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ANNUAL REPORT 2014

FOLKESTONE REAL ESTATE INCOME FUND AT SYDNEY OLYMPIC PARK

CHAIRMAN AND HEAD OF FUNDS MANAGEMENT REPORT 2

DIRECTORS' REPORT 4

AUDITOR’S INDEPENDENCE DECLARATION 11

FINANCIAL REPORT

- STATEMENT OF PROFIT OR LOSS

AND OTHER COMPREHENSIVE INCOME 12

- STATEMENT OF FINANCIAL POSITION 13

- STATEMENT OF CHANGES IN EQUITY 14

- STATEMENT OF CASH FLOWS 15

- NOTES TO THE FINANCIAL STATEMENTS 16

DIRECTORS’ DECLARATION 35

INDEPENDENT AUDITOR’S REPORT 36

CONTENTS

Folkestone Funds Management Limited

ABN 99 138 125 881

2 Folkestone Real Estate Income Fund at Sydney Olympic Park Annual Report 2013/14

CHAIRMAN AND HEAD OF FUNDS MANAGEMENT REPORT

We are pleased to provide the results of

the Folkestone Real Estate Income Fund

at Sydney Olympic Park (“the Fund”) for

the year ended 30 June 2014.

The Fund is a single asset, closed end

unlisted real estate fund with a term of

five years. The Fund owns 7 Murray Rose

Avenue, Sydney Olympic Park, a 5,931

sqm commercial building comprising five

levels of office space and ground floor

retail and two levels of basement parking.

KEY FINANCIAL ACHIEVEMENTS

The key financial achievements during

FY14 include:

an annualised distribution of 8.3 per

cent per unit, in line with the

upgraded forecast announced in

August 2013 and 6.4 per cent above

the Product Disclosure Statement

forecast for FY14 of 7.80 per cent;

the asset was independently

revalued by JLL at 30 June 2014,

achieving a 4.2 per cent increase in

value to $31.0 million – the valuation

was undertaken on a capitalisation

rate of 7.75 per cent, a 25 basis

point reduction on the previous rate

of 8.0 per cent;

increase in Net Tangible Asset from

$0.97 as at 30 June 2013 to $1.01

per unit as at 30 June 2014;

Fund gearing reduced from 47.1 per

cent as at 30 June 2013 to 45.7 per

cent as at 30 June 2014; and

the term facility of $14.625 million,

which was drawn in December 2012

for a period of three years, was

extended through to the end of the

initial Fund term (December 2017).

As part of the extended facility

agreement, the margin was reduced

resulting in the interest rate

(including margin) being fixed at

5.01 per cent p.a. until December

2015, down from 5.56 per cent p.a.

Also, for the balance of the term

facility (December 2015 to

December 2017) the interest rate

(including margin) has been fixed at

5.95 per cent p.a. providing certainty

in regard to the Fund's borrowing

costs.

KEY PORTFOLIO PERFORMANCE

The key portfolio highlights during FY14

include:

the remaining retail vacancies

(representing a combined 204 sqm

or 3.4 per cent of the total lettable

area) were occupied in October

2013 with a therapeutic wellness

centre leasing 85 sqm and a

medical/dental practice leasing 119

sqm, both on five year terms;

Thales Australia continue to lease

100 per cent of the commercial

space in the building under a ten

year lease due to expire in

November 2022 (with two five year

options); and

property outgoings were marginally

higher than budgeted in FY14,

following the recent electricity price

rises increasing electricity costs of

the common areas.

PROPERTY SUMMARY

As at 30 June 2014, there was no

vacancy in the building with 100 per cent

of the office space leased to Thales

Australia and 100 per cent of the retail

space leased to five tenants - including a

bike shop (231 sqm), a Vietnamese

restaurant (155 sqm), a café (69 sqm), a

therapeutic wellness centre (85 sqm) and

a medical/dental practice (119 sqm). The

last two tenant's leases commenced on 1

October 2013 for five years at a rent of

$440 per sqm (including incentives) which

is below the $550 per sqm forecast in the

PDS, however this did not affect the FY14

distribution as the shortfall was made up

through retained earnings from the land

access fee, paid to the Fund by the

Developer, that was not paid out during

the construction phase.

The property continues to perform well

with regard to energy usage with

management to receive official

confirmation of the NABERS energy

efficiency rating in August 2014. Current

figures indicate the building is operating

at between a 4.5 and 5 star NABERS

energy efficiency rating, in line with the

expectations at the time of acquisition.

Folkestone Real Estate Income Fund at Sydney Olympic Park Annual Report 2013/14 3

MARKET OVERVIEW

Sydney Olympic Park is now firmly

established as one of Sydney’s leading

suburban office markets and has

continued to grow strongly in recent

years. The office market is considered

attractive given the ability to offer

buildings with large floor plates within a

campus style environment and the quality

of the public amenity at the park is very

appealing to tenants.

According to Colliers, Sydney Olympic

Park has one of the tightest vacancy

rates of any of the Sydney metropolitan

markets at less than 5.0 per cent.

During the year, 10 Herb Elliot Avenue,

comprising 8,800 sqm of office space was

completed but has yet to secure a tenant.

A second building comprising 12,900 sqm

of office space at 3 Murray Rose Avenue

has been pre-leased to Samsung and is

due to for completion in mid-2015.

Sydney Olympic Park also continues to

evolve into an active suburb with a mix of

commercial, cultural, sporting and now

high density residential development.

Australia Towers was the first residential

development in Sydney Olympic Park and

is just 100 metres from the Fund’s

property at 7 Murray Rose Avenue.

Australia Towers 1 (AT1) was completed

in early 2012, consisting of two towers of

24 and 16 levels, housing 216

apartments. Australia Towers 2 (AT2)

comprising 267 residential apartments is

currently under construction and due for

completion in late 2014. One Australia

Avenue, with 320 apartments, is the final

stage of the Australia Towers project and

is currently under construction with an

expected completion date of mid-2015. In

early July, Bates Smart won a design

competition for a new 378 apartment

residential tower, at Sydney Olympic Park

alongside the Australia Towers.

Marketing of these apartments is

expected to begin in late 2014.

12 MONTH OUTLOOK

The forecast distribution yield for FY15 is

8.5 per cent p.a. compared to the FY14

yield of 8.3 per cent p.a. The distribution

is forecast to be 68.0 per cent tax

deferred in FY15.

During FY15 management will continue to

work closely with tenants and the building

manager to ensure the property continues

to perform to a high standard. We will

also be working to support the retail

tenants and to investigate marketing

initiatives to further promote the retail

offering. Retail within the Sydney

Olympic Park market is expected to

benefit from the continuation of

development activity within the area,

increasing foot-traffic and creating a more

vibrant commercial hub in the immediate

vicinity of the Fund's building.

Grant Hodgetts

Chairman

Adrian Harrington

Head of Funds Management


DIRECTORS' REPORT

The Directors of Folkestone Funds

Management Limited (“the Responsible

Entity”), being the Responsible Entity of

the Folkestone Real Estate Income

Fund at Sydney Olympic Park (“the

Fund”) present their report on the Fund

for the year ended 30 June 2014.

THE RESPONSIBLE ENTITY

The registered office of the Responsible

Entity and the Fund is Level 12, 15

William Street, Melbourne, Victoria 3000.

Directors of the Responsible Entity

The directors of the Responsible Entity

during the financial year and to the date

of this report comprise:

Mr Grant Bartley Hodgetts -

Appointed 25 May 2012

Mr Adrian John Harrington -

Appointed 6 July 2009

Mr Gregory James Paramor -

Appointed 6 July 2009

Mr Kenneth Ross Strang -

Appointed 25 May 2012

Company Secretary Qualifications and

Experience

Scott Nicholas Martin, BCom, CA -

appointed 31 March 2011. Scott joined

Folkestone Limited in December 2005.

