Property NSW Annual Report 2019-20

• Financial statements for the year ended 30 June 2020 • Statutory information

Published by Property NSW https://www.dpie.nsw.gov.au/housing-and-property/services/property-and-development-nsw

Title: Property NSW Annual Report 2019–20

First published: November 2020

ISSN: 2652-9289

© State of New South Wales through Property NSW 2020. You may copy, distribute, display, download and otherwise freely deal with this publication for any purpose, provided that you attribute the Property NSW as the owner. However, you must obtain permission if you wish to charge others for access to the publication (other than at cost); include the publication in advertising or a product for sale; modify the publication; or republish the publication on a website. You may freely link to the publication on a departmental website.

Disclaimer: The information contained in this publication is based on knowledge and understanding at the time of writing (November 2020) and may not be accurate, current or complete. The State of New South Wales (including Property NSW), the author and the publisher take no responsibility, and will accept no liability, for the accuracy, currency, reliability or correctness of any information included in the document (including material provided by third parties). Readers should make their own inquiries and rely on their own advice when making decisions related to material contained in this publication.

Acknowledgement of Country

Property New South Wales acknowledges the Traditional Owners and Custodians of the land and pays respect to Elders past, present and future. Property NSW 4 Parramatta Square, Parramatta NSW 2150 Locked Bag 5022, Parramatta NSW 2124 Tel 1300 305 695 | www.property.nsw.gov.au

The Hon. Melinda Pavey, MP Minister for Water, Property and Housing GPO Box 5341 SYDNEY NSW 2001

Dear Minister

Property NSW Annual Report 2019-20

I am pleased to submit the Annual Report for Property NSW 2019-20, for the year ended 30 June 2020, for presentation to Parliament.

This report has been prepared in accordance with the Annual Reports (Statutory Bodies) Act 1984, the Public Finance and Audit Act 1983 and regulations under those Acts.

Yours sincerely

Michael Cassel A/Chief Executive Officer Property NSW

24 November 2020 Table of Contents

ACKNOWLEDGEMENT OF COUNTRY ...... 3

1. CHARTER ...... 6

2. AIMS AND OBJECTIVES ...... 6

3. ACCESS ...... 6

4. MANAGEMENT AND STRUCTURE ...... 7

5. SUMMARY REVIEW OF OPERATIONS ...... 9

6. ECONOMIC OR OTHER FACTORS ...... 10

7. FUNDS GRANTED TO NON-GOVERNMENT COMMUNITY ORGANISATIONS ...... 11

8. LEGAL CHANGE ...... 11

9. MANAGEMENT AND ACTIVITIES ...... 11

10. HUMAN RESOURCES, NUMBERS AND REMUNERATION OF SENIOR EXECUTIVES .... 12

11. WORKFORCE DIVERSITY ...... 14

12. CONSULTANTS ...... 16

13. DISABILITY INCLUSION ACTION PLANS ...... 16

14. PROMOTION ...... 17

15. CONSUMER RESPONSE ...... 18

16. PAYMENT OF ACCOUNTS ...... 19

17. RISK MANAGEMENT AND INSURANCE ACTIVITIES ...... 20

18. INTERNAL AUDIT AND RISK MANAGEMENT POLICY ATTESTATION ...... 20

19. INTERNAL AUDIT AND RISK MANAGEMENT ATTESTATION STATEMENT FOR 2019-20 FINANCIAL YEAR ...... 21

20. DIGITAL INFORMATION SECURITY POLICY ATTESTATION ...... 25

21. MULTICULTURAL POLICIES AND SERVICES PROGRAM ...... 26

22. WORK HEALTH AND SAFETY (WHS) ...... 26

23. BUDGETS ...... 27

24. ADDITIONAL MATTERS FOR INCLUSION ...... 28

25. REQUIREMENTS ARISING FROM EMPLOYMENT ARRANGEMENTS ...... 29

26. GOVERNMENT INFORMATION (PUBLIC ACCESS) ACT 2009 ...... 29

27. PUBLIC INTEREST DISCLOSURES ...... 31

28. EXEMPTIONS AND NIL REPORTS ...... 32

1. Charter

Property NSW has been assigned the NSW Government mandate to continually improve the management of the NSW Government’s owned and leased real property portfolio, specifically generic property.

Property NSW is established and operates under the principal legislation of the Property NSW Act 2006 (the Act).

2. Aims and objectives

Under section 10 of the Act, the principal objectives of Property NSW in exercising its functions are:

• to improve operational efficiencies in the use of government agency properties, particularly generic properties such as offices, warehouses, depots and car parks; • to manage properties of government agencies in a way that supports the service delivery functions of those agencies; • to provide advice and support within government on property matters; and • to operate at least as efficiently as any comparable business, consistent with the principles of ecologically sustainable development and social responsibility for the community (including the indigenous community).

Property NSW has specific statutory functions set out in section 11 of the Act:

• holding, managing, maintaining, acquiring or disposing of property for the government and government agencies; • undertaking, managing, coordinating or participating in the development of government agency property; • arranging, where appropriate, for the sharing of facilities and premises by government agencies to reduce operational expenses; • providing property services for its own or government agency properties, including property management, maintenance and improvements; • providing advice to the Minister in relation to government agency property, in particular: o whether the properties are being efficiently utilised; and o other matters relating to government agency properties, as the Minister directs. 3. Access

Property NSW Location: 4 Parramatta Square, 12 Darcy Street, Parramatta NSW 2150. Post: Locked Bag 5022, Parramatta NSW 2124 Phone: 1300 305 695 Email: [email protected] Web: https://www.dpie.nsw.gov.au/housing-and-property/services/property-and- development-nsw

Property NSW’s business hours are 9.00am - 5.00pm Monday to Friday, excluding NSW public holidays.

4. Management and structure

Property NSW, part of the former Property & Advisory Group, was consolidated into the Department of Planning, Industry & Environment’s (DPIE) Housing and Property (HAP) group following machinery government changes in the 2019 calendar year.

HAP was formed to maximise both economic and community benefit through the more efficient utilisation of Government land and property in the delivery of diverse housing, economic activities and public spaces.

Property NSW is led by a CEO, who reports to the Minister, both directly and via the Secretary of Department of Planning, Industry and Environment.

The diagram below depicts the Property NSW Executive team and functional responsibilities as at 30 June 2020:

Advisory and Transactions

Commercial Development

Deputy Secretary Development & Transactions Leon Walker

Environmental Service Group

CEO Property NSW Precinct Development Alison Frame

Portfolio Management Deputy Secretary Strategy & Portfolio Management Chris Reynolds^ Strategy

^ During 2019-20 this role had additional Housing and Property program management responsibilities for Housing Strategy; the Statutory Review of the Cemeteries and Crematoria Act 2013; and CEO, Cemeteries and Crematoria NSW

The table below depicts changes in Property NSW’s Executive team between 1 July 2019 and 30 June 2020.

Position Incumbent Duration Chief Executive Officer Alison Frame 1 Jul 2019 – 30 Jun 2020 MPA BSpPath BA

Deputy Secretary Sam Romaniuk 1 Jul 2019 – 27 Sep 2019 Property Advisory Group BCom, LLB, Chartered Accountant (CAANZ)

Deputy Secretary Chris Reynolds 30 Sep 2019 – 30 Jun 2020 Strategy and Portfolio Management BSurv(Hons), GradDip Planning, GAICD

Deputy Secretary Michael Cassel 22 Aug 2019 – 27 Sep 2019 Development & Place Management HBS AMP (196) MBA (Executive) MProDev GradCertAppFin BConMgt (Build) (Hons)

Deputy Secretary Leon Walker 30 Sep 2019 – 30 Jun 2020 Development & Transactions BBusB&F, GradDipProp, GradCercMgmt, GradDip App.Fin, GAICD

Executive Director Dennis Szabo 1 Jul 2019 – 11 Apr 2020 Valuation Services BBus, Chartered Accountant (CAANZ), App Dip Fin & Inv (Finsia)

Andrew Coffey 11 May 2020 – 30 Jun 2020 Assoc Dip Val and Grad Dip Land Econ

Executive Director Sarah Cleggett 1 Jul 2019 – 27 Sep 2019 Place Management NSW BCom (Marketing) MBA (Exec)

Sam Romaniuk 30 Sep 2019 – 30 Jun 2020 BCom, LLB, Chartered Accountant (CAANZ)

Notes: • For the period to 19 January 2020, Valuation Services (a division of Property NSW) provided valuation services to the Office of the Valuer General. • From 20 January 2020, Valuation Services was merged with the Office of the Valuer General to form Valuer General New South Wales (VG NSW) – note employee headcount for this reporting period is reflected in Property NSW data. • Note, on 4 May 2020 Place Management NSW and Hunter and Central Coast Development Corporation moved to the Place, Design and Public Space division within the Department of Planning, Industry and Environment. • In August 2020, Alison Frame resigned from her role as the CEO of Property NSW and Michael Cassel has acted in the role since then. 8

5. Summary review of operations

Property NSW undertakes a diverse range of services on behalf of the NSW Government, including property reform, asset management, transactions and development management.

Property NSW’s focus is on the strategic review, adaptive reuse, acquisition, divestment and enhanced utilisation of the NSW Government’s real property assets. Property NSW’s assets comprise of office buildings, significant heritage properties, non-commercial assets, and land holdings, many of which have been vested to Property NSW by other government agencies.

The organisation works closely with a range of NSW Government agencies, providing specialist industry knowledge, expertise and understanding of the unique requirements of government property and its management. This is generally grouped under its Property & Development NSW division (formerly Development & Transactions and Portfolio Management Group).

The past 12 months have seen further progress towards the vision of excellence in property, infrastructure and places for New South Wales.

Property NSW’s achievements over the 12 months to 30 June 2020 have included:

• Strategic Land and Property Framework: Improving delivery of social, economic and environmental objectives, and optimising the use of Government-owned land by developing the Strategic Land and Property Framework, a new governance model for the evaluation and utilisation of underutilised and surplus government property.

• Recycling $72.8 million in surplus property assets: The divestment of surplus NSW Government owned assets including by way of the 99-year lease of Science House in The Rocks in January 2020 as part of Place Management NSW’s recycling program for $22.8 million.

• NSW Government office portfolio management: Activities included: o maintaining office space utilisation within the Property NSW managed commercial office portfolio (regional, metro and CBD office), the result being 13.8m2/FTE in line with the target benchmark; o reducing the NSW Government’s CBD office footprint in line with the Decade of Decentralisation policy by a further 29,000m2 in FY20 taking the total reduction in NSW Government CBD office space to 126,684m2 since 2011; o executing lease pre-commitments to deliver new NSW Government Hubs in key locations including: ▪ Orange (8,500m2) ▪ Elizabeth Street, Sydney (21,700m2) ▪ 6 Parramatta Square, Parramatta (44,000m2) ▪ The Store, Newcastle (9,400m2), and taking total A-grade, 5-star Greenstar energy rated assets being delivered across the State to a total of approximately 83,600m2; o ensuring gross effective rents for 86 per cent of new leases were at or below market benchmarks using the NSW Government’s procurement power; o negotiating a $3 million reduction in make good costs with the landlord upon exiting the lease at the Kite Street, Orange; and o completing the delivery of two new NSW Government Hubs: ▪ Macquarie Park Hub anchored by Transport for NSW, which provides 25,000m² of A-grade, 5-star Greenstar energy office accommodation; ▪ Parramatta Hub, anchored by the Department of Customer Service and the Department of Planning, Industry & Environment, which provides 67,600m2 of A- grade, 5-star Greenstar energy office accommodation; o managing the assurance and delivery of a c.27,000m2 A grade, 5.5-star Green Star 9

office building in St Leonards under an occupancy agreement negotiated with NSW Health which will consolidate ten NSW Health agencies into one location.

• Implementation of new accounting standard (AASB16) o delivery of the first ever portfolio budget for the NSW Government in accordance with the new global accounting standard AASB16, encompassing the $4.4 billion in right-of- use (ROU) State assets under management

• Environmental and sustainability achievements including: o annual energy savings of approximately $325,000 and a return on investment of 31 per cent achieved through the installation of 1 megawatt in solar capacity; o annual energy savings of approximately $715,000 achieved through a combination of solar, LED lighting upgrades and building optimisation relying on improved data analytics on Property NSW owned buildings across the State; o annual energy savings of approximately $950,000 through the procurement of green leases aligned to Government Resource Efficiency Policy (GREP) targets; o substantial improvements on the NABERS portfolio average energy and water ratings on 21 Property NSW owned assets with energy improving from 3.6-Stars in 2019 to 4.7- Stars in 2020 and water improving from 4-Stars in 2019 to 4.8-Stars in 2020; achieved on Property NSW owned buildings across the State that also contribute to the NSW Government’s ‘net zero’ emissions target.

• Adaptive reuse of Government assets including repurposing of Sandstones, the former Lands and Education buildings on Bridge St, Sydney, for use as a 6-star hotel, due for completion in 2022.

Property NSW also contributed to:

• a new State Outcome Indicator relating to Asset Management Policy Implementation for FY21 in line with Treasury policy TPP19-07; • improved cross-agency collaboration through establishment of the Workplace Leaders Forum with initial focus being on design guidelines for Whole of Government Hubs, determination of workplace implications for the return to work by public servants post-COVID-19, and the formulation of a model for NSW Government flexible workspace.

6. Economic or other factors

Sydney CBD and Metropolitan Markets

The commercial property market in Sydney has entered a marked downturn. The COVID-19 led recession and economic uncertainty has caused a sharp reduction in leasing activity, as companies defer accommodation decisions. Negative net absorption (demand) as well as the delivery of major developments has pushed vacancy rates up to 5.6 per cent in Sydney CBD and 6.9 per cent in the Sydney Metropolitan markets as at June 2020 (from 3.9 per cent and 5.5 per 1 cent in December 2019, respectively).

The lack of leasing activity and increased vacancies related to COVID-19 has seen building owners respond by increasing leasing incentives on offer (averaging greater than 25 per cent) resulting in reducing effective rents with prime gross effective rents falling about 10 per cent to 2 1 $1,044m over the six months to June 2020.

1 Sydney Commercial Property Prospects 2020-2030, BIS Oxford Economics, September 2020 10

Regional Markets

Major regional markets such as Newcastle and Wollongong have weathered significant headwinds and have maintained relatively strong prime office rental markets in the 12-18 months to June 2020, however there has been a notable reduction in rental activity outside of these regions and in lower grade stock across the State.

Smaller district centres have experienced relatively soft demand for office accommodation of both A-grade and secondary space, in both coastal and inland centres. Difficulties have primarily related 2 to the flow-on impact of bushfire, drought and COVID-19 in these locations.

7. Funds granted to non-government community organisations

In 2019-20, Property NSW made a grant payment of $3.2 million to Multiple Sclerosis Limited (MSL) for the development of a new health facility at Lidcombe in accordance with a NSW Government decision.

8. Legal Change

Property NSW provides a range of statutory acquisitions services, which include vesting under the Property NSW Act 2006 for Property NSW or client purposes. A total of three properties were vested to Property NSW from the NSW Police Force for the purposes of ongoing management or to facilitate disposal during the year.

In response to the COVID-19 pandemic:

• the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (“the Emergency Measures Act”) commenced on 25 March 2020. In relation to the Retail Leases Act 1994 and Agricultural Tenancies Act 1990, the Emergency Measures Act allowed for regulations to be put in place to ensure better security of tenure for tenants during the COVID-19 pandemic. • the Retail and Other Commercial Leases (COVID-19) Regulation 2020 commenced on 24 April 2020 to give effect to the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19 (“Code”), which was adopted by the Federal Government on 7 April 2020. The Regulation applies to both retail and commercial leases in New South Wales and prohibits the exercise of certain rights of lessors relating to the enforcement of certain leases during the COVID-19 pandemic period. It also requires that lessors renegotiate rent with lessees in good faith having regard to the Code and provide rental relief in certain circumstances.

Property NSW has provided assistance to its tenants in accordance with the Code during the year.

9. Management and activities

Performance overview

Property NSW delivered an unfavourable net loss variance of $62.2 million in 2019-20 mainly due to unbudgeted Other Losses of $161.8 million, partly offset by higher revenue and lower expenses.

The significant increase in Other Losses arising primarily from impairment losses on Right of Use Assets from leased properties due to the change in Treasury accounting policy on subsequent measurement of Right of Use Assets and COVID-19 impact on office market rent.

2 Office benchmarking for Regional Markets (customised research), Acumentis, June 2020 11

Leased Portfolio Rental Costs:

Property NSW seeks to add value by leveraging collective bargaining-power across agencies, delivering lower and more stable rental costs for NSW Government whilst meeting Agency service delivery requirements. During the 2019-2020 financial year, Property NSW exceeded the target benchmark with 86 per cent of new leases struck at or below independently assessed market rent (target of ≥75 per cent).

Vacancy rates:

Property NSW has maintained vacancy rates within owned commercial properties within benchmarks. As at 30 June 2020 Sydney CBD vacancy was 5.6 per cent against the benchmark of 5.6 per cent, and the Sydney Metropolitan vacancy was 0.0 per cent against the benchmark of 6.9 per cent.1 The aggregate vacancy within Property NSW owned and leased property portfolios was 2.1 per cent as at 30 June 2020.

10. Human resources, numbers and remuneration of senior executives

Employment Statistics (# of FTE)

A, B A,B A,B Category 2017 2018 2019 2020

Senior Executive 28.1 32.0 36.0 26.4 Senior Officer ‐ ‐ ‐ - Ongoing 259.2 263.6 297.0 271.5 Temporary 8.0 14.0 16.0 20.0 Graduate 3.0 1.0 3.0 5.0 Total 298.3 310.6 352.0 322.8*

A Statistics are based on Workforce Profile census data as at 18 June 2015, 30 June 2016, 29 June 2017, 28 June 2018 and 27 June 2019. B Senior Executive statistics exclude casuals, contractor/agency staff, statutory appointments, staff on secondment to other agencies and staff on long term leave without pay. *322.8 at the time of reporting includes valuation services and other support functions which have since moved out of Property NSW.

2019 A, B, C 2020

Senior % % Executive Representation Representation Band Female Male Total by Women Female Male Total by Women 0 0 0 0% Band 4 0 0 0 0% (Secretary) Band 3 0* 0 0 0% (Deputy 0 1 1 0% Secretary) D Band 2 0 7 7 0% (Executive 1 5 6 16.7% Director) 10 13 23 43.5% Band 1D 10 19 29 34.5% (Director)

Total 11 25 36 30.6% 10 20 30 33.3%

A Senior Executive statistics exclude casuals, contractor/agency staff, statutory appointments, staff on secondment to other agencies and staff on long term leave without pay. B Statistics are based on Workforce Profile census data as at 28 June, 2018 and 27 June, 2019. C All employees reported in 2018 and 2019 are appointed under the Government Sector Employment Act 2013. Salary band based on current assignment including those on a temporary above level assignment for more than two months. D Total remuneration package data not available in workforce profile so average remuneration taken for annual base remuneration of assigned role. *The function of CEO, Property NSW was held by Alison Frame, Group Deputy Secretary, Housing and Property.

