a LTI plan based on performance rights. Any subsequent amendments to the LTI plan have been approved by GPT securityholders.

Fair value of performance rights issued under DSTI and LTI

The fair value of the performance rights is recognised as an employee benefit expense with a corresponding increase in the employee security scheme reserve in equity. Fair value is measured at grant date, recognised over the period during which the employees become unconditionally entitled to the rights and is adjusted to reflect market vesting conditions. Non-market vesting conditions are included in assumptions about the number of rights that are expected to be vested. At each reporting date, GPT revises its estimate of the number of performance rights that are expected to be exercisable and the employee benefit expense recognised each reporting period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the Consolidated Statement of Comprehensive Income with a corresponding adjustment to equity.

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2017 LTI 2017 DSTI
Fair value of rights $3.04 $4.86
Security price at valuation date $5.11 $5.11
Total Securityholder Return 6.6% N/A
Grant dates 21 February 2017 21 February 2017
Expected vesting dates 31 December 2019 31 December 2018
Security Price at the grant date $4.88 $4.88
Expected life 3 years (2 years remaining) 2 years (1 year remaining)
Distribution yield 4.8% 4.8%
Risk free interest rate 2.0% N/A
Volatilty [1] 17.9% N/A
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1 The volatility is based on the historic volatility of the security.

112

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

(e) Summary table of all employee security schemes

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Number of rights
DSTI LTI Total
Rights outstanding at 1 January 2016 1,282,432 8,917,888 10,200,320
Rights granted during 2016 1,313,947 3,024,264 4,338,211
Rights forfeited during 2016 (345,461) (977,775) (1,323,236)
Rights converted to GPT stapled securities during 2016 [1] (1,038,279) (2,356,843) (3,395,122)
Rights outstanding at 31 December 2016 1,212,639 8,607,534 9,820,173
Rights outstanding at 1 January 2017 1,212,639 8,607,534 9,820,173
Rights granted during 2017 1,338,498 2,854,675 4,193,173
Rights forfeited during 2017 (357,284) (323,771) (681,055)
Rights converted to GPT stapled securities during 2017 [2] (855,355) (2,792,225) (3,647,580)
Rights outstanding at 31 December 2017 1,338,498 8,346,213 9,684,711
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1 Rights under the 2015 DSTI plan were converted to GPT stapled securities on 21 March 2016 and rights under the 2013 LTI Plan were converted to GPT stapled securities on 18 February 2016.

2 Rights under the 2016 DSTI plan were converted to GPT stapled securities on 20 March 2017 and rights under the 2014 LTI Plan were converted to GPT stapled securities on 14 February 2017. 12,173 one off grants to employees converted to GPT stapled securities during 2017.

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Number of stapled securities
GESOP BBESOP Total
Securities outstanding at 1 January 2016 67,728 53,846 121,574
Securities granted during 2016 72,985 57,400 130,385
Securities vested during 2016 (79,957) (18,485) (98,442)
Securities outstanding at 31 December 2016 60,756 92,761 153,517
Securities outstanding at 1 January 2017 60,756 92,761 153,517
Securities granted during 2017 53,982 48,480 102,462
Securities vested during 2017 (60,756) (17,688) (78,444)
Securities outstanding at 31 December 2017 53,982 123,553 177,535
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20. Related party transactions

GPT Management Holdings Limited is the ultimate parent entity. The Consolidated Entity is stapled to the General Property Trust (Trust) and the GPT Group (GPT or the Group) financial statements include the results of the stapled entity as a whole.

Equity interests in joint ventures and associates are set out in note 2. Payables and loans with Trust are set out in note 8 and note 14 respectively.

Key management personnel

Key management personnel compensation was as follows:

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31 Dec 17 31 Dec 16
$ $
Short term employee benefits 6,778,850 6,302,352
Post employment benefits 168,272 169,189
Long term incentive award accrual 2,064,328 1,467,157
Other long term benefits – 64,319
Total key management personnel compensation 9,011,450 8,003,017
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Information regarding individual Directors’ and Senior Executives’ remuneration is provided in the Remuneration Report.

There have been no other transactions with key management personnel during the year.

