Abacus Property Group
Annual Report 2007

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annual financial report 2007 Abacus Property Group At 30 June 2007, the Abacus Property Group (APG) comprised the Abacus Trust (AT), the Abacus Income Trust (AIT), Abacus Group Holdings Limited (AHL) and Abacus Group Projects Limited (AGPL). A summary of the corporate structure is illustrated below. AGHL has been identified as the parent entity for the purpose of producing a consolidated financial report for the APG. That is, The concise financial report of AGHL services as a summary of the financial performance and position of APG as a whole. It consolidates the financial reports of AGHL, AT, AIT and AGPL and their controlled entities. To comply with Australian reporting requirements, the concise financial reports of AT, AIT and AGPL are also provided. Abacus Group Holdings Limited Abacus Trust Abacus Income Trust Abacus Group Projects Limited Contents 01 Abacus Property Group 39 Abacus Trust 61 Abacus Income Trust 85 Abacus Group Projects Limited 101 Corporate Governance 103 ASX additional information Glossary Abacus Abacus Funds Management Limited, the responsible entity of the trusts AGHL Abacus Group Holdings Limited AGPL Abacus Group Projects Limited AIT Abacus Income Trust APG Abacus Property Group AT Abacus Trust abacus property group Directory Abacus Abacus Funds Management Limited Level 34, Australia Square 264-278 George Street SYDNEY NSW 2000 Tel (02) 9253 8600 Fax (02) 9253 8616 Website www.abacusproperty.com.au Directors of Abacus and Abacus Group Holdings Limited John Thame, Chairman Frank Wolf, Managing Director David Bastian* (appointed 14/11/06) Dennis Bluth Malcolm Irving Len Lloyd William Bartlett (appointed 14/02/07) Phillip Green (resigned 1/9/06) *Resigned as Managing Director on 30/09/06 Company secretary Ellis Varejes Custodian Perpetual Trustee Company Limited Level 12, Angel Place 123 Pitt Street SYDNEY NSW 2000 Auditor Ernst & Young Ernst & Young Centre 680 George Street SYDNEY NSW 2000 Compliance Plan Auditor Ernst & Young Ernst & Young Centre 680 George Street SYDNEY NSW 2000 Registry Computershare Investor Services Pty Ltd Level 3, 60 Carrington Street SYDNEY NSW 2000 Tel (02) 1800 635 323 Toll free Fax (02) 8234 5050 Contents 02 Directors’ Report 16 Auditor’s Independence Declaration 17 18 20 Consolidated Income and Distribution Statements Consolidated Balance Sheet Consolidated Statement of Changes in Equity 21 Consolidated Cash Flow Statement 22 Notes to the Concise Financial Statements Directors’ Declaration Independent Auditor’s Report 36 37 It is recommended that this Annual Financial Report should be read in conjunction with the Annual Financial Reports of Abacus Trust, Abacus Income Trust and Abacus Group Projects Limited for the year ended 30 June 2007. It is also recommended that the report be considered together with any public announcements made by the Abacus Property Group in accordance with its continuous disclosure obligations arising under the Corporations Act 2001. 1 annual financial report / continued CoRPoRATe sTRuCTuRe The Group is comprised of AGHL, AT, AIT and AGPL. shares in AGHL and AGPL and units in AT and AIT have been stapled together so that none can be dealt with without the others. An APG security consists of one share in AGHL, one unit in AT, one share in AGPL and one unit in AIT. A transfer, issue or reorganisation of a share or unit in any of the component parts is accompanied by a transfer, issue or reorganisation of a share or unit in each of the other component parts. AGHL and AGPL are companies that are incorporated and domiciled in Australia. AT and AIT are Australian registered managed investment schemes. Abacus Funds Management Limited (AFML), the responsible entity of AT and AIT, is incorporated and domiciled in Australia and is a wholly-owned subsidiary of AGHL. oPeRATInG PRoFIT The Group earned a net profit attributable to members of $118.8 million for the year ended 30 June 2007 (June 2006: $101.2 million). The Group earned a net ‘normalised’ profit attributable to members (excluding net property, investments, derivative and employee entitlement fair value revaluations) of $79.8 million (June 2006: $53.6 million). directors’ report The Directors present their report together with the consolidated financial report of Abacus Group Holdings Limited (AGHL) and the auditor’s report thereon. AGHL has been identified as the parent entity of the group referred to as the Abacus Property Group (APG or the Group). The consolidated financial reports of AGHL for the year ended 30 June 2007 comprises the consolidated financial reports of AGHL and its controlled entities, Abacus Trust (AT) and its controlled entities, Abacus Income Trust (AIT) and its controlled entities and Abacus Group Projects Limited (AGPL) and its controlled entities. DIReCToRs The Directors of AGHL in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. John Thame Chairman (non-executive) Frank Wolf Managing Director (executive) William bartlett David bastian* non-executive director (appointed 14/02/07) non-executive director (appointed 14/11/06) Dennis bluth non-executive director Phillip Green non-executive director (resigned 1/09/06) Malcolm Irving non-executive director Len Lloyd executive director * Resigned as Managing Director on 30 september 2006 PRInCIPAL ACTIVITIes The principal activities of the Group during the course of the year ended 30 June 2007 include: • investment in commercial, retail and industrial properties; • property funds management and investment; • property finance; and • participation in property joint ventures and developments. 2 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group DIsTRIbuTIons Group distributions in respect of the year ended 30 June 2007 were $68.8 million (June 2006: $50.9 million), which is equivalent to 12.5 cents per stapled security (June 2006: 11.8 cents) paid as follows: Interim distribution paid 10 november 2006 Interim distribution paid 8 February 2007 Interim distribution paid 10 May 2007 Final distribution paid 9 August 2007 Total ReVIeW oF oPeRATIons CenTs 3.00 3.00 3.25 3.25 $’000 15,926 16,013 18,496 18,419 12.50 68,854 GRouP oVeRVIeW The Group principally operates within Australia. It holds an investment portfolio of commercial, retail and industrial properties, operates property funds management businesses, provides property finance and participates in property joint ventures and developments. oPeRATInG ResuLTs FoR THe PeRIoD Group revenues, net profit, normalised earnings per security and distributions per security all grew strongly in the year ended 30 June 2007: Total income * Pre-tax profit net profit earnings per security (cents) ‘normalised’ earnings per security (cents) ** Distributions per security (cents) 30 June 2007 $’000 30 June 2006 $’000 % CHAnGe 187,983 124,923 118,811 21.48 14.43 12.50 131,848 102,604 101,236 24.22 12.92 11.80 43 22 17 (11) 12 6 * Total revenue plus realised gains on sale of investments and unrealised revaluation gains on properties/investments ** normalised’ earnings is net profit excluding AIFRs fair value adjustments (namely property revaluations, revaluations of derivatives and other financial instruments and share based payments) The Group’s financial condition also strengthened during the year: 30 June 2007 $’000 30 June 2006 $’000 % CHAnGe Total assets ($million) Gearing (%) net assets ($million) net tangible assets ($million) nTA per security ($) securities on issue (million) Weighted average securities on issue (million) 1,270 29.5 803.2 760.2 1.31 578.6 553.2 1,163 35.6 673.1 632.5 1.22 516.4 418.1 9 (17) 19 20 7 12 32 3 annual financial report / continued directors’ report business activities which contributed to the Group’s operating performance and financial condition for the half year were as follows: Property Finance Total property finance assets at 30 June 2007 were $120 million (30 June 2006: $243 million). Property Total property assets at 30 June 2007 were $834 million (30 June 2006: $787 million). During the year the Group acquired four additional properties for approximately $47.2 million, including a five level retail/commercial building in butler Road, Hurstville and a commercial building in the Macquarie business Park, Port Macquarie. During the year the Group sold properties situated at Tattersall Road, Kings Park, Howick street, bathurst, Pitt street, sydney and Miller street, north sydney. The revaluation of 16 existing properties in the portfolio totalling $265 million (or 39% of the total investment portfolio) resulted in a net increase of $33 million in the carrying value of investment properties. Rental income increased from $42 million (2006) to $63 million for the year. Funds Management The Funds Management division launched the $135 million Abacus Hospitality Fund to wholesale investors in December 2006 and to retail investors in March 2007 (comprising the Tradewinds, Twin Waters and Chateau on the Park hotels). Additionally, the sale of the Rendezvous Hotel was settled in December 2006 for $99.9 million. net gains on the launch of the Abacus Hospitality Fund and the sale of Rendezvous contributed $21.2 million to the operating profits. These gains plus fees and other income from ongoing funds management activities drove a record operating revenue for the Funds Management division of $38.2 million (June 2006: $20.2 million). both the launch of the Abacus Hospitality Fund and the sale of the Rendezvous Hotel also impacted the Group’s asset footings and gearing with $135 million of assets and $76.8 million debt coming off the Group’s balance sheet. The $190 million Abacus Diversified Income Fund II was launched to retail investors in July 2007. The Fund is an open- ended property fund investing in a diversified portfolio of investment properties and other property based assets. The Abacus storage Fund is fully subscribed and its assets under management totalled $202 million at 30 June 2007 with 30 sites in Australia and new Zealand. Gross assets under management (including APG assets) grew to $2 billion at 30 June 2007 (June 2006: $1.4 billion). 