Scott has over 17 years’ experience in

finance, specialising in the property and

construction industries having previously

held positions at R.Corporation and

Higgins Coatings. Scott is a Chartered

Accountant who began his career at

Deloitte providing specialist accounting

and taxation advice to a variety of clients

in a broad range of sectors. Scott is a

member of the Institute of Chartered

Accountants and holds a Bachelor of

Commerce from the University of

Melbourne.

Remuneration of the Responsible Entity

During the financial year the Responsible

Entity received fees totalling $206,000

from the Fund. Fees paid by the Fund to

the Responsible Entity and its associates

during the year are set out in Note 15.

PRINCIPAL ACTIVITIES

The Fund is a single asset, closed end

unlisted real estate fund. The Fund

owns 7 Murray Rose Avenue, Sydney

Olympic Park, a 5,931 sqm commercial

office building comprising five levels of

office space and ground floor retail and

two levels of basement parking. The

office space is 100 per cent leased to

Thales Australia Limited on a ten year

lease term and the rental space is 100

per cent leased to five tenants.

The Fund aims to provide investors with

sustainable, tax effective income and the

potential for capital growth through active

management of the asset. The Fund’s

term is five years from 1 December 2012

unless unitholders agree to a variation of

the Fund term.

REVIEW AND RESULTS OF

OPERATIONS

The Fund delivered a statutory profit for

the year ending 30 June 2014 of $2.1

million (2013: $0.6 million).

This financial year was the first full year

of operation with the building reaching

practical completion on 23 November

2012 and the Thales lease commencing

on 1 December 2013.

The Fund's investment property was

independently valued at 30 June 2014

which resulted in an increase of $1.25

million or 4.2 per cent in FY14 to $31.0

million.

The Fund's NTA value per unit as at 30

June 2014 was $1.01 (2013: $0.97).


DISTRIBUTIONS

Distributions paid for the financial year to 30 June 2014 totalled 8.3 cents per unit (19 September 2012 to 30 June 2013: 6.3 cents

per unit) as detailed below.

FUNDING

As at 30 June 2014 the Fund had total assets of $32.0 million, gross debt of $14.6 million and net assets of $16.7 million. The Fund

has a debt facility with the Bank of Melbourne (“BOM”). During the year the Fund's facility was extended for a further two years

through to December 2017.

The Fund’s gearing level (borrowings before unamortised transaction costs to total asset value) is 45.7 per cent and the loan to

value ratio (borrowings before unamortised transaction costs to investment property value) is 47.2 per cent.

As at 30 June 2014 the Fund complied with all of its debt covenant ratios and obligations.

The Fund entered into a fixed rate bill until 3 December 2015 with the BOM for $14.6 million at an interest rate of 5.56 per cent p.a.

(inclusive of margin). As part of the extended facility agreement, the facility margin was reduced resulting in the interest rate

(including margin) being fixed at 5.01 per cent p.a. until December 2015, down from 5.56 per cent p.a.

Consistent with the extension to the facility term, the Fund has entered into an interest rate swap for the period from December

2015 to December 2017 for the debt amount of $14.6 million at a rate of 4.35 per cent p.a. (exclusive of margin).

The Fund has 16,460,000 units on issue as at 30 June 2014. There have been no issues or withdrawals of units during the year.

There are no options in relation to units in the Fund.

STATE OF AFFAIRS

In the opinion of the Directors, there were no significant changes in the state of affairs of the Fund that occurred during the financial

year under review.

ENVIRONMENTAL REGULATION

The Fund is not subject to any significant environmental regulations under Commonwealth, State or Territory legislation other than

those relevant to the specific asset held by the Fund. The Directors believe that the Fund has adequate systems in place for the

management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply

to the Fund.

EVENTS SUBSEQUENT TO BALANCE DATE

There has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected,

or may significantly affect, the operations of the Fund, the results of those operations, or the state of affairs of the Fund in future

financial years.

INTERESTS OF THE RESPONSIBLE ENTITY

Interests of both the Responsible Entity and its Directors in the Fund are disclosed in Note 15 to the financial statements.

2014

Period Paid/Payable Cents per

unit Amount

$'000

Quarter ending 30 September 2013 21 October 2013 2.075 341

Quarter ending 31 December 2013 20 January 2014 2.075 342

Quarter ending 31 March 2014 17 April 2014 2.075 341

Quarter ending 30 June 2014 25 July 2014 2.075 342

Total 8.300 1,366


DIRECTORS' REPORT CONT.

LIKELY DEVELOPMENTS

Management will continue to provide secure distributions to its Unitholders. Distributions will continue on a quarterly basis.

INFORMATION ON DIRECTORS OF THE RESPONSIBLE ENTITY

The Directors of the Responsible Entity at the time of this report are:

Name and qualifications Age Experience and special responsibilities

Mr Grant Bartley Hodgetts

Independent Director and Chairman

Bachelor of Arts

Associate Diploma in Valuations

Associate of the Australian

Property Institute

Member of the Australian

Institute of Company Directors

Licensed Estate Agent (VIC)

57 Grant was appointed 25 May 2012. Grant has been involved in real estate and funds

management since 1979. He is currently Non Executive Director of Folkestone

Investment Management Limited and Knights Capital Group Limited, Director of Bethley

Group Pty Ltd and Principal of Hodgetts and Partners. Between early 2006 and 2010 he

held various positions within the Investment and Funds Management Division of Mirvac

Limited including that of CEO – Australia for Mirvac Investment Management. Prior to

joining Mirvac, he was Head of Property in the Specialised Capital Group of Westpac

Institutional Bank; a Division Director of Property Investment Banking at Macquarie

Bank; a Director of Richard Ellis (Vic) Pty Ltd; and an executive of the AMP Society’s

Property Division. Holding a Bachelor of Arts (Legal Studies and Economics) from La

Trobe University, an Associate Diploma in Valuations from RMIT and an Advanced

Certificate in Business Studies (Real Estate), also from RMIT, he is an Associate of the

Australian Property Institute, a licensed real estate agent in Victoria and a member of

the Australian Institute of Company Directors. He was a founding Director of the

Property Industry Foundation in Victoria.

Mr Adrian John Harrington

Head of Funds Management

Bachelor of Science (Hons)

Graduate Diploma in Applied Finance and Investment

Fellow of the Financial Services Institute of Australasia

46 Adrian was appointed 6 July 2009. Adrian joined Folkestone in April 2011 following the

acquisition of Equity Real Estate Partners. Adrian was a founding partner of Equity Real

Estate Partners. Adrian has more than 20 years of experience in the funds management

and real estate industries. He was formerly CEO Funds Management, UK and USA for

Mirvac Group. He previously held senior positions at James Fielding Group, Deutsche

Asset Management, Paladin Australia and the Property Council of Australia. Adrian is a

Fellow of the Financial Services Institute of Australasia. Adrian has a Bachelor of

Science (Hons) from the University of New South Wales and a Graduate Diploma in

Applied Finance and Investment from the Financial Services Institute of Australasia.

Mr Gregory James Paramor

Managing Director

Fellow of the Australian Property Institute

Fellow of the Institute of Chartered Directors

Fellow of the Royal Institute of Chartered Surveyors

64 Greg was appointed 6 July 2009. Greg is the Managing Director of Folkestone Limited.

Greg has been involved in the real estate and funds management industry for more than

35 years, and was the cofounder of Growth Equities Mutual, Paladin Australia and the

James Fielding Group. Greg was the CEO of Mirvac Group between 2004 and 2008.