113

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

Transactions with related parties

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31 Dec 17 31 Dec 16
$ $
Transactions with related parties other than associates and joint ventures
Transactions with Trust:
Revenue and expenses
Fund management fees from Trust 25,282,904 22,110,728
Property management fees from Trust 14,469,095 13,312,704
Development management fees from Trust 15,650,457 16,046,350
Development revenue received from Trust – 2,977,130
Management costs recharged from Trust 7,095,234 10,809,144
Property rent and outgoings paid to Trust (3,661,067) (5,013,107)
Interest paid to Trust (11,309,992) (4,483,075)
Receivables
Current receivables from Trust 74,515,435 44,455,512
Non-current receivables from Trust – 37,033,383
Other transactions
Revaluation of arrangements with Trust – continued and discontinued operations 34,097,679 82,134,865
Purchase of inventory from Trust 2,799,125 39,243,333
Transactions with employees
Contributions to superannuation funds on behalf of employees (5,703,954) (5,766,595)
Transactions with GWOF, GWSCF & GMF [1] :
Revenue
Responsible Entity fees 50,744,061 46,800,456
Performance fee – 28,121,621
Asset management fees 15,660,782 14,622,388
Development management fees 6,963,854 6,200,389
Directors fees recharged 653,208 904,351
Management costs recharged 5,788,457 5,098,977
Payroll costs recharged 9,396,803 9,065,297
Expense
Rent expenses (597,294) (462,493)
Receivables and payables
Current receivable outstanding 9,089,187 6,590,602
Current performance fee receivable – 15,318,650
Current fund management fee receivable 12,926,671 13,026,175
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1 The Consolidated Entity earned management fees in relation to GMF up to 30 September 2016.

114

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

21. Auditors remuneration

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31 Dec 17 31 Dec 16
$ $
Audit services
PricewaterhouseCoopers Australia
Statutory audit and review of financial reports 345,846 241,129
Total remuneration for audit services 345,846 241,129
Other assurance services
PricewaterhouseCoopers Australia
Regulatory and contractually required audits 99,818 68,097
Total remuneration for other assurance service 99,818 68,097
Total remuneration for audit and assurance service 445,664 309,226
Non audit related services
PricewaterhouseCoopers Australia
Taxation services 3,500 –
Total remuneration for non audit related services 3,500 –
Total auditors remuneration 449,164 309,226
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22. Parent entity financial information

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Parent entity
31 Dec 17 31 Dec 16
$’000 $’000
Assets
Total current assets 288,431 267,011
Total non-current assets 117,756 116,667
Total assets 406,187 383,678
Liabilities
Total current liabilities 176,788 241,095
Total non-current liabilities 99,146 10,346
Total liabilities 275,934 251,441
Net assets 130,253 132,237
Equity
Contributed equity 325,703 325,512
Reserves 5,667 12,574
Accumulated losses (201,117) (205,849)
Total equity 130,253 132,237
Profit attributable to members of the parent entity 5,190 50,179
Total comprehensive income for the year attributable to members of the parent entity 5,190 50,179
Operating lease commitments
Due within one year 6,430 5,270
Due between one and five years 15,049 15,816
Over five years 5,495 892
Total operating lease commitments 26,974 21,978
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Capital expenditure commitments

The parent entity has $807,000 capital expenditure commitments at 31 December 2017 (2016: $403,000).

Parent entity financial information

The financial information for the parent entity of the Consolidated Entity, GPT Management Holdings Limited, has been prepared on the same basis as the consolidated financial statements, except as set out below.

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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

Investments in subsidiaries, associates and joint ventures

Investments in subsidiaries, associates and joint ventures are accounted for at cost in the financial statements of the parent entity. Distributions received from subsidiaries, associates and joint ventures are recognised in the parent entity’s profit or loss rather than being deducted from the carrying amount of these investments.

23. Fair value disclosures

Information about how the fair value of financial instruments is calculated and other information required by the accounting standards, including the valuation process, critical assumptions underlying the valuations and information on sensitivity are disclosed below.