4 AbACus AnnuAL FInAnCIAL RePoRT 2007 Revenue earned from interest and fees totalled $14.2 million for the year (30 June 2006: $16.4 million). Joint Ventures and Developments Investments managed within the Joint Ventures & Developments division comprise direct and indirect property investments as at 30 June 2007 totalled $70.1 million (30 June 2006: $90.5 million). The joint venture investments are with experienced property investors and developers in new south Wales, Queensland and Victoria which enables the Group to participate in a range of property-related opportunities with industry leaders who have local knowledge and specialist property expertise. Revenue in the form of equity accounted income and distributions contributed $3.9 million to the operating profit (30 June 2006: $4.1 million). Other To sustain performance the Group has in place remuneration arrangements to retain and incentivise staff. During the year the executive security Loan and executive Performance Award Plans, which were approved by securityholders at the 2006 annual general meeting, were introduced. The operation of these plans is discussed in the remuneration report. The fair value expense of the security based payments made under the Plans was $2.8 million. ReVIeW oF FInAnCIAL ConDITIon During the year ended 30 June 2007, the contributed equity of the Group increased $75.9 million to $648.4 million compared to $572.5 million at 30 June 2006. on 25 october 2006 the Group completed a $60 million capital raising through the placement of 36.6 million securities at an issue price of $1.64. securities placed under the issue were eligible for distributions from 1 January 2007 onwards. As a result of the capital raising and the distribution reinvestment plan, both total and weighted average securities on issue increased. Total equity increased by $130.1 million to $803.2 million at 30 June 2007 compared to $673.1 million at 30 June 2006. net tangible assets per security increased 7% to $1.31 at 30 June 2007 compared to $1.22 at 30 June 2006. At 30 June 2007, existing bank loan facilities totalled approximately $371 million, of which $341 million was drawn. The Group manages interest rate exposure on debt facilities through the use of interest rate swap contracts. At 30 June abacus property group 2007, 71% of total debt facilities were covered by interest rate swap arrangements at an average interest rate (including bank margin) of 7.03% and an average term to maturity of 5.02 years. The Group’s net debt gearing ratio (calculated as total interest bearing liabilities less cash assets divided by total assets) was 29.5% at 30 June 2007 compared to 35.6% at 30 June 2006. sIGnIFICAnT CHAnGes In THe sTATe oF AFFAIRs The following significant changes in the state of affairs of the Group occurred during the financial year: • Retained earnings (including the impact of revaluations of investment properties and derivative financial instruments) increased $51.7 million to $148.3 million at 30 June 2007 compared to $96.6 million at 30 June 2006; • Total equity increased by 19% from $673.1 million to $803.2 million at 30 June 2007 reflecting the additional capital raised, growth in retained earnings and net positive revaluations during the year; sIGnIFICAnT eVenTs AFTeR bALAnCe DATe on 26 July 2007, the Group completed a capital raising via an institutional placement for $100 million and issued 52.6 million stapled securities at $1.90 per stapled security. In July 2007, the Group exchanged contracts to acquire two commercial office buildings for $23 million in the Varsity Lakes business district on the Gold Coast, Queensland. other than as disclosed in this report, to the knowledge of the Directors, there has been no matter or circumstance that has arisen since the end of the financial year that has or may affect the Group’s operations in future financial years, the results of those operations or the Group’s state of affairs in future financial years. LIKeLY DeVeLoPMenTs AnD eXPeCTeD ResuLTs The Directors have excluded from this report any other information on the likely developments in the operations of the Group and the expected results of those operations in future financial years which are not of a material nature and would not, in the Directors’ view, be likely to result in unreasonable prejudice to the operation of the Group. ReMuneRATIon RePoRT (AuDITeD) This Remuneration Report outlines the director and executive remuneration arrangements of the company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. It also provides the remuneration disclosures required by paragraphs Aus 25.4 to Aus 25.7.2 of AAsb 124 Related Party Disclosures, which have been transferred to the Remuneration Report in accordance with Corporations Regulation 2M.6.04. For the purposes of this report Key Management Personnel (KMP) of the group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the company and the group, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes the five executives in the parent and the Group receiving the highest remuneration. For the purposes of this report, the term ‘executive’ encompasses the Managing Director, senior executives, general managers and secretaries of the parent and the Group. ReMuneRATIon & noMInATIon CoMMITTee The Remuneration & nomination Committee of the board of Directors is responsible for determining and reviewing remuneration arrangements for the board and executives. The Remuneration & nomination Committee assesses the appropriateness of the nature and amount of remuneration of executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality, high performing board and executive team. ReMuneRATIon PHILosoPHY The performance of the Group depends upon the quality of its directors and executives. To prosper, the Group must attract, motivate and retain highly skilled directors and executives. To this end, the Group embodies the following principles in its remuneration framework: • provide competitive rewards to attract high calibre executives; • link executive rewards to securityholder value; • have a reasonable portion of executive remuneration at risk; and • establish performance hurdles for variable executive remuneration. ReMuneRATIon sTRuCTuRe In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct. 5 annual financial report / continued directors’ report non-eXeCuTIVe DIReCToR ReMuneRATIon eXeCuTIVe ReMuneRATIon Objective The board seeks to set aggregate remuneration at a level that provides the Group with the ability to attract and retain directors of the highest calibre, while incurring a cost that is acceptable to securityholders. Structure The Constitution and the AsX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. The latest determination was at the Annual General Meeting held on 14 november 2006 when securityholders approved an aggregate remuneration of $550,000 per year. The amount of aggregate remuneration sought to be approved by securityholders and the fee structure is reviewed annually. The board considers advice from an external consultant as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process. Fees payable to non-executive directors are as follows: Board/Committee board board Audit Committee Audit Committee Credit Committee Due Diligence Committee Remuneration Committee RoLe Fee Chairman $152,500 Member Chairman Member Member Member Member $57,500 $10,000 $5,000 $4,800 $10,000 $5,000 Objective The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group so as to: • reward executives for