A 2019 2020

Average Average Range $ Range $ Senior Executive Remuneration $ Remuneration $ Band Band 4 475,151 - 548,950 0 487,051 - 562652 0 (Secretary) Band 3 337,101 - 475,150 337,101 345,551 – 487,050 0 (Deputy Secretary) B Band 2 268,001 - 337,100 295,395 274,701 345,500 299,493 (Executive Director) – Band 1B 187,900 - 268,000 231,007 192,600 – 274,700 231830 (Director) A Salary ranges effective at the Workforce Profile census dates of 28 June 2018 and 27 June 2019.

B Total remuneration package data not available in workforce profile so average remuneration taken for annual base remuneration of assigned role.

Employee related costs

Employee related costs 2019-20 Amount Executive $7,582,234 Non-Executive $33,351,506 Total $40,933,740 Ratio Senior Executive 18.5%

In 2019-20, 18.5 per cent of employee related expenditure was for senior executives, compared with 2018-19 which was 21.1 per cent.

11. Workforce Diversity

Trends in the Representation of Workforce Diversity Groups

Workforce Diversity Group Benchmark 2018 2019 2020 Women 50% 46.3% 51.6% 52.2%

Aboriginal People and/or Torres Strait Islander 3.3% 0.4% 0.3% 0.3% People People whose First Language Spoken as a Child 23.2% 18.2% 11.0% 10.6% was not English People with a Disability 5.6% 2.2% 0.9% 0.9%

People with a Disability Requiring N/A 1.1% 0.9% 0.9% Work-Related Adjustment Note 1: The benchmark of 50 per cent for representation of women across the sector is intended to reflect the gender composition of the NSW community.

Note 2: The NSW Public Sector Aboriginal Employment Strategy 2014–17 introduced an aspirational target of 1.8 per cent by 2021 for each of the sector’s salary bands. If the aspirational target of 1.8 per cent is achieved in salary bands not currently at or above 1.8 per cent, the cumulative representation of Aboriginal employees in the sector is expected to reach 3.3 per cent.

Note 3: A benchmark from the Australian Bureau of Statistics (ABS) Census of Population and Housing has been included for People whose First Language Spoken as a Child was not English. The ABS Census does not provide information about first language, but does provide information about country of birth. The benchmark of 23.2 per cent is the percentage of the NSW general population born in a country where English is not the predominant language.

Note 4: In December 2017 the NSW Government announced the target of doubling the representation of people with disability in the NSW public sector from an estimated 2.7 per cent to 5.6 per cent by 2027. More information can be found at: Jobs for People with Disability: A plan for the NSW public sector. The benchmark for ‘People with Disability Requiring Work-Related Adjustment’ was not updated.

Trends in the Distribution of Workforce Diversity Groups Workforce Diversity Group Benchmark 2018 2019 2020

Women 100 91 91 92 Aboriginal People and/or Torres Strait Islander People 100 N/A N/A N/A People whose First Language Spoken as a Child was not 100 99 95 98 English People with a Disability 100 N/A N/A N/A

People with a Disability Requiring Work-Related Adjustment 100 N/A N/A N/A

Note 1: A Distribution Index score of 100 indicates that the distribution of members of the Workforce Diversity group across salary bands is equivalent to that of the rest of the workforce. A score less than 100 means that members of the Workforce Diversity group tend to be more concentrated at lower salary bands than is the case for other staff. The more pronounced this tendency is, the lower the score will be. In some cases, the index may be more than 100, indicating that members of the Workforce Diversity group tend to be more concentrated at higher salary bands than is the case for other staff.

Note 2: The Distribution Index is not calculated when the number of employees in the Workforce Diversity group is less than 20 or when the number of other employees is less than 20.

12. Consultants

Property NSW engages consultants for specialised work on an as-needed basis. In 2019-20, Property NSW engaged the following consultants for fees above $50,000.

Consultant’s Amount of Title of Project Categorised by Total Number of Name Consultancy the Nature of Engagements Consultancy Price Waterhouse $159,360 City Maker Land Coopers C Use Evaluation Precinct review 1 Consulting Ernst & Young $58,500 Market sounding Australia on former Manly Communication 1 Hospital

Proto Partners $70,955 Customer Experience Strategic Review 1 Grosvenor $65,421 Facilitation of Management performance Strategic Review 1 Consulting assessment

Seven consultants whose fees were less than $50,000 were also engaged during the financial year, the fees from which totaled $70,230. These engagements related to strategic and financial services advice.

13. Disability inclusion action plans

All Disability Inclusion Action Plans initiatives for Property NSW now fall under the Department of Planning, Industry and Environment and these are captured in the Department’s Annual Report 2019-20.

14. Promotion

Name of Position title Destination Purpose of travel Travel start Travel end officer date date Alison Frame CEO Property Israel / To accompany the Minister 1/11/2019 11/11/2019 NSW / Group United for Water, Property and Deputy Kingdom Housing to Israel and the Secretary, United Kingdom to engage Housing and with key stakeholders and Property, gain comparative Department of knowledge of issues Planning, relevant to the recently Industry and established Housing and Environment Property Group and Water Portfolio.

The Housing and Property Portfolio, the Minister and Group Deputy Secretary, Housing and Property gained insight into housing finance and innovation, sustainable urban renewal and placemaking and examined social and affordable housing projects.

Chris Deputy New Participated in a 6/11/2019 8/11/2019 Reynolds Secretary Zealand professional executive Strategy & learning group session as Portfolio part of membership of the Jeff Whelan executive development program.

This session was held in New Zealand to provide direct access to senior public officials in the NZ public sector and learnfrom their current approach to reforms, challenges and implementing changes across the Service to improve performance and customer service

15. Consumer response

Property NSW encourages feedback from the general public via the contact us page on the DPIE website, www.dpie.nsw.gov.au.

Feedback Assist is a customer system owned by the Department of Customer Service allowing customers to provide feedback, compliments or complaints to NSW Government agencies. Details of feedback, including any complaints, are received through the Feedback Assist platform and are included in the Department’s statistical information.

In the 2019-20 financial year, the Department of Planning, Industry & Environment and its related entities received 4,001 pieces of feedback, with 2,814 involving some form of compliant. 97 per cent of all complaints were closed within a month. Of those, only six per cent fell within the greater 3 Housing and Property Group and within those, only seven were attributed to Property NSW.

Property NSW has mechanisms in place for its government agency clients to provide feedback relating to base building issues via the Property NSW Customer Service Centre at: https://jll-propertynsw.corrigo.com/Customer/Home.

The portal, known as Corrigo, continues as the central service point for agency property management issues. It allows government agency staff to log and track maintenance requests online in real time for Property NSW managed buildings. During the 2019-20 financial year, approximately 5,100 work order requests were submitted to the Customer Service Centre via Corrigo with 43 per cent of feedback being positive, 56 per cent being neutral and less than 1 per cent of feedback being negative.

Property NSW also gauges client agency response to its service delivery through client satisfaction surveys. Following the completion and implementation of machinery of government changes, the next survey is to be distributed in the 2020-21 financial year.

3 Feedback Assist platform. Please see the DPIE Annual report for further information. 18

16. Payment of accounts

The table below sets out Property NSW’s account payment performance for 2019-20.

ACCOUNT PAYMENT 1ST QTR 2ND QTR 3RD QTR 4TH QTR Grand PERFORMANCE 2019-20 Total ALL SUPPLIERS Value of Invoices Paid ($'000)

Paid On / Before Due Date 165,458 163,644 174,207 175,713 679,488 <30 Days Past Due Date 1,482 195 339 1,170 2,859 >30<60 Days Past Due Date 94 74 91 678 856 >60<90 Days Past Due Date 155 13 23 164 352 >90 Days Past Due Date 257 129 194 216 740 Total Value of Invoices Paid ($'000) 167,445 164,054 174,854 177,941 684,294

Number of Invoices Paid Paid On / Before Due Date 11,857 11,534 11,086 13,112 47,589 Paid Past Due Date 864 429 521 1,276 3,090 Total Number of Invoices Paid 12,721 11,963 11,607 14,388 50,679

% Paid on Time - By Number 93% 96% 96% 91% 94%

Average Days to Pay Payment within 30 Days 3 3 4 5 Payment exceeding 30 Days 135 121 84 72

Interest Paid Number of Payments for Interest on Overdue Invoices Interest Paid on Overdue Invoices

SMALL BUSINESS SUPPLIERS 1ST QTR 2ND QTR 3RD QTR 4TH QTR Total Value of Invoices Paid ($'000) Paid On / Before Due Date 54 18 1 21 95 <30 Days Past Due Date 61 7 79 389 537 >30<60 Days Past Due Date 38 2 9 6 55 >60<90 Days Past Due Date 0 5 12 0 17 >90 Days Past Due Date 0 101 20 2 123 Total Value of Invoices Paid ($'000) 154 133 122 418 827

% Paid on Time - By Value 35% 14% 1% 5% 11%

Number of Invoices Paid Paid On / Before Due Date 8 10 6 5 29 Paid Past Due Date 16 8 9 17 50 Total Number of Invoices Paid 24 18 15 22 79

% Paid on Time - By Number 33% 56% 40% 23% 37%

Average Days to Pay Payment within 30 Days 5 15 19 34 Payment exceeding 30 Days 0 0 0 23

Interest Paid Number of Payments for Interest on Overdue Invoices 0 0 0 0 Interest Paid on Overdue Invoices 0 0 0 0

17. Risk management and insurance activities

Risk Management and Business Continuity

The Department of Planning, Industry and Environment (DPIE) supports Property NSW to manage risks.

In 2019-20, DPIE continued to implement its enterprise-wide risk management framework across its business and the cluster entities to which it provides risk management services. The framework reflects its commitment to provide a consistent and systematic process to manage risks across the cluster. It is consistent with international risk management standard (ISO 31000-2018) and the NSW Treasury Internal Audit and Risk Management Policy for the NSW Public Sector (TPP15-03). It provides the principles and tools for risk management practice and culture within DPIE and the cluster. In June 2020 the revised DPIE Risk Management Policy was published with applicability across DPIE and cluster entities.

Risk reviews at the entity level were conducted during the year, involving senior management participation. A presentation on the risk profile of Property NSW was provided to the Audit and Risk Committee for their oversight on the effectiveness of risk management practices.

During 2019-20, DPIE revised its Business Continuity Management Framework based on the international business continuity standard (ISO22301:2019) and developed a comprehensive set of tools to support business continuity planning, impact analysis and crisis management to ensure critical activities can be continued in the event of disruption. These tools and related support are available for Property NSW to manage any business continuity event.

18. Internal audit and risk management policy attestation

Internal audit

During the reporting period, Property NSW had an internal audit function in accordance with the Internal Audit and Risk Management Policy for the NSW Public Sector (TPP15-03). The internal audit function is governed in accordance with the Internal Audit Charter approved by the Chief Executive Officer (CEO) of Property NSW.

Following the 2019’s machinery of government changes, Property NSW was brought under the remit of DPIE. The Chief Audit Executive (CAE) and internal audit function for Property NSW is provided by DPIE’s Internal Audit Branch, Legal and Governance Division. Prior to the transition, internal audit services were provided by the former Department of Finance, Services and Innovation (DFSI).

The internal audit function provides independent and objective review and advisory services designed to improve operations, risk management, controls and governance processes.

Audit and Risk Committee

Property NSW has an independent Audit and Risk Committee (ARC) under a collaborative shared Audit and Risk Committee arrangement in place.

During the year, the Chief Audit Executive reported to the ARC. The ARC met during 2019–20.

19. Internal Audit and Risk Management Attestation Statement for 2019- 20 Financial Year

Mr Sean Osborn Director Financial Management and Accounting Policy NSW Treasury GPO Box 5469 SYDNEY NSW 2001

Dear Mr Osborn,

Internal Audit and Risk Management Attestation Statement for the 2019-2020 financial year

I refer to the Internal Audit and Risk Management Policy for the NSW Public Sector (TPP 15-03) and the requirement to submit an annual attestation statement against this Policy to NSW Treasury.

Property NSW has obtained ministerial agreement to exceptions for the reporting period.

Please find enclosed the signed 2019-2020 attestation statement and copy of the approved ministerial exception for Property NSW.

Yours sincerely,

Michael Cassel Acting Chief Executive Property NSW Date:10 September 2020

Encl: Attestation Statement and ministerial agreement to exceptions.

4 Parramatta Square, 12 Darcy Street, Parramatta NSW 2150 | Locked Bag 5022 Parramatta NSW 2124 | dpie.nsw.gov.au

Internal Audit and Risk Management Attestation Statement for the 2019-2020 Financial Year for Property NSW

I, Michael Cassel, Acting Chief Executive of Property NSW, am of the opinion that Property NSW has internal audit and risk management processes in operation that are, excluding the exceptions described below, compliant with the eight (8) core requirements set out in the Internal Audit and Risk Management Policy for the NSW Public Sector, specifically:

Core Requirements

Risk Management Framework

1.1 The agency head is ultimately responsible and accountable for Compliant risk management in the agency

1.2 A risk management framework that is appropriate to the agency Compliant has been established and maintained and the framework is consistent with AS/NZS ISO 31000:2009

Internal Audit Function

2.1 An internal audit function has been established and maintained Non-Compliant

2.2 The operation of the internal audit function is consistent with Compliant the International Standards for the Professional Practice of Internal Auditing

2.3 The agency has an Internal Audit Charter that is consistent Compliant with the content of the ‘model charter’

Audit and Risk Committee

3.1 An independent Audit and Risk Committee with appropriate Non-Compliant expertise has been established

3.2 The Audit and Risk Committee is an advisory committee Compliant providing assistance to the agency head on the agency’s governance processes, risk management and control frameworks, and its external accountability obligations

3.3 The Audit and Risk Committee has a Charter that is Compliant consistent with the content of the ‘model charter’

Membership

The Chair and members of the collaborative shared Audit and Risk Committee are:

Role Name Start Term Date Finish Term Date

Independent Chair Carol Holley 30 March 2020 29 March 2023 Independent Member Arthur Butler 30 March 2020 29 March 2023 Independent Member Nirmal Hansra 30 March 2020 29 March 2023 Note: Audit and Risk Committee oversight for Property NSW was previously provided by an Audit and Risk Committee arrangement provided by the former Department of Finance Services and Innovation which continued to meet in the latter half of 2019 to complete the 2018-19 financial reporting cycle. Property NSW transitioned to a DPIE collaborative shared Audit and Risk Committee in early 2020.

This Audit and Risk Committee has been established under a collaborative shared arrangement with the following entities:

• Cemeteries and Crematoria NSW • Luna Park Reserve Trust • Planning Ministerial Corporation • Hunter and Central Coast Development Corporation • Place Management NSW • Property NSW • Sydney Olympic Park Authority • Waste Assets Management Corporation.

Departures from Core Requirements

I Michael Cassel, Acting Chief Executive of Property NSW, advise that the internal audit and risk management processes for Property NSW depart from the following core requirements set out in the Internal Audit and Risk Management Policy for the NSW Public Sector:

The circumstances giving rise to these departures have been determined by the Portfolio Minister and Property NSW has implemented the following practicable alternative measures to meet the core requirements:

Departure Reason for departure and description of practicable Non-compliant alternative measures being implemented

Core Requirement 2.1 An internal audit function has been established and maintained. Internal Audit Function The Department of Planning, Industry and Environment’s (the Department) Director responsible for internal audit will fulfil the role of Chief Audit Executive for Property NSW.

The CAE has direct access to Property NSW Agency Head who is supported by the internal audit function.

Property NSW is overseen by and included within the scope of the Department’s internal audit program.

Core Requirement 3. 1 An independent Audit and Risk Committee with appropriate Audit and Risk expertise has been established. Committee A collaborative shared Audit and Risk Committee will provide independent oversight and advice on the operations of Property NSW.

Property NSW is a party to the collaborative shared Audit and Risk Committee.

The Audit and Risk Committee will review the financial statements and provide support to Property NSW, to manage risk. Internal audit and financial management activities.

This shared arrangement is made up of agencies with Property and land management responsibilities and is supported by the Departments secretariat unit.

These processes including the practicable alternative measures demonstrate that Property NSW has established and maintained frameworks including systems processes and procedures for appropriately managing audit and risk within Property NSW.

Michael Cassel Acting Chief Executive Property NSW

Date: 10 September 2020

Agency contact: Suzette Gay Director Audit 02 8289 6912

20. Digital information security policy attestation

Cyber Security Annual Attestation for the 2019-2020 Financial Year for

Property NSW

I, Michael Cassel, A/Chief Executive Officer of Property NSW Deputy Secretary Property and Development, am of the opinion that the Property NSW have an Information Security Management System (ISMS) in place via the Department of Customer Service Cluster and have managed cyber security risks in a manner consistent with the Mandatory Requirements set out in the NSW Government Cyber Security Policy.

Governance is in place to manage the cybersecurity maturity and initiatives of the Property NSW.

Risks to the information and systems of the Property NSW have been assessed and are managed.

The Property NSW currently leverages the Department of Customer Service cyber security response plan, which has been exercised during the 2019-2020 financial year. The plan will continue to be reviewed in conjunction with departmental governance frameworks and operational feedback to further improve its effectiveness.

Independent audits of cyber security controls in place during the 2019-2020 financial year, and an assessment of the Department of Customer Service's maturity against the NSW Government Cyber Security Policy have been performed and found to be adequate or being properly addressed in a timely manner. On-going assurance of cyber security will be managed through an ISMS aligned to the ISO 27001 standard, and independently audited.

Michael Cassel A/Chief Executive Officer Property NSW

Date: 19/11/2020

21. Multicultural Policies and Services Program

All Multicultural Plan initiatives for Property NSW now fall under the Department of Planning, Industry and Environment and these are captured in the DPIE Annual Report 2019-20.

22. Work Health and Safety (WHS)

In 2019-20, Property NSW continued to take a proactive approach to managing the safety of all employees, other workers and visitors to its properties, sites and activations.

Property NSW, in consultation with the DPIE leadership team, worked on measures to keep staff safe, with regular COVID-19 updates and resources provided to staff. This included working from home, working on the frontline guidelines and Employee Assistance Program (EAP) resources.

In addition to standard WHS induction and training, staff completed additional mandatory COVID- 19 awareness and ergonomics modules.

The WHS consultative committee remained active and developed new Hazard Risk Profiles as part of joining DPIE.

WHS incidents

Four staff incidents were reported in 2019-20 compared to 24 in 2018-19.

In the reporting period, there were no SafeWork NSW notifiable incidents or dangerous occurrences affecting staff.