The different levels of the fair value hierarchy have been defined as follows:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Fair value measurement, valuation techniques and inputs

Fair value measurement, valuation techniques and inputs
Class of assets Fair value hierarchy Valuation technique Inputs used to measure fair value	Range of unobservable inputs
	31 Dec 17 31 Dec 16
Investment in financial assets Level 2 Market price Market price Discount for lack of marketability	Not applicable – observable input 0% 0–5%
Available for sale financial asset 2017: Not applicable Discounted cash flow (DCF) Discount rate 2016: Level 3 Foreign currency exchange rate	Not applicable 20% Not applicable – observable input

DCF method

The available for sale financial asset was valued using a discounted cash flow methodology. The expected future cash flow is converted into Australian dollars and discounted over the estimated realisation period.

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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

24. Discontinued operations and available for sale financial assets

(a) Discontinued operations

At 31 December 2017, there are two discontinued operations: Hotel/Tourism portfolio and Funds Management – Europe portfolio.

Hotel/Tourism

The Consolidated Entity has substantially completed its exit from the Hotel/Tourism portfolio.

Funds Management – Europe

Relates to equity investments in small closed-end funds (a legacy of GPT’s ownership of GPT Halverton) managed by Internos Real Investors.

(b) Details of financial performance and cash flow information relating to discontinued operations

The table below sets out the financial performance and cash flow information for the discontinued operations that continue to be owned by the Consolidated Entity at reporting date.

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31 Dec 17 31 Dec 16
$’000 $’000
Revenue – 12
Expenses (13,669) (29,063)
Loss before income tax (13,669) (29,051)
Income tax credit – (1)
Loss after income tax of discontinued operations (13,669) (29,050)
Net cash outflow from operating activities 13 (306)
Net decrease in cash from discontinued operations 13 (306)
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Discontinued operation

A discontinued operation is a part of the Consolidated Entity’s business that:

it has disposed of or has classified as held for sale and that represents a major line of its business or geographical area of operations; or
is part of a single co-ordinated plan to dispose of such a line of business or area of operations.

The results of discontinued operations are presented separately on the face of the Consolidated Statement of Comprehensive Income and the assets and liabilities are presented separately on the face of the Consolidated Statement of Financial Position.

(c) Derecognition of available for sale financial assets

In October 2017, the Consolidated Entity received a return of capital of $10,639,000 in respect of its 5.3 per cent interest in BGP Holding Plc (BGP). BGP was classified as an available for sale financial asset with a carrying value of $9,296,000 at 31 December 2016. In 2017, following the return of capital the asset has been derecognised in the Consolidated Statement of Financial Position and $10,699,000 has been recognised in the Consolidated Statement of Comprehensive Income as profit on derecognition of the available for sale financial asset.

Assets held for sale

Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Investment property held for sale will continue to be carried at fair value. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

25. Accounting policies

(a) Basis of preparation

The financial report has been prepared:

in accordance with the requirements of the Company’s constitution, Corporations Act 2001 , Australian Accounting Standards (AAS) and other authoritative pronouncements of the Australian Accounting Standards Board and International Financial Reporting Standards;
on a going concern basis in the belief that the Consolidated Entity will realise its assets and settle its liabilities and commitments in the normal course of business and for at least the amounts stated in the financial statements. The Consolidated Entity has access to undrawn financing facilities of $39,018,000 as set out in note 14;
under the historical cost convention, as modified by the revaluation for financial assets and liabilities at fair value through the Consolidated Statement of Comprehensive Income;
using consistent accounting policies and adjustments to bring into line any dissimilar accounting policies being adopted by the controlled entities, associates or joint ventures; and
in Australian dollars with all values rounded to the nearest thousand dollars, in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, unless otherwise stated.

The financial report was approved by the Board of Directors on 13 February 2018.

(b) Basis of consolidation

Controlled entities

The consolidated financial statements of the Consolidated Entity report the assets, liabilities and results of all controlled entities for the financial year.

Controlled entities are all entities over which the Consolidated Entity has control. The Consolidated Entity controls an entity when the Consolidated Entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.

Associates

Associates are entities over which the Consolidated Entity has significant influence but not control, generally accompanying a shareholding of between 10 per cent and 50 per cent of the voting rights.

GPT Funds Management Limited (GPTFM), which is wholly owned by the Company is the responsible entity (RE) of the Funds. The Board of GPTFM comprises six directors, of which GPT can only appoint two. As a result, the Company has significant influence over GPTFM and accordingly accounts for it as an associate using the equity method.