Group, business unit and individual performance against targets set by reference to appropriate benchmarks; • align the interests of executives with those of securityholders; and • ensure total remuneration is competitive by market standards. sTRuCTuRe In determining the level and make-up of executive remuneration, the Remuneration Committee engages external consultants as needed to provide independent advice. The Remuneration Committee has entered into a detailed contract of employment with the Managing Director. Details of this contract are provided below. Remuneration consists of the following key elements: • fixed remuneration (base salary, superannuation and non- monetary benefits). • variable remuneration - short term incentive (STI); and - long term incentive (LTI). The proportion of fixed remuneration and variable remuneration (potential short term and long term incentives) for each executive is set out in table 1. Abacus storage Funds Management Limited board Member $7,500 FIXeD ReMuneRATIon The payment of additional fees for serving on a committee recognises the additional time commitment required by directors who serve on one or more sub-committees. The non-executive directors do not receive retirement benefits, nor do they participate in any incentive programs. The remuneration of non-executive directors for the years ended 30 June 2007 and 30 June 2006 is detailed in Table 1 of this report. Objective Fixed remuneration is reviewed annually by the Remuneration Committee. The process consists of a review of Group, business unit and individual performance, relevant comparative remuneration in the market and internally and, where appropriate, external advice on policies and practices. As noted above, the Committee has access to external advice independent of management. Structure executives are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Group. 6 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group The fixed remuneration component of executives is detailed in Table 1. VARIAbLe ReMuneRATIon – sHoRT TeRM InCenTIVe (sTI) Objective The objective of the sTI program is to link the achievement of the Group’s operational targets with the remuneration received by the executives charged with meeting those targets. Structure Actual sTI payments granted to the Managing Director depend on the extent to which the specific target for Group financial performance set at the beginning of the financial year is met. At the discretion of the board, executives and senior managers may receive sTI payments based on reference to a variety of measures, both financial and non-financial. These measures primarily include Group profitability targets, returns to securityholders and certain key performance indicators such as assets under management. The board considers that performance linked objectives that have an operational and financial impact focus are best suited to the outcomes desired by securityholders. non-financial measures are also taken into account. The aggregate of annual sTI payments available for executives across the Group is subject to the approval of the Remuneration Committee. Payments made are delivered as a cash bonus in the following reporting period. VARIAbLe ReMuneRATIon – LonG TeRM InCenTIVe (LTI) Objective The objective of the LTI plans is to reward executives in a manner that aligns remuneration with the creation of securityholder wealth. As such, LTI grants are only made to executives who are able to influence the generation of securityholder wealth and thus have an impact on the Group’s performance against the relevant long term performance hurdle. The LTI plans in operation are described below: (a) Executive Performance Award Plan (EPAP) LTI grants to executives are delivered in the form of security options under the ePAP. security options are granted to executives employed on or before the first day of the relevant financial year. The security options will vest over a period of 3 years subject to meeting performance hurdles, with no opportunity to retest. executives are able to exercise the security options for up to 7 years after vesting before the options lapse. Performance hurdle The Group uses a relative Total securityholder Return (TsR) as the performance hurdle for the LTI plan. Relative TsR was selected as the LTI performance hurdle as it ensures an alignment between comparative securityholder return and reward for executives. In assessing whether the performance hurdles for each grant have been met, the Group compares its TsR growth from the commencement of each grant and that of the pre-selected peer group. The peer group chosen for comparison is the s&P AsX 200 Index Property Trust sector at the date of grant. This peer group reflects the Group’s competitors for capital transactions and talent. The Group’s performance against the hurdle is determined according to Abacus Property Group’s ranking against the peer group TsR growth over the performance period. The security options will vest in accordance with the table below: TSR target Percentage of security options that vest below the 50th percentile 50th percentile 50th to 75th percentile 75th percentile nil 50% Progressive scale of an additional 2% for each percentile increase 100% Where a participant ceases employment prior to the vesting of their security options, the security options are forfeited unless cessation of employment is due to redundancy by the Group, total and permanent disablement or death. In the event of a change of control, the performance period end date will be brought forward to the date of the change of control and awards will vest immediately subject to performance over this shortened period. The Group prohibits executives from entering into arrangements to protect the value of unvested LTI awards. Tables 2 and 3 provides details of LTI options granted and the value of options granted during the year. no LTI options were exercised or lapsed during the year. (b) Executive Security Loan Plan (ESLP) executives were offered limited recourse loans to acquire Group securities on market. The executive entered into a salary sacrifice arrangement under which base remuneration 7 annual financial report / continued directors’ report approximately equal to a notional interest amount on the loan is foregone by the executive. The interest rate for a financial year is equivalent to the Group distribution rate for that year. model calculation (binominal Tree American put option model) and this amount is treated as an employee expense with a corresponding increase in reserves. The loans are repayable on the earlier of the executive ceasing to be employed by the Group, the sale of the Group securities purchased under the Plan or the repayment date (30 June 2010). If the loans are not repaid or interest if payable is not paid, the Group securities may be sold and the funds received applied to repay the loan and interest on the loan. The securities acquired under the esLP were purchased on market and are fully vested. Loans totalling $20,000,000 were provided under the esLP to twelve executives in the year ended 30 June 2007. In addition, in the year ended 30 June 2006 a limited recourse loan of $2,496,822 was provided (as a pre-conditional key term of employment) to one executive to acquire Group securities on market. The executive entered into a salary sacrifice arrangement under which remuneration approximately equal to a notional interest amount on the loan is foregone by the executive. The interest rate for the financial year is 7.5%. This loan is repayable on the same basis as applies under the esLP. The loans are accounted for in accordance with AAsb 2 share based Payments, as follows: • The loans are not recorded on the balance sheet, as they are regarded as options. • The value of a loan is determined by an option valuation • A repayment of the loan is treated as an increase to Contributed equity. LInK beTWeen ReMuneRATIon PoLICY AnD THe GRouP’s PeRFoRMAnCe The graph below shows the performance of the Group (as measured by the Group’s TsR) and the comparison of the Group’s TsR to the median of the TsR for the peer group as detailed above. APG and S&P/ASX 200 Property Trusts Accumulation Index Total Return 160% 140% 120% 100% 80% 60% 40% 20% 0% S&P ASX200 ABP 30/06/2002 30/12/2002 30/06/2003 30/12/2003 30/06/2004 30/12/2004 30/06/2005 30/12/2005 30/06/2006 30/12/2006 30/06/2007 In addition to TsR, the Group’s performance is reflected in the following table: Closing share price Distributions paid and proposed (cents) earnings per security (cents) net tangible assets per security 30 June 2003 30 June 2004 30 June 2005 30 June 2006 30 June 2007 $1.22 10.50 13.90 $0.95 $1.17 11.23 12.84 $1.00 $1.36 11.40 12.42 $1.09 $1.57 11.80 12.92 $1.22 $1.98 12.50 14.43 $1.31 8 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group