Measurement Result Lost time frequency rate* 1.19 Lost time incident rate# 0.22 Average lost time rate^ 3.26 No. lost time incidents 1.00 Lost time severity rate 3.87

• The number of lost time incidents 1,000,000 hours worked # The number of lost time incidents per 100 employees ^ Average lost time rate is time lost in days divided by the number of lost time injuries  The number of days lost per 1,000,000 hours worked

Injuries reported

Injuries

Lost Time Injury 33%

Medical Treatment Only 67%

Distribution of injuries reported to the Work Health and Safety Team in 2019/2020

Mechanism

Heat, electricity and other environmental Body stressing factors 34% 33% Falls, trips and slips of a person 33%

* Body stressing: Muscular stress or repetitive movement

Mechanism of lost time and medical treatment injuries reported to the Work Health and Safety Team in 2019/2020

23. Budgets

Performance against budget

Property NSW delivered an unfavourable net loss variance of $62.2 million in 2019-20 mainly due to unbudgeted Other Losses of $161.8 million, partly offset by higher revenue and lower expenses.

The significant increase in Other Losses arose primarily from impairment losses on Right of Use Assets from leased properties. The key drivers of this were the change in Treasury accounting policy on subsequent measurement of Right of Use Assets and COVID-19's impact on office market rent.

Budget overview

Property NSW forecast a $47.6 million deficit for the 2020-21 financial year. The owned property portfolio will continue to be adversely impacted by the asset divestment program which has progressively reduced the quantum of rental revenue received.

Capital grant funding of $6.3 million in 2020-21 is to be provided to Property NSW for delivery of the Building Refurbishment Plan on the owned property portfolio.

The leased property portfolio continues to evolve through implementing the whole-of government accommodation policies.

2018-19 2019-20 2019-20 2019-20 2020-21 Actual Actual Budget Variance Budget $'000 $'000 $'000 $'000 $'000 Property NSW Expenses 705,058 410,993 443,546 (32,553) 462,415 Revenue 703,467 406,900 339,711 67,189 390,862 Other gains/(losses) 6,279 (161,653) 309 (161,962) 23,890 Net operating result - surplus / (deficit) 4,688 (165,746) (103,526) (62,220) (47,663)

24. Additional matters for inclusion

Response to Significant Issues/Matters Raised by Auditor General

In the first year implementation of new AASB 16 Leases accounting standard, Property NSW has implemented a new lease accounting system to calculate and generate lease accounting information covering:

• over 3,000 leases for the financial statements of Property NSW; • 60 other NSW agencies; and • Total State Sector Accounts elimination/consolidation process.

During the Audit Office’s 2019-20 audit of Property NSW Financial Statements, the Audit Office identified some issues with the new system identified as lease calculation exceptions and internal control deficiencies. These calculation exceptions, mainly due to different accounting interpretation, resulted in increasing the value of Property NSW’s asset by $218 million (3 per cent of total assets), liabilities by $269 million (5 per cent of total liabilities) and decreasing the Net Result of $50 million (12 per cent of total revenue). All of these calculation exceptions were corrected in the Property NSW Financial Statements 2019-20 as presented herein.

Property NSW has worked to resolve the internal control deficiencies to avoid repetition in the 2020-21 financial year with additional resources also having been allocated to Property NSW’s lease accounting team.

Privacy and Personal Information Protection Act 1998 (PPIP Act)

The Privacy and Personal Information Protection (PPIP) Act 1998 contains 12 information protection principles regulating the collection, use and disclosure of personal information by NSW public sector agencies. These principles ensure that agencies collect personal information for

lawful purposes, and that such information is protected from misuse and unauthorised release.

There were no requests for information under the PIPP Act received for the period 1 July 2019 to 30 June 2020.

NSW Government agencies are required to prepare and implement a privacy management plan in accordance with section 33(1) of the Privacy and Personal Information Protection Act 1998.

Due to the amalgamation of various agencies on 1 July, 2019 to create the Department of Planning, Industry and Environment, a new privacy management plan is currently under development and is expected to be in place in November 2020. In the interim, the various areas of the Department continue to operate under the plan that was in place for the agency they were previously part of. Property NSW, therefore, currently refers to the privacy management plan for the former Department of Finance, Services and Innovation, which can be found here: https://www.finance.nsw.gov.au/sites/default/files/dfsi_pmp.pdf

Additional information about how Property NSW manages its obligations under the PPIP Act is available at http://www.property.nsw.gov.au/government-property-nsw-privacy-statement.

Health Records and Information Privacy Act 2002 (HRIP Act)

The Health Records and Information Privacy Act 2002 (HRIP Act) outlines how NSW public sector agencies and health service providers manage the health information of members of the public.

There were no requests for information under the HRIP Act received for the period 1 July 2019 to 30 June 2020.

Accessing this report

Following the tabling of this report in NSW Parliament, it will be available for public access from the NSW Government’s OpenGov NSW website, www.opengov.nsw.gov.au.

External costs incurred in producing this report

There were no external costs (such as fees for consultants and printing costs) incurred in producing this report.

25. Requirements arising from employment arrangements

The NSW Department of Planning, Industry and Environment provided personnel services in 2019–20 to Property NSW.

26. Government Information (Public Access) Act 2009

The Government Information (Public Access) Act 2009 (GIPA Act) requires NSW Government agencies to make mandatory disclosures of information, encourages proactive release of information and provides mechanisms for individuals to apply to access NSW Government information.

Under Schedule 3 of the Government Information (Public Access) Regulation 2018, Property NSW is a subsidiary agency for the purpose of the Government Information (Public Access) Act 2009 (GIPA Act). Any formal applications for information from Property NSW are dealt with by the Department of Planning, Industry and Environment and are included in the Department’s statistical information.

Review of proactive release program

Under section 7(3) of the GIPA Act, agencies must review their proactive release of NSW Government information program at least once every 12 months.

Property NSW complies with this Act by proactively releasing information on its website: https://www.dpie.nsw.gov.au/housing-and-property/services/property-and-development-nsw

27. Public Interest Disclosures

Under the Public Interest Disclosures Act 1994, each public authority is required to prepare an annual report on their obligations under this Act. This information for Property NSW is captured in the Department of Planning, Industry and Environment Annual Report as all Public Interest Disclosures are managed centrally by the Department.

There were no public interest disclosures made by Property NSW officials for the period 1 July 2019 to 30 June 2020.

The Department launched its Code of Ethics and Conduct on 1 April 2020. The Code is web-based and is a resource to support Property NSW employees to understand and comply with their obligations. Prior to the new Code being adopted, employees of the Department observed the compliance obligations of the relevant policies that applied prior to the machinery of government change in July 2019.

The Code of Ethics and Conduct underpins the Department’s compliance framework, which includes:

• Systems to assist employees with their personal compliance obligations (declaration and management of conflicts of interest, approval of secondary employment, senior executive private interests and gifts, benefits and hospitality) • The Fraud and Corruption Control Framework and Policy • Public Interest Disclosures Policy and Procedure (which includes access to an anonymous reporting tool) • Lobbying of Government Officials Policy

28. Exemptions and nil reports

Reporting requirement Reason for exemption Disclosure of controlled entities Property NSW does not control any entities of the kind referred to in section 39 (1A) of the Public Finance and Audit Act 1983.

Disclosure of subsidiaries Property NSW does not control or hold shares in any subsidiaries within the meaning of the Corporations Act 2001 (Cth.).

Agreements with Multicultural NSW Property NSW does not have any agreements with Multicultural NSW under the Multicultural Act 2000.

Implementation of Price Property NSW is not subject to determinations or Determination recommendations of the Independent Pricing and Regulatory Tribunal of NSW.

Inclusion of unaudited financial Not applicable. statements Investment Performance All Property NSW investment powers are in accordance with Division 6.4 of the Government Sector Finance Act 2018. However, all cash reserves are held in Treasury Banking System (TBS) bank accounts.

Liability management performance Not applicable, as Property NSW does not have a level of debt greater than $20 million.

Land Disposal No properties with a value greater than $5 million were disposed of during 2019-20 without going to public auction or tender.

Property NSW keeps a register of government contracts. All contracts greater than $150,000 are released on the site: https://tenders.nsw.gov.au/.

Research and Development Not Applicable.

Property NSW Annual Report 2019-20

• Financial statements for the year ended 30 June 2020

INDEPENDENT AUDITOR’S REPORT

Property NSW

To Members of the New South Wales Parliament Opinion I have audited the accompanying financial statements of the Property NSW, which comprise the Statement of Comprehensive Income for the year ended 30 June 2020, the Statement of Financial Position as at 30 June 2020, the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended, and notes comprising a summary of significant accounting policies and other explanatory information.

In my opinion, the financial statements:

• give a true and fair view of the Property NSW’s financial position as at 30 June 2020 and of their performance and cash flows for the year then ended in accordance with Australian Accounting Standards • are in accordance with section 41B of the Public Finance and Audit Act 1983 (PF&A Act) and the Public Finance and Audit Regulation 2015

My opinion should be read in conjunction with the rest of this report. Basis for Opinion I conducted my audit in accordance with Australian Auditing Standards. My responsibilities under the standards are described in the ‘Auditor’s Responsibilities for the Audit of the Financial Statements’ section of my report.

I am independent of Property NSW in accordance with the requirements of the:

• Australian Auditing Standards • Accounting Professional and Ethical Standards Board’s APES 110 ‘Code of Ethics for Professional Accountants (including Independence Standards)’ (APES 110).

I have fulfilled my other ethical responsibilities in accordance with APES 110.

Parliament promotes independence by ensuring the Auditor-General and the Audit Office of New South Wales are not compromised in their roles by:

• providing that only Parliament, and not the executive government, can remove an Auditor-General • mandating the Auditor-General as auditor of public sector agencies • precluding the Auditor-General from providing non-audit services.

I believe the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Other Information The Property NSW’s annual report for the year ended 30 Jun 2020 includes other information in addition to the financial statements and my Independent Auditor’s Report thereon. The Chief Executive Officer of Property NSW is responsible for the other information. At the date of this Independent Auditor’s Report, the other information I have received comprise the Statement by the Chief Executive Officer.

My opinion on the financial statements does not cover the other information. Accordingly, I do not express any form of assurance conclusion on the other information.

In connection with my audit of the financial statements, my responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work I have performed, I conclude there is a material misstatement of the other information, I must report that fact.

I have nothing to report in this regard. The Chief Executive Officer’s Responsibilities for the Financial Statements The Chief Executive Officer is responsible for the preparation and fair presentation of the financial statements in accordance with Australian Accounting Standards, the PF&A Act, and for such internal control as the Chief Executive Officer determines is necessary to enable the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Chief Executive Officer is responsible for assessing the Property NSW’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting. Auditor’s Responsibilities for the Audit of the Financial Statements My objectives are to:

• obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error • issue an Independent Auditor’s Report including my opinion.

Reasonable assurance is a high level of assurance, but does not guarantee an audit conducted in accordance with Australian Auditing Standards will always detect material misstatements. Misstatements can arise from fraud or error. Misstatements are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions users take based on the financial statements.

A description of my responsibilities for the audit of the financial statements is located at the Auditing and Assurance Standards Board website at: www.auasb.gov.au/auditors_responsibilities/ar4.pdf. The description forms part of my auditor’s report.

The scope of my audit does not include, nor provide assurance:

• that Property NSW carried out its activities effectively, efficiently and economically • about the security and controls over the electronic publication of the audited financial statements on any website where they may be presented • about any other information which may have been hyperlinked to/from the financial statements.

Min Lee Director, Financial Services Delegate of the Auditor-General for New South Wales

27 October 2020 SYDNEY

Property NSW

Financial Statements

For the Year Ended 30 June 2020

Statement by Chief Executive Officer

Pursuant to Section 41C of the Public Finance and Audit Act 1983 , and in my capacity as acting Chief Executive Officer of Property NSW, I declare that in my opinion:

(a) The accompanying financial statements exhibit a true and fair view of the Property NSW's financial performance for the year ended 30 June 2020 and financial position as at 30 June 2020; and

(b) The financial statements comply with applicable Australian Accounting Standards (which include Australian Accounting Interpretations), the Public Finance and Audit Act 1983 , the Public Finance and Audit Regulation 2015 and the Treasurer’s Directions mandated by the Treasurer.

Further, I am not aware of any circumstances which would render any particulars included in the financial statements to be misleading or inaccurate.

Mick Cassel Acting Chief Executive Officer Property NSW

Date: 26 October 2020

PROPERTY NSW Start of Audited Financial Statements Statement of Comprehensive Income For the Year Ended 30 June 2020

Note Actual Budget Actual 2020 2020 2019 $'000 $'000 $'000

Continuing Operations Expenses excluding losses Operating Expenses: Personnel services expenses 2(a) 41,356 50,980 49,377 Other operating expenses 2(b) 228,674 128,372 603,550 Depreciation and amortisation 2(c) 49,496 70,234 19,486 Grants and subsidies 2(d) 6,814 94,238 27,221 Finance costs 2(e) 84,653 99,722 5,424 Total Expenses Excluding Losses 410,993 443,546 705,058

Revenue Sale of goods and services 3(a) 286,663 232,530 624,425 Investment revenue 3(b) 73,528 71,581 5,642 Grants and contributions 3(c) 40,832 35,600 72,750 Other revenue 3(d) 5,877 - 650 Total Revenue 406,900 339,711 703,467

Gain/(loss) on disposal 4(a) 129 309 8,884 Other gains/(losses) 4(b) (161,782) - (2,605) NET RESULT (165,746) (103,526) 4,688 Other Comprehensive Income

Items that will not be reclassified to net result Net increase/(decrease) in property, plant and equipment revaluation surplus 18(i) (2,452) - 107,850 Total other comprehensive income (2,452) - 107,850 TOTAL COMPREHENSIVE INCOME/(LOSS) (168,198) (103,526) 112,538

[The accompanying notes form part of these financial statements]

- 1 -

PROPERTY NSW

Statement of Financial Position As at 30 June 2020

Note Actual Budget Actual 2020 2020 2019 $'000 $'000 $'000

ASSETS Current Assets Cash and cash equivalents 6 57,150 45,265 65,853 Receivables 7 444,396 371,882 121,443 Non-Current assets held for sale 8 - - 8,339 Total Current Assets 501,546 417,147 195,635 Non-Current Assets Receivables 7 3,818,110 77,261 275,598 Property, plant and equipment 9 928,839 1,652,642 1,200,231 Right-of-use assets 10 625,563 - - Intangible assets 12 - 1,716 - Other 13 11,763 2,070,646 11,763 Total Non-Current Assets 5,384,275 3,802,265 1,487,592 TOTAL ASSETS 5,885,821 4,219,412 1,683,227 LIABILITIES Current Liabilities Payables 14 44,019 30,785 64,054 Borrowings 15 339,369 339,568 - Provisions 16 49,861 30,930 49,943 Other 17 40 14,761 7,946 Total Current Liabilities 433,289 416,044 121,943 Non-Current Liabilities Payables 14 - - 11,307 Borrowings 15 4,107,273 2,440,979 34,398 Provisions 16 190,457 191,721 168,198 Other 17 142 50,457 47,442 Total Non-Current Liabilities 4,297,872 2,683,157 261,345 TOTAL LIABILITIES 4,731,161 3,099,201 383,288

NET ASSETS 1,154,660 1,120,211 1,299,939 EQUITY Asset revaluation reserve 18 119,535 344,744 365,425 Accumulated funds 19 1,035,125 775,467 934,514 TOTAL EQUITY 1,154,660 1,120,211 1,299,939

[The accompanying notes form part of these financial statements]

- 2 -

PROPERTY NSW

Statement of Changes in Equity For the Year Ended 30 June 2020

Asset Accumulated Revaluation Total Note Funds Reserve Equity $'000 $'000 $'000 Balance at 1 July 2019 934,514 365,425 1,299,939 Net Result for the Year (165,746) - (165,746) Other comprehensive income Transfer of asset revaluation reserve on derecognition of assets 18 243,438 (243,438) - Net increase/(decrease) in property, plant and equipment revaluation surplus 18(i) - (2,452) (2,452) Total other comprehensive income 243,438 (245,890) (2,452) Total comprehensive income for the year 77,692 (245,890) (168,198) Transactions with owners as owners Financial distributions 19(i) - - - Net increase/(decrease) in net assets from - equity transfers 19(ii) 22,919 - 22,919

Total transactions with owners as owners 22,919 - 22,919 Balance at 30 June 2020 1,035,125 119,535 1,154,660

Balance at 1 July 2018 1,013,443 292,817 1,306,260 Net Result for the Year 4,688 - 4,688 Other comprehensive income Transfer of asset revaluation reserve on derecognition of assets 18 35,242 (35,242) - Net increase/(decrease) in property, plant and equipment revaluation surplus 18(i) - 107,850 107,850

Total other comprehensive income 35,242 72,608 107,850 Total comprehensive income for the year 39,930 72,608 112,538

Transactions with owners as owners Financial distributions 19(i) (8,651) - (8,651) Net increase/(decrease) in net assets from equity transfers 19(ii) (110,208) - (110,208)

Total transactions with owners as owners (118,859) - (118,859) Balance at 30 June 2019 934,514 365,425 1,299,939

[The accompanying notes form part of these financial statements]

- 3 -

PROPERTY NSW

Statement of Cash Flows For the Year Ended 30 June 2020

Note Actual Budget Actual 2020 2020 2019 $'000 $'000 $'000 CASH FLOWS FROM OPERATING ACTIVITIES Payments Employee related (41,304) (50,980) (52,569) Grants and subsidies (6,814) (9,238) (27,221) Finance costs (84,454) (99,435) (4,809) Property expenses paid (247,200) (123,695) (626,319) Total Payments (379,772) (283,348) (710,918) Receipts Sale of goods and services 277,525 220,799 622,315 Interest received 73,528 65,924 5,642 Grants and contributions 40,833 35,600 72,750 Total Receipts 391,886 322,323 700,707

NET CASH FLOWS FROM OPERATING ACTIVITIES 6(b) 12,114 38,975 (10,211)

CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment and right-of-use assets (15,689) (11,569) (129,388) Proceeds from sale of property, plant and equipment 13,586 1,109 49,620 Receipts of principal portion of finance lease receivables 313,275 302,148 - Other Investing - 3,849 - NET CASH FLOWS FROM INVESTING ACTIVITIES 311,172 295,537 (79,768) CASH FLOWS FROM FINANCING ACTIVITIES Financial distributions to the state government 19(i) - - (8,651) Payment of principal portion of lease liabilities (331,989) (335,666) - NET CASH FLOWS FROM FINANCING ACTIVITIES (331,989) (335,666) (8,651) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (8,703) (1,154) (98,630)

Opening cash and cash equivalents 65,853 46,419 164,483 CLOSING CASH AND CASH EQUIVALENTS 6(a) 57,150 45,265 65,853

[The accompanying notes form part of these financial statements]

- 4 -

PROPERTY NSW

Section A: Entity Information and Basis of Preparation Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Reporting Entity

Property NSW (PNSW) was established under the Property NSW Act 2006 to improve the management of the NSW Government's owned and leased real property portfolio and to become a central agency with a whole-of-government focus on the acquisition, disposition and better utilisation of real property assets. PNSW commenced operations on 1 September 2006 and is domiciled in Australia. Its principal business address is 4 Parramatta Square, Sydney NSW 2150. PNSW is a not-for-profit entity as profit is not its principal objective. PNSW is consolidated as part of the NSW Total State Sector Accounts.