Investments in associates are accounted for using the equity method. Under this method, the Consolidated Entity’s investment in associates is carried in the Consolidated Statement of Financial Position at cost plus post acquisition changes in the Consolidated Entity’s share of net assets. The Consolidated Entity’s share of the associates’ result is reflected in the Consolidated Statement of Comprehensive Income. Where the Consolidated Entity’s share of losses in associates equals or exceeds its interest in the associate, including any other unsecured long term receivables, the Consolidated Entity does not recognise any further losses, unless it has incurred obligations or made payments on behalf of the associate.

Joint arrangements

Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has, rather than the legal structure of the joint arrangement. The Consolidated Entity has assessed the nature of its joint arrangements and determined it has joint ventures only.

Joint ventures

Investments in joint ventures are accounted for in the Consolidated Statement of Financial Position using the equity method which is the same method adopted for associates.

(c) Other accounting policies

Other accounting policies include:

(i) Available for sale financial assets

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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

(ii) Deferred revenue

The Consolidated Entity recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met. The Consolidated Entity bases its estimates taking into consideration the type of transaction and the specifics of each arrangement. Those transactions where the revenue cannot be reliably measured and/or it is not probable that future economic benefit will flow to the entity are recorded as deferred revenue until such time as the transaction meets the recognition criteria.

(iii) Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of the GPT entities are measured using the currency of the primary economic environment in which they operate (‘the functional currency’).

Transactions and balances

Foreign operations

(iv) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST (or equivalent tax in overseas locations) except where the GST incurred on purchase of goods and services is not recoverable from the tax authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable. Receivables and payables are stated inclusive of the amount of GST. The net amount of GST receivable from, or payable to, the taxation authority is included with other receivables or payables in the Consolidated Statement of Financial Position.

(v) Deferred acquisition costs

Deferred acquisition costs associated with the property management business are costs that are directly related to and incremental to earning property management fee income. These costs are recorded as an asset and are amortised in the income statement on the same basis as the recognition of property management fee revenue.

(d) New and amended accounting standards and interpretations adopted from 1 January 2017

There are no significant changes to the Consolidated Entity’s financial performance and position as a result of the adoption of the new and amended accounting standards and interpretations effective for annual reporting periods beginning on or after 1 January 2017.

Exchange differences arising on monetary items that form part of the net investment in a foreign operation are taken against a foreign currency translation reserve on consolidation.

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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Notes to the Financial Statements – Year ended 31 December 2017

(e) New accounting standards and interpretations issued but not yet adopted

The following standards and amendments to standards are relevant to the Consolidated Entity.

		Application of
Reference	Description	Standard
AASB 9_Financial Instruments_	AASB 9 addresses the classification, measurement and de-recognition of financial assets	1 January 2018
	and financial liabilities, introduces expanded disclosure requirements, a new impairment
	(expected credit loss) model and changes in presentation. When adopted, this could change
	the classification and measurement of financial assets and financial liabilities.
	The new expected credit loss model for calculating impairment on financial assets will not
	have a material impact on the provision for doubtful debts.
	Debt modifications where the impact results in a change in the present value of expected
	cashflows of less than 10 per cent, taking into account other qualitative factors, will
	be taken immediately through the Consolidated Statement of Comprehensive Income
	unless the modifications are reset or entered at market rates. An assessment has been
	completed on all loans with external parties and it has been determined that this will not
	have a material impact for the Consolidated Entity, as all previous modifications have been
	entered at market rates. The impact relating to related party loans is still being assessed.
	The Consolidated Entity will apply the standard from 1 January 2018.
AASB 15_Revenue from Contracts_	AASB 15 will replace AASB 118_Revenue_and AASB 111_Construction Contracts_. It is based	1 January 2018
with Customers	on the principle that revenue is recognised when control of a good or service is transferred
	to a customer. It contains a single model that applies to contracts with customers and two
	approaches to recognising revenue: at a point in time or over time. The model features a
	contract–based five-step analysis of transactions to determine whether, how much and
	when revenue is recognised. It applies to all contracts with customers except leases,
	financial instruments and insurance contracts. It requires reporting entities to provide
	users of financial statements with more informative and relevant disclosures.
	The Consolidated Entity will apply the standard from 1 January 2018. It is not expected
	that the application of this standard will have a material impact on the financial results,
	however some changes in the presentation of certain revenue items and additional
	disclosures will be required.
AASB 16_Leases_	AASB 16 will change the way lessees account for leases by eliminating the current dual	1 January 2019
	accounting model which distinguishes between on-balance sheet finance leases and
	off-balance sheet operating leases. Instead, there will be a single, on-balance sheet
	accounting model that is similar to the current finance lease accounting. Where the
	Consolidated Entity is the lessee, this new treatment will result in recognition of a right
	of use asset along with the associated lease liability in the balance sheet and both a
	depreciation and interest charge in the Consolidated Statement of Comprehensive Income.
	In contrast, lessor accounting will remain similar to current practice.
	The new leasing model requires the recognition of operating leases on the balance sheet. If
	the Consolidated Entity had adopted the new standard from 1 January 2017, management
	estimates that the net profit before tax for the 12 months to 31 December 2017 would
	decrease by approximately $136,220. Assets at 31 December 2017 would increase by
	approximately $12,733,000 and liabilities increase by $15,068,000.