eMPLoYMenT ConTRACTs Managing Director The Managing Director, Dr Wolf, is employed under a rolling contract. The current employment contract commenced on 10 october 2002. under the terms of the present contract: Dr Wolf receives a base salary which is reviewed annually. He is entitled to participate in the LTI plans that are made available and to receive short-term incentive payments. Dr Wolf may resign from his position and thus terminate this contract by giving 6 months written notice. on termination any unvested options will be forfeited and the loan under the security Loan Plan will be repayable. The Group may terminate this employment agreement by providing 12 months written notice or providing payment in lieu of the notice period (based on the fixed component of Dr Wolf’s remuneration). on termination on notice by the Group, any LTI options that have vested or that will vest during the notice period will be released. LTI options that have not yet vested will be forfeited. Other executives There are no formal service agreements with other executives. on termination on notice by the Group, any LTI options that have vested or that will vest during the notice period will be released. LTI options that have not yet vested will be forfeited and any loan under the esLP will be repayable. The Group may terminate an executive’s service at any time without notice if serious misconduct has occurred. Where termination with cause occurs the executive is only entitled to remuneration up to the date of termination. on termination with cause, any unvested options will immediately be forfeited. TAbLe 1: ReMuneRATIon oF KeY MAnAGeMenT PeRsonneL 2007 sHoRT-TeRM PosT eMPLoYMenT non- CAsH MoneTARY ACCRueD LeAVe beneFITs AnnuATIon enTITLeMenT suPeR- seCuRITY- bAseD PAYMenT % PeRFoRMAnCe ReLATeD ToTAL oPTIons Non-executive directors J Thame – Chairman M Irving D bluth P Green (1) W bartlett (2) D bastian (3) sALARY & Fees 160,000 80,000 87,613 16,250 25,274 53,300 Sub-total non-executive directors 422,437 bonus - - - - - - - Executive directors F Wolf – Managing Director D bastian (4) L Lloyd – Managing Director, Property services 894,887 650,000 60,000 - 132,549 125,000 Other key management personnel R de Aboitiz – Chief Financial officer (5) s o’Donoghue – Chief Financial officer (6) 305,382 100,000 63,461 - T Hardwick – Director Funds Management 387,313 150,000 J L’estrange – General Manager Property 319,314 150,000 e Varejes – Chief operating officer 327,500 150,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 160,000 - - - - - 80,000 87,613 16,250 25,274 53,300 - 422,437 - - - - - - - 105,113 - 812,304 2,462,304 90,000 295,026 - 445,026 59% - 127,451 - 230,628 615,628 58% 10,003 15,289 12,687 30,686 72,500 - 150,524 565,909 - - - - - 78,750 50,000 600,000 351,047 851,047 351,047 901,047 44% - 33% 59% 56% Sub-total executive KMP Total KMP compensation Other Group executives 2,490,406 1,325,000 - 463,729 295,026 1,945,550 6,519,711 2,912,843 1,325,000 - 463,729 295,026 1,945,550 6,942,148 P strain (1) Resigned on 1/09/06 (2) Appointed on 14/02/07 (3) Appointed as non-executive director on 14/11/06 (4) Resigned as Managing Director on 30/09/06 (5) Appointed on 18/09/06 (6) Resigned on 18/09/06 - 183,857 563,857 217,314 150,000 12,686 - 59% 9 annual financial report / continued directors’ report TAbLe 1: ReMuneRATIon oF KeY MAnAGeMenT PeRsonneL / ConTInueD 2006 sHoRT-TeRM Non-executive directors J Thame – Chairman M Irving D bluth P Green Sub-total non-executive directors Executive directors sALARY & Fees 162,120 80,000 89,800 65,000 396,920 - - - - - D bastian – Managing Director F Wolf – Deputy Chairman 501,907 275,000 779,167 440,000 L Lloyd – Managing Director, Property services 224,220 120,000 Other key management personnel s o’Donoghue – Chief Financial officer T Hardwick – Director Funds Management (1) J L’estrange – General Manager Property e Varejes – Chief operating officer (2) K Kitchen – General Manager Distribution (3) P strain – General Manager Leasing & Administration (3) Sub-total executive KMP 245,000 100,000 59,050 219,861 140,775 187,861 - 150,000 - 100,000 187,861 100,000 2,545,702 1,285,000 PosT eMPLoYMenT seCuRITY- bAseD PAYMenT % PeRFoRMAnCe ReLATeD ToTAL non- CAsH MoneTARY beneFITs bonus suPeR- AnnuATIon - - - - - - - - - - - - - - - - - - - - 98,093 70,833 30,780 15,000 2,023 30,139 5,058 12,139 - - - - 162,120 80,000 89,800 65,000 - 396,920 - 875,000 - 1,290,000 - 375,000 - 360,000 5,594 66,667 - 400,000 - 145,833 - 300,000 - - - - - 31% 34% 32% 28% 8% 38% - 33% 12,139 - 300,000 33% 276,204 5,594 4,112,500 Total (1) Appointed on 1/05/06 (2) Appointed on 1/02/06 (3) Ms Kitchen and Mr strain do not meet the definition of Key Management Personnel for the 2007 financial year. 1,285,000 2,942,622 276,204 - 5,594 4,509,420 10 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group TAbLe 2: CoMPensATIon oPTIons: GRAnTeD AnD VesTeD DuRInG THe YeAR Executive Performance Award Plan The following options were issued under the executive Performance Award Plan: 30 June 2007 Executive directors F Wolf L Lloyd Other key management personnel T Hardwick J L’estrange e Varejes Other Group executives P strain GRAnTeD TeRMs & ConDITIons FoR eACH GRAnT FAIR VALue PeR oPTIon AT GRAnT DATe ($) GRAnT DATe no. eXeRCIse PRICe PeR oPTIon ($) eXPIRY DATe FIRsT eXCeRCIse DATe LAsT eXCeRCIse DATe 1,343,284 12/04/07 447,761 12/04/07 447,761 12/04/07 447,761 12/04/07 447,761 12/04/07 0.335 0.335 0.335 0.335 0.335 1.485 11/04/17 30/09/09 11/04/17 1.485 11/04/17 30/09/09 11/04/17 1.485 11/04/17 30/09/09 11/04/17 1.485 11/04/17 30/09/09 11/04/17 1.485 11/04/17 30/09/09 11/04/17 298,507 12/04/07 0.335 1.485 11/04/17 30/09/09 11/04/17 The Plan was approved by securityholders on 14 november 2006 so no options were issued in the year ended 30 June 2006 and no options have vested. Executive Security Loan Plan The following options were issued under the executive security Loan Plan: GRAnTeD TeRMs & ConDITIons FoR eACH GRAnT VesTeD no. GRAnT DATe FAIR VALue eXeRCIse PeR oPTIon AT GRAnT PRICe PeR oPTIon ($) oPTIon ($) noTe 24 noTe 24 eXPIRY DATe FIRsT eXCeRCIse DATe LAsT eXCeRCIse DATe no. % 2,881,728 31/01/07 785,925 31/01/07 1,309,875 31/01/07 1,309,875 31/01/07 654,938 31/01/07 0.23 0.23 0.23 0.23 0.23 1.91 30/06/10 31/01/07 30/06/10 2,881,725 1.91 30/06/10 31/01/07 30/06/10 785,925 1.91 30/06/10 31/01/07 30/06/10 1,309,875 1.91 30/06/10 31/01/07 30/06/10 1,309,875 1.91 30/06/10 31/01/07 30/06/10 654,938 100 100 100 100 100 30 June 2007 Executive directors F Wolf L Lloyd Other key management personnel J L’estrange e Varejes R deAboitiz Other Group Executives P strain 654,938 31/01/07 0.23 1.91 30/06/10 31/01/07 30/06/10 654,938 100 The Plan was approved by securityholders on 14 november 2006 so no options were issued in the year ended 30 June 2006 and no options have vested. 11 annual financial report / continued directors’ report TAbLe 3: oPTIons GRAnTeD As PART oF ReMuneRATIon: F Wolf L Lloyd T Hardwick J L’estrange e Varejes R deAboitiz P strain VALue oF oPTIons GRAnTeD DuRInG THe YeAR eXeCuTIVe PeRFoRMAnCe AWARD PLAn 450,000 150,000 150,000 150,000 150,000 - 100,000 eXeCuTIVe seCuRITY LoAn PLAn 662,304 180,628 - 301,047 301,047 150,524 150,524 VALue oF oPTIons eXeRCIseD DuRInG THe YeAR VALue oF oPTIons LAPseD DuRInG THe YeAR ToTAL VALue oF oPTIons GRAnTeD, eXeRCIseD % ReMuneRATIon AnD LAPseD ConsIsTInG oF DuRInG THe oPTIons FoR YeAR THe YeAR - - - - - - - - - - - - - - 1,112,304 330,628 150,000 451,047 451,047 150,524 250,524 33 37 8 41 39 27 33 There were no alterations to the terms and conditions of options granted as remuneration since their grant date. There were no forfeitures during the period. The maximum grant, which will be payable assuming that all services and performance criteria are met, is equal to the number of options granted multiplied by the fair value at the grant date. The minimum grant payable assuming that service and performance criteria are not met is zero. no options have been exercised. 