Under the Act, PNSW is unable to employ staff. However, to enable it to exercise its functions, PNSW can obtain personnel services from Government agencies who are able to engage staff under Part 4 of the Government Sector Employment Act 2013. During 2019-20, personnel services were provided by the Department of Planning, Industry and Environment (DPIE) (Department of Finance, Services and Innovation (DFSI) in 2018-19). The DPIE, a principal department, is a separate reporting entity and does not control PNSW for financial reporting purposes.

As a result of Administrative Arrangements (Administrative Changes – Public Service Agencies) Order 2019, in pursuance of part 7 of the Constitution Act 1902, PNSW was transferred from DFSI cluster to a newly created DPIE cluster, effective 1 July 2019.

These financial statements have been authorised for issue by PNSW's Chief Executive Officer on 26 October 2020.

(b) Basis of Preparation

PNSW's financial statements are general-purpose financial statements which have been prepared on a "going concern" basis and in accordance with:

(i) applicable Australian Accounting Standards (which include Australian Accounting Interpretations); (ii) the requirements of the Public Finance and Audit Act 1983 and Public Finance and Audit Regulation 2015 ; and (iii) Financial Reporting Directions mandated by the Treasurer.

Property, plant and equipment, assets held for sale and investment property are measured at fair value. Borrowings are initially measured at the fair value of the consideration received and subsequently measured at amortised cost using the effective interest method. Other financial report items are prepared in accordance with the historical cost convention except where specified otherwise.

The accrual basis of accounting has been adopted in the preparation of the financial statements, except for cash flow information.

In the application of PNSW’s accounting policies, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are recognised, or in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements, key assumptions and estimations made by management are disclosed in the relevant notes to the financial statements.

All amounts are rounded to the nearest one thousand dollars ($'000) and are expressed in Australian currency.

The financial statements and accompanying notes comply with Australian Accounting Standards, which include Australian Accounting Interpretations.

- 5 -

PROPERTY NSW

Section A: Entity Information and Basis of Preparation Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(d) Accounting for the Goods and Services Tax (GST)

Revenue, expenses and assets are recognised net of the amount of GST, except that:

(i) the amount of GST incurred by PNSW as a purchaser that is not recoverable from the Australian Taxation Office is recognised as part of the cost of acquisition of an asset or as part of an item of expense; (ii) receivables and payables are stated with the amount of GST included; and (iii) commitment amounts disclosed in the financial statements include the amount of GST recoverable from, or payable to, the Australian Taxation Office.

Cash flows are included in the Statement of Cash Flows on a gross basis. However, the GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the Australian Taxation Office are classified as operating cash flows.

(e) Comparative Information

Except when an Australian Accounting Standard permits or requires otherwise, comparative information is presented in respect of the previous period for all amounts reported in the financial statements.

(f) Fair Value Measurement and Hierarchy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or in the absence of a principal market, in the most advantageous market for the asset or liability.

A number of PNSW’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When measuring fair value, the valuation technique used maximises the use of relevant observable inputs and minimises the use of unobservable inputs. Under AASB 13 "Fair Value Measurement", PNSW categorises, for disclosure purposes, the valuation techniques based on the inputs used in the valuation techniques as follows:

Level 1 – quoted (unadjusted) prices in active markets for identical assets/liabilities that PNSW can access at the measurement date. Level 2 – inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly. Level 3 – inputs that are not based on observable market data (unobservable inputs).

PNSW recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Refer to Notes 9, 10, 11 and 20 for further disclosures regarding fair value measurements of financial and non-financial assets.

(g) Changes in Accounting Policy including New or Revised Australian Accounting Standards

(i) Effective for the First Time in 2019-20

PNSW applied AASB 15 Revenue from Contracts with Customers, AASB 1058 Income of Not-for-Profit Entities, and AASB 16 Leases for the first time. The nature and effect of the changes as a result of adoption of these new accounting standards are described below.

Several other amendments and interpretations apply for the first time in 2019-20, but do not have an impact on the financial statements of PNSW.

• AASB 15 Revenue from Contracts with Customers

AASB 15 supersedes AASB 111 Construction Contracts, AASB 118 Revenue and related Interpretations and it applies, with limited exceptions, to all revenue arising from contracts with customers. AASB 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

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PROPERTY NSW

Section A: Entity Information and Basis of Preparation Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

AASB 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires relevant disclosures.

In accordance with the transition provisions in AASB 15, PNSW has adopted AASB 15 retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application, i.e. 1 July 2019. PNSW has used the transitional practical expedient permitted by the standard to reflect the aggregate effect of all of the modifications that occur before 1 July 2018 when:

• identifying the satisfied and unsatisfied performance obligations • determining the transaction price • allocating the transaction price to the satisfied and unsatisfied performance obligations

The impact of applying the above practical expedients is not expected to significantly affect the financial statements.

The adoption of AASB 15 did not have any significant impact on PNSW's financial statements.

• AASB 1058 Income of Not-for-Profit Entities

AASB 1058 replaces most of the existing requirements in AASB 1004 Contributions. The scope of AASB 1004 is now limited mainly to contributions by owners (including parliamentary appropriations that satisfy the definition of a contribution by owners), administrative arrangements and liabilities of government departments assumed by other entities.

AASB 1058 applies to income with a donation component, i.e. transactions where the consideration to acquire an asset is significantly less than fair value principally to enable a not-for-profit entity to further its objectives; and volunteer services. AASB 1058 adopts a residual approach, meaning that entities first apply other applicable Australian Accounting Standards (e.g. AASB 1004, AASB 15, AASB 16, AASB 9, AASB 137) to a transaction before applying AASB 1058.

Not-for-profit entities need to determine whether a transaction is/contains a donation (accounted for under AASB 1058) or a contract with a customer (accounted for under AASB 15).

AASB 1058 requires recognition of receipt of an asset, after the recognition of any related amounts in accordance with other Australian Accounting Standards, as income:

- when the obligations under the transfer is satisfied, for transfers to enable an entity to acquire or construct a recognisable non-financial asset that will be controlled by the entity. - immediately, for all other income within the scope of AASB 1058.

In accordance with the transition provisions in AASB 1058, PNSW has adopted AASB 1058 retrospectively with the cumulative effect of initially applying the standard at the date of initial application, i.e. 1 July 2019. PNSW has adopted the practical expedient in AASB 1058 whereby existing assets acquired for consideration significantly less than fair value principally to enable the entity to further its objectives, are not restated to their fair value.

The adoption of AASB 1058 did not have any significant impact on PNSW's financial statements.

• AASB 16 Leases

AASB 16 supersedes AASB 117 Leases, Interpretation 4 Determining whether an Arrangement contains a Lease, Interpretation 115 Operating Leases – Incentives and Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the balance sheet.

Lessor accounting Lessor accounting under AASB 16 is substantially unchanged from AASB 117. Lessors will continue to classify leases as either operating or finance leases using similar principles as in AASB 117. Therefore, AASB 16 does not have a significant impact for leases where PNSW is the lessor. However, for PNSW as an intermediary lessor (sub-lease arrangement), the sub-lease classification is assessed based on right-of-use assets under AASB 16 rather than underlying assets under AASB 117.

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PROPERTY NSW

Section A: Entity Information and Basis of Preparation Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

Lessee accounting AASB 16 requires PNSW to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under AASB 117. Under the new standard, a right-of-use asset (the right to use the leased item) and a lease liability are recognised at the inception of the lease by the lessee.

The lease liability is measured at the present value of the future lease payments, discounted using PNSW’s incremental borrowing rate. PNSW has adopted the modified retrospective approach with practical expedients, where the cumulative effect of initially applying AASB 16 is recognised on 1 July 2019 and the comparatives for the year ended 30 June 2019 are not restated, and the corresponding right-of-use asset is measured at the value of lease liability at 1 July 2019 (the transition date) adjusted for any prepaid or accrued lease payments, lease incentives and fixed rental increment payables.

In relation to leases that had previously been classified as ‘operating leases’ under AASB 117, a lease liability is recognised at 1 July 2019 at the present value of the remaining lease payments, discounted using PNSW's incremental borrowing rate at the date of initial application. The weighted average incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 1.95%.

The corresponding right-of-use asset is initially recorded on transition at an amount equal to the lease liability, adjusted for any prepaid or accrued lease payments, lease incentives and fixed rental increment payables relating to that lease recognised in the statement of financial position as at 30 June 2019.

For leases previously classified as finance leases PNSW recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right of use asset and the lease liability at the date of initial application. The measurement principles of AASB 16 are only applied after that date.

PNSW elected to use the practical expedient to expense lease payments for lease contracts that, at their commencement date, have a lease term of 12 months or less and do not contain a purchase option (short-term leases), leases on monthly holdover, and lease contracts for which the underlying asset is valued at $10,000 or lower (low-value assets).

In applying AASB 16 for the first time, PNSW has used the following practical expedients permitted by the standard:

• not reassess whether a contract is, or contains, a lease at 1 July 2019, for those contracts previously assessed under AASB 117 and Interpretation 4; • applying a single discount rate to a portfolio of leases with reasonably similar characteristics; • relying on its previous assessment on whether leases are onerous immediately before the date of initial application as an alternative to performing an impairment review; • not recognise a lease liability and right-of-use-asset for short-term leases that end within 12 months of the date of initial application; • excluding the initial direct costs from the measurement of the right-of-use asset at the date of initial application; and • using hindsight in determining the lease term where the contract contained options to extend or terminate the lease.

The effect of adopting AASB 16 as at 1 July 2019 increase/(decrease) is, as follows:

$'000 Assets Receivables 2,757,410 Right-of-use assets 98,535 Total Assets 2,855,945 Liabilities Borrowings 2,855,945 Total Liabilities 2,855,945 Equity Accumulated funds - -

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PROPERTY NSW

Section A: Entity Information and Basis of Preparation Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

The lease liabilities as at 1 July 2019 can be reconciled to the operating lease commitments as of 30 June 2019, as follows: $'000

Operating lease commitments as at 30 June 2019 (GST included) 1,627,591 (Less): GST included in operating lease commitments (147,963) Operating lease commitments as at 30 June 2019 (GST excluded) 1,479,628 Weighted average incremental borrowing rate as at 1 July 2019 1.95% Discounted operating lease commitments as at 1 July 2019 1,451,327

Add: commitments relating to leases previously classified as finance leases (GST excluded) 34,398 (Less): commitments relating to short-term leases (14,796) Remeasurement of existing lease liability on application of AASB 16 63,460 Add: Lease payments relating to renewal periods not included in operating lease commitments as at 30 June 2019 1,355,954 Lease liabilities as at 1 July 2019 2,890,343

• AASB 2018-5 Amendments to Australian Accounting Standards - Deferral of AASB 1059

This Standard makes amendments to AASB 1059 Service Concession Arrangements: Grantors (July 2017). This Standard amends the mandatory effective date (application date) of AASB 1059 so that AASB 1059 is required to be applied for annual reporting periods beginning on or after 1 January 2020 instead of 1 January 2019.

The adoption of AASB 1059 is not expected to be significant for PNSW.

(ii) Issued but Not Yet Effective

NSW public sector entities are not permitted to early adopt new AAS, unless Treasury determines otherwise. Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2020 reporting periods.

• AASB 1059 Service Concession Arrangements: Grantors

AASB 1059 Service Concession Arrangements: Grantors will apply to annual reporting periods beginning on or after 1 January 2020. The standard requires the grantor to recognise a service concession asset, at current replacement cost, in a service concession arrangement where it controls the asset. A corresponding liability is also recognised depending on the nature of the consideration exchanged.

The adoption of AASB 1059 is not expected to be significant for PNSW. Emerging asset and emerging income in relation to Sydney Opera House car park which is currently accounted for under TPP 06-08 is expected to be reclassified to finance lease receivable and finance lease income in 2020-21.

The impact of the following standards in the period of initial application is not expected to be significant:

• AASB 2018-5 Amendments to Australian Accounting Standards - Deferral of AASB 1059 • AASB 2018-6 Amendments to Australian Accounting Standards - Definition of a Business • AASB 2018-7 Amendments to Australian Accounting Standards - Definition of Material • AASB 2019-1 Amendments to Australian Accounting Standards - References to the Conceptual Framework • AASB 2019-2 Amendments to Australian Accounting Standards - Implementation of AASB 1059 • AASB 2019-3 Amendments to Australian Accounting Standards - Interest Rate Benchmark Reform • AASB 17 Insurance Contracts • AASB 2020-1 Classification of Liabilities as Current or Non-current • AASB 1060 Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities

(h) COVID-19 and Delayed 2020-21 NSW Budget

Although COVID-19 has not caused a significant decrease on PNSW's rental revenue as most of its tenants are government entities, its revenue and debt recovery from private tenants has been impacted to some extent. PNSW received one-off grant income from the NSW State through DPIE Principal Department for rental loss and special cleaning expense.

NSW Government has announced that the 2020-21 NSW Budget will be deferred from June 2020 until later in the year. The delayed 2020-21 NSW Budget is not expected to have any significant impact on PNSW's operation as PNSW has the legal right to draw down on the Consolidated Fund through DPIE Principal Department arising from the Treasurer authorising expenditure under section 4.10 of the GSF Act. In particular, the temporary measures introduced for COVID-19. Therefore, it is appropriate for the 2019-20 Financial Statements to be prepared under going concern basis.

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PROPERTY NSW

Section B: Financial Performance Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

2. EXPENSES EXCLUDING LOSSES

(a) Personnel Services Expenses 2020 2019 $'000 $'000

Salaries and Wages (Including Recreation Leave) 32,315 37,143 Contractors 2,030 4,886 Superannuation (Defined Contribution Plans) 2,231 2,560 Long Service Leave 1,152 598 Worker's Compensation Insurance 192 (52) Payroll Tax and Fringe Benefits Tax 1,895 2,264 Voluntary Redundancies 1,541 1,978 41,356 49,377

The personnel services expense is the expense incurred by PNSW on personnel services provided to it by DPIE. Under the Property NSW Act 2006, PNSW is unable to employ staff (Note 1).

As PNSW is not an employer, the disclosure requirements of AASB 119 "Employee Benefits" in respect of employee benefits do not apply. Accordingly, PNSW does not recognise any provision for employee entitlements.

(b) Other Operating Expenses 2020 2019 $'000 $'000

Property Head Lease Expense (i) 178,663 533,285 Other Property Related Expenses (ii) 36,830 34,593 Other Operating Expenses (iii) 13,181 35,672 228,674 603,550

(i) Property Head Lease Expense 2020 2019 $'000 $'000

Minimum Lease Payments (a) 82,281 448,710 Rental Expenses Arising from Sub-Leases (b) 96,539 78,775 Contingent Rentals (c) - 16,211 178,820 543,696 Less Amortisation of Lessor Lease Incentives ((d) and Note 17(b)) (157) (10,411) 178,663 533,285

(a) Operating lease payments are recognised in the Net Result and charged on a straight-line basis over the lease term.

(b) Expenditure for recurrent outgoings on property leased by PNSW as lessee includes maintenance, electricity, cleaning and expenses for common areas and public risk. This is recovered from sub-lessees.

(c) Contingent rentals are variations due to market rental reviews and changes to the Consumer Price Index between the actual lease and the amounts of minimum lease payments determined at the inception of the lease.

(d) Prior to 1 July 2019, lease incentives received which were less than $0.5 million were recognised directly in the Net Result in the year in which they were received. Lease incentives received which were greater than this amount were recognised in the Statement of Financial Position and were allocated to the Net Result over the lease term (Notes 17).

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PROPERTY NSW

Section B: Financial Performance Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(ii) Other Property Related Expenses 2020 2019 $'000 $'000

Management Fees (a) 8,627 7,963 Gas and Electricity 1,150 1,452 Maintenance (b) 18,380 16,918 Cleaning 2,911 2,592 Rates and Levies 939 918 Security 1,318 1,035 Valuations 235 204 Other (c) 3,270 3,511 36,830 34,593

(a) Management Fees represent fees paid to external service providers for property management services of owned and leased properties.

(b) Maintenance expenses relate to owned properties and include ad-hoc and scheduled maintenance services on lifts, air conditioning units, fire protection systems, plumbing, electrical and other areas. There was no personnel services maintenance expense in 2019-20 (nil in 2018-19).

(c) Items classified as Other include telephone, fire safety, legal, building manager costs, gardening, insurance and sundry charges incurred on properties owned by PNSW.

PNSW's insurance activities are conducted through the NSW Treasury Managed Fund Scheme of self-insurance for Government entities. The expense (premium) is determined by the Fund Manager based on past claim experience. Properties owned by PNSW are insured for their replacement value. Management reviews the insurance coverage each year.

(iii) Other Operating Expenses 2020 2019 $'000 $'000

Auditor's Remuneration - Audit of Financial Statements 445 221 Legal Fees 63 368 Consultants 1,021 538 Office Accommodation Expenses 2,190 4,393 Other Contractors 2,423 2,173 Corporate Service Fees (a) 555 10,958 Computer Costs 2,404 6,608 Training and Development 46 1,313 Other Service Fees (b) 2,653 6,993 Other (c) 1,381 2,107 13,181 35,672

(a) Corporate Service Fees include fees charged by DFSI (now known as DCS) in 2018-19 for corporate services provided under the DFSI Corporate Operating Model arrangements and by Land and Property Information for system hosting services provided in relation to the Government Property Register.

(b) Other Service Fees are fees charged by GovConnect relating to outsourced services such as payroll, information technology and central accounting transaction services.

(c) Items classified as Other include advertising, conferences, telephone, printing, stationery, travel, removal and other sundry charges.

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PROPERTY NSW

Section B: Financial Performance Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

Depreciation of Property, Plant and Equipment (Note 9(a)) 14,214 14,796 Depreciation of Right-of-Use Assets (Note 10(a)) 35,282 - Depreciation of Finance Lease Assets (Note 9(a)) - 2,915 Amortisation of Intangible Assets (Note 12(b)) - 1,775 49,496 19,486

Recognition and Measurement - Depreciation and Amortisation

Depreciation is provided for on a straight-line basis for all depreciable non-current assets so as to write off the depreciable amount of each asset as it is consumed over its useful life to PNSW. Estimates of remaining useful lives are made on a regular basis for all assets, with annual reassessments for major items.