26. Events subsequent to reporting date

On 15 January 2018, the Consolidated Entity sold vacant land at 368 Wembley Road, Berrinba for a total consideration of $4,100,000.

Other than the above, the Directors are not aware of any matter or circumstance occurring since 31 December 2017 that has significantly or may significantly affect the operations of the Consolidated Entity, the results of those operations or the state of affairs of the Consolidated Entity in subsequent financial years.

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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

Directors’ Declaration

Year ended 31 December 2017

In the Directors of GPT Management Holdings Limited’s opinion:

(a) the consolidated financial statements and notes set out on pages 90 to 120 are in accordance with the Corporations Act 2001 , including:
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
giving a true and fair view of the Consolidated Entity’s financial position as at 31 December 2017 and of its performance for the financial year ended on that date; and
(b) the consolidated financial statements and notes comply with International Financial Reporting Standards as disclosed in note 25 to the financial statements.
(c) there are reasonable grounds to believe that the Consolidated Entity will be able to pay its debts as and when they become due and payable.

The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer as required by Section 295A of the Corporations Act 2001 .

This declaration is made in accordance with the resolution of the directors.

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Rob Ferguson Chairman

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Bob Johnston Chief Executive Officer and Managing Director

GPT Management Holdings Limited Sydney 13 February 2018

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Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

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  

 



    



 

 

122

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

==> picture [77 x 59] intentionally omitted <==



   

  

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					
•		•		•	
					
					
					
•	   	•	   		−  −  − 
	 		 	• 
					
					
	
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	
	

          
     

 123

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

==> picture [77 x 59] intentionally omitted <==



    







  99

   

 

         

    

    

    
  
   
   
   



124

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

==> picture [77 x 59] intentionally omitted <==





  

 

     








   

   

       



 

  
   
 



         

  
  



125

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

==> picture [77 x 59] intentionally omitted <==







  

  
  
 



     

  
   
  



    
 
  



126

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

==> picture [77 x 59] intentionally omitted <==



 

         

       

       

    

  

   •  
 
 
   
      
      
    
   
 



127

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

==> picture [77 x 59] intentionally omitted <==



   

 

   

 



   

   



      

   



128

Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities

==> picture [77 x 59] intentionally omitted <==





88 

 

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Annual Financial Report

Supplementary information

Securityholder information

Annual Financial Report Supplementary information Securityholder information
Substantial Securityholders	Number of Securities
UniSuper	233,746,431
BlackRock Group	144,613,051
Vanguard Investments Australia	117,427,713
State Street Corporation	106,158,896

Voting Rights

Securityholders in The GPT Group are entitled to one vote for each dollar of the value of the total securities they hold in the Group.

	Number of	Percentage of Total
Distribution of Securityholders	Securityholders	Issued Securities
1 to 1,000	14,234	41.54
1,001 to 5,000	14,026	40.93
5,001 to 10,000	3,530	10.30
10,001 to 100,000	2,365	6.90
100,001 and Over	110	0.32
Total Number of Securityholders	34,265

There were 955 securityholders holding less than a marketable parcel of 98 securities, based on a close price of $5.11 as at 31 December 2017, and they hold 21,647 securities.

