Other disclosures
In this section
This section includes other information that must be disclosed to comply with the Accounting Standards, the Corporations Act 2001 or the
Corporations Regulations, but which are not considered critical in understanding the financial performance or position of the Group.
Note 19 Intangible assets
Management rights represent the asset management rights owned by Dexus Holdings Pty Limited, a wholly owned subsidiary of DXO,
which entitle it to management fee revenue from both finite life trusts and indefinite life trusts. Those rights that are deemed to have a
finite useful life (held at a value of $4.1 million (2016: $4.6 million)) are measured at cost and amortised using the straight-line method over
their estimated remaining useful lives of 16 years. Management rights that are deemed to have an indefinite life are held at a value of
$286.0 million (2016: $286.0 million).
Software is measured at cost and amortised using the straight-line method over its estimated useful life, expected to be three to five
years.
2017
$m
2016
$m
290.6
290.8
Management rights
Opening balance at the beginning of the year
Amortisation charge
Closing balance at the end of the year
Cost
Accumulated amortisation
Total management rights
(0.5)
(0.2)
290.1
290.6
294.4
294.4
(4.3)
290.1
(3.8)
290.6
Goodwill
Opening balance at the beginning of the year
Impairment
1.3
1.4
(0.1)
(0.1)
1.2
1.3
Cost
3.0
3.0
Accumulated impairment
(1.8)
(1.7)
1.2
1.3
15.2
9.2
7.3
9.1
Closing balance at the end of the year
Total goodwill
Software
Opening balance at the beginning of the year
Additions
Amortisation charge
(4.3)
Closing balance at the end of the year
18.2
(3.1)
15.2
Cost
36.8
29.5
Accumulated amortisation
(18.6)
(14.3)
Cost – Fully amortised assets written off
(10.2)
–
10.2
–
Accumulated amortisation – Fully amortised assets written off
Total software
Total non-current intangible assets
18.2
15.2
309.5
307.1
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the
acquired subsidiary at the date of acquisition.
Goodwill and management rights with an indefinite useful life are not subject to amortisation and are tested annually for impairment,
or more frequently if events or changes in circumstances indicate that they might be impaired. An impairment loss is recognised in
the Statement of Comprehensive Income for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment,
assets are grouped at the lowest levels for which there are separately identifiable cash inflows, which are largely independent of the
cash inflows from other assets or groups of assets (cash-generating units).
Dexus Annual Report 2017
89
Financial Report
Other disclosures continued
Note 19 Intangible assets continued
During the year, management carried out a review of the recoverable amount of its management rights. There was no change in the
carrying value of the management rights in the current year.
The value in use has been determined using Board approved long-term forecasts in a five year discounted cash flow model. Forecasts
were based on projected returns of the business in light of current market conditions. The performance in year five has been used as
a terminal value.
Key assumptions: value in use of management rights
Judgement is required in determining the following key assumptions used to calculate the value in use:
-- Terminal capitalisation rate range between 10.0%–20.0% (2016: 10.0%–16.7%) was used incorporating an appropriate risk premium for
a management business.
-- Cash flows have been discounted at 9.0% (2016: 9.0%) based on externally published weighted average cost of capital for an
appropriate peer group plus an appropriate premium for risk. A 1.0% (2016: 1.0%) decrease in the discount rate would increase the
valuation by $18.6 million (2016: $15.3 million).