Greg is a past president of the Property Council of Australia and past president of

Investment Funds Association, a Fellow of the Australian Property Institute and The

Royal Institute of Chartered Surveyors. Greg is a director of a number of not-for-profit

organisations, including the Garvan Institute of Medical Research. Greg is a board

member of the Sydney Swans and the Chairman of LJ Hooker. Greg is also an Adjunct

Professor of Bond University.

Mr Kenneth Ross Strang

Non Executive Director

LLB (Hons)

Member of the Australian Institute of Company Directors

69 Ross was appointed 25 May 2012. Ross was appointed as a Non-Executive Director of

Folkestone in March 2011. Ross is a consultant to Kemp Strang, a Sydney commercial

law firm. Ross is one of Kemp Strang's founders and was a partner in the practice for

over 30 years. Ross has extensive experience in commercial real estate, construction

and securities matters on a broad front and is well known in legal, commercial and

community circles. He is a former non-executive Director of Mirvac Funds Management

Limited and Mirvac Wholesale Funds Management Limited, and is a member of the

Australian Institute of Company Directors.

The Fund’s Constitution does not require Directors to retire and seek re-election.


DIRECTORS' MEETINGS

Board Meetings

A B

Mr Grant Hodgetts 8 8

Mr Adrian Harrington 8 8

Mr Gregory Paramor 8 6

Mr Ross Strang 8 7

A - Number of meetings held during the time the Director held office during the year. B - Number of meetings attended.

AUDIT AND RISK MANAGEMENT COMMITTEE

The members of the Audit and Risk Management Committee during the financial year and to the date of this financial report comprise:

Mr Ross Strang

Mr Garry Sladden (Independent Member)

Mr Mark Baillie (Independent Member)

Mr Mark Baillie and Mr Garry Sladden are not Directors of the Responsible Entity. Details of meetings held during the year and member’s attendance are as follows:

Audit and Risk Management Committee Meetings A B

Mr Ross Strang 5 5

Mr Garry Sladden 5 5

Mr Mark Baillie 5 5

A - Number of meetings held during the year the member was eligible to attend. B - Number of meetings attended.



AUDIT AND RISK MANAGEMENT COMMITTEE CONT.

The experience of the Audit and Risk Management Committee is set out below:

Name and qualification Experience

Mr Kenneth Ross Strang See information on Directors

Mr Garry Sladden

Bachelor of Business

Certified Practicing Accountant

FINSA

Garry was appointed as Non-Executive Chairman of Folkestone in March 2011. Garry is a

business and strategic adviser who has a diversified business background in the areas of real

estate, private equity, business operations, banking and finance, and equity raising, having

held the position of General Manager Operations at Consolidated Press Holdings for six

years. Garry is Chairman of Ashton Manufacturing Pty Limited, a non-executive Director of

Melanoma Institute Australia and non-executive Chairman of Clarius Limited (ASX: CND).

Mr Mark Baillie

Bachelor of Commerce

Chartered Accountant

Mark was appointed as Non-Executive Deputy Chairman of Folkestone in February 2013.

Prior to this Mark was Macquarie Group Limited’s Head of Real Estate – Europe and North

America. During his 14 years at Macquarie, Mark was responsible for the creation and listing

of three AREITs on the ASX and was an AREIT CEO for five years. Mark was located in

Chicago, USA (2001 to 2006) and London UK (2006 to 2009) in order to establish and

manage the growth of Macquarie Real Estate’s business in both regions. Mark was a director

on the boards of all Macquarie’s listed AREITs. In addition, Mark has been a director of the

following real estate industry bodies, the Property Council of Australia, the Shopping Centre

Council of Australia, the Association of Foreign Investors in Real Estate (past Chairman) and

the European Public Real Estate Association. Mark is currently a director of the American

Australian Association Limited and United States Studies Centre Limited.


REMUNERATION REPORT

The Responsible Entity does not have a Remuneration Committee as the Fund’s Constitution prescribes the Fund’s remuneration

arrangement with the Responsible Entity. In relation to remuneration of the Directors of the Responsible Entity this is a matter for the

Board and the ultimate parent entity of the Responsibility Entity.

It is the objective of the Fund that the Board comprises Directors with an appropriate mix of skills, experience and personal attributes

that allow the Directors individually and the Board collectively to supervise the operations of the Fund with excellence. All fees and

expenses of the Responsible Entity are approved by the Board and remuneration of the Responsible Entity is dealt with

comprehensively in the Fund’s Constitution.

Remuneration of the Directors is paid either directly by the Responsible Entity or by entities associated with the shareholders of the

Responsible Entity. The Directors are not provided with any remuneration by the Fund itself. Directors are not entitled to any equity

interests in the Fund, or any rights to or options for equity interests in the Fund, as a result of the remuneration provided by the

Responsible Entity.

The Responsible Entity determines remuneration levels and ensures they are competitively set to attract and retain appropriately

qualified and experienced Directors and senior executives.

Loans to Directors of the Responsible Entity

The Fund has not made, guaranteed or secured, directly or indirectly, any loans to the Directors of their personally-related entities at any time during the reporting year.

DETAILS OF UNITHOLDING IN THE FUND

The interests of the Directors of the Responsible Entity in units of the Fund during the year are set out below:

Balance at the start of

the year

No. of units

Acquisitions during the

year

No. of units

Redemptions during the year

No. of units

Balance at the end of the year

No. of units

Ordinary units

GB Hodgetts - - - -

AJ Harrington 25,000 - - 25,000

GJ Paramor 250,000 - - 250,000

KR Strang - - - -

Refer to Note 15 of the financial statements for further details.

INDEMNITIES AND INSURANCE PREMIUMS FOR OFFICERS AND AUDITORS

Indemnification

Under the Fund Constitution, the Responsible Entity, including its officers and employees, is indemnified out of the Fund’s assets for

any loss, damage, expense or other liability incurred by it in properly performing or exercising any of its powers, duties or rights in

relation to the Fund.

The Fund has not indemnified any Auditor of the Fund.



INSURANCE PREMIUMS

The Responsible Entity has paid insurance premiums in respect of its officers for liability and legal expenses for the year ended 30

June 2014.

Such insurance contracts insure against certain liability (subject to specified exclusions) for persons who are or have been officers of

the Responsible Entity.

Details of the nature of the liabilities covered or the amount of the premium paid has not been included as such disclosure is

prohibited under the terms of the contracts.

The Fund has not otherwise, during the year or since the end of the financial year, indemnified or agreed to indemnify the auditor of

the company or of any related body corporate against a liability incurred as the auditor.

PROCEEDINGS ON BEHALF OF RESPONSIBLE ENTITY

No person has applied for leave of Court to bring proceedings on behalf of the Responsible Entity or intervene in any proceedings to

which the Responsible Entity is a party for the purpose of taking responsibility on behalf of the Responsible Entity for all or any part of

those proceedings.

The Responsible Entity was not a party to any such proceedings during the year.

NON-AUDIT SERVICES

Details of non-audit services provided to the Fund by the independent Auditor during the year ended 30 June 2014 are contained in

Note 21 to the financial statements.

ROUNDING OF AMOUNTS

The Fund is of a kind referred to in ASIC Class order 98/100 issued by the Australian Securities and Investments Commission,

relating to the ‘rounding off’ of amounts in the directors report and financial report. Amounts in the financial report and the directors’

report have been rounded off to the nearest thousand dollars in accordance with the Class Order, unless otherwise stated.

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 11.

Signed in accordance with a resolution of the Board of Directors of the Responsible Entity, Folkestone Funds Management Limited,

pursuant to S.306(3) of the Corporations Act 2001.