PNSW's buildings are separately componentised into the structure, air conditioning units and lifts where it can be determined that these components:

(a) physically exist; (b) are material enough to justify separate tracking; (c) are capable of having a reliable value attributed to them; and (d) have differing estimated useful lives to the extent that failure to depreciate them separately would result in a material difference in the annual depreciation expense for PNSW.

The useful lives of PNSW's items of property, plant and equipment are based on the following:

Asset Class 2020 2019 Years Years

Buildings Structure 40 40 Air Conditioning Units 20 20 Lifts 30 30 Computer Equipment and Software 3 3 Furniture and Fittings 10 10 Plant and Equipment and Office Equipment 5 5 Leasehold Improvements 6 6

Leasehold Improvements are depreciated over the shorter of the lease term and their useful life. Heritage buildings are depreciated in accordance with the useful life ranges above. Finance Lease Assets (prior to 1 July 2019) and Right-of-Use Assets (from 1 July 2019) are depreciated over the period of the lease. Fine Arts and Heritage items located within owned buildings are not depreciated as they do not have a limited useful life. These items are however subject to an annual impairment test.

PNSW's intangible assets (computer software) are amortised using the straight-line method over a period of three (3) years.

In accordance with AASB 5 "Non-current Assets Held for Sale and Discontinued Operations", any assets held for sale are not depreciated. Land is also not depreciated as land is not a depreciable asset.

(d) Grants and Subsidies 2020 2019 $'000 $'000

Grants to the Museum of Contemporary Art (i) 2,303 2,287 Contributions to the Restart NSW Fund (ii) - 23,050 Grants to Local Government (iii) (Note 9(a)) 987 1,884 Grants to Local Land Services (iv) 324 - Grants to Multiple Sclerosis Limited (Note 3(c)) 3,200 - 6,814 27,221

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PROPERTY NSW

Section B: Financial Performance Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(i) Grants of $2.3 million in 2019-20 ($2.3 million in 2018-19) represent payments made to the Museum of Contemporary Art to replace the existing rental guarantee subsidies paid by Place Management NSW pursuant to its lease to the Museum of Contemporary Art.

(ii) Contributions of 2018-19 represent payments made to the Restart NSW Fund (NSW Government's dedicated infrastructure fund) from the net sale proceeds of property assets sold by PNSW. The payments are based on the NSW Government decision that the net sale proceeds of property assets sold by all DFSI entities are to be paid directly into the Restart NSW Fund from 1 July 2015 onwards except where the NSW Government has made a separate decision to allocate the net sale proceeds to fund other programs.

(iii) Grants to Local Government of $1.0 million in 2019-20 ($1.9 million in 2018-19) represent the properties transferred to local councils for community use under Community Use Program (CUP).

(iv) Grants to Local Land Services (LLS) of $0.3 million in 2019-20 ($0 in 2018-19) represent the remaining proceeds from property sales for properties which were transferred from LLS to PNSW by way of equity transfer in 2016-17.

(e) Finance Costs 2020 2019 $'000 $'000

Finance Lease Interest Charges (Note 10(a)) 84,454 4,809 Unwinding of Discount Rate on Land Remediation Provision (Note 16(b)) 199 615 84,653 5,424

Finance and borrowing costs are recognised as expenses in the period in which they are incurred, in accordance with Treasury’s Mandate to not-for-profit NSW general government sector entities.

3. REVENUE

Recognition and Measurement - Revenue

PNSW recognises revenue when the entity satisfies a performance obligation by transferring a promised good or service to a customer. An asset is transferred when the customer obtains control of the asset. Revenue is measured at the amount of the transaction price that is agreed under the contract. When determining the transaction price, Management considers the effects of variable consideration, constraining estimates of variable consideration, the existence of a significant financing component in the contract, non-cash consideration, and consideration to a customer.

Additional comments regarding the accounting policies for the recognition and measurement of revenue are noted within each revenue category below.

(a) Sale of Goods and Services 2020 2019 $'000 $'000

Property Rental Income - Operating Lease Income (i) 254,286 581,404 Fees for Services Rendered (ii) 32,377 43,021 286,663 624,425

(i) Property Rental Income - Operating Lease Income 2020 2019 $'000 $'000

Owned Property Income 44,433 39,467 Leased Property Income 210,489 552,472 Less: Amortisation of Lessee Lease Incentives (Note 17(b)) (636) (10,535) 254,286 581,404

Operating lease income is recognised in accordance with AASB 16 "Leases". Lease income from operating leases where PNSW is the lessor is recognised as income in the Statement of Comprehensive Income on a straight-line basis over the lease term. Contingent rental income is recognised as income in the period in which it is earned.

Rent reviews for owned government office buildings are conducted at two yearly intervals to update rentals to current market rates. There are no ratchet clauses in place and tenants are charged an effective rental, which takes into consideration incentives available in the market place at a particular point in time.

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PROPERTY NSW

Section B: Financial Performance Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

The terms of occupancy for tenants occupying space in PNSW leased premises, including rentals, incentives and lease terms, are generally aligned with headlease agreement taken out on the premises by PNSW.

Tenants are required to makegood leased premises by undertaking a physical makegood or negotiating a financial settlement with PNSW.

(ii) Revenue from the rendering of services is recognised when PNSW satisfies the performance obligation by transferring the promised services. The revenue is measured at the agreed transaction price.

(b) Investment Revenue 2020 2019 $'000 $'000

Property Finance Lease Income (i) 73,477 5,531 Interest Earned (ii) 51 111 73,528 5,642

(i) Income from finance leases as lessor includes contingent rent of $0.6 million in 2019-20 ($0.6 million in 2018-19). Contingent rent is calculated as the difference between the current lease payments and the minimum lease payments which were determined at the initial recognition of the finance lease arrangement.

Finance lease income is recognised in accordance with AASB 16 "Leases". Lease income from finance leases where PNSW is the lessor is recognised as income in the Statement of Comprehensive Income over the lease period so as to allocate finance income over the lease term on a systematic and rational basis. This income allocation is based on a pattern reflecting a constant period return on PNSW’s net investment in the lease.

The estimated unguaranteed residual value used in computing PNSW's gross investment in each lease is reviewed regularly. If there has been a reduction in the estimated unguaranteed residual value, the income allocation over the lease term is revised and any reduction in respect of amounts accrued is recognised immediately. Contingent rent from finance leases as lessor is recognised as income in the period in which it is earned.

(ii) Interest revenue is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit-impaired. For financial assets that become credit impaired, the effective interest rate is applied to the amortised cost of the financial asset (i.e. after deducting the loss allowance for expected credit losses).

Interest earned is received on cash set aside for remediation on land acquired by the Crown from BHP Billiton in 2002. The cash is held in a separate PNSW bank account within the NSW Treasury Banking System (Note 6(a)).

State Government - Recurrent Contribution (i) 23,942 12,235 State Government - Capital Contribution (ii) 13,690 60,515 Other NSW Government Agency Contribution (iii) 3,200 - 40,832 72,750

(i) PNSW receives an annual recurrent contribution from the State Government for a range of non-commercial professional services undertaken which provide a whole-of-government benefit without further conditions. These services include agency property portfolio reviews, whole-of-town studies, property policy implementation and Property Register administration. In 2019-20, PNSW also receives grant income on rent loss and cleaning stimulus due to Covid-19.

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PROPERTY NSW

Section B: Financial Performance Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(ii) PNSW's approved Capital Program is fully funded by the State Government by way of an annual capital contribution without further conditions. The Program includes major works such as refurbishment, compliance and other asset renewal works included under PNSW's Property Refurbishment Program.

(iii) PNSW received $3.2 million contribution from Department of Premier and Cabinet (DPC) in 2019-20 for payment to Multiple Sclerosis Limited (MSL) for development of its new facility at Lidcombe, NSW (Note 2(d)).

(iv) Grants and contributions without sufficiently specific performance obligations which is the case for PNSW are recognised as income when PNSW obtains control over the granted assets. PNSW normally receives grants in the form of cash.

(d) Other Revenue 2020 2019 $'000 $'000

Emerging Asset Revenue ((i) and Note 13(b)) 650 650 Bad debts recovered 1,003 - Insurance Recoveries (ii) 4,224 - 5,877 650

(i) In accordance with TPP 06-08 "Accounting for Privately Financed Projects", the Opera House Car Park is an emerging asset which PNSW has a right to receive in the financial year 2042-43 under a privately financed infrastructure arrangement. The right is being recognised as revenue and added to the asset value over the term of the car park concession. Any periodic revaluations are accounted for in accordance with AASB 116 "Property, Plant and Equipment".

(ii) Recoveries of insurance claims for hail storm damaged properties from insurer.

4. GAINS AND LOSSES

(a) Gain/(Loss) on Disposal of Non-Current Assets 2020 2019 $'000 $'000

Net Proceeds from Disposal of Non-Current Assets Held for Sale 13,586 49,620 Written Down Value (Note 8(b) & 9(a)) (13,457) (40,736) Net Gain/(Loss) on Disposal 129 8,884

(b) Other Gains/(Losses)

2020 2019 $'000 $'000

Impairment Loss on Work in Progress - Project Costs Recoverable (419) (497) Impairment Loss on Intangible Assets (Note 12(b)) - (1,455) Impairment Loss on Work in Progress - Property, Plant and Equipment (Note 9(a)) - (653)

Loss from Derecognition of Right-of-Use Assets for Finance Sub-Leases (i) (56,823) - Impairment Loss on Right-of-Use Assets (Note 10(a)) (40,984) - Impairment Loss on Remeasurement of Finance Lease Liability (Note 10(a)) (63,460) Impairment Loss on Asset Write-Offs (Note 9(a)) (96) - Other Gains/(Losses) (161,782) (2,605)

(i) For the sub-lease of PNSW's leased property which is classified as finance lease under AASB 16, PNSW derecognised the Right-of-Use Asset of PNSW's leased property and recognised Finance Lease Receivable. When the recognised Finance Lease Receivable value is lower than the derecognised Right-of-Use Asset value, due to lower rent or shorter lease term, the difference is recognised as impairment loss in the Statement of Comprehensive Income.

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PROPERTY NSW

Section B: Financial Performance Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

5. BUDGET REVIEW

The budgeted amounts are drawn from the original budgeted financial statements presented to Parliament in respect of the reporting period. Subsequent amendments to the original budget (e.g. adjustment for transfer of functions between entities as a result of administrative arrangements orders) are not reflected in the budgeted amounts. Major variances between the original budgeted amounts and the actual amounts disclosed in the primary financial statements are explained below.

(a) Net Result

The Net Result of a deficit of $165.7 million was $62.2 million lower than budgeted deficit, primarily due to:

• an unbudgeted $161.8 million in Other Losses arising primarily from the $161.3 million impairment loss recognised on Right-of-Use Assets due to change in subsequent measurement of existing Finance Lease Asset from fair value to cost, the derecognition of Right-of-Use Assets for Finance Lease Receivable and the COVID-19 crisis. This has been partly offset by higher revenue and lower expenses in actuals compared to budgets.

(b) Assets and Liabilities

Total Assets of $5.9 billion were $1.6 billion higher than budget, primarily due to:

• a $11.9 million increase in Cash and Cash Equivalents; • a $1.7 billion increase in Finance Lease Receivables mainly resulting from longer than expected lease term caused by inclusion of extension/renewal options and unbudgeted new leases. Note that Finance Lease Receivable is included in Other' in the budget whilst it is reported as part of 'Receivables' in the actuals; • a significant increase in Right-of-Use Assets due to longer than expected lease term caused by inclusion of extension/renewal options.

Total Liabilities of $4.7 billion were $1.6 billion higher than budget, primarily due to:

• $1.6 billion increase in Borrowings (Finance Lease Liabilities) mainly resulting from longer than expected lease term caused by inclusion of extension/renewal options and unbudgeted new leases.

Closing Cash and Cash Equivalents of $57.2 million was $11.9 million greater than budget, primarily due to timing of cash receipts compared to budget.

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

6. CURRENT ASSETS - CASH AND CASH EQUIVALENTS

(a) Cash and Cash Equivalents 2020 2019 $'000 $'000 Current Cash at Bank and On Hand (i) Operating Funds 43,647 42,264 Restricted Cash: Land Remediation Funds (ii) 7,640 7,588 Agency Property Transaction Monies (iii) 5,863 16,001 Total Cash and Cash Equivalents 57,150 65,853

(i) Cash comprises cash on hand and bank balances within the NSW Treasury Banking System. Interest is earned on cash rate, adjusted for a management fee to NSW Treasury. All other bank accounts are non-interest bearing within the NSW Treasury Banking System.

For the purposes of the Statement of Cash Flows, cash includes cash at bank and restricted cash.

All of PNSW's cash deposits are held within NSW Treasury Banking System bank accounts. All deposits held within the NSW Treasury Banking System are guaranteed by the State.

(ii) A total of $7.6 million ($7.6 million at 30 June 2019) is set aside and can only be used for remediation on Newcastle lands acquired by the Crown from BHP Billiton in 2002.

(iii) A total of $5.9 million ($16.0 million at 30 June 2019) was held "on trust" on behalf of other government agencies and can only be used for property acquisition and divestment transactions in progress, negotiations for which were being undertaken by PNSW under formal agreement with those agencies (Note 14(a)).

Interest Rate Risk

The effect on the Net Result and Equity due to a reasonably possible change in risk variable is outlined in the information below, for interest rate risk and other price risk. A reasonably possible change in risk variable has been determined after taking into account the economic environment in which PNSW operates and the time frame for the assessment (i.e. until the end of the next annual reporting period). The sensitivity analysis is based on risk exposures in existence at 30 June 2020. The analysis is performed on the same basis as for 2019. The analysis assumes that all other variables remain constant.

Exposure to interest rate risk arises primarily through PNSW’s Cash and Cash Equivalents. PNSW does not account for any fixed rate financial instruments at fair value through profit or loss or as available for sale. Therefore, for these financial instruments a change in interest rates would not affect profit or loss or equity. A reasonably possible change of +/-1% is used, consistent with current trends in interest rates (based on official RBA interest rate volatility over the last five years). The basis will be reviewed annually and amended where there is a structural change in the level of interest rate volatility. PNSW’s exposure to interest rate risk is set out below.

Interest Rate Risk - 2020 Carrying -1% +1% Amount Profit Equity Profit Equity $'000 $'000 $'000 $'000 $'000 Financial Assets Cash and Cash Equivalents 7,640 (76) (76) 76 76

Interest Rate Risk - 2019 Carrying -1% +1% Amount Profit Equity Profit Equity $'000 $'000 $'000 $'000 $'000 Financial Assets Cash and Cash Equivalents 7,588 (76) (76) 76 76

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(b) Reconciliation of Net Cash Flows from Operating Activities to Net Result 2020 2019 $'000 $'000

Net Cash Flow From Operating Activities 12,114 (10,211) Non-Cash Revenue/(Expenses): Emerging Asset Increment/(Decrement) (Note 3(d)) 650 650 Depreciation and Amortisation (Note 2(c)) (49,496) (19,486) Gain/(Loss) on Disposal of Non-Current Assets (Note 4(a)) 129 8,884 Other Gains/(Losses) (Note 4(b)) (161,782) (2,605) Changes in Operating Assets and Liabilities: Increase/(Decrease) in Receivables 9,718 (6,291) Decrease/(Increase) in Payables 15,029 28,695 Decrease/(Increase) in Provisions 7,892 9,014 Decrease/(Increase) in Other Liabilities - (3,962) Net Result (165,746) 4,688

The following transactions did not involve the use of cash or cash equivalents and are therefore not included in the Statement of Cash Flows.

Non-Cash Investing Activities 2020 2019 $'000 $'000

Properties transferred from other Government Agencies (Note 9(a)) 23,300 15,231 Properties transferred to other Government Agency (Note 9(a)) (381) (125,439) Total Non-cash Investing Activities 22,919 (110,208)

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

7. RECEIVABLES

(a) Receivables - Current and Non-Current Dissection 2020 2019 $'000 $'000 Current Trade Receivables: Property Rental 21,288 4,312 Fees for Services Rendered 26,686 25,558 Less: Allowance for expected credit losses (b) (1,808) (1,364) Subtotal - Trade Receivables 46,166 28,506 Other Receivables: Work in Progress - Net Project Costs Recoverable 8,460 7,401 Goods and Services Tax Recoverable - 116 Finance Lease Receivables (Note 10(b)) 342,230 4,035 Lessee Lease Incentives (c) 518 8,070 Makegood Costs Recoverable (d) 29,336 46,299 Accrued Rental Income 11,300 3,148 Accrued Fees for Services Rendered 2,454 2,596 Receivables from PAG Entities 1,273 19,155 Prepayments 1,960 2,038 Other 699 79 Subtotal - Other Receivables 398,230 92,937 Total Current Receivables 444,396 121,443

Non-Current Other Receivables: Finance Lease Receivables (Note 10(b)) 3,628,115 64,956 Lessee Lease Incentives (c) 2,629 48,424 Makegood Costs Recoverable (d) 186,624 150,911 Receivable from Lessees - Fixed Rent Increment 742 11,307 Total Non-Current Receivables 3,818,110 275,598

(b) Allowance for expected credit losses 2020 2019 $'000 $'000

Balance at 1 July 1,364 2,295 Increase/(decrease) in allowance recognised in net results 444 (931) Closing Balance 1,808 1,364

2020 2019 $'000 $'000 Movement: Carrying Amount at 1 July (i) 56,494 42,184 Add Lease Incentives Provided - 24,845 Less Current Year Amortisation (Note 3(a)) (636) (10,535) Less Derecognition on Application of AASB 16 (52,711) - Carrying Amount at 30 June 3,147 56,494

Current Asset 518 8,070 Non-Current Asset 2,629 48,424 Carrying Amount at 30 June 3,147 56,494

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(i) Lessee lease incentives provided relate to incentives given to PNSW under head lease agreements which PNSW has passed on to government agency tenants under sub-lease arrangements. Lessee lease incentives are amortised over the term of each lease and are recognised as a reduction to Property Rental Income under Sale of Goods and Services in the Statement of Comprehensive Income (Note 3(a)). On the initial implementation of AASB 16 at 1 July 2019, lessee lease incentive balance relating to finance leases was derecognised against lessor lease incentive for finance lease sub-leases.

(d) Makegood Costs Recoverable 2020 2019 $'000 $'000 Movement: Carrying Amount at 1 July 197,210 181,324 Increase in Recoverable from Unwinding of Discount Rate (Note 16(c)) 2,173 3,626 Increase/(Decrease) in Recoverable from Revised Estimate of Liability 19,916 18,407 Decrease in Recoverable from Payments (Note 16(c)) (3,339) (6,147) Carrying Amount at 30 June 215,960 197,210

Current Asset Makegood Costs Recoverable 29,336 46,299 Total Current Asset at 30 June 29,336 46,299

Non-Current Asset Makegood Costs Recoverable 186,624 150,911 Total Non-Current Asset at 30 June 186,624 150,911 Carrying Amount at 30 June 215,960 197,210

(e) Recognition and Measurement - Receivables

All 'regular way' purchases or sales of financial asset are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Receivables are initially recognised at fair value plus any directly attributable transaction costs. Trade receivables that do not contain a significant financing component are measured at the transaction price.