Note 20 Audit, taxation and transaction service fees
During the year, the Auditor and its related practices earned the following remuneration:
2017
$'000
2016
$'000
Audit fees
1,357
1,381
PwC fees paid in relation to outgoings audits
105
91
PwC Australia – regulatory audit and compliance services
209
233
85
68
1,756
1,773
20
298
PwC Australia – audit and review of Financial Statements
PwC Australia – sustainability assurance
Audit fees paid to PwC
Taxation fees
Fees paid to PwC Australia and New Zealand
Taxation fees paid to PwC
Total audit and taxation fees paid to PwC
20
298
1,776
2,071
–
239
Transaction services fees
Fees paid to PwC Australia in respect of the IOF transaction
Fees paid to PwC Australia – other
25
105
Total transaction services fees paid to PwC
25
344
1,801
2,415
Total audit, taxation and transaction services fees paid to PwC
90
Note 21 Reconciliation of cash flows from operating activities
Reconciliation of net profit after income tax to net cash inflows from operating activities:
2017
$m
Net profit/(loss) for the year
Capitalised interest
Depreciation and amortisation
2016
$m
1,264.2
1,259.8
(9.8)
(9.3)
7.8
5.8
Net fair value (gain)/loss of investment properties
(457.6)
(452.1)
Share of net (profit)/loss of investments accounted for using the equity method
(470.4)
(525.5)
101.0
(106.4)
Net fair value (gain)/loss of derivatives
Net fair value (gain)/loss of interest rate swaps
Amortisation of deferred borrowing costs
(9.8)
35.8
3.9
4.3
Net (gain)/loss on sale of investment properties
(23.4)
(1.0)
Net fair value gain/(loss) of interest bearing liabilities
(87.5)
110.8
Transaction costs
Provision for doubtful debts
Distributions from investments accounted for using the equity method
–
7.1
(0.5)
237.6
0.3
213.2
Change in operating assets and liabilities
(Increase)/decrease in receivables
11.4
–
(Increase)/decrease in prepaid expenses
(1.6)
1.5
(Increase)/decrease in inventories
67.3
(Increase)/decrease in other current assets
(0.4)
(7.4)
(Increase)/decrease in other non-current assets
20.4
7.3
Increase/(decrease) in payables
9.2
1.2
Increase/(decrease) in current liabilities
Increase/(decrease) in other non-current liabilities
(Increase)/decrease in deferred tax assets
Net cash inflow/(outflow) from operating activities
80.5
(15.5)
34.7
7.5
3.2
3.3
(0.1)
657.1
663.7
Dexus Annual Report 2017
91
Financial Report
Other disclosures continued
Note 22 Security-based payment
The DXFM Board has approved a grant of performance rights to DXS stapled securities to eligible participants. Awards, via the Deferred
Short Term Incentive Plans (DSTI) and Long Term Incentive Plans (LTI), will be in the form of performance rights awarded to eligible
participants which convert to DXS stapled securities for nil consideration subject to satisfying specific service and performance conditions.
For each Plan, the eligible participants will be granted performance rights, based on performance against agreed key performance
indicators, as a percentage of their remuneration mix. Participants must remain in employment for the vesting period in order for
the performance rights to vest. The fair value of the performance rights is adjusted to reflect market vesting conditions. Non-market
vesting conditions, including Funds from Operations (FFO), Return on Equity (ROE) and employment status at vesting, are included in
assumptions about the number of performance rights that are expected to vest. When performance rights vest, the Group will arrange
for the allocation and delivery of the appropriate number of securities to the participant.
The fair value of performance rights granted is recognised as an employee benefit expense with a corresponding increase in the
security-based payment reserve in equity. The total amount to be expensed is determined by reference to the fair value of the
performance rights granted.
Key assumptions: fair value of performance rights granted
Judgement is required in determining the fair value of performance rights granted. In accordance with AASB 2 Share-based
Payment, fair value is determined independently using Binomial and Monte Carlo pricing models with reference to:
-- the expected life of the rights;
-- the security price at grant date;
-- the expected price volatility of the underlying security;
-- the expected distribution yield; and
-- the risk free interest rate for the term of the rights and expected total security-holder returns (where applicable).
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to
be satisfied. At the end of each period, the Group revises its estimates of the number of performance rights that are expected to
vest based on the non-market vesting conditions. The impact of the revised estimates, if any, is recognised in profit or loss with a
corresponding adjustment to equity.
a) Deferred Short Term Incentive Plan
25% of any award under the Short Term Incentive Plan (STI) for certain participants will be deferred and awarded in the form of
performance rights to DXS securities.