Grant Hodgetts

Chairman Folkestone Funds Management Limited Sydney, 21 August 2014


AUDITOR'S INDEPENDENCE DECLARATION


STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME


For the year ended 30 June 2014

2014

Period from 15 June 2012 to 30 June 2013

Notes $000 $000

Revenue

Lease income 2,661 1,565

Property outgoings recoveries 424 204

Land access fee - 960

Interest income 22 16

Net property revaluation increment 955 -

Total revenue 4,062 2,745

Expenses

Finance costs 2(b) 855 478

Property outgoings 430 203

Other expenses 2(a) 98 102

Responsible entity's remuneration 206 163

Changes in fair value of derivative instruments 328 -

Net property revaluation decrement - 1,178

Total expenses 1,917 2,124

Net profit attributable to unitholders 2,145 621

Other comprehensive income - -

Total comprehensive income attributable to unitholders 2,145 621

Earnings per unit

Basic earnings per unit (cents per unit) 4 13.03 3.77

Diluted earnings per unit (cents per unit) 4 13.03 3.77

The above Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.


STATEMENT OF FINANCIAL POSITION


As at 30 June 2014

Notes

2014 $000

2013 $000

ASSETS

Current Assets

Cash and cash equivalents 5 819 997

Other current assets 6 157 292

Total Current Assets 976 1,289

Non-Current Assets

Investment property 7 30,510 29,555

Investment property - straight line rental asset 8 490 195

Total Non-Current Assets 31,000 29,750

Total Assets 31,976 31,039

LIABILITIES

Current Liabilities

Trade and other payables 9 84 72

Distribution payable 10 342 333

Other current liabilities 11 15 213

Total Current Liabilities 441 618

Non-Current Liabilities

Borrowings 12 14,520 14,513

Derivative financial instruments 13 328 -

Total Non-Current Liabilities 14,848 14,513

Total Liabilities 15,289 15,131

Net Assets 16,687 15,908

EQUITY

Issued capital 14 16,334 16,334

Undistributed profit/(losses) 353 (426)

Total Equity 16,687 15,908

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


STATEMENT OF CHANGES IN EQUITY



Issued Capital Undistributed profit/(losses) Total

$000 $000 $000

Balance at 15 June 2012 - - -

Issue of subscription units*

10,845 - 10,845

Redemption of subscription units* (10,845) - (10,845)

Issue of ordinary units 16,460 - 16,460

Fund establishment costs (126) - (126)

Net profit attributable to the unitholders - 621 621

Other comprehensive income - - -

Distribution paid or provided for - (1,047) (1,047)

Balance at 30 June 2013 16,334 (426) 15,908

Balance at 1 July 2013 16,334 (426) 15,908

Net profit attributable to the unitholders - 2,145 2,145

Other comprehensive income - - -

Distribution paid or provided for - (1,366) (1,366)

Balance at 30 June 2014 16,334 353 16,687

* Subscription units were underwriting units issued pursuant to a Subscription Agreement dated 18 September 2012.

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


STATEMENT OF CASH FLOWS



2014

Period from 15 June 2012 to 30 June 2013

Note NoteNotNitNo Note $000 $000

Cash flows from operating activities

Cash receipts in the course of operations (inclusive of GST) 2,902 3,041

Cash payments in the course of operations (inclusive of GST) (1,050) (690)

Interest received 22 16

Finance costs paid (845) (732)

Net cash inflow from operating activities 5(b) 1,029 1,635

Cash flows from investing activities

Purchase of investment property - (30,733)

Net cash outflow from investing activities - (30,733)

Cash flows from financing activities

Proceeds from issue of ordinary units - 16,460

Proceeds from issue of subscription units - 10,845

Redemption of subscription units - (10,845)

Payment of fund establishment costs - (126)

Proceeds from borrowings - 14,625

Distributions paid (1,357) (714)

Net cash (outflow)/inflow from financing activities (1,357) 30,245

Net (decrease)/increase in cash held (328) 1,147

Cash at beginning of the financial year 1,147 -

Cash at end of the financial year 819 1,147

Cash at the end of the financial year comprising:

Cash and cash equivalents 5(a) 819 997

Term deposit 6 - 150

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


NOTES TO THE FINANCIAL STATEMENTS

NOTE 1: SIGNIFICANT

ACCOUNTING POLICIES

a) Reporting Period

The Fund was established on 15 June

2012 however did not commence

operations until 19 September 2012 when

the leasehold property was acquired and

the units were allotted to unitholders.

Therefore, the comparative balances in

the Statement of Profit or Loss and Other

Comprehensive Income and Statement of

Cash Flows are for the period from 15

June 2012 to 30 June 2013.

b) Basis of Preparation

These general purpose financial

statements have been prepared in

accordance with the Australian

Accounting Standards and Interpretations

issued by the Australian Accounting

Standards Board, the Corporations Act

2001 and the requirements of the Fund

Constitution dated 1 June 2012 (as

amended).

The financial statements are prepared on

the basis of cost measurement of assets

and liabilities except where otherwise

stated. The Fund is a for profit entity.

Compliance with International Financial Reporting Standards

The financial statements of the Fund also

comply with International Financial

Reporting Standards as issued by the

International Accounting Standards

Board.

New and Amended Standards Adopted by the Fund

The Fund has applied the following

standards for the first time for their annual

reporting year commencing 1 July 2013:

AASB 13 Fair Value Measurement

and AASB 2011-8 Amendments to

Australian Accounting Standards

arising from AASB 13

AASB 13 establishes a single source of

guidance for fair value measurements

and disclosures about fair value

measurements. The scope of AASB 13 is

broad; the fair value measurement

requirements of AASB 13 apply to both

financial instrument items and non-

financial instrument items for which other

AASBs require or permit fair value

measurements and disclosures about fair

value measurements, except for share-

based payment transactions that are

within the scope of AASB 2 ‘Share-based

Payment’, leasing transactions that are

within the scope of AASB 117 ‘Leases’,

and measurements that have some

similarities to fair value but are not fair

value (e.g. net realisable value for the

purposes of measuring inventories or

value in use for impairment assessment

purposes).

AASB 13 defines fair value as the price

that would be received to sell an asset or

paid to transfer a liability in an orderly

transaction in the principal (or most

advantageous) market at the

measurement date under current market

conditions. Fair value under AASB 13 is

an exit price regardless of whether that

price is directly observable or estimated

using another valuation technique. Also,

AASB 13 includes extensive disclosure

requirements.

AASB 13 requires prospective

application from 1 July 2013. In addition,

specific transitional provisions were given

to entities such that they need not apply

the disclosure requirements set out in the

Standard in comparative information

provided for periods before the initial

application of the Standard. In

accordance with these transitional

provisions, the Fund has not made any

new disclosures required by AASB 13 for

the 2013 comparative period (please see

note 7 for the 2014 disclosures). Other

than the additional disclosures, the

application of AASB 13 does not have

any material impact on the amounts

recognised in the consolidated financial

statements.

AASB 10 Consolidated Financial

Statements, AASB 11 Joint

Arrangements, AASB 12 Disclosure

of Interests in Other Entities, AASB

128 Investments in Associates and

Joint Ventures, AASB 127 Separate

Financial Statements and AASB

2011-7 Amendments to Australian

Accounting Standards arising from

the Consolidated and Joint

Arrangements Standards.

AASB 2012-10 Amendments to

Australian Accounting Standards –

Transition Guidance and other

Amendments which provides an

exemption from the requirement to

disclose the impact of the change in

accounting policy on the current year,

and

AASB 2012-2 Amendments to

Australian Accounting Standards –

Disclosures – Offsetting Financial

Assets and Financial Liabilities.