(i) Subsequent measurement

PNSW holds receivables with the objective to collect the contractual cash flows and therefore measures them at amortised cost using the effective interest method, less any impairment. Changes are recognised in the net result for the year when impaired, derecognised or through the amortisation process.

(ii) Impairment

PNSW recognises an allowance for expected credit losses (ECLs) for all debt financial assets not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows and the cash flows that PNSW expects to receive, discounted at the original effective interest rate.

For trade receivables, PNSW applies a simplified approach in calculating ECLs. PNSW recognises a loss allowance based on lifetime ECLs at each reporting date. PNSW has established a provision matrix based on its historical credit loss experience for trade receivables, adjusted for forward-looking factors specific to the receivable. Due to Covid-19, PNSW places more emphasis on the forward-looking factors when assessing the expected credit loss of its debtors as at 30 June 2020. Each individual debtor is reviewed for the recoverability of debts.

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

8. NON-CURRENT ASSETS HELD FOR SALE

(a) Non-Current Assets Held for Sale 2020 2019 $'000 $'000 Current Land - 8,339 Total Non-Current Assets Held for Sale - 8,339

(b) Reconciliation of Opening and Closing Carrying Amounts 2020 2019 $'000 $'000 Non-Current Assets Held for Sale Carrying Amount at 1 July 8,339 36,877 Reclassification from Property, Plant and Equipment - Land (Note 9(a)) - 8,339 Transfer to local Government (Note 2(d)) - (998) Disposals (Note 4(a)) (8,339) (35,879) Carrying Amount at 30 June - 8,339

PNSW has certain non-current assets classified as held for sale, where their carrying amount will be recovered principally through a sale transaction, not through continuing use. Non-Current Assets Held for Sale are recognised at the lower of carrying amount and fair value less costs to sell. These assets are not depreciated while they are classified as held for sale.

9. NON-CURRENT ASSETS - PROPERTY, PLANT AND EQUIPMENT

(a) Total Property, Plant and Equipment 2020 2019 $'000 $'000 Non-Current Land At Fair Value 395,346 371,020 Carrying Amount at 30 June 395,346 371,020

Buildings At Fair Value 237,048 231,814 Less Accumulated Depreciation (10,279) - Carrying Amount at 30 June 226,769 231,814

Plant and Equipment At Fair Value 13,235 11,572 Less Accumulated Depreciation (6,061) (5,600) Carrying Amount at 30 June 7,174 5,972

Finance Lease Assets At Fair Value - 293,970 Less Accumulated Depreciation - (786) Carrying Amount at 30 June - 293,184

Works in Progress At Fair Value 299,550 298,241 Carrying Amount at 30 June 299,550 298,241

Total Property, Plant and Equipment at 30 June 928,839 1,200,231

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

Total Property, Plant and Equipment At Cost or Fair Value 945,179 1,205,831 Accumulated Depreciation and Amortisation (16,340) (5,600) Total Property, Plant and Equipment Carrying Amount at 30 June 928,839 1,200,231

Reconciliation of Opening and Closing Carrying Amounts 2020 2019 $'000 $'000 Land Carrying Amount at 1 July 371,020 419,393 Asset Additions 257 9 Asset Disposals (Note 4(a)) (2,302) (3,353) Transfers from other Government Agencies (Note 19(ii)) 19,200 7,314 Reclassification to Non-Current Asset Held for Sale (Note 8(b)) - (8,339) Reclassification to Finance Lease Receivable (Note 10(b)) (2,400) - Transfer to other Government Agency (Note 19(ii)) (270) (104,769) Transfer to Local Government (Note 2(d)) (335) (640) Net Revaluation Reserve Increment/(Decrement) (Note 18(i)) 10,176 61,405 Carrying Amount at 30 June 395,346 371,020

Buildings Carrying Amount at 1 July 231,814 247,106 Asset additions 1,503 111 Asset disposals (Note 4(a)) (2,816) (1,469) Transfer from Works in Progress 12,615 9,856 Transfers from other Government Agencies (Note 19(ii)) 4,100 7,917 Transfer to other Government Agency (Note 19(ii)) (111) (20,670) Transfer to Local Government (Note 2(d)) (652) (246) Net Revaluation Reserve Increment/(Decrement) (Note 18(i)) (5,836) 2,966 Impairment Loss Recognised in the Net Result (Note 4(b)) (96) - Depreciation Expense - Assets Owned (Note 2(c)) (13,752) (13,757) Carrying Amount at 30 June 226,769 231,814

Plant and Equipment Carrying Amount at 1 July 5,972 6,960 Asset disposals (Note 4(a)) - (35) Asset additions 1,638 - Transfer from Works in Progress 26 86 Depreciation Expense (Note 2(c)) (462) (1,039) Carrying Amount at 30 June 7,174 5,972

Finance Lease Assets Carrying Amount at 1 July 293,184 262,600 Transfer to right-of-use asset on initial application of AASB 16 (Note 10(a)) (293,184) - Adjusted Net Carrying Amount at Beginning of Year - 262,600 Net Revaluation Reserve Increment/(Decrement) (Note 18(i)) - 33,499 Depreciation Expense (Note 2(c)) - (2,915) Carrying Amount at 30 June - 293,184

Works in Progress Carrying Amount at 1 July 298,241 181,631 Additions 13,950 127,205 Transfer to Plant and Equipment (26) (86) Transfer to Buildings (12,615) (9,856) Impairment Loss (Note 4(b)) - (653) Carrying Amount at 30 June 299,550 298,241

Total Property, Plant and Equipment Carrying Amount at 30 June 928,839 1,200,231

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(b) Property, Plant and Equipment Held and Used by the Entity 2020 $'000 Plant and Equipment At Fair Value 13,235 Less Accumulated Depreciation (6,061) Carrying Amount at 30 June 7,174

Total Property, Plant and Equipment At Cost or Fair Value 13,235 Accumulated Depreciation and Amortisation (6,061) Total Property, Plant and Equipment Carrying Amount at 30 June 7,174

Reconciliation of Opening and Closing Carrying Amounts 2020 $'000 Plant and Equipment Carrying Amount at 1 July 5,972 Additions 1,638 Transfer from Works in Progress 26 Depreciation Expense (462) Carrying Amount at 30 June 7,174

Total Property, Plant and Equipment Carrying Amount at 30 June 7,174

Land At Fair Value 395,346 Carrying Amount at 30 June 395,346

Buildings At Fair Value 237,048 Less Accumulated Depreciation (10,279) Carrying Amount at 30 June 226,769

Works in Progress At Fair Value 299,550 Carrying Amount at 30 June 299,550

Finance Lease Assets At Fair Value - Less Accumulated Depreciation - Carrying Amount at 30 June -

Total Property, Plant and Equipment At Cost or Fair Value 931,944 Accumulated Depreciation and Amortisation (10,279) Total Property, Plant and Equipment Carrying Amount at 30 June 921,665

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

Reconciliation of Opening and Closing Carrying Amounts 2020 $'000 Land Carrying Amount at 1 July 371,020 Asset Additions 257 Asset Disposals (Note 4(a)) (2,302) Transfers from other Government Agencies (Note 19(ii)) 19,200 Reclassification to Non-Current Asset Held for Sale (Note 8(b)) - Reclassification to Finance Lease Receivable (Note 10(b)) (2,400) Transfer to other Government Agency (Note 19(ii)) (270) Transfer to Local Government (Note 2(d)) (335) Net Revaluation Reserve Increment/(Decrement) (Note 18(i)) 10,176 Carrying Amount at 30 June 395,346

Buildings Carrying Amount at 1 July 231,814 Asset additions 1,503 Asset disposals (Note 4(a)) (2,816) Transfer from Works in Progress 12,615 Transfers from other Government Agencies (Note 19(ii)) 4,100 Transfer to other Government Agency (Note 19(ii)) (111) Transfer to Local Government (Note 2(d)) (652) Net Revaluation Reserve Increment/(Decrement) (Note 18(i)) (5,836) Impairment Loss Recognised in the Net Result (Note 4(b)) (96) Depreciation Expense - Assets Owned (Note 2(c)) (13,752) Carrying Amount at 30 June 226,769

Finance Lease Assets Carrying Amount at 1 July 293,184 Transfer to right-of-use asset on initial application of AASB 16 (293,184) Carrying Amount at 30 June -

Works in Progress Carrying Amount at 1 July 298,241 Additions 13,950 Transfer to Plant and Equipment (26) Transfer to Buildings (12,615) Carrying Amount at 30 June 299,550

Total Property, Plant and Equipment Carrying Amount at 30 June 921,665

(d) Recognition and Measurement - Property, Plant and Equipment

(i) Acquisitions of Assets

Acquisition of assets is recognised when the risks and rewards of the asset have passed to the buyer. On property assets, this usually coincides with when the legal title passes to the buyer, which is upon settlement of a contract.

The cost method of accounting is used for the initial recording of all acquisitions of assets controlled by PNSW. Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire the asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the requirements of other Australian Accounting Standards.

Assets acquired at no cost, or for nominal consideration, are initially recognised at their fair value at the date of acquisition.

Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.

Where payment for an asset is deferred beyond normal credit terms, its cost is the cash price equivalent; i.e. deferred payment amount is effectively discounted over the period of credit.

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(ii) Capitalisation Thresholds

Plant and equipment, and intangible assets costing $5,000 and above individually (or forming part of a network costing more than $5,000) are capitalised.

Property expenditure that gives rise to an effective and material increase in the future economic benefits of the property to PNSW is capitalised. The general threshold for property expenditure capitalisation is $30,000.

Expenditure capitalised as at 30 June 2020 and recorded under Works In Progress relates to acquisition of land and construction of new office accommodation, refurbishment works in various office buildings and PNSW corporate capital projects totalling $299.6 million (2019: $298.2m).

(iii) Revaluation of Property, Plant and Equipment

Physical non-current assets are valued in accordance with Treasury Policy and Guidelines Paper TPP 14-01 "Valuation of Physical Non-Current Assets at Fair Value". This policy adopts fair value in accordance with AASB 13 "Fair Value Measurement", AASB 116 "Property, Plant and Equipment" and AASB 140 "Investment Property".

Property, Plant and Equipment is measured at the highest and best use by market participants that is physically possible, legally permissible and financially feasible. The highest and best use must be available at a period that is not remote and take into account the characteristics of the asset being measured, including any socio-political restrictions imposed by government. In most cases, after taking into account these considerations, the highest and best use is the existing use. In limited circumstances, the highest and best use may be a feasible alternative use, where there are no restrictions on use or where there is a feasible higher restricted alternative use.

Fair value of Property, Plant and Equipment is based on a market participants’ perspective, using valuation techniques (market approach, cost approach, income approach) that maximise relevant observable inputs and minimise unobservable inputs. PNSW revalue each class of property, plant and equipment on an annual basis to ensure that the carrying amount of each asset in the class does not differ materially from its fair value at reporting date.

Non-specialised assets with short useful lives are measured at depreciated historical cost, as an approximation of fair value. PNSW has assessed that any difference between fair value and depreciated historical cost is unlikely to be material.

When revaluing assets, any balances of accumulated depreciation at the revaluation date in respect of those assets are credited to the asset accounts to which they relate. The net asset accounts are then increased or decreased by the revaluation increments or decrements, respectively.

All properties within the asset classes of Land and Buildings (classified under Property Plant and Equipment) were independently valued as at 31 March 2020 and updated at 30 June 2020. PNSW conducts a comprehensive revaluation on three-year cyclical basis where most of the assets were comprehensively revalued at 31 March 2018. Qualified valuers, Cushman and Wakefield and Preston Rowe Paterson were engaged to provide PNSW with independent property valuation reports. Each firm provided valuations on a sub-set of properties assigned to them. The valuations took into consideration changes to market and economic conditions that have occurred since 30 June 2019 as well as the previous valuation reports.

Revaluation increments are credited directly to revaluation reserve, except that, to the extent that an increment reverses a revaluation decrement in respect of that class of asset previously recognised as an expense in the net result, the increment is recognised immediately as revenue in the net result.

Revaluation decrements are recognised immediately as expenses in the net result, except that, to the extent that a credit balance exists in the revaluation reserve in respect of the same class of assets, they are debited directly to the revaluation reserve.

As a not-for-profit entity, revaluation increments and decrements respectively are offset against one another within a class of non-current assets, but not otherwise.

Where an asset that has previously been revalued is disposed of, any balance remaining in the revaluation reserve in respect of that asset is transferred to accumulated funds.

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(iv) Finance Lease Assets (under AASB 117 prior to 1 July 2019)

Until 30 June 2019, AASB 117 Leases (AASB 117) distinguished between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of the leased assets, and operating leases under which the lessor effectively retains all such risks and benefits. Leases in which a significant portion of the risks and rewards of ownership are not transferred to PNSW as lessee are classified as operating leases. Payments made under operating leases are charged to the Statement of Comprehensive income on a straight-line basis over the period of the lease.

Property, Plant and Equipment acquired under finance leases are recognised, at the commencement of the lease, at an amount equal to the fair value of the leased property, or if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the Statement of Financial Position as Finance Lease Liabilities under Borrowings (Note 15). Lease payments are allocated between the principal component of the lease liability and the finance cost (interest expense). The finance cost is charged to expenses over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

After recognition as an asset, an item of property, plant and equipment acquired under finance lease is measured at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

(v) Impairment of Property, Plant and Equipment

As a not-for-profit entity with no cash generating units, impairment under AASB 136 "Impairment of Assets" is unlikely to arise. As property, plant and equipment is carried at fair value, impairment can only arise in rare circumstances where the costs of disposal are material. Specifically, impairment is unlikely for not-for-profit entities given that AASB 136 modifies the recoverable amount test for non-cash generating assets of not-for-profit entities to the higher of fair value less costs of disposal and depreciated replacement cost, where depreciated replacement cost is also fair value.

PNSW assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, PNSW estimates the asset’s recoverable amount. When the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

As a not-for-profit entity, an impairment loss is recognised in the net result to the extent the impairment loss exceeds the amount in the revaluation surplus for the class of asset.

(vi) Restoration Costs

The present value of the expected cost for the restoration or cost of dismantling of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.

(vii) Major Inspection Costs

When each major inspection is performed, the labour cost of performing inspections for faults is recognised in the carrying amount of an asset as a replacement of a part, if the recognition criteria are satisfied.

(viii) Maintenance

Day-to-day servicing costs or maintenance are charged as expenses as incurred, except where they relate to the replacement of a part or component of an asset, in which case the costs are capitalised and depreciated.

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

10. LEASES

(a) Entity as a Lessee

As a central agency for better utilisation of real property assets, PNSW leases various real properties and sub-lease them to other NSW government agencies. Lease contracts are typically made for fixed initial periods of 3 to 15 years, but may have extension (renewal) options. Lease terms are negotiated on an individual basis and may contain different terms and conditions. The lease agreements do not impose any covenants. PNSW does not provide residual value guarantees in relation to leases.

Extension options are included in a number of property leases. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension options held is exercisable only by PNSW and not by the respective lessor. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option. Extension options are only included in the lease term if the lease is reasonably certain to be extended. Potential future cash outflows of $799.7 million have not been included in the lease liability because it is not reasonably certain that the leases will be extended. The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of PNSW. During the current financial year, the financial effect of revising lease terms to reflect the effect of exercising extension and termination options was an increase in recognised lease liabilities and right-of-use assets of $0.

PNSW has elected to recognise payments for short-term leases, leases on holdover, and low value leases as operating expenses on a straight-line basis, instead of recognising a right-of-use asset and lease liability. Short-term leases are leases with a lease term of 12 months or less. Low value assets are assets with a fair value of $10,000 or less when new and comprise mainly office equipments.

Right-of-Use Assets Under Leases

The following table presents right-of use assets.

Land and Buildings 2020 $'000

Carrying amount at 1 July 2019 - Initial recognition on application of AASB 16 at 1 July 2019 35,075 Transfer from Finance Lease Assets at 1 July 2019 (Note 9(a)) 293,184 Additions 373,570 Depreciation expense (Note 2(c)) (35,282) Remeasurement of Finance Lease Assets at 1 July 63,460 Impairment Loss (Note 4(b)) (40,984) Impairment Loss on Remeasurement of Finance Lease Liability (Note 4(b)) (63,460) Balance at 30 June 2020 625,563

Impairment Losses for Right-of-Use Assets

The COVID-19 outbreak occurring throughout the 2019-20 financial year had an unprecedented effect on the NSW and global economies. COVID-19 significantly impacted the market rent for generic office accommodation and therefore the value of some lease right-of-use assets in the Statement of Financial Position.

The entity has therefore undertaken an impairment assessment for the above right-of-use assets, to determine whether the carrying amount exceeded their recoverable amount. Impacted right-of-use assets were written down to their recoverable amounts by reference to the right-of-use assets' fair value less costs of disposal and an impairment loss is recognised.

The entity recognised impairment losses for right-of-use assets during the 2019-20 financial year of $104.4 million. Impairment losses for right-of-use assets are included in Other Net Gains/(Losses) as part of ‘Other Economic Flows Included in the Operating Result’ in the Statement of Comprehensive Income.

The right-of-use assets for which an impairment loss has been recognised during the financial year are as follows:

Land and Buildings were impaired due to the significant decline in market rent. It has been written down to its recoverable amount of $625.6 million, which is determined by reference to its fair value less costs of disposal. The impairment loss recognised during the financial year is $104.4 million. The valuation technique used in the fair value measurement is classified as level 3 according to AASB 13 fair value hierarchy.

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

The recoverable amounts determined with reference to right-of-use assets’ fair value less costs of disposal were computed using the valuation techniques detailed in the following table.

Asset Description Valuation Technique Key Assumptions Fair Value Hierarchy

Generic office Current Replacement Cost -Right-of-Use Asset is stated Level 3 accommodation (CRC) approach – assets at fair value at the time of

are valued based on the net initial recognition or lease

replacement cost of a new commencement date;

equivalent asset with the -Cost of disposal is

same geographical market immaterial;

and remaining lease term. -The rent profile (fixed The net replacement costs percentage, market rent were calculated based on review, CPI or combination) at the market rent forecast the lease commencement from JLL Real Estate date represents market rent Intelligence Services (REIS) forecast; or Property NSW’s historical -Regional market rent is linked rent data for Regional with CPI. market at the valuation date where the market rent forecast at 30 June 2019 was the base year.