31 December 2017, and they hold 21,647 securities.
		Percentage of Total
Twenty Largest Securityholders	Number of Securities	Issued Securities
HSBC Custody Nominees (Australia) Limited	722,930,423	40.13
J P Morgan Nominees Australia Limited	294,537,111	16.35
BNP Paribas Nominees Pty Ltd	278,213,815	15.44
Citicorp Nominees Pty Limited	195,108,840	10.83
National Nominees Limited	67,388,787	3.74
BNP Paribas Noms Pty Ltd	20,266,760	1.12
Citicorp Nominees Pty Limited	16,309,631	0.91
AMP Life Limited	14,377,642	0.80
HSBC Custody Nominees (Australia) Limited	5,914,260	0.33
HSBC Custody Nominees (Australia) Limited-GSCO ECA	4,648,433	0.26
RBC Investor Services Australia Nominees Pty Limited	4,352,266	0.24
National Nominees Limited	4,141,453	0.23
Bond Street Custodians Limited	4,045,602	0.22
Argo Investments Limited	3,480,667	0.19
Ecapital Nominees Pty Limited	3,054,738	0.17
BNP Paribas Noms (NZ) LTD	2,037,702	0.11
Neweconomy Com Au Nominees Pty Limited <900 Account>	1,874,878	0.10
CS Fourth Nominees Pty Limited	1,864,674	0.10
UBS Nominees Pty Ltd	1,792,482	0.10
IOOF Investment Management Limited	1,627,268	0.09
Total	1,647,967,432	91.47
Total Securities on Issue	1,801,640,882

130

Annual Financial Report

Supplementary information – Year ended 31 December 2017

Issue of Securities

The following table lists the issue of GPT securities during the period from 1 January 2017 to 31 December 2017. A complete list of all securities issued since GPT’s inception in 1971 can be obtained from the Group’s website ( www.gpt.com.au ) or by calling the GPT Securityholder Service Centre on 1800 025 095 (freecall within Australia).

Date	Description	Number of Securities	Price ($)	Amount ($)
14.02.17	Issue of Securities	2,763,052	$4.88	13,483,694
20.03.17	Issue of Securities	909,693	$5.00	4,548,465
07.09.17	Issue of Securities	12,569	$4.99	62,719

Investor information

Securityholder Services

You can access your investment online at www.linkmarketservices.com.au , signing in using your SRN/HIN, Surname and Postcode. Functions available include updating your address details, downloading a PDF of your Annual Tax Statement and collecting FATCA/CRS self certification.

Also online at www.linkmarketservices.com.au are regularly requested forms relating to payment instructions, name corrections and changes and deceased estate packs.

For assistance with altering any of your investment details, please phone the GPT Registry on 1800 025 095 (free call within Australia) or +61 1800 025 095 (outside Australia).

Receive Your Report Electronically

Sustainability is core to GPT’s vision and values. As part of our sustainability initiatives we would like to offer you the opportunity to receive notification of GPT’s investor communications electronically, including the 2017 Annual Financial Report and the Annual Review. We encourage securityholders to visit www.gpt.com.au to view the online versions of these reports.

As an investor opting to receive your securityholder updates electronically, you will benefit by receiving prompt information and have the convenience and security associated with electronic delivery. There are also significant cost savings associated with this method of communication and above all this is a responsible and environmentally friendly option.

To receive your investor communications electronically, please go to www.linkmarketservices.com.au and register for online services.

AGM Information

GPT’s Annual General Meeting (AGM) will be held at the Amora Hotel Jamison Sydney, Whiteley Ballroom, Level 2, 11 Jamison Street, Sydney, New South Wales on Wednesday, 2 May 2018, commencing at 10.00am (Sydney time).

GPT encourages securityholders to attend the AGM. The AGM will also be webcast live via GPT’s website ( www.gpt.com.au ) for those securityholders who are unable to attend in person. Additionally, the Chairman’s address will be immediately announced to the ASX on the day.