The Fund does not expect any of the

other standards mentioned above to have

any material impact on the financial

statements.

Early Adoption of Standards

The Fund has not elected to apply any

pronouncements before their operative

date in the financial year beginning 1 July

2013.

Critical Accounting Estimates

The preparation of financial statements

requires the use of certain critical

accounting estimates. It also requires

management to exercise its judgement in

the process of applying the Fund’s

accounting policies. The areas involving a

higher degree of judgement or

complexity, or areas where assumptions

and estimates are significant to the

financial statements are disclosed in note

1(p).

c) Revenue and Expenditure Recognition

The Fund 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 for

each of the entity’s activities as described

below.

Expenses including rates, taxes and other

outgoings are brought to account on an

accruals basis and any related payables

are carried at cost.


Revenue is recognised for the major

business activities as follows:

Lease Income

Rent income due but not received at

balance date is reflected in the Statement

of Financial Position as a receivable.

For leases where the revenue is

determined with reference to market

reviews, inflationary measures or other

variables, revenue is recognised in

accordance with the lease terms

applicable for the year.

Fixed Rent Reviews

For leases with rent reviews based on a

fixed rate, lease income arising on

investment properties is recognised on a

straight line basis over the lease term.

Adjustments to lease income are also

reflected in the Statement of Financial

Position as a Straight Line Rental asset.

Interest Income

Interest is brought to account on a time

proportion basis using the effective

interest when earned and if not received

at balance date, is reflected in the

Statement of Financial Position as a

receivable.

Responsible Entity Fees

Fees payable to the responsible entity are

recognised in the Statement of Profit or

Loss and other comprehensive income on

an accruals basis. Fees relating to

specific events or transactions are

charged upon completion or occurrence

of the relevant service or event. Under

the Fund’s Constitution, the Responsible

Entity is entitled to a management fee of

1.3 per cent of the value of net assets of

the Fund.

d) Income Tax

Under current legislation, the Fund is not

liable for income tax, provided that the

taxable income and taxable realised

gains are fully distributed to Unitholders

each year. Tax allowances for building

and plant and equipment depreciation are

distributed to Unitholders in the form of a

tax deferred component of the

distribution.

e) Cash and Cash Equivalents

For the purpose of presentation in the

statement of cash flows, cash and cash

equivalents include cash on hand,

deposits held at call with financial

institutions, other short-term, highly liquid

investments with original maturities of

three months or less from the date of

acquisition that are readily convertible to

known amounts of cash and which are

subject to an insignificant risk of changes

in value, and bank overdrafts.

f) Investment Property

The investment property comprises

leasehold interests in land and buildings

(including integral plant and equipment)

held for the purpose of letting to produce

rental income.

Investment properties acquired are

initially recorded at the date of

acquisition, being the fair value of the

consideration provided plus incidental

costs directly attributable to the

acquisition.

Valuations:

After initial recognition, investment

properties are measured at fair value at

each reporting date. The Fund’s

Constitution requires the Responsible

Entity to have the Fund’s property

investments independently valued at

regular intervals. An independent

valuation of a property is carried out at

least once every year. The valuation is

considered by the Directors of the

Responsible Entity when determining fair

value. When assessing fair value, the

Directors will also consider the

discounted cash flow of the property, the

highest and best use of the property and

sales of similar properties.

Fair value is based on the price, at which

a property might reasonably be expected

to be sold at the date of valuation,

assuming:

a willing, but not anxious, buyer and

seller on an arm’s length basis;

a reasonable period in which to

negotiate the sale, having regard to

the nature and situation of the

property and the state of the market

for property of the same kind;

that no account is taken of the value

or other advantage or benefit,

additional to market value, to the

buyer incidental to ownership of the

property being valued; and

it only takes into account instructions

given by the Responsible Entity and is

based on all the information that the

valuer needs for the purposes of the

valuation being made available by or

on behalf of the Responsible Entity.

Under AASB 140: Investment Property,

adjustments to fair value are to be

recognised in the Statement of

Comprehensive Income.

g) Trade and Other Receivables

Trade receivables are recognised at fair

value, less provision for impairment.

Trade receivables are due as specified

within the individual property’s lease.

Collectability of trade receivables is

reviewed on an ongoing basis. Debts

which are known to be uncollectible are

written off by reducing the carrying

amount directly. An allowance account

(provision for impairment of trade

receivables) is used when there is

objective evidence that the Fund will not

be able to collect all amounts due

according to the original terms of the

receivables. Significant financial

difficulties of the debtor, probability that

the debtor will enter bankruptcy or

financial reorganisation, and default or

delinquency in payments (more than 30

days overdue) are considered indicators

that the trade receivable is impaired. The

amount of the impairment allowance is

the difference between the asset’s

carrying amount and 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.

The amount of the impairment loss is

recognised in the Statement of Profit or

Loss and Other Comprehensive Income

within other expenses. When a trade

receivable for which an impairment

allowance had been recognised becomes

uncollectible in a subsequent period, it is

written off against the allowance account.


NOTES TO THE FINANCIAL STATEMENTS CONT.

NOTE 1: SIGNIFICANT

ACCOUNTING POLICIES CONT.

g) Trade and Other Receivables Cont.

Subsequent recoveries of amounts

previously written off are credited against

other expenses in the Statement of Profit

or Loss and Other Comprehensive

Income.

h) Trade and Other Payables

These amounts represent liabilities for

goods or services provided to the Fund

prior to the end of financial year which are

unpaid. The amounts are unsecured and

are usually paid within 30 days of

recognition.

i) Financial Liabilities

Non-derivative financial liabilities are

recognised at amortised cost, comprising

original debt less principal payments and

amortisation.

Bank Loans

Interest-bearing borrowings are

recognised initially at fair value less

attributable transaction costs.

Subsequent to initial recognition, interest-

bearing debt is stated at amortised cost

with any difference between proceeds

and redemption value being recognised in

the Statement of Profit or Loss and Other

Comprehensive Income over the period

of the debt on an effective interest basis.

j) Derivatives

The Fund uses derivative financial

instruments (comprising of interest rate

swaps) to swap its risk associated with

interest rate fluctuations.

Derivatives are initially measured at fair

value on the date a derivative contract is

entered into and are subsequently

remeasured to their fair value at the end

of each reporting period. The Fund's

derivatives do not qualify for hedge

accounting and therefore changes in the

fair value of any derivative instrument are

recognised immediately in the Statement

of Profit or Loss and Other

Comprehensive Income.

k) Distributions Payable

Distributions payable are recognised as a

liability when they have been declared

and are due and payable at reporting

date.

l) Impairment of Assets

At each reporting date, the Fund reviews

the carrying values of its tangible assets

to determine whether there is any

indication that those assets have been

impaired. If such an indication exists, the

recoverable amount of the asset, being

the higher of the assets’ fair value less

costs to sell and value in use, is

compared to the assets’ carrying value.

Any excess of the assets carrying value

over its recoverable amount is expensed

to the Statement of Comprehensive

Income.

Where it is not possible to estimate the

recoverable amount of an individual

asset, the Fund estimates the

recoverable amount of the cash-

generating unit to which the asset

belongs.

m) Contributed Equity

Ordinary units are classified as equity in

accordance with Australian Accounting

Standards.

Incremental costs directly attributable to

the issue of new units are shown in equity

as a deduction, net of tax, from the

proceeds.

n) Goods and Services Tax

Revenues, expenses and assets are

recognised net of the amount of goods

and services tax (GST), unless the GST

incurred is not recoverable from the

taxation authority. In this case it is

recognised as part of the cost of

acquisition of the asset or as part of the

expense.