The recoverable amounts of the right-of-use assets for which an impairment loss has been recognised during the financial year, and the level of fair value hierarchy for the right-of-use assets for which the recoverable amounts are determined with reference to their fair value less costs of disposal are:

Recoverable amount

Land and Buildings 2020 $'000 Fair value less costs of disposal: Level 1 - Level 2 - Level 3 625,563 Total 625,563

The recoverable amounts determined with reference to right-of-use assets’ fair value less costs of disposal were computed using the valuation techniques detailed in the following table.

Asset Description Valuation Technique Key Assumptions Fair Value Hierarchy

Land and Buildings Current Replacement Cost -Right-of-Use Asset is stated Level 3 (CRC) approach – assets at fair value at the time of are valued based on the net initial recognition or lease replacement cost of a new commencement date; equivalent asset with the -Cost of disposal is same geographical market immaterial; and remaining lease term. -The rent profile (fixed The net replacement costs percentage, market rent were calculated based on review, CPI or combination) at the market rent forecast the lease commencement from JLL Real Estate date represents market rent Intelligence Services (REIS) forecast; or Property NSW’s historical -Regional market rent is linked rent data for Regional with CPI. market at the valuation date where the market rent forecast at 30 June 2019 was the base year.

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

The discount rate ranges employed in present value technique computations of recoverable amounts is summarised in the below table.

Recoverable Amount Current Measurement Previous Measurement Discount Rates Discount Rates

Fair Value Less Cost of Internal Borrowing Rates at Internal Borrowing Rates at the Disposal – Discounted the valuation date. Transition to AASB 16 (i.e. 1 Cash Flow Technique July 2019) or at the lease commencement date if the lease commenced after 1 July 2019.

Lease Liabilities

The following table presents liabilities under leases. 2020 $'000

Carrying amount at 1 July 2019 34,398 Initial recognition on application of AASB 16 at 1 July 2019 2,792,485 Remeasurement of existing lease liability on application of AASB 16 (Note 9(a)) 63,460 Additions 1,879,037 Interest expenses (Note 2(e)) 84,453 Payments (416,442) Other adjustments 9,251 Balance at 30 June 2020 4,446,642

The following amounts were recognised in the statement of comprehensive income for the financial year ending 30 June 2020 in respect of leases where the entity is the lessee: 2020 $'000

Depreciation expense of right-of-use assets (Note 2(c)) 35,282 Interest expense on lease liabilities (Note 2(e)) 84,454 Expense relating to short-term leases 82,281 Expenses relating to leases of low-value assets 30 Income from subleasing right-of-use assets (210,489) Losses/(Gains) arising from recognition of finance subleasing of right-of-use assets 56,823 Impairment Loss on Right-of-Use Assets (Note 10(a)) 40,984 Total amount recognised in the statement of comprehensive income 89,365

The entity had total cash outflows for leases of $499.0 million in 2019-20.

Future minimum lease payments under non-cancellable leases as at 30 June 2019 are, as follows:

Operating Finance lease lease

2019 2019 $'000 $'000

Within one year 388,311 4 ,808 Later than one year and not later than five years 857,349 19 ,234 Later than five years 381,931 411 ,926 Total (including GST) 1,627,591 435 ,968 Less: GST recoverable from the Australian Tax Office (147,900) - Total (excluding GST) 1,479,691 435 ,968

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

The reconciliation between the total future minimum lease payments for finance leases and their present value as at 30 June 2019 are, as follows: 2,019 $'000

Total minimum finance lease payments 435,968 Less: future finance charges (401,569) Present value of minimum lease payments 34,399

Recognition and measurement (under AASB 16 from 1 July 2019)

PNSW assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. PNSW recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets, except for short-term leases (including holdover leases) and leases of low-value assets.

(i) Right-of-Use Assets

PNSW recognises right-of-use assets at the commencement date of the lease. Right-of-use assets are initially measured at the amount of initial measurement of the lease liability (refer Note 10(a)(ii) below), adjusted by any lease payments made at or before the commencement date, lease incentives and any initial direct costs incurred.

The right-of-use assets are subsequently measured at cost. They are depreciated on a straight-line basis over the lease term. The right-of-use assets are also subject to impairment. The entity assesses, at each reporting date, whether there is an indication that an asset may be impaired. In any indication exists, or when annual impairment testing for an asset is required, the entity estimates the asset’s recoverable amount. When the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. After an impairment loss has been recognised, it is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the net result.

(ii) Lease Liabilities

At the commencement date of the lease, PNSW recognises lease liabilities measured at the present value of lease payments to be made over the lease term. Lease payments include:

• fixed payments (including in substance fixed payments) less any lease incentives receivable; and • variable lease payments that depend on an index or a rate.

Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for the entity’s leases, the lessee’s incremental borrowing rate is used, being the rate that the entity would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

PNSW’s lease liabilities are included in borrowings (Note 15).

(iii) Short-term Leases and Leases of Low-value Assets

The entity applies the short-term lease recognition exemption to its short-term leases of properties (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain an extension option) and leases on holdover. It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low value assets are recognised as operating expense on a straight-line basis over the lease term.

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

Recognition and measurement (under AASB 117 until 30 June 2019)

The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset (or assets), even if that asset (or those assets) is not explicitly specified in an arrangement.

Until 30 June 2019, a lease was classified at the inception date as a finance lease or an operating lease. A lease that transferred substantially all the risks and rewards incidental to ownership to the entity was classified as a finance lease.

Where a non-current asset was acquired by means of a finance lease, at the commencement of the lease, the asset was recognised at its fair value or, if lower, at the present value of the minimum lease payments. The corresponding liability was established at the same amount. Lease payments were apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges were recognised in finance costs in the statement of comprehensive income.

Properties acquired under finance leases was depreciated over the shorter of the estimated useful life of the asset and lease term.

An operating lease is a lease other than a finance lease. Operating lease payments were recognised as an operating expense in the statement of comprehensive income on a straight-line basis over the lease term.

(b) Entity as a Lessor

PNSW lease real properties from private sector and sub-lease them to other NSW government agencies. It also leases its owned properties to other agencies. The leases are under finance leases or operating leases with rentals payable monthly or quarterly. Lease payments for most contracts include annual fixed rental increase, CPI increase and/or market rental review.

Lessor for finance leases

The following table presents finance lease receivable in Note 7. 2020 2019 $'000 $'000

Carrying Amount at 1 July 68,991 68,051 Initial recognition on application of AASB 16 at 1 July 2019 2,757,410 - Additions 1,454,818 - Reclassification from Land (Note 9(a)) 2,400 Property Finance Lease Income (Note 3(b)) 73,476 5,531 Lease Payments Received (386,751) (4,591) Balance at 30 June 2020 3,970,344 68,991

Future minimum rentals receivable (undiscounted) under non-cancellable finance lease as at 30 June 2020 are, as follows:

2020 $'000

Within one year 374,417 One to two years 352,387 Two to three years 329,695 Three to four years 296,239 Four to five years 274,496 Later than five years 3,383,954 Total (excluding GST) 5,011,188

Reconciliation of net investment in leases 2020 $'000

Future undiscounted rentals receivable 5,011,188 Less: unearned finance income (1,040,844) Net investment in finance leases 3,970,344

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

Gross investment in leases and the present value of minimum lease payment receivables under non-cancellable finance lease as at 30 June 2019 are, as follows: PV of Minimum Gross Lease Investment Payments $'000 $'000

Within one year 4,035 4,035 One to five years 16,141 13,313 Later than five years 273,341 51,643 Total (excluding GST) 293,517 68,991

Reconciliation of gross investment in finance leases 2019 $'000

Present value of minimum lease payments 68,991 Unearned finance income 224,526 Gross investment in finance leases 293,517

Leases that the entity transfers substantially all the risks and rewards incidental to ownership of an asset are classified as finance leases. From 1 July 2019, subleases are classified by reference to the right-of-use asset arising from the head lease, rather than by reference to the underlying asset.

At the lease commencement date, the entity recognises a receivable for assets held under a finance lease in its statement of financial position at an amount equal to the net investment in the lease. The net investment in leases is classified as financial assets amortised cost and equals the lease payments receivable by a lessor and the unguaranteed residual value, plus initial direct costs, discounted using the interest rate implicit in the lease.

Finance income arising from finance leases is recognised over the lease term, based on a pattern reflecting a constant periodic rate of return on the lessor’s net investment in the lease.

Lessor for operating lease

Future minimum rentals receivable (undiscounted) under non-cancellable operating lease as at 30 June are, as follows:

2020 2019 $'000 $'000

Within one year 96,005 24,954 Later than one year and not later than five years - 12,367 One to two years 92,639 Two to three years 88,323 - Three to four years 86,689 - Four to five years 79,004 - Later than five years 1,020,119 256 Total (excluding GST) 1,462,779 37,577

Recognition and measurement - lessor for operating leases

An operating lease is a lease other than a finance lease. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of comprehensive income due to its operating nature. Contingent rents are recognised as revenue in the period in which they are earned.

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

11. FAIR VALUE MEASUREMENT OF NON-FINANCIAL ASSETS

The following table shows the levels within the hierarchy of non-financial assets measured at fair value on a recurring basis (Refer to Notes 1(f), 9 and 13):

(a) Fair Value Hierarchy

2020 Level 1 Level 2 Level 3 Total Fair Value $'000 $'000 $'000 $'000 Property, Plant and Equipment (Note 9) Land - 395,346 - 395,346 Buildings - 226,769 - 226,769 Other Asset (Note 13) Emerging Asset - - 11,763 - 11,763 - 633,878 633,878 Level 1 Level 2 Level 3 Total Fair 2019 Value $'000 $'000 $'000 $'000

Property, Plant and Equipment (Note 9) Land - 371,020 - 371,020 Buildings - 231,814 - 231,814 Finance Lease Assets - 293,184 - 293,184 Other Asset (Note 13) Emerging Asset - 11,763 - 11,763 - 907,781 - 907,781

There were no transfers between Level 1 or 2 during 2019-20 (Nil in 2018-19). The 'Total Fair Value' above includes assets measured at fair value and will not reconcile to the total Property, Plant and Equipment recognised in the Statement of Financial Position as this includes assets which are measured at depreciated historical cost, as an approximation of fair value. These non-specialised assets do not require fair value hierarchy disclosures under AASB 13 "Fair Value Measurement".

(b) Valuation Techniques, Input and Processes

PNSW's Property, Plant and Equipment are traded in active markets. The fair value of these assets are estimated using valuation techniques that maximise the use of observable market inputs, for example market sale, market rent and interest rates. If all significant inputs required to fair value an asset are observable, the asset is included in Level 2. If one or more of the significant inputs are not based on observable market data, the asset is included in Level 3. The valuation process is managed by PNSW's Property Management Group (PMG) who engages external independent valuers to perform the valuations of property assets required for financial reporting purposes. The valuation reports are subsequently reviewed by relevant PMG Asset Managers prior to being endorsed by senior management.

The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the previous reporting period.

12. INTANGIBLE ASSETS

(a) Intangible Assets - Dissection 2020 2019 $'000 $'000 Non-Current Intangible Assets - Computer Software Gross Carrying Amount - 8,867 Less Accumulated Amortisation - (8,867) Total Intangible Assets - Computer Software at 30 June - -

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PROPERTY NSW

Section C: Assets Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(b) Reconciliation of Opening and Closing Carrying Amounts 2020 2019 $'000 $'000 Intangible Assets - Computer Software Carrying Amount at 1 July - 3,230 Impairment Loss (Note 4(b)) - (1,455) Amortisation Expense (Note 2(c)) - (1,775) Carrying Amount at 30 June - -

PNSW recognises intangible assets only if it is probable that future economic benefits will flow to PNSW and the cost of the asset can be measured reliably. Intangible assets are measured initially at cost. Where an asset is acquired at no or nominal cost, the cost is its fair value as at the date of acquisition. All research costs are expensed. Development costs are only capitalised when certain criteria are met.

Intangible assets are subsequently measured at fair value only if there is an active market. As there is no active market for PNSW’s intangible assets, the assets are carried at cost less any accumulated amortisation.

Intangible assets are tested for impairment where an indicator of impairment exists. If the recoverable amount is less than its carrying amount, the carrying amount is reduced to recoverable amount and the reduction is recognised as an impairment loss.

13. OTHER ASSETS

(a) Other Assets 2020 2019 $'000 $'000 Non-Current Emerging Asset At Fair Value 11,763 11,763 Total Other Assets at 30 June 11,763 11,763

(b) Reconciliation of Opening and Closing Carrying Amounts 2020 2019 $'000 $'000 Other Assets - Emerging Asset Carrying Amount at 1 July 11,763 10,300 Net Revaluation Reserve Increment/(Decrement) (Note 18(i)) (650) 813 Emerging Asset Increment (Note 3(d)) 650 650 Total Carrying Amount at 30 June 11,763 11,763

An emerging asset in relation to the Sydney Opera House Car Park is recognised under Non-Current Assets - Other. The car park land, which is recognised as a Finance Lease Receivable, is leased to a private consortium on a 50-year ground lease which commenced on 13 March 1993. The lessee has constructed, at its own expense, a subterranean car park which has an assessed economic life of greater than 50 years. At the expiration of the lease term PNSW has the right to receive the car park.

The emerging value of the car park is $11.8 million at 30 June 2020 ($11.8 million at 30 June 2019). The emerging value is being allocated to revenue and Non-Current Assets - Other during the term of the lease as if it were the compound value of an annuity discounted at the NSW Government bond rate applicable at 13 March 1993, being 8.25%.

Qualified valuer, Cushman & Wakefield was engaged to provide an independent fair value valuation of the lessor's interest in the freehold property subject to the existing lease as prescribed under Treasury Accounting Policy TPP 06-8 "Accounting for Privately Financed Projects" as at 30 June 2020.

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PROPERTY NSW

Section D: Liabilities Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

14. CURRENT/NON-CURRENT LIABILITIES - PAYABLES

(a) Payables - Current and Non-Current 2020 2019 $'000 $'000 Current Sundry Creditors and Accruals 36,281 40,901 Agency Property Transaction Monies (Note 6(a)) 5,863 16,001 Payable to Personnel Services Provider (Note 1(a) and 2(a)) 1,101 7,152 Goods and Services Tax Payable 774 - Total Current Payables 44,019 64,054

Non-Current Payable to Lessor - 11,307 Total Non-Current Payables - 11,307

(b) Recognition and Measurement - Payables

Payables represent liabilities for goods and services provided to PNSW and other amounts. Payables are recognised initially at fair value, usually based on the transaction cost or face value. Subsequent measurement is at amortised cost using the effective interest method. Short-term payables with no stated interest rate are measured at the original invoice amount where the effect of discounting is immaterial.

PNSW's payables are all non-interest bearing. Payable items which are out of the scope of AASB 9 "Financial Instruments" have been excluded from the carrying amount shown in the Statement of Financial Position.

Liquidity risk is the risk that PNSW will be unable to meet its payment obligations when they fall due. PNSW continuously manages risk through monitoring future cash flows and maturities planning to ensure adequate holding of available cash. PNSW’s exposure to liquidity risk is deemed insignificant based on prior period data and current assessment of risk.

During the current and prior years, there were no defaults or breaches on any loans payable. No assets have been pledged as collateral. PNSW’s exposure to liquidity risk is deemed insignificant based on prior period data and current assessment of risk.

(d) Maturity Profile

All of PNSW's payables and accruals have a maturity of less than 12 months (2019: less than 12 months). Amounts owing to suppliers (which are unsecured) are settled in accordance with the policy set out in NSW Treasury Circular 11/12. For small business suppliers, where terms are not specified, payment is made not later than 30 days from date of receipt of a correctly rendered invoice. For other suppliers, if trade terms are not specified, payment is made no later than the end of the month following the month in which an invoice or a statement is received. For small business suppliers, where payment is not made within the specified time period, simple interest must be paid automatically unless an existing contract specifies otherwise. For payments to other suppliers, PNSW may automatically pay the supplier simple interest. The rate of interest applied by PNSW accords with the current rate applicable under section 22 of the Taxation Administration Act 1996.

A maturity profile analysis of PNSW's Finance Lease liabilities is presented at Note 10(a).

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PROPERTY NSW

Section D: Liabilities Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

15. BORROWINGS

(a) Borrowings 2020 2019 $'000 $'000

Current Finance Lease Liabilities (Note 10(a)) 339,369 - Total Current Borrowings 339,369 -

Non-Current Finance Lease Liabilities (Note 10(a)) 4,107,273 34,398 Total Non-Current Borrowings 4,107,273 34,398

(b) Recognition and Measurement - Finance Lease Liabilities

PNSW's borrowings represent finance lease liabilities. The finance lease liabilities are determined in accordance with AASB 16 from 1 July 2019 and AASB 117 prior to that date. Details are presented in Note 10(a).

16. CURRENT/NON-CURRENT LIABILITIES - PROVISIONS

(a) Provisions - Current and Non-Current 2020 2019 $'000 $'000 Current Land Remediation (b) 20,524 3,644 Makegood Restoration (c) 29,337 46,299 Total Current Provisions 49,861 49,943

Non-Current Land Remediation (b) 2,195 17,287 Makegood Restoration (c) 188,262 150,911 Total Non-Current Provisions 190,457 168,198

(b) Land Remediation 2020 2019 $'000 $'000 Movement: Carrying Amount at 1 July 20,931 29,945 Decrease in Provision from Payments (4,553) (462) Increase in Provision from Unwinding of Discount Rate (Note 2(e)) 199 615 Increase/(Decrease) in Provision from Revised Estimate of Liability Recognised in Asset Revaluation Reserve (Note 18(i)) 6,142 (9,167) Carrying Amount at 30 June 22,719 20,931

Land remediation provisions as at 30 June 2020 relate to Hunter's Hill landholdings.

In June 2009, PNSW acquired land at lots 7, 9 and 11 Nelson Parade Hunter's Hill. Each of these lots are situated on a former uranium smelter site and, as part of the land transfers, the NSW Government has given PNSW the responsibility to remediate the contaminated land. PNSW has estimated and recognised a remediation liability at the reporting date for all three lots. This estimate has been determined using quotes, contract and tender details available as at 30 June 2020. Remediation is expected to be completed in 2022.

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PROPERTY NSW

Section D: Liabilities Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(c) Makegood Restoration 2020 2019 $'000 $'000 Movement: Carrying Amount at 1 July 197,210 181,324 Increase in Provision from Unwinding of Discount Rate (Note 7(d)) 2,173 3,626 Increase/(Decrease) in Provision from Revised Estimate of Liability 21,555 18,407 Decrease in Provision from Payments (Note 7(d)) (3,339) (6,147) Carrying Amount at 30 June 217,599 197,210

The makegood restoration liability is calculated on all leased properties, where PNSW is the lessee and reflects an estimate of the cost to makegood the premises to their original condition at the end of the lease term. The makegood costs are recoverable in full from the sub-lessees except for PNSW self-occupied premises. An average discount rate of 1.10% was used at 30 June 2019 and the level of the provision is reviewed at the end of each year. Any movement in the Makegood Restoration Provision is also reflected in Makegood Costs Recoverable within Receivables (Note 7(d)) except for PNSW self-occupied premises.