12 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group InFoRMATIon on DIReCToRs AnD oFFICeRs The Directors and Company secretary of Abacus Group Holdings Limited, Abacus Funds Management Limited (the responsible entity of the Abacus Trust and Abacus Income Trust) and Abacus Group Projects Limited, in office during the financial year and until the date of this report are as set out below, with qualifications, experience and special responsibilities. JoHn THAMe AIbF, FCPA Chairman (non-executive) Member of Remuneration & nomination Committee Member of Audit Committee Mr Thame has over 30 years’ experience in the retail financial services industry in senior management positions. His 26-year career with Advance bank included 10 years as Managing Director until the bank’s merger with st George bank Limited in 1997. Mr Thame is Chairman of st George bank Limited and st George Life Limited. Mr Thame was a director of AWb Limited (1999 to 2005). He is also a director of Reckon Limited and The Village building Co Limited (Group). FRAnK WoLF PhD, bA Hons Managing Director Member of Credit Committee DAVID bAsTIAn CPA non-executive director Member of Credit Committee Member of Due Diligence Committee Member of Remuneration & nomination Committee MALCoLM IRVInG AM, FCPA, sF Fin, bCom, Hon DLitt non-executive director Chairman of Audit Committee Member of Remuneration & nomination Committee PHILLIP GReen LLb, bCom non-executive director Dr Wolf has over 20 years’ experience in the property and financial services industries, including involvement in retail, commercial, industrial and hospitality-related assets in Australia, new Zealand and the united states. Dr Wolf has been instrumental in over $2 billion worth of property related transactions, corporate acquisitions and divestments and has financed specialist property-based assets in retirement and hospitality sectors. Dr Wolf is the Chairman of FsP Group Pty Limited and a director of financial planning groups Financial services Partners Pty Limited and Kingston Capital Limited. He is also a director of HGL Limited, a diversified publicly listed investment company. Mr bastian has almost 40 years’ experience in the financial services industry, in particular in the packaging of commercial, retail and residential property projects and was the Managing Director of the Group until 30 september 2006. He was Managing Director of the Canberra building society for 20 years and an executive Director of Godfrey Pembroke Financial services Pty Limited for 7 years. Mr bastian is also a director of financial planning groups FsP Group Pty Limited and Kingston Capital Limited. Mr Irving has over 40 years’ experience in company management, including 12 years as Managing Director of CIbC Australia Limited. Mr Irving is Chairman of Australian Industry Development Corporation and the Australian River Company Limited. He was a director of Keycorp Limited (2001 to 2007). He is also a director of o’Connell street Associates Pty Ltd, Thales Australia Limited and Resimac Limited. Mr Green is Managing Director of babcock & brown Limited. Mr Green has over 25 years’ experience in corporate finance specialising in taxation and structured domestic and international corporate acquisitions. Mr Green resigned effective from 1 september 2006. 13 annual financial report / continued directors’ report InFoRMATIon on DIReCToRs AnD oFFICeRs /ConTInueD DennIs bLuTH LLM, LLb, bA, FAPI non-executive director Chairman of Credit Committee Chairman of Due Diligence Committee Mr bluth holds bachelor of Arts, bachelor of Law and Masters of Law degrees and has practised as a solicitor for over 25 years, principally in the area of property law. Mr bluth is a partner of Home Wilkinson Lowry, solicitors and is a member of a number of Law society and Law Council Committees. WILLIAM J bARTLeTT FCA, CPA, FCMA, CA(sA) non-executive director Chairman of Remuneration & nomination Committee Member of Audit Committee Len LLoYD FAPI, WDA executive director Mr bartlett has strong accounting, financial and corporate credentials. During his 23 year career with ernst & Young, he held the roles of Chairman of Worldwide Insurance Practice, national Director of Australian Financial services Practice and Chairman of the Client service board. Mr bartlett is a director of suncorp-Metway Limited, Peptech Limited, GWA Limited, Moneyswitch Limited, Reinsurance Group of America Inc and RGA Reinsurance Company of Australia Limited. Mr bartlett was a director of Retail Cube Limited (2004 to 2006). He is also a director of the bradman Foundation and Museum. Mr Lloyd is a licensed real estate agent and a registered real estate valuer. He has 40 years experience in the development, management and funding of commercial, retail and residential property. Mr Lloyd joined the Abacus Group in october 2000 and now holds the position of Managing Director of Abacus Property services Pty Limited responsible for property administration and development opportunities in the Abacus portfolio. In previous positions, Mr Lloyd held responsibility for the property portfolios of the Advance bank and st George bank and provided valuation and lending advice while with the Commonwealth Development bank for 21 years. eLLIs VAReJes bCom, LLb Company secretary and Chief operating officer Mr Varejes has been the Company secretary since 15 september 2006 and he has over 25 years’ experience as a corporate lawyer. The Directors and officers were in office from the beginning of the financial year until the date of this report unless otherwise stated. As at the date of this report, the relevant interests of the directors and specified executives in Abacus Property Group securities were as follows: Directors J Thame F Wolf D bastian M Irving L Lloyd APG seCuRITIes HeLD 50,000 nuMbeR oF oPTIons oVeR APG seCuRITIes - 9,710,274* 1,343,284 4,486,352 30,014 785,925* - - 447,761 * The holdings of Dr Wolf and Mr Lloyd include securities acquired under the executive share Loan Plan that are treated as options. 14 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group DIReCToRs’ MeeTInGs The number of meetings of directors (including meetings of committees of directors) of AGHL and Abacus, the manager of the Group, held during the year and the number of meetings attended by each director were as follows: J Thame F Wolf D bastian D bluth P Green M Irving L Lloyd W bartlett boARD AuDIT CoMMITTee Due DILIGenCe CoMMITTee noMInATIon & ReMuneRATIon CoMMITTee CReDIT CoMMITTee HeLD ATTenDeD HeLD ATTenDeD HeLD ATTenDeD HeLD ATTenDeD HeLD ATTenDeD 14 14 11 14 2 14 14 5 14 14 8 12 1 10 12 5 3 3 4 1 3 3 4 1 4 7 11 4 4 10 17 17 17 17 17 17 3 2 1 3 2 3 2 1 3 2 InDeMnIFICATIon AnD InsuRAnCe oF DIReCToRs AnD oFFICeRs The Group has paid an insurance premium in respect of a contract insuring all directors, full time executive officers and secretary. The terms of this policy prohibit disclosure of the nature of the risks insured or the premium paid. enVIRonMenTAL ReGuLATIon AnD PeRFoRMAnCe The Group’s environmental responsibilities, such as waste removal and water treatment, have been managed in compliance with all applicable regulations and licence requirements and in accordance with industry standards. no breaches of requirements or any environmental issues have been discovered and brought to the board’s attention. There has been no known significant breaches of any environmental requirements applicable to the Group. sTAPLeD seCuRITY oPTIons As at the date of this report, there were 4,119,403 unissued stapled securities under options issued under the executive Performance Award Plan and 10,479,003 options arising from the purchase of stapled securities under the executive security Loan Plan. Refer to the remuneration report for further details of the options outstanding. AuDIToRs InDePenDenCe DeCLARATIon We have obtained an independence declaration from our auditor, ernst & Young, and such declaration is shown on page 16. non-AuDIT seRVICes The following non-audit services were provided by the Group’s auditor, ernst & Young. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Tax related services other assurance and compliance services $65,000 $46,800 $111,800 RounDInG The amounts contained in this report and in the annual financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the group under AsIC Class order 98/100. The group is an entity to which the Class order applies. signed in accordance with a resolution of the directors. JoHn THAMe Chairman sydney, 12 september 2007 FRAnK WoLF Managing Director 15 n Ernst & Young Centre 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 n Tel 61 2 9248 5555 Fax 61 2 9248 5959 DX Sydney Stock Exchange 10172 auditor’s independence declaration to the directors of abacus group holdings limited In relation to our audit of the financial report of Abacus Group Holdings Limited for the financial year ended 30 June 2007, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. eRnsT & YounG eD PsALTIs Partner sydney, 30 August 2007 16 AbACus AnnuAL FInAnCIAL RePoRT 2007 Liability limited by a scheme approved under Professional Standards Legislation. abacus property group consolidated income and distribution statements YeAR enDeD 30 June 2007 Revenue Rental income Hotel-related income Finance income Funds management income share of profit from equity accounted investments Income from distributions other income net realised gains on investments net unrealised gains/(losses) on investments Total revenue employee benefits expense Depreciation and amortisation expense Finance costs other expenses Profit before income tax Income tax expense Net profit for the