Receivables and payables are stated

inclusive of the amount of GST receivable

or payable. The net amount of GST

recoverable from, or payable to, the

taxation authority is included with other

receivables or payables to the statement

of financial position.

Cash flows are presented on a gross

basis. 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.

(o) Rounding of Amounts

The Fund is a registered scheme of a

kind referred to in Class Order 98/0100,

issued by the Australian Securities and

Investments Commission, relating to the

"rounding off" of amounts in the financial

report. Amounts in the financial report

have been rounded off in accordance with

that Class Order to the nearest thousand

dollars, or in certain cases, the nearest

dollar.

p) Critical Accounting Estimates and

Judgements

The Directors evaluate estimates and

judgements incorporated into the financial

report based upon historical knowledge

and best available current information.

Estimates assume a reasonable

expectation of future events and are

based upon current trends and economic

data, obtained both externally and within

the Fund.

Key estimates — Valuation of Investment

Properties

Independent valuations are prepared

using both the capitalisation of net

income and discounted cashflow analysis

method which are consistent with the

requirements of the relevant Accounting

Standards.

q) Earnings Per Unit (EPU)

Basic Earnings per Unit

Basic earnings per unit is calculated by

dividing:

the profit attributable to the

Unitholders, excluding any costs of

servicing equity other than ordinary

units; by

the weighted average number of

ordinary units outstanding during the

financial year.


Diluted Earnings per Unit

Diluted earnings per unit adjusts the figures used in the determination of basic earnings per unit to take into account:

the after income tax effect of interest and other financing costs associated with dilutive potential ordinary units; and

the weighted average number of additional ordinary units that would have been outstanding assuming the conversion of all

dilutive potential ordinary units.

r) Going Concern

The financial statements have been prepared on a going concern basis.

s) Standards and interpretations in issue not yet adopted

At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective.

Standard/Interpretation Effective for annual reporting periods beginning on or after

Expected to be initially applied in the financial year ending

AASB 9 ‘Financial Instruments’, and the relevant

amending standards.

1 January 2018 30 June 2019

AASB 1031 ‘Materiality’ (2013) 1 January 2014 30 June 2015

AASB 2013-9 ‘Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments’

1 January 2014 30 June 2015

At the date of authorisation of the financial statements, the following IASB Standards and IFRIC Interpretations were also in issue but not yet effective, although Australian equivalent Standards and Interpretations have not yet been issued

Standard/Interpretation Effective for annual reporting periods beginning on or after

Expected to be initially applied in the financial year ending

Annual Improvements to IFRSs 2010-2012 Cycle 1 July 2014 30 June 2015

Annual Improvements to IFRSs 2011-2013 Cycle 1 July 2014 30 June 2015



NOTE 2: PROFIT OR LOSS ITEMS

* In prior period, the distribution was for the period from 19 September to 30 September 2012.

2014 $000

2013 $000

a. Other expenses

Custodian fees 20 20

Consultant fees 10 24

Valuation fees 7 8

Other expenses 61 50

98 102

b. Finance costs

External parties 855 478

NOTE 3: DISTRIBUTIONS

2014 2013

Period Paid/Payable Cents per

Unit Amount

$000 Cents per

Unit Amount

$000

Quarter ending 30 September*

21 October 2013 2.075 341 0.266 44

Quarter ending 31 December 20 January 2014 2.075 342 2.042 336

Quarter ending 31 March 17 April 2014 2.075 341 2.025 334

Quarter ending 30 June 25 July 2014 2.075 342 2.025 333

Total 8.300 1,366 6.358 1,047


NOTE 4: EARNINGS PER UNIT

2014 2013 Cents Cents

Basic EPU 13.03 3.77

Diluted EPU 13.03 3.77

The following information reflects the earnings and security numbers used in the calculations of basic and diluted EPU:

2014 Number of Units

2013 Number of Units

'000 '000

Weighted average number of ordinary units used in the calculating basic EPU 16,460 16,460

Adjusted weighted average number of ordinary units used in the calculating diluted EPU 16,460 16,460

$000 $'000

Earnings used in calculating basic EPU 2,145 621

Earnings used in calculating diluted EPU 2,145 621



NOTE 5: CASH AND CASH EQUIVALENTS

2014 2013 $000 $000

(a) Components of cash and cash equivalents

Cash 819 997

Total cash and cash equivalents 819 997

(b) Reconciliation of net profit attributable to unitholders to net cash flows provided by operating activities

Net profit for the year/period 2,145 621

Revaluation (increment)/decrement of investment property (955) 1,178

Amortisation of straight line rental income (295) (195)

Increase in other current assets (15) (142)

(Increase)/decrease in unamortised transaction costs 7 (112)

Increase in payables 12 72

Increase/(decrease) in other current liabilities (198) 213

Change in fair value of derivative financial instruments 328 -

Net cash flows provided by operating activities 1,029 1,635

(c) Financing facilities

Committed financing facilities available to the Fund:

Loan facility 14,625 14,625

Amounts utilised 14,625 14,625

Available financing facilities - -

Cash 819 997

Financing resources available at the end of the year / period 819 997

NOTE 6: OTHER CURRENT ASSETS

2014 2013 $000 $000

Prepayments 157 142

Term deposit - 150

157 292


NOTE 7: INVESTMENT PROPERTY

2014 2013 $000 $000

Leasehold property - at valuation

Investment property at fair value 31,000 29,750

Less: straight line rental asset (refer to Note 8) (490) (195)

Carrying amount at the end of the year / period 30,510 29,555

Movement in investment properties

Balance at the beginning of the year / period 29,555 -

Acquisition of investment property including transaction costs - 30,733

Expensing of property acquisition costs in excess of fair value of investment property - (1,483)

Net revaluation increment 1,250 500

Straight line rental asset movements (295) (195)

Carrying amount at the end of the year / period 30,510 29,555

(a) The investment property is carried at fair value. The determination of fair value is based on an independent valuation where

appropriate. Total acquisition costs include incidental costs of acquisition such as stamp duty and legal fees.

(b) An independent valuation of the property is carried out at least annually. The independent valuation has been prepared using

both the capitalisation of net income and discounted cashflow method. The key inputs used by the valuer included passing rent

of $2.4 million and a capitalisation rate of 7.75 per cent. The property was valued by CBRE as at 30 June 2014 at $31.0 million.

CBRE have appropriate qualifications and recent experience in the valuation of properties in the relevant location.

There was a $1.25 million increase in the value of the property from the carrying value at 30 June 2013. The $1.25 million

increase is recognised in the Statement of Profit and Loss and Other Comprehensive Income as a net property revaluation

increment.

(c) In addition, straight line rental adjustments of $0.3 million have decreased the value of investment property (net property

revaluation decrement) with a corresponding increase in straight line rental asset (refer note 8).

Details of the Fund's investment property and information about the fair value hierarchy is as follows:

Level 1 Level 2 Level 3 Total $000 $000 $000 $000

2014

Investment property - - 30,510 30,510

- - 30,510 30,510

There were no transfers between the levels during the year.



NOTE 8: OTHER NON-CURRENT ASSETS

2014 2013 $000 $000

Investment property - straight line rental asset 490 195

490 195

NOTE 9: TRADE AND OTHER PAYABLES

2014 2013 $000 $000

Trade creditors 9 2

GST payable 17 9

Accruals 58 61

84 72

Fair Value and Credit Risk

Due to the short term nature of these payables, their carrying value approximates their fair value.

Financial Guarantees

There are no financial guarantees in place.

Interest Rate and Liquidity Risk

Detail regarding interest rate and liquidity risk exposure is disclosed in Note 18.