50% of the performance rights awards will vest one year after grant and 50% of the awards will vest two years after grant, subject to
participants satisfying employment service conditions. In accordance with AASB 2 Share-based Payment, the year of employment in
which participants become eligible for the DSTI, the year preceding the grant, is included in the vesting period over which the fair value
of the performance rights is amortised. Consequently, 50% of the fair value of the performance rights is amortised over two years and
50% of the award is amortised over three years.
The number of performance rights granted in respect of the year ended 30 June 2017 was 274,801 (2016: 292,995) and the fair value of
these performance rights is $10.00 (2016: $9.14) per performance right. The total security-based payment expense recognised during the
year ended 30 June 2017 was $2,655,472 (2016: $1,976,361).
b) Long Term Incentive Plan
50% of the awards will vest three years after grant and 50% of the awards will vest four years after grant, subject to participants
satisfying employment service conditions and performance hurdles. In accordance with AASB 2 Share-based Payment, the year of
employment in which participants become eligible for the LTI, the year preceding the grant, is included in the vesting period over which
the fair value of the performance rights is amortised. Consequently, 50% of the fair value of the performance rights is amortised over four
years and 50% of the award is amortised over five years.
The number of performance rights granted in respect of the year ended 30 June 2017 was 480,660 (2016: 380,963). The weighted average
fair value of these performance rights is $8.04 (2016: $6.69) per performance right. The total security-based payment expense recognised
during the year ended 30 June 2017 was $3,390,504 (2016: $1,116,895).
92
Note 23 Related parties
Responsible Entity and Investment Manager
DXH is the parent entity of DXFM, the Responsible Entity of DDF, DIT, DOT and DXO and the Trustee of DOTA and the investment manager
for DITA.
DXH is also the parent entity of DWPL, the Responsible Entity of DWPF.
DXH is the Investment Manager of DOTA.
Management Fees
Under the terms of the Constitutions of the entities within the Group, the Responsible Entity and Investment Manager are entitled to
receive fees in relation to the management of the Group. DXFM’s parent entity, DXH, is entitled to be reimbursed for administration
expenses incurred on behalf of the Group. Dexus Property Services Pty Limited (DXPS), a wholly owned subsidiary of DXH, is entitled to
property management fees from the Group.
The Group received Responsible Entity and other Management Fees from the unlisted property funds managed by DXS during the
financial year.
Related party transactions
Transactions between the consolidated entity and related parties were made on commercial terms and conditions. All agreements with
third party funds and joint ventures are conducted on normal commercial terms and conditions.
Transactions with related parties
2017
$'000
2016
$'000
Responsible Entity & Asset management fee income
62,772
44,359
Property management fee income
22,446
31,603
Rent paid
2,627
2,097
Responsible Entity fees receivable at the end of each reporting year (included above)
5,631
6,537
Administration expenses receivable at the end of each reporting year (included above)
98
1,710
5,641
295
2017
$'000
Property management fees receivable at the end of each reporting year (included above)
2016
$'000
8,967
8,130
717
235
Key management personnel compensation
Compensation
Short-term employee benefits
Post employment benefits
Security-based payments
Total key management personnel compensation
3,011
2,456
12,695
10,821
Information regarding individual Directors’ and Senior Executives’ remuneration is provided in the Remuneration Report on
pages 32 to 48 of the Directors’ Report.
There have been no other transactions with key management personnel during the year.
Dexus Annual Report 2017
93
Financial Report
Other disclosures continued
Note 24 Parent entity disclosures
The financial information for the parent entity of Dexus Diversified Trust has been prepared on the same basis as the Consolidated
Financial Statements except as set out below.
Distributions received from associates are recognised in the parent entity’s Statement of Comprehensive Income, rather than being
deducted from the carrying amount of these investments.