period net (profit)/loss attributable to external minority interests Net profit attributable to Group securityholders Represented by: Abacus Group Holdings Limited Internal minority interests: - Abacus Trust - Abacus Group Projects Limited - Abacus Income Trust Basic earnings per security (cents) Diluted earnings per security (cents) basic earnings per security ex fair value adjustments* Diluted earnings per security ex fair value adjustments* sTATeMenT oF DIsTRIbuTIon net profit/(loss) attributable to net transfer of undistributed income to securityholders’ funds Distributions paid and payable Distribution per security (cents per security) Weighted average number of securities (‘000) noTes ConsoLIDATeD 2007 $’000 2006 $’000 63,913 9,272 4a 15,372 4b 38,230 1,444 1,170 840 4c 23,107 4d 34,635 42,145 2,831 17,413 20,237 2,392 1,070 - 4,603 41,157 187,983 131,848 5a (11,606) 5b (5,010) 5c (21,909) 5d (24,535) (7,895) (1,346) (7,832) (12,171) 124,923 102,604 (4,521) (744) 120,402 101,860 (1,591) (624) 118,811 101,236 629 (216) 89,122 (415) 29,475 82,172 (72) 19,352 7 21.48 24.22 7 21.33 24.22 7 7 6 14.43 12.92 14.33 12.92 118,811 (49,957) 68,854 12.50 101,236 (50,275) 50,961 11.80 7 553,184 418,056 *based on net profit excluding AIFRs fair value adjustments (namely property revaluations, revaluations of derivatives and other financial instruments and share based payments) 1717 consolidated balance sheet As AT 30 June 2007 Current assets Cash and cash equivalents Trade and other receivables Inventories Investment properties Property loans and other financial assets other Total current assets Non-current assets Property, plant and equipment Investment properties Property loans & other financial assets Investments accounted for using the equity method other Deferred tax assets Intangible assets and goodwill Total non-current assets Total assets Current liabilities Trade and other payables Interest-bearing loans and borrowings other Income tax payable Total current liabilities Non-current liabilities Interest-bearing loans and borrowings Deferred tax liabilities other Total non-current liabilities Total liabilities Net assets 18 AbACus AnnuAL FInAnCIAL RePoRT 2007 noTes ConsoLIDATeD 2007 $’000 2006 $’000 19,068 65,914 13,359 8a 12,524 256,236 1,764 20,107 19,565 340 18,255 196,746 2,209 368,865 257,222 30,553 8b 660,536 161,299 582,312 70,945 48,442 89,299 67,874 4,510 3,700 4,569 1,335 40,977 41,096 901,389 906,058 1,270,254 1,163,280 53,948 52,190 171,473 417 7,139 51,142 939 (208) 232,977 104,063 222,751 383,387 2,579 8,742 234,072 467,049 803,205 1,811 908 386,106 490,169 673,111 abacus property group consolidated balance sheet As AT 30 June 2007 Total equity attributable to members of AGHL: Contributed equity Reserves Retained earnings Internal minority interest: Total equity attributable to unitholders of AT: Contributed equity Retained earnings Total equity attributable to members of AGPL: Contributed equity Retained earnings Total equity attributable to unitholders of AIT: Contributed equity Reserves Retained earnings Total equity attributable to external minority interest: Contributed equity Retained earnings Total minority interest Total equity Equity Contributed equity Reserves Retained earnings/(accumulated losses) Total members interest in equity Total external minority interest Total equity noTes ConsoLIDATeD 2007 $’000 2006 $’000 24,684 2,703 10,532 37,919 20,725 (230) 9,700 30,195 504,561 98,260 602,821 446,550 67,357 513,907 6,240 (1,043) 5,197 112,956 - 40,615 153,571 1,321 2,376 3,697 5,557 (628) 4,929 99,671 1,908 20,197 121,776 1,321 983 2,304 765,286 642,916 803,205 673,111 9 648,440 572,503 2,703 148,365 799,508 3,697 1,678 96,626 670,807 2,304 803,205 673,111 19 consolidated statement of changes in equity YeAR enDeD 30 June 2007 Consolidated Total equity At 1 July 2006 IssueD CAPITAL $’000 AsseT ReVALuATIon ReseRVe $’000 FoReIGn CuRRenCY TRAnsLATIon $’000 eMPLoYee eQuITY beneFITs $’000 ReTAIneD eARnInGs $’000 MInoRITY InTeResT $’000 803,205 572,503 1,907 (229) - 96,626 2,304 ToTAL eQuITY $’000 673,111 673,111 - (1,907) - - 1,907 - - - - - - (821) (198) (1,019) Foreign currency translation - - 64 - - - - - - - 337 - - - - - 359 - 337 64 359 sale of property, plant and equipment Tax on options taken directly to equity share of associate’s retained earnings Adjustment resulting from changes in associated entities Total income and expense for the year recognised directly in equity - (1,907) 64 - 1,782 (198) (259) net income for the year - - - - 118,811 1,591 120,402 Total income for the year - (1,907) 64 - 120,593 1,393 120,143 equity raisings (net of issue costs) 98,434 - - - - - 98,434 Distribution to securityholders - - - - (68,854) - Treasury shares (22,497) - - - - - (68,854) (22,497) share based payments - - - 2,868 - - 2,868 At 30 June 2007 648,440 - (165) 2,868 148,365 3,697 803,205 At 1 July 2005 351,825 - (210) - 51,145 1,944 404,704 Fair value adjustment of loans hedged by interest rate swaps Revaluation of property, plant & equipment - - - - (4,869) - (4,869) - 1,907 - - (858) - 1,049 Disposal of a subsidiary - - - - 165 - 165 Foreign currency translation reserve - - (19) - - - (19) Recognition of unearned revenue for amortisation - - Total income and expense for the year recognised directly in equity - 1,907 - - (380) - (380) (19) - (5,942) - (4,054) net income for the year - - - - 101,236 360 101,596 Total income and expense for the year - 1,907 (19) - 95,294 360 97,542 equity raisings (net of issue costs) 124,480 - - - - - 124,480 net impact of merger with ADIF 96,198 - - - 1,148 - 97,346 Distribution to securityholders - - - - (50,961) - (50,961) At 30 June 2006 572,503 1,907 229) - 96,626 2,304 673,111 20 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group consolidated cash flow statement YeAR enDeD 30 June 2007 Cash flows from operating activities Income receipts Interest received Distributions received Income tax (paid)/received borrowing costs paid operating payments Net cash flows from operating activities Cash flows from investing activities Payments for investments and funds advanced Proceeds from sale and settlement of investments and funds repaid Cash acquired on ADIF merger Advances to related entities Purchase of a controlled entity Purchase of plant and equipment Disposal of property, plant and equipment Purchase of investment properties Disposal of investment properties Payment for other investments Net cash flows used in investing activities Cash flows from financing activities Proceeds from issue of stapled securities Payment of finance costs Repayment of borrowings Proceeds from borrowings Distributions paid Net cash flows from financing activities Net increase/(decrease) in cash and cash equivalents net foreign exchange differences Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year ConsoLIDATeD 2007 $’000 2006 $’000 101,918 55,146 16,627 21,629 1,139 867 806 (28,306) (16,914) 75,270 (156) (12,431) (14,680) 50,375 (333,953) (162,458) 298,279 90,724 - 3,082 (141,458) 828 - - (2,302) (9,516) 23,056 - (68,924) (171,387) 134,664 29,202 (8,849) - (99,487) (219,525) 64,197 144,017 (49) - (190,801) (86,061) 215,906 174,523 (66,075) (47,730) 23,178 184,749 (1,039) 15,599 - 91 20,107 4,417 19,068 20,107 21 annual financial report / continued notes to the concise financial statements 30 June 2007 1. CoRPoRATe InFoRMATIon Abacus Property Group (APG or the Group) is comprised of Abacus Group Holdings Limited (AGHL), Abacus Trust (AT), Abacus Income Trust (AIT) and Abacus Group Projects Limited (AGPL). shares in AGHL and AGPL and units in AT and AIT have been stapled together so that neither can be dealt with without the other. The securities trade as one security on the Australian stock exchange under the code AbP. The financial report of the Group for the year ended 30 June 2007 was authorised for issue in accordance with a resolution of the directors on 30 August 2007. The nature of the operations and principal activities of the Group are described in the Directors’ Report. is also recommended that the annual financial report be considered together with any public announcements made by the Group during the year ended 30 June 2007 in accordance with the continuous disclosure obligations arising under the Corporations Act 2001. The financial report has also been prepared on a historical cost basis, except for investment properties and derivative financial instruments which have been measured at fair value, interests in joint ventures which are accounted for using the equity method, and certain investments measured at net market value. The carrying values of recognised assets and liabilities that are covered by interest rate swap arrangements, are adjusted to record changes in the fair values attributable to the risks that are being covered by derivative financial instruments. 