NOTE 10: DISTRIBUTION PAYABLE

Each unit represents a right to an individual unit in the Fund per the Constitution. There are no separate classes of units and each

unit has the same rights attaching to it as all other units in the Fund.

2014 2013 $000 $000

Distribution payable 342 333

342 333


NOTE 11: OTHER CURRENT LIABILITIES

2014 2013 $000 $000

Prepaid rent 15 213

15 213

NOTE 12: BORROWINGS

2014 2013 $000 $000

Borrowings - secured 14,625 14,625

Less: unamortised transaction costs (105) (112)

14,520 14,513

The Fund has a $14.625 million facility with the Bank of Melbourne (“BOM”). During the year the facility was extended for a further

two years through to December 2017.

The following terms apply to the Fund’s debt funding arrangements:

Facility for $14.625 million (fully drawn);

Interest Cover Ratio no less than 2.0x; and

Loan Value Ratio less than 60 per cent.

As at 30 June 2014, the Fund complied with all of its debt covenant ratios and obligations.




Interest rate and liquidity risk

Refer to Note 18 for information on interest rate and liquidity risk.

Fair values

The carrying amount of the Fund’s borrowings approximates their fair value.

2014 2013 $000 $000

Assets pledged as security:

Collateral that has been pledged for secured liabilities is as follows:

i) Financial assets pledged

Cash and cash equivalents 819 997

Term deposit - 150

ii) Other assets pledged

Investment properties 31,000 29,750

Total assets pledged 31,819 30,897



NOTE 12: BORROWINGS CONT.

The principal terms and conditions with respect to the assets pledged are:

to not change materially the business of the Fund;

to provide limits on capital expenditure; and

to not, without lender's consent borrow or raise further money.

NOTE 13: DERIVATIVE FINANCIAL INSTRUMENTS

2014 2013 $000 $000

Derivative financial instruments - interest rate swap contracts 328 -

328 -

Hedging arrangements

Consistent with the extension to the facility term, the Fund has entered into an interest rate swap for the period from December 2015

to December 2017 for the full debt amount of $14.625 million at a rate of 4.35 per cent p.a. (exclusive of margin).

The Fund uses derivative financial instruments (comprising of interest rate swaps) to swap its risk associated with interest rate

fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is

entered into and are subsequently remeasured to fair value.

NOTE 14: CONTRIBUTED EQUITY

Units on Issue Units on Issue No '000 $000

Balance at 1 July 2012 - -

Issue of ordinary units 16,460 16,460

Issue of subscription units* 10,845 10,845

Redemption of subscription units* (10,845) (10,845) (10,845)

Write-off of fund establishment costs - (126)

Balance at 30 June 2013 16,460 16,334

Balance at 1 July 2013 16,460 16,334

Issue of ordinary units - -

Balance at 30 June 2014 16,460 16,334

* Subscription units were underwriting units issued pursuant to a Subscription Agreement dated 18 September 2012.

Capital Management

The Responsible Entity's objective when managing capital is to ensure the Fund continues as a going concern as well as to maintain

optimal returns to Unitholders. The Responsible Entity also aims to maintain a capital structure that ensures the lowest cost of capital

available to the Fund.


NOTE 15: RELATED PARTY TRANSACTIONS

Responsible Entity

The Responsible Entity of the Fund is Folkestone Funds Management Limited.

In accordance with the Fund’s Constitution and other agreements the Responsible Entity is entitled to claim asset management fees,

reimbursement for all expenses reasonably and properly incurred in relation with the Fund or in performing its obligations under the

Constitution, and property acquisition due diligence fees.

The following table provides the total amount of transactions that have been entered into with the Responsible Entity for the relevant

financial year:

2014 2013 $000 $000

Amounts paid or payable during the year

Responsible Entity property acquisition due diligence fees* - 437

Responsible Entity asset management fees 206 163

206 600

Amounts included in accruals or payables at balance date 17 5

*These fees were capitalised into the carrying value of the investment property.

No Director of the Responsible Entity received or became entitled to receive any benefit because of a contract made by the Fund

with a Director or with a firm of which a Director is a member, or with an entity in which the Director has a substantial interest.

The relevant interests of each Director of the Responsible Entity (including Director related entities) acquired in the unit capital of the

Fund are set out under the section Key Management Personnel of the Responsible Entity.

Custodian

The Custodian of the Fund’s assets is The Trust Company (Australia) Ltd. The Custodian is entitled to fees for its services.

2014 2013 $000 $000


Custodian fees 20 20

Amounts included in accruals or payables at balance date 5 5

Terms and Conditions of Transactions with Related Parties

All transactions between related parties were made on normal commercial terms and conditions.

Outstanding balances at period end are unsecured and settlement occurs in cash. There have been no guarantees provided or

received for any related party receivables.



NOTE 15: RELATED PARTY TRANSACTIONS CONT.

Key Management Personnel of the Responsible Entity

The Directors of the Responsible Entity are considered to be Key Management Personnel (KMP)

Chairman – Non-Executive Director Grant Hodgetts Appointed 25 May 2012

Executive Director Gregory Paramor Appointed 6 July 2009

Executive Director Adrian Harrington Appointed 6 July 2009

Non-executive Director Ross Strang Appointed 25 May 2012

Other KMP Scott Martin Chief Financial Officer and Company Secretary – Folkestone Limited

Other KMP Travis Butcher Chief Financial Officer – Funds

Remuneration:

No KMP were remunerated directly by the Fund. The KMP of the Responsible Entity receive remuneration in their capacity as

Directors and senior management of the Responsible Entity and these amounts are paid from an entity related to the Responsible

Entity.

Units Held in the Fund by Directors of the RE:

The numbers of units in the Fund held during the financial year by each Director and other KMP of the Responsible Entity, including

their personally related parties, are set out below. There were no units granted during the reporting year as compensation.

Balance at the

start of the year

No. of units

Acquisitions during the

year

No. of units

Redemptions during the year

No. of units

Balance at the end of the year

No. of units

Ordinary units

Gregory Paramor

- GJP Investments Pty Ltd 250,000 - - 250,000

Adrian Harrington

- Adkar Investments Pty Ltd 25,000 - - 25,000


Transactions with other Related Parties

The ultimate parent entity of the Responsible Entity is Folkestone Limited. During the year, the Fund reimbursed Folkestone Limited

for the following expenses.

2014 2013 $000 $000


Acquisition costs - 127

Fund establishment costs - 126

Cost recoveries 8 -

8 253

Amounts included in accruals or payables at balance date 7 -

These expenses were recoverable from the Fund in accordance with the Constitution.

NOTE 16: SEGMENT INFORMATION

The Fund operates wholly in Australia and operates in one business segment, being the ownership of a commercial investment

property.

NOTE 17: LEASE REVENUE COMMITMENTS

The property is leased to a range of tenants under long-term operating leases with rentals generally payable monthly. Future

minimum lease payments receivable on leases of investment properties are as follows:

2014 2013 $000 $000

Receivable:

Not later than 1 year 2,443 2,359

Between 1 years but no later than 5 years 10,199 10,182

Later than 5 years 8,665 11,085

21,307 23,626



NOTE 18: FINANCIAL RISK MANAGEMENT

(a) Financial Risk Management Policies

The Fund’s financial instruments consist of deposits with banks, accounts payable, and borrowings.

The Responsible Entity manages the Fund's exposure to key financial risks in accordance with its Risk Management Plan. The

objective of the plan is to support the delivery of the Fund's financial targets, whilst protecting future financial security.