(d) Recognition and Measurement - Provisions

(i) Land Remediation Provisions

Where PNSW has a legal or constructive obligation to remediate an asset such as land, a provision is recognised to reflect the net present value of the estimated future costs required to settle PNSW's remediation obligations. At the same time, where PNSW owns the underlying asset, the amount of the provision is capitalised and added to the cost of the asset.

Periodic changes in the provision are accounted for in accordance with the requirements of AASB Interpretation 1 "Changes in Existing Decommissioning, Restoration and Similar Liabilities" and the revaluation model requirements of AASB 116 "Property, Plant and Equipment" for not-for-profit entities.

The discount applied to recognise the time value of money is unwound over the life of the provision. Any incremental increase resulting from the unwinding of the discount is recognised under Finance Costs within the Net Result in the reporting period in which it occurs.

Other increases or decreases in the provision resulting from periodic changes to the estimated timing or amount of future remediation costs, or changes to the discount rate used, alter the revaluation increase or decrease previously recognised on the underlying asset. An increase in the provision is recognised in the Net Result except to the extent that it reverses any Asset Revaluation Reserve balance in respect of the underlying class of assets. A decrease in the provision is credited to the Asset Revaluation Reserve except to the extent that it reverses any previous increase recognised in the Net Result in respect the underlying class of assets. Any changes to the Asset Revaluation Reserve resulting from these provision increases or decreases are separately identified and disclosed within Other Comprehensive Income.

(ii) Other Provisions

Other provisions are recognised when PNSW has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation as at the reporting date, taking into account the risks and uncertainties that surround the events and circumstances that affect the provision. Where the effect of the time value of money is material, the provision amount is calculated as the present value of the expenditure expected to be required to settle the obligation. The discount rate used in the calculation is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The rate does not reflect risks for which future cash flow estimates have been adjusted.

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PROPERTY NSW

Section D: Liabilities Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

17. CURRENT/NON-CURRENT LIABILITIES - OTHER

(a) Other Liabilities - Current and Non-Current 2020 2019 $'000 $'000 Current Lessor Lease Incentives (b) 40 7,946 Total Current Liability at 30 June 40 7,946

Non-Current Lessor Lease Incentives (b) 142 47,442 Total Non-Current Liability at 30 June 142 47,442

(b) Lessor Lease Incentives 2020 2019 $'000 $'000 Movement: Carrying Amount at 1 July 55,388 40,954 Additional Lease Incentives - 24,845 Less Derecognition on Application of AASB 16 (55,049) - Less Current Year Amortisation (Note 2(b)) (157) (10,411) Carrying Amount at 30 June 182 55,388

Lessor lease incentives received relate to incentives given to PNSW under head lease agreements. Lessor lease incentives are amortised over the term of each lease and are recognised as a reduction to Property Head Lease Expense under Other Operating Expenses in the Statement of Comprehensive Income (Note 2(b)).

On initial implementation of AASB 16 at 1 July 2019, lessor lease incentive balance relating to finance leases was derecognised against lessee lease incentive for finance lease sub-lease and against right-of-use assets of operating lease sub-leases.

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PROPERTY NSW

Section E: Equity Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

18. EQUITY - ASSET REVALUATION RESERVE

The total asset revaluation reserve is used to record increments and decrements on the revaluation of non-current property plant and equipment and finance leases. This accords with PNSW's policy on the Revaluation of Property, Plant and Equipment (Note 9). No financial distributions are made from the Asset Revaluation Reserve.

Asset Revaluation Reserve - Movement 2020 2019 $'000 $'000

Carrying Amount at 1 July 365,425 292,817 Net Increase in Property, Plant and Equipment Revaluation Surplus (i) (2,452) 107,850 Transfer to Accumulated Funds on Derecognition of PP&E (Note 19) (243,438) (35,242) Carrying Amount at 30 June 119,535 365,425

Asset Revaluation Reserve - Asset Class 2020 2019 $'000 $'000

Land 95,938 92,828 Buildings 21,449 27,935 Finance Lease Assets - 242,514 Fine Arts & Heritage Assets 2,148 2,148 Total Asset Revaluation Reserve at 30 June 119,535 365,425

(i) Net Increase in Property, Plant and Equipment Revaluation Surplus - Dissection 2020 2019 $'000 $'000

Land (Note 9(a)) 10,176 61,405 Land Remediation (Note 16(b)) (6,142) 9,167 Buildings (Note 9(a)) (5,836) 2,966 Finance Lease Assets (Note 9(a)) - 33,499 Emerging Asset (Note 13) (650) 813 Net Increase/(Decrease) in Property, Plant and Equipment Revaluation Surplus (2,452) 107,850

19 EQUITY - ACCUMULATED FUNDS

The category "Accumulated Funds" includes all current and prior period retained funds. All financial distributions are made directly from Accumulated Funds.

Accumulated Funds - Movement 2020 2019 $'000 $'000

Carrying Amount at 1 July 934,514 1,013,443 Net Result for the Year (165,746) 4,688 Transfer from Asset Revaluation Reserve on Derecognition of PP&E (Note 18) 243,438 35,242 Financial Distributions (i) - (8,651) Net Increase/(Decrease) in Net Assets from Equity Transfers (ii) 22,919 (110,208) Carrying Amount at 30 June 1,035,125 934,514

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PROPERTY NSW

Section E: Equity Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(i) Financial Distributions 2020 2019 $'000 $'000

Normal Distributions from Surplus on Rental Operations (Paid to the NSW Government) - (5,530) Capital Repatriations from the Net Proceeds of Asset Sales (Paid to the NSW Government) - (3,121) - (8,651)

As a Government business, PNSW operates under the State Government's Commercial Policy Framework. A key component of this Framework is the requirement to make financial distributions to owners. In PNSW's case, its owner is the State Government. All payments of financial distributions are made to the Crown Finance Entity. The nature and calculation of the required annual distributions is determined by NSW Treasury Policy and Paper, TPP 14-04 "Financial Distribution Policy for Government Businesses". The distributions made by PNSW include normal distribution payments from cash operating surpluses and capital repatriations, from the sale of its own properties.

Normal distributions are payments made from current year cash surpluses. Treasury policy states that a government business should not retain any cash in excess of its requirements for working capital, in addition to a contingency allowance for an appropriate level of financial flexibility. Funds in excess of these requirements are returned to the State Government.

Capital repatriations are additional one-off payments which represent capital repayments of the State Government’s equity in PNSW. In PNSW’s case, capital repatriation payments represent the full return of the net proceeds (i.e. total proceeds less costs) of all PNSW-owned property sales.

Payments made to the Restart NSW Fund (NSW Government's dedicated infrastructure fund) from the net sale proceeds of property assets sold by PNSW is recognised as contribution expense. The payments are based on an NSW Government decision that the net sale proceeds of property assets sold by DFSI related entities are to be paid directly into the Restart NSW Fund from 1 July 2015 onwards except where the NSW Government has made a separate decision to allocate the net sale proceeds to fund other programs.

(ii) Net Increase/(Decrease) in Net Assets from Equity Transfers 2020 2019 $'000 $'000

Transfer of Properties from other Government Agencies Buildings (Note 9(a)) 4,100 7,917 Land (Note 9(a)) 19,200 7,314 Transfer of Properties to other Government Agency Buildings (Note 9(a)) (111) (20,670) Land (Note 9(a)) (270) (104,769) 22,919 (110,208)

The establishment of new statutory bodies or transfer of net assets between agencies as a result of an administrative restructure, transfers of programs/functions and parts thereof between NSW public sector agencies are designated as a contribution by owners and recognised as an adjustment to Accumulated Funds. This treatment is in accordance with Treasury Policy and Guidelines Paper TPP 09-3 "Contributions By Owners Made to Wholly-Owned Public Sector Entities" and is consistent with Interpretation 1038 "Contributions by Owners Made to Wholly-Owned Public Sector Entities" and Australian Accounting Standards.

Transfers arising from an administrative restructure between government agencies are recognised at the amount at which the asset was recognised by the transferor government agency immediately prior to the restructure. In most cases this will approximate fair value. All other equity transfers are recognised at fair value.

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PROPERTY NSW

Section F: Financial Instruments and Other Notes Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

20. FINANCIAL INSTRUMENTS

PNSW’s principal financial instruments are outlined below. These financial instruments arise directly from PNSW’s operations or are required to finance PNSW’s operations. PNSW does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

PNSW's main risks arising from financial instruments are outlined below, together with PNSW's objectives, policies and processes for measuring and managing risk. Further quantitative and qualitative disclosures are included throughout these financial statements.

The Chief Executive Officer has overall responsibility for the establishment and oversight of risk management and reviews and agrees policies for managing risks. Risk management policies are established to identify and analyse the risks faced by PNSW, to set risk limits and controls and to monitor risks. Compliance with policies is reviewed by PNSW management on a continuous basis.

(a) Financial Instrument Categories

(i) As at 30 June 2020

Carrying amount Class Category Notes $'000 Financial Assets Cash and Cash Equivalents N/A 6 57,150 Receivables (i) Loans and Receivables (at Amortised Cost) 7 4,260,546 Financial Liabilities Payables (ii) Financial Liabilities (at Amortised Cost) 14 37,382 Borrowings Financial Liabilities (at Amortised Cost) 15 4,446,642

(i) Excludes statutory receivables and prepayments as they are not within the scope of AASB 7. (ii) Excludes statutory payables and unearned revenue as they are not within the scope of AASB 7.

(ii) As at 30 June 2019

Carrying amount Class Category Notes $'000

Financial Assets Cash and Cash Equivalents N/A 6 65,853 Receivables (i) Loans and Receivables (at Amortised Cost) 7 394,887 Financial Liabilities Payables (ii) Financial Liabilities (at Amortised Cost) 14 59,360 Borrowings Financial Liabilities (at Amortised Cost) 15 34,398

(i) Excludes statutory receivables and prepayments as they are not within the scope of AASB 7. (ii) Excludes statutory payables and unearned revenue as they are not within the scope of AASB 7.

(b) Derecognition of financial assets and financial liabilities

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when the contractual rights to the cash flows from the financial assets expire; or if PNSW transfers its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either:

• PNSW has transferred substantially all the risks and rewards of the asset; or • PNSW has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control.

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PROPERTY NSW

Section F: Financial Instruments and Other Notes Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

When PNSW has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. Where PNSW has neither transferred nor retained substantially all the risks and rewards or transferred control, the asset continues to be recognised to the extent of PNSW's continuing involvement in the asset. In that case, PNSW also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that PNSW has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the entity could be required to repay.

A financial liability is derecognised when the obligation specified in the contract is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the net result.

Financial assets and financial liabilities are offset and the net amount is reported in the Statement of Financial Position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

(d) Financial risks

(i) Credit Risk

Credit risk arises when there is the possibility of PNSW’s debtors defaulting on their contractual obligations, resulting in a financial loss to PNSW. The maximum exposure to credit risk is generally represented by the carrying amount of the financial assets (net of any allowance for impairment).

Credit risk arises from the financial assets of PNSW, including cash and receivables (Notes 6 and 7). No collateral is held by PNSW. PNSW has not granted any material financial guarantees.

Credit risk associated with PNSW's financial assets, other than receivables, is managed through the selection of counterparties and establishment of minimum credit rating standards.

Cash and cash equivalents

Cash comprises cash on hand and bank balances within the NSW Treasury Banking System. Interest is earned on daily bank balances at the monthly average TCorp 11am unofficial cash rate, adjusted for a management fee to NSW Treasury.

Receivables - trade debtors

Collectability of trade debtors is reviewed on an ongoing basis. Procedures as established in the Treasurer's Directions are followed to recover outstanding amounts, including letters of demand.

PNSW applies the AASB 9 simplified approach to measure expected credit losses which uses a lifetime expected loss allowance for all trade debtors.

To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due.

The expected loss rates are based on historical observed loss rates. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. PNSW has identified the GDP to be the most relevant factor previously, and accordingly adjusted the historical loss rates based on expected changes in these factors. Due to Covid-19, PNSW places more emphasis on the forward-looking factors when assessing the expected credit loss of its debtors as at 30 June 2020. Each individual debtor is reviewed for the recoverability of debts.

Trade debtors are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others a failure to make contractual payments for a period of greater than 90 days past due.

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PROPERTY NSW

Section F: Financial Instruments and Other Notes Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

The loss allowance for trade debtors as at 30 June 2020 and 30 June 2019 was determined as follows:

30 June 2020 $'000 <30 30-60 61-90 >91 Current days days days days Total Expected credit loss rate 0.00% 3.49% 4.71% 15.77% 3.31% Estimated total gross carryin amount at default 13,814 6,877 13,724 3,798 9,762 47,975 Expected credit loss 0 240 646 599 323 1,808

30 June 2019 $'000 <30 30-60 61-90 >91 Current days days days days Total Expected credit loss rate 4.18% 4.61% 7.04% 6.81% 2.76% Estimated total gross carryin g amount at default 6,470 2,720 4,781 5,149 10,167 29,287 Expected credit loss 270 125 337 351 281 1,364

Notes: The analysis excludes statutory receivables, prepayments, as these are not within the scope of AASB 7. Therefore, the total will not reconcile to the receivables total in Note 7.

The entity is not materially exposed to concentrations of credit risk to a single trade debtor or group of debtors as at 30 June 2020 and 30 June 2019. Most of PNSW’s debtors are NSW Government Agencies and therefore have an AAA credit rating. There are no debtors which are currently not past due or impaired whose terms have been renegotiated.

(ii) Liquidity Risk

Liquidity risk is the risk that PNSW will be unable to meet its payment obligations when they fall due. PNSW continuously manages risk through monitoring future cash flows and maturities planning to ensure adequate holding of high quality liquid assets. The objective is to maintain a balance between continuity of funding and flexibility through the use of overdrafts, loans and other advances.

PNSW have credit card facility of $1.5 million and bank guarantee limit of $0.25 million at 30 June 2020.

During the current and prior year, there were no defaults of borrowings. No assets have been pledged as collateral. PNSW's exposure to liquidity risk is deemed insignificant based on prior periods' data and current assessment of risk.

Liabilities are recognised for amounts due to be paid in the future for goods or services received, whether or not invoiced. Amounts owing to suppliers (which are unsecured) are settled in accordance with the policy set out in TC 11-12. For small business suppliers, where terms are not specified, payment is made not later than 30 days from date of receipt of a correctly rendered invoice. For other suppliers, if trade terms are not specified, payment is made no later than the end of the month following the month in which an invoice or a statement is received.

The table below summarises the maturity profile of the entity’s financial liabilities based on contractual undiscounted payments, together with the interest rate exposure. Payables Borrowings-Finance Lease 2020 2019 2020 2019 $'000 $'000 $'000 $'000

Weighted Average Effective Interest Rate % 0.00% 0.00% 2.92% 14.91% Nominal Amount 44,019 64,054 6,484,623 435,968

Interest Rate Exposure Fixed Interest Rate - - 4,446,642 34,398 Variable Interest Rate - - - - Non-interest Bearing 44,019 64,054 - -

Maturity Dates < 1 year 44,019 64,054 335,469 - 1 to 5 years - - 1,161,566 - > 5 years - - 2,949,607 34,398

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PROPERTY NSW

Section F: Financial Instruments and Other Notes Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

(iii) Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. PNSW's exposure to market risk is primarily through interest rate risk on the entity's BHP Remediation interest earning bank balance held within the NSW Treasury Banking System (Note 6(a)). PNSW has no exposure to foreign currency risk and does not enter into commodity contracts.

(iv) Fair Value of Financial Instruments

PNSW's financial instruments are recognised at cost. The amortised cost of the entity's financial instruments recognised in the Statement of Financial Position approximates the fair value, because of the short-term nature of financial instruments. PNSW has not identified any financial instruments whose fair value differs materially from the carrying amount.

21. COMMITMENTS FOR EXPENDITURE

(a) Capital Expenditure Commitments 2020 2019 $'000 $'000 Capital expenditure contracted at balance date but not provided for: Payable within one year 1,399 2,556 Total Capital Expenditure Commitments (Incl GST) 1,399 2,556

Total capital expenditure commitments relate to contracted refurbishment works on various owned buildings. Capital expenditure commitments at 30 June 2020 include GST recoverable input tax credits of $0.1 million ($0.2m at 30 June 2019) that are expected to be recoverable from the Australian Taxation Office.

(b) Operating Lease Commitments

Expenditure commitments on PNSW's operating lease liabilities are disclosed at Note 10(a).

Expenditure commitments on PNSW's finance lease liabilities are disclosed at Note 10(a).

22. CONTINGENT ASSETS AND CONTINGENT LIABILITIES

PNSW may be liable for payment of compensation arising from claims and other matters subject to litigation. The amounts involved cannot be accurately determined and in some instances are subject to arbitration. These claims are covered by the Treasury Managed Fund.

PNSW is not aware of any contingent assets or liabilities at 30 June 2020 (Nil at 30 June 2019).

23. RELATED PARTY DISCLOSURES

(a) Key Management Personnel Compensation

During 2019-20, PNSW incurred $1.0 million in respect of the Key Management Personnel services that were provided by DPIE ($2.8 million in 2018-19).

(b) Transactions and Outstanding Balances with Other Related Parties

During 2019-20, other than the remuneration paid to Key Management Personnel by DPIE, PNSW has not entered into other transactions with Key Management Personnel, their close family members and controlled or jointly controlled entities thereof (Nil in 2018-19).

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PROPERTY NSW

Section F: Financial Instruments and Other Notes Notes to and Forming Part of the Financial Statements for the Year Ended 30 June 2020

During 2019-20, PNSW entered into transactions with other entities that are controlled/jointly controlled/significantly influenced by NSW Government. These transactions are collectively, but not individually, a significant portion of PNSW's property rental income, fees for services rendered and grant and contribution revenue.

24. EVENTS AFTER THE REPORTING PERIOD

(a) Adjusting Events

There are no known events after the reporting period which would give rise to a material impact on the reported results or financial position of PNSW as at 30 June 2020.

(b) Non-Adjusting Events

Owned and Leased Office Accommodation Property Vesting and Property Divestments – Pursuant to the recommendations of the Government's Property Asset Utilisation Taskforce and subsequent Premier’s Memorandum M2012-20, further divestment of various PNSW owned properties, in addition to the ongoing vesting of Government agency owned and leased properties is likely to occur in separate tranches during 2020-21. As the identification and validation of these properties was still in progress at the reporting date, estimates of the financial impact on PNSW's accounts in 2019-20 are not available.

Management is continuously evaluating the COVID-19 impact on PNSW and has concluded that while it is reasonably possible that the COVID-19 could have a negative effect on the results of its future operations, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

There are no known other non-adjusting events after the reporting period.

End of Audited Financial Statements

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