2. suMMARY oF sIGnIFICAnT ACCounTInG PoLICIes bAsIs oF PRePARATIon The concise financial report has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting standards. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Group under AsIC Class order 98/100. The Group is an entity to which the class order applies. The concise financial report has been derived from the Annual Financial Report but does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the Group as the full financial report. The concise financial report should be read in conjunction with the Annual Financial Report of AT, AIT and AGPL. It sTATeMenT oF CoMPLIAnCe except for the amendments of AAsb 101 Presentation of Financial statements and AAsb 2007-4 amendments to Australian Accounting standards arising from eD 151 and other Amendments, which the Group has early adopted, Australian Accounting standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 30 June 2007. These are outlined in the following table. 22 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group ReFeRenCe suMMARY AAsb 2005-10 Amending standard issued as a consequence of AAsb 7 Financial Instruments: Disclosures. APPLICATIon DATe oF sTAnDARD* 1 January 2007 AAsb 2007-1 Amending standard issued as a consequence of AAsb Interpretation 11 AAsb 2 – Group and Treasury Share Transactions. 1 March 2007 AAsb 2007-3 Amending standard issued as a consequence of AAsb 8 Operating Segments. 1 January 2009 AAsb 2007-7 Amending standards for wording errors, discrepancies and inconsistencies. 1 July 2007 IMPACT on GRouP FInAnCIAL RePoRT AAsb 7 is a disclosure standard so will have no direct impact on the amounts included in the Group’s financial statements. However, the amendments will result in changes to the financial instrument disclosures included in the Group’s financial report. This is consistent with the Group’s existing accounting policies for share-based payments, so the standard is not expected to have any impact on the Group’s financial report. AAsb 8 is a disclosure standard so will have no direct impact on the amounts included in the Group’s financial statements. However, the standard is expected to have an impact on the Group’s segment disclosures as segment information included in internal management reports is more detailed than that currently reported under AAsb 114 Segment Reporting. The amendments are minor and do not affect the recognition, measurement or disclosure requirements of the standards. Therefore the amendments are not expected to have any impact on the Group’s financial report. APPLICATIon DATe FoR GRouP* 1 July 2007 1 July 2007 1 July 2009 1 July 2007 1 January 2007 Refer to AAsb 2005-10 above. 1 July 2007 1 January 2009 1 november 2006 Refer to AAsb 2007-3 above. 1 July 2009 The prohibitions on reversing impairment losses in AAsb 136 and AAsb 139, which are to take precedence over the more general statement in AAsb 134, are not expected to have any impact on the Group’s financial report. 1 July 2007 1 March 2007 Refer to AAsb 2007-1 above 1 July 2007 AAsb 7 AAsb 8 AAsb Interpretation 10 AAsb Interpretation 11 new standard replacing disclosure requirements of AAsb 130 Disclosures in the Financial Statements of Banks and Similar Financial Institutions and AAsb 132 Financial Instruments: Disclosure and Presentation. new standard replacing AAsb 114 Segment Reporting, which adopts a management approach to segment reporting. Addresses an inconsistency between AAsb 134-interim Financial Reporting and the impairment requirements relating to goodwill in AAsb 136 Impairment of Assets and equity instruments classified as available for sale in AAsb 139 Financial Instruments: Recognition and Measurement Addresses whether certain types of share-based payment transactions with employees (or other suppliers of goods and services) should be accounted for as equity-settled or as cash-settled transactions under AAsb 2 share-based-Payment. It also specifies the accounting in a subsidiary’s financial statements for share-based payment arrangements involving equity instruments of the parent. *designates the beginning of the applicable annual reporting period 23 annual financial report / continued notes AAsb 2007-2, AAsb 2007-5, AAsb 2007-6, AAsb 123 and AAsb Interpretation 12 will have no application to the Group. The financial report complies with Australian Accounting standards, which include Australian equivalents to International Financial Reporting standards (AIFRs). The financial report also complies with International Financial Reporting standards (IFRs). bAsIs oF ConsoLIDATIon The consolidated financial statements comprise the financial statements of AGHL and its subsidiaries, AT and its subsidiaries, AGPL and its subsidiaries, and AIT and its subsidiaries collectively referred to as the Group. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies with adjustments made to bring into line any dissimilar accounting policies that may exist. All inter-Group balances and transactions, including unrealised profits from intra-group transactions, have been eliminated in full and subsidiaries are consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group. The acquisition of subsidiaries is accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition. Minority interests represent those equity interests in Abacus Hobart Growth Trust, The Wollongong Property Trust, Abacus Independent Retail Property Trust and Abacus Matson Holdings Limited that are not held by the Group and are presented separately in the income statement and within equity in the consolidated balance sheet. 24 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group 3. seGMenT InFoRMATIon The Group’s primary business segments are Property, Funds Management, Property Finance and Joint Ventures and Developments. The Property division comprises the ownership of commercial, retail and industrial properties. The Funds Management division develops, originates and manages off balance sheet funds in addition to discharging the Group’s responsible entity obligations. Property Finance comprises mortgage lending and related property financing solutions. Joint Ventures & Developments comprise investments in joint venture activities and in securities of other listed and unlisted property trusts. busIness seGMenTs Year ended 30 June 2007 Revenue PRoPeRTY $’000 FunDs MAnAGeMenT $’000 PRoPeRTY JoInT VenTuRes FInAnCe & DeVeLoPMenTs $’000 $’000 ToTAL $’000 Revenue from external customers 73,185 38,230 14,226 2,614 128,255 Realised gains on investments unrealised gains on investments unallocated revenue Total consolidated revenue Result segment result unallocated revenue Profit/(loss) before tax and finance costs Finance costs Profit/(loss) before income tax and minority interest Income tax expense Net profit for the year Assets segment assets unallocated assets (a) Total assets Liabilities segment liabilities unallocated liabilities (b) Total liabilities Other segment information Depreciation and amortisation Increase in fair value of investments Cash flow information net cash flow from operating activities net cash flow from investing activities net cash flow from financing activities 23,107 33,270 - - - - - - - - 1,365 - 23,107 34,635 1,986 129,562 38,230 14,226 3,979 187,983 100,918 29,605 12,285 2,038 144,846 1,986 146,832 (21,909) 124,923 (4,521) 120,402 834,474 133,149 120,491 70,165 1,158,279 33,881 5,962 672 41 111,975 1,270,254 40,556 426,493 467,049 4,549 33,270 29,244 88,654 (5,475) 461 - - 5,010 - - 1,365 34,635 9,779 (98,633) - 29,730 (61,605) 24,154 6,517 (27,904) 4,500 75,270 (99,488) 23,179 (a) unallocated assets include goodwill, cash and other assets. (b) unallocated liabilities include interest-bearing liabilities, tax liabilities and other liabilities. 