The Fund has a Risk Management Program which complies with the requirements of the Australian Standard on Risk Management

(AS/NZ ISO 31000) and a Compliance Program which meets the Australian Standard for Compliance Programs (AS/NZ 3806). The

Board is committed to identifying, monitoring and mitigating risks as well as capturing opportunities. Day to day responsibility for risk

management has been delegated to executive management, with review at Board level.

The Responsible Entity reviews and implements policies for managing each risk as summarised below.

(b) Risk Exposures and Responses

Market Risk

The Fund is exposed to interest rate, liquidity and credit risks. There are no known exposures to other risks that are material to the

financial statements.

Interest Rate Risk

The Fund has the following classes of financial assets and financial liabilities that are exposed to interest rate risk:

2014 2013 $000 $000

Financial assets

Cash and cash equivalents 819 997

Term deposit - 150

819 1,147

Financial liabilities

Interest bearing liabilities (net of fixed interest rate swaps) - -

- -

Net exposure 819 1,147

The weighted average interest rates relating to the above financial assets were as follows:

2014 2013

Financial assets

Cash and cash equivalents 2.80% 2.25%


Financial assets are not hedged and are exposed to variable interest rate risk. The Responsible Entity believes that this exposure is

relatively low and does not pose a material risk to the Fund.




Consistent with the extension to the facility term, the Fund has entered into an interest rate swap for the period from December 2015

to December 2017 for the full debt amount of $14.625 million at a rate of 4.35 per cent p.a. (exclusive of margin).

The Fund’s fixed rate borrowings are carried at face value. They are therefore not subject to interest rate risk as defined in AASB 7,

since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.

Foreign Currency Risk

The Fund has no exposure to foreign currency movements as it does not transact or hold assets in foreign currency.

Liquidity Risk

Liquidity risk is managed by adhering to restrictions under the Fund's investment strategy from entering into contractual

arrangements that produce an exposure not covered by sufficient liquid assets or a total investment exposure in excess of total

Unitholders' funds. Further, the Responsible Entity ensures that sufficient cash and cash equivalents are maintained to meet the

needs of the Fund through cash flow monitoring and forecasting.



NOTE 18: FINANCIAL RISK MANAGEMENT CONT.

(b) Risk Exposures and Responses Cont.

The table below reflects a maturity analysis of financial assets and financial liabilities based on Management's expectations.

Apparent shortfalls in cash are due to the maturity of debt facilities at various points in time. Prior to the maturity of these facilities,

the Fund will either negotiate to extend the term of these facilities or arrange new facilities on terms appropriate at that time.

6 months or less

6 to 12 months

1 to 5 years

Later than 5 years Total

$000 $000 $000 $000 $000

2014

Financial assets

Cash and cash equivalents 819 - - - 819

819 - - - 819


Trade and other payables 426 - - - 426

Borrowings 407 407 14,973 - 15,787

Derivative financial instruments - - 328 - 328

833 407 15,301 - 16,541

Net exposure (14) (407) (15,301) - (15,722)

2013

Financial assets

Cash and cash equivalents 997 - - - 997

Term deposit 150 - - - 150

1,147 - - - 1,147


Trade and other payables 405 - - - 405

Borrowings 407 407 15,850 - 16,664

812 407 15,850 - 17,069

Net exposure 335 (407) (15,850) - (15,922)


Credit Risk

Credit risk arises from the financial assets of the Fund, which comprise cash and cash equivalents and trade and other receivables.

The Fund's exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying

amount of these instruments. Receivables are received within the terms of the individual property lease. Exposure at balance date is

addressed in each applicable Note.

The Fund does not have any receivables as at 30 June 2014.

The Fund does not hold any credit derivatives to offset its credit exposure.

In addition, receivable balances are monitored on an ongoing basis with the result that the Fund's exposure to bad debts is not

significant.

Fair Value Measurements

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure

purposes.

AASB 7 Financial Instruments: Disclosures which requires disclosure of fair value measurements by level of the following fair value

measurement hierarchy:

a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);

b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or

indirectly (derived from prices) (level 2); and

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

The following table presents the Fund’s assets and liabilities measured and recognised at fair value at 30 June 2014 and 30 June

2013.

Level 1 Level 2 Level 3 Total $000 $000 $000 $000

2014

Liabilities

Derivative financial instruments - interest rate swap contracts - 328 - 328

- 328 - 328

2013

Derivative financial instruments - interest rate swap contracts - - - -

- - - -

The fair value of interest rate swaps are calculated as the present value of the estimated future cash flows. The Fund uses the latest

information available in the market. These instruments are included in level 2. There were no transfers between the levels during the

year.

The carrying amounts of bank deposits, receivables, other debtors, accounts payable, bank loans and distributions payable

approximate net fair value.



NOTE 19: CONTINGENT LIABILITIES

No contingent liabilities relating to the Fund exist of which the Responsible Entity is aware.

NOTE 20: SUBSEQUENT EVENTS

This financial report was authorised on 21 August 2014 by the Board of Directors of the Responsible Entity.

There have been no significant events since 30 June 2014 that have or may significantly affect the results and operations of the

Fund.

NOTE 21: AUDITORS REMUNERATION

2014 2013 $ $

Audit and other assurance service

Audit or review of financial report - Deloitte, Australian firm 15,000 15,300

Audit of compliance plan - Deloitte, Australian firm 5,000 10,500

Total auditors remuneration 20,000 25,800

NOTE 22: FUND DETAILS

The registered office of the Fund is Level 12, 15 William Street, Melbourne, Victoria 3000 and the principal activity being real estate

investment. The domicile of the Fund is Australia.


DIRECTORS' DECLARATION

The directors of Folkestone Funds Management Limited, the Responsible Entity of Folkestone Real Estate Income Fund at Sydney

Olympic Park ("the Fund"), declare that:

1. in the directors’ opinion, there are reasonable grounds to believe that the Fund will be able to pay its debts as and when they

become due and payable;

2. in the directors' opinion, the attached financial statements are in compliance with International Reporting Standards, as stated in

Note 1 of the financial statements; and

3. in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001,

including compliance with accounting standards and giving a true and fair view of the financial position and performance of the

Fund.

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

Entity, Folkestone Funds Management Limited.

Grant Hodgetts

Chairman

Folkestone Funds Management Limited

Sydney, 21 August 2014


INDEPENDENT AUDITOR'S REPORT


0

T: +61

38

RESPONSIBLE ENTITY AND

REGISTERED OFFICE

Folkestone Funds

Management Limited

Level 12

15 William Street

Melbourne VIC 3000

DIRECTORS OF THE

RESPONSIBLE ENTITY

Grant Hodgetts (Chairman)

Adrian Harrington

Greg Paramor

Ross Strang

SOLICITORS

Clayton Utz

Level 15

1 Bligh Street

Sydney NSW 2000

UNIT REGISTRY

Boardroom Pty Limited

Level 7, 207 Kent Street

Sydney NSW 2000

T: 1300 737 760

AUDITORS

Deloitte Touche Tohmatsu Level 10 550 Bourke St Melbourne VIC 3000

TAXATION ADVISORS

PricewaterhouseCoopers

Freshwater Place

2 Southbank Boulevard

Southbank VIC 3006

BANK

Bank of Melbourne

Level 8, 530 Collins Street

Melbourne VIC 3000

CUSTODIAN

The Trust Company (Australia)

Limited

Level 15, 20 Bond Street

Sydney NSW 2000

SECRETARY

Scott Martin

Level 12, 15 William Street

Melbourne Vic 3000

INVESTOR RELATIONS

Lula Liossi

Level 12, 15 William Street

Melbourne Vic 3000

T: 03 8601 2668

folkestone real estate income fund at ...folkestone.com.au/wp-content/uploads/2016/09/sop-annual...2...

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