Interests held by the parent entity in controlled entities are measured at fair value through profit and loss to reduce a measurement or
recognition inconsistency.
a) Summary financial information
The individual Financial Statements for the parent entity show the following aggregate amounts:
2017
$m
47.7
609.1
4,079.0
3,989.7
84.1
118.7
1,518.4
1,674.8
2,126.6
1,984.0
6.9
9.1
Total current assets
Total assets
Total current liabilities – payables
Total liabilities
2016
$m
Equity
Contributed equity
Reserves
Retained profits
Total equity
427.2
321.8
2,560.7
2,314.9
Net profit/(loss) for the year
217.4
259.5
Total comprehensive income/(loss) for the year
215.2
260.0
b) Guarantees entered into by the parent entity
Refer to note 15(b) for details of guarantees entered into by the parent entity.
c) Contingent liabilities
Refer to note 15(b) for details of the parent entity’s contingent liabilities.
d) Capital commitments
The following amounts represent capital expenditure of the parent entity on investment properties contracted at the end of the
reporting period but not recognised as liabilities payable:
2017
$m
2016
$m
Investment properties
1.8
6.2
Total capital commitments
1.8
6.2
e) Going concern
The parent entity is a going concern and its net current asset deficiency has been addressed in ‘About this Report’.
94
Note 25 Change in accounting policy
IFRS Interpretations Committee (IFRIC) and change in accounting policy for Income Taxes
In November 2016, the IFRS Interpretations Committee (IFRIC) published a summary of its discussions following a request to clarify how
an entity determines the expected manner of recovery of an intangible asset with an indefinite useful life for measuring deferred taxes
in accordance with IAS 12 – Income Taxes. The IFRIC noted that the fact that an entity does not amortise an intangible asset with an
indefinite useful life does not mean that it has an infinite life and that the entity will recover the carrying amount of that asset only
through sale and not through use.
The benefits of the management rights with an indefinite useful life will flow to the Group on an annual basis; therefore, the carrying
amount will be recovered through use.
In response to this clarification, the Group has retrospectively changed its accounting policy for the full deferred tax liabilities recorded in
relation to its management rights.
The following table summarises the impact of this change in accounting policy on the Statement of Financial Position. This change
did not have an impact on the 2016 comparative figures reported in the Statement of Comprehensive Income and Statement of Cash
Flows. As the management rights were acquired as part of business combinations in prior years and there were prior year impairments,
corresponding adjustments have been made in retained earnings.
Impact of change in accounting policy
$m
Increase⁄(decrease) of previously reported balances
–
Goodwill
73.2
Deferred income tax liabilities
(73.2)
Retained earnings 1
1.
Included in Security holders’ equity.
Note 26 Subsequent events
Acquisitions
On 18 July 2017, settlement occurred for the acquisition of 100 Harris Street, Pyrmont for $327.5 million excluding acquisition costs.
On 19 July 2017, settlement occurred for the acquisition of MLC Centre, 19 Martin Place, Sydney for $361.3 million excluding acquisition
costs. This represents the Group’s 25% interest held through Dexus Martin Place Trust which is jointly owned by the Group and Dexus
Wholesale Property Fund (DWPF).
On 25 July 2017, the Group settled on the acquisition of 90 Mills Road, Braeside for $50.6 million excluding acquisition costs.
Disposals
On 1 August 2017, settlement occurred on the disposal of 46 Colin Street, West Perth for $16.8 million excluding disposal costs,
representing the Group’s 50% interest held through Dexus Office Trust Australia.
On 7 July 2017, the Group disposed of 30-68, Tarras Road, Altona North for $13.1 million excluding disposal costs.
On 8 August 2017, Dexus completed the Security Purchase Plan (SPP) announced on 21 June 2017 in connection with Dexus’s $500 million
institutional placement (Institutional Placement). A total of approximately $4.4 million was raised under the SPP and accordingly 439,405
new securities (New Securities) will be issued to eligible applicants on Thursday, 17 August 2017. Given that the amount raised did not exceed
the $50 million maximum, all applications will be satisfied in full. The New Securities will not be entitled to the distribution for the six months
ended 30 June 2017, but will rank equally and have full entitlement to the distribution for the six months ended 31 December 2017.
Since the end of the year, other than the matters disclosed above, the Directors are not aware of any matter or circumstance not
otherwise dealt with in their Directors’ Report or the Financial Statements that has significantly or may significantly affect the operations
of the Group, the results of those operations, or state of the Group’s affairs in future financial periods.
Dexus Annual Report 2017
95