Investor Calendar

Investor Calendar
28 February 2018	December 2017 Half Year Distribution Payment
2 March 2018	Annual Tax Statement
2 May 2018	Annual General Meeting
June 2018	June 2018 Half Year Distribution Announcement
August 2018	2018 Interim Result Announcement (14 August)
	June 2018 Half Year Distribution Payment

An investor calendar is also available on GPT’s website at www.gpt.com.au/investor-centre/key-dates-events

Distribution Policy and Payments

GPT has a distribution policy in place that effectively aligns the Group’s capital management framework with its business strategy, which reflects a sustainable distribution level to ensure a prudent approach to managing the Group’s gearing through market and economic cycles.

GPT makes distribution payments to securityholders two times a year, for the six months ended 30 June and the six months ended 31 December. GPT declares and pays its distribution in Australian dollars.

131

Annual Financial Report

Corporate directory

The GPT Group

Comprising:

GPT Management Holdings Limited ACN 113 510 188

GPT RE Limited ACN 107 426 504 AFSL 286511

Registered Office

Level 51 MLC Centre 19 Martin Place Sydney NSW 2000 Telephone: +61 2 8239 3555 Facsimile: +61 2 9225 9318

As Responsible Entity for General Property Trust ARSN 090 110 357

Board of Directors

Rob Ferguson (Chair) Bob Johnston Brendan Crotty Eileen Doyle Gene Tilbrook Swe Guan Lim Michelle Somerville

Company Secretaries

James Coyne Lisa Bau Telephone: +61 2 8239 3555 Facsimile: +61 2 9225 9318

Audit Committee

Michelle Somerville Brendan Crotty Swe Guan Lim Eileen Doyle

Nomination and Remuneration Committee

Gene Tilbrook Eileen Doyle Rob Ferguson

Auditors

PricewaterhouseCoopers One International Towers Sydney, Watermans Quay, Barangaroo Sydney NSW 2000 Principal Registry Link Market Services GPT Security Registrar Locked Bag A14 Sydney South NSW 1235 Within Australia: 1800 025 095 (free call) Outside Australia: +61 1800 025 095 Fax: +61 2 9287 0303 Email: [email protected] Website: www.linkmarketservices.com.au Stock Exchange Quotation GPT is listed on Australian Securities Exchange under ASX Listing Code GPT.

Sustainability and Risk Management Committee Eileen Doyle Brendan Crotty Swe Guan Lim Michelle Somerville

132

AI assistant

GPT GROUP — Annual Report 2018

65009_rns_2018-03-28_453cb07e-b749-46f5-aab3-e2a4776f51f0.pdf

Contents

Corporate Governance

Annual Financial Report of The GPT Group

Year ended 31 December 2017

Contents

Directors’ Report

Year ended 31 December 2017

1. Operating and financial review

About GPT

GPT Portfolio

Retail Portfolio

Office Portfolio

Logistics Portfolio

Review of operations

Operating result

Retail

Operations net income

Development net income

Office

Operations net income

Development net income

Logistics

Operations net income

Development net income

Funds Management

GWOF

GWSCF

Fund Terms Review

Management expenses

Non-core operations

Joint venture

Distribution

Investor Liquidity Review

Financial position

Balance sheet

Capital management

Cash flows

Operating activities

Prospects

Group

Retail

Office

Logistics

Funds management

Guidance for 2018

Risks

Directors’ Report – Year ended 31 December 2017

2. Environmental regulation

3. Events subsequent to reporting date

4. Directors and secretary

Information on directors

Rob Ferguson – Chairman

Robert Johnston – Chief Executive Officer and Managing Director

Brendan Crotty

Eileen Doyle

Swe Guan Lim

Michelle Somerville

Directors’ Report – Year ended 31 December 2017

Gene Tilbrook

James Coyne – General Counsel and Company Secretary

Lisa Bau – Senior Legal Counsel and Company Secretary

Attendance of directors at meetings

5. Other disclosures

Indemnification and insurance of directors, officers and auditor

Non-audit services

Auditor’s independence declaration

Rounding of amounts

6. Remuneration report

Governance

Committee key decisions and remuneration outcomes in 2017

GPT’s vision and financial goals linked to remuneration structures

Employment Terms

1. Employment terms – Chief Executive Officer and Managing Director

2. Employment terms – Executive KMP

3. Compensation mix at maximum STIC and LTI outcomes

Group Financial Performance & Incentive Outcomes

1. Five year Group financial performance

GPT GROUP Annual Report 2018