25 annual financial report / continued notes busIness seGMenTs Year ended 30 June 2006 Revenue PRoPeRTY $’000 FunDs MAnAGeMenT $’000 PRoPeRTY JoInT VenTuRes FInAnCe & DeVeLoPMenTs $’000 $’000 ToTAL $’000 Revenue from external customers Realised and unrealised gains on investments unallocated revenue Total consolidated revenue 44,976 45,110 - 20,237 16,452 - - - - 3,462 650 - 85,127 45,760 961 90,086 20,237 16,452 4,112 131,848 Result segment result unallocated revenue Profit/(loss) before tax and finance costs Finance costs Profit/(loss) before income tax and minority interest Income tax expense Net profit for the year Assets segment assets unallocated assets Total assets Liabilities segment liabilities unallocated liabilities Total liabilities Other segment information Depreciation and amortisation Increase in fair value of investments Cash flow information net cash flow from operating activities net cash flow from investing activities net cash flow from financing activities 75,033 16,190 15,296 2,956 109,475 961 110,436 (7,832) 102,604 (744) 101,860 786,945 40,629 243,251 90,509 1,161,334 31,337 3,058 3,663 - 1,946 1,163,280 38,058 452,111 490,169 1,306 40,507 40 - - - - 650 1,346 41,157 9,096 15,369 (156,495) 140,345 - - 20,949 (45,017) 40,750 4,961 50,375 (18,013) (219,525) 3,654 184,749 26 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group 4. ReVenue (a) Finance income Interest on mortgage loans bank interest Total finance income (b) Funds management income Asset management fee Property management fee Interest on loans to related entities Consulting and other income sale of units in AHF* sale of the Rendezvous Hotel Total funds management income (c) Net realised gains on disposal of: Investment properties and property-related investments units in Abacus Miller street Trust* Total net realised gains on investments (d) Unrealised gains on investments Change in fair value of options - unlisted Change in fair value of securities - listed Change in fair value of investment properties Total unrealised gains on investments * sale was to new fund managed by AFML ConsoLIDATeD 2007 $’000 2006 $’000 13,386 16,452 1,986 961 15,372 17,413 3,253 3,075 438 580 7,803 7,400 5,548 9,182 8,672 - 12,516 - 38,230 20,237 13,284 4,603 9,823 - 23,107 4,603 943 422 748 (98) 33,270 40,507 34,635 41,157 27 annual financial report / continued notes 5. eXPenses (a) Employee benefits expense Wages and salaries share based payments other Total employee benefits expense (b) Depreciation and amortisation expense Depreciation of property, plant and equipment - hotels Depreciation of property, plant and equipment - other Amortisation of software Amortisation of intangible assets Amortisation - other Total depreciation and amortisation expense (c) Finance costs Interest on loans Holding costs - AHF and Rendezvous Hotel Amortisation of finance costs Total finance costs (on historical basis) unrealised gains on interest rate swaps Total finance costs (d) Other expenses Property outgoings Custody fees Registry maintenance costs Rental expenses other Total other expenses 28 AbACus AnnuAL FInAnCIAL RePoRT 2007 ConsoLIDATeD 2007 $’000 8,465 2,868 273 2006 $’000 7,506 - 389 11,606 7,895 3,268 429 32 119 1,162 5,010 583 16 24 30 693 1,346 23,839 13,696 4,671 634 29,144 (7,235) 21,909 963 342 15,001 (7,169) 7,832 14,931 8,462 170 405 420 124 338 332 8,609 2,915 24,535 12,171 abacus property group 6. DIsTRIbuTIons PAID AnD PRoPoseD (a) Distributions paid during the year Final distribution for financial year 30 June: 3.00 cents per unit (2005: 2.90 cents) Interim distributions paid during the year: september: 3.00 cents per unit (2006: 2.90 cents) December: 3.00 cents per unit (2006: 2.90 cents) March: 3.25 cents per unit (2006: 3.00 cents) (b) Distributions proposed and recognised as a liability Final distribution payable for the June quarter: 3.25 cents per unit (2006: 3.00 cents) The distributions were paid from the Abacus Trust and Abacus Income Trust (which do not pay tax provided they distribute all their taxable income) hence, there were no franking credits attached. (c) Franking credit balance The amount of franking credits available for the subsequent financial year are: - franking account balance as at the end of the financial year at 30% (2006: 30%) - franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date - franking credits that will arise from the payment of income tax payable as at the end of the financial year ConsoLIDATeD 2007 $’000 2006 $’000 15,491 9,942 15,926 16,013 18,496 65,926 11,179 11,179 13,112 45,412 18,419 15,491 6,510 5,590 52 28 13,701 7,139 121 5,739 29 annual financial report / continued notes 7. eARnInGs PeR sTAPLeD seCuRITY Attributable to Group securityholders basic earnings per stapled security are calculated by dividing net profit for the year attributable to securityholders by the weighted average number of stapled securities outstanding during the year. noTes ConsoLIDATeD basic earnings per stapled security Diluted earnings per stapled security basic earnings per stapled security excluding fair value adjustments 1 2007 CenTs 21.48 21.33 14.43 Diluted earnings per stapled security excluding fair value adjustments 1 14.33 2007 $‘000 2006 CenTs 24.22 24.22 12.92 12.92 2006 $‘000 Earnings used in calculating earnings per security: net profit attributable to securityholders net profit attributable to stapled securityholders excluding fair value adjustments 1 118,811 101,236 79,810 53,560 2007 ‘000 2007 ‘000 Weighted average number of stapled securities: Weighted average number of stapled securities for basic earnings per share 553,184 418,056 effect of dilution: stapled security options Weighted average number of stapled securities adjusted for the effect of dilution 3,703 - 556,887 418,056 options granted to employees (including key management personnel) are considered to be potential stapled securities and have been included in the determination of diluted earnings per stapled security to the extent they are dilutive. These options have not been included in the determination of basic earnings per stapled security. (1) Fair value adjustments include property revaluations, revaluations of derivatives and other financial instruments and share based payments. 30 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group 8. InVesTMenT PRoPeRTIes Investment properties are carried at the Directors’ determination of fair value and are based on independent valuations where appropriate. The determination of fair value includes reference to the original acquisition cost together with capital expenditure since acquisition and either the latest full independent valuation or latest independent update. Total acquisition costs include incidental costs of acquisition such as property taxes on acquisition, legal and professional fees and other acquisition related costs. Independent valuation of each investment property is conducted annually either in December or June of each year. This schedule was adopted in the current financial year. Independent valuations are prepared using both the capitalisation of net income method and the discounting of future cashflows to their present value method. Capital expenditure since valuation may include purchases of sundry properties (and associated expenses of stamp duty, legal fees etc) and other capital refurbishment and repair expenditure. PRoPeRTY (a) Current asset 109 Pitt street, sydney, nsW (i) (b) Non-current assets 66 Christina Road, Villawood, nsW (i) CsIRo, Limestone Ave., Campbell, ACT (iv) 4 Ray Road, epping, nsW (ii) Ashfield Mall, Ashfield, nsW (iv) 10-12 Pike street, Rydalmere, nsW (v) Liverpool Plaza, Liverpool, nsW (iv) Macquarie street, Liverpool, nsW (iii) Moore street, Liverpool, nsW (iii) Aspley Village shopping Centre (iii) Westpac (formerly santos) House, Adelaide sA (i) 50 Miller street, north sydney, nsW (ii) Homemaker City, Moorabbin, nsW 12-14 butler Road, Hurstville, nsW 27 Grant street, Port Macquarie, nsW ACQuIsITIon DATe CosT InCLuDInG ALL ADDITIons $’000 InDePenDenT VALuATIon DATe ConsoLIDATeD VALue 2007 $’000 2006 $’000 22-Jun-99 9,924 30-Jun-06 12,524 18,255 28-May-02 8,213 30-Jun-06 12,426 12,400 21-Jun-02 12,686 30-Jun-07 20,000 18,000 30-Apr-97 27,043 30-Jun-07 54,500 51,000 15-sep-97 86,806 30-Jun-06 116,843 113,000 1-oct-98 14,262 30-Jun-07 22,400 19,300 16-Aug-04 32,860 30-Jun-06 37,020 37,000 21-sep-05 5,451 30-Jun-06 5,503 5,503 14-oct-05 2,265 30-Jun-06 2,297 2,297 15-Feb-06 16,374 1-Feb-06 18,607 16,579 5-oct-04 54,327 30-Jun-07 68,850 51,000 17-Dec-04 38,349 30-Jun-06 - 40,000 11-Aug-06 38,690 6-Jul-06 38,690 - 31-May-07 18,714 18-May-07 26-Jun-07 16,021 6-Jun-07 18,714 16,021 - - Properties owned by AT and its controlled entities 431,871 366,079 1-5 Lake Dingley, Melbourne 8 station street, Wollongong, nsW (ii) 367 Peel street, Tamworth, nsW (iii) 500 Princes Highway, noble Park, VIC (ii) 31-33 Windorah Avenue, stafford, QLD (iv) Lennons Plaza, 66 Queen st., QLD (iv) 23-43 Tattersall Rd, Kings Park, nsW (v) 28-May-03 30-Jun-03 22-Feb-04 27-nov-03 3-nov-03 19-Dec-03 16-Feb-04 11,956 7,866 11,961 19,222 5,109 32,272 15,937 30-Jun-06 13,300 13,300 30-Jun-06 12,000 12,000 30-Jun-06 12,700 12,700 30-Jun-07 21,000 19,920 30-Jun-07 6,500 5,740 30-Jun-06 39,000 39,000 30-Jun-06 - 17,100 31 annual financial report / continued notes 8. InVesTMenT PRoPeRTIes / ConTInueD PRoPeRTY 26 savage street & 681 Curtin Avenue, Pinkenba, QLD (iv) 671 Gympie Rd, Chermside, QLD (i) 9-14 Yates street, Mawson Lakes, sA (viii) 36-52 national blvd, Campbellfield, VIC (iv) Gympie Market Place, Gympie (ii) 29-47 & 18-20 becker st, Cobar nsW (iv) 208 Howick street, bathurst, nsW (iv) 50 Mostyn street, Castlemaine, VIC (iv) 29 Queen street, north bundaberg, QLD (v) 93 Victoria street, eaglehawk, VIC (iv) 12 Docker street, Wangaratta, QLD (iv) Kingscote Kangaroo Island, sA (iv) 96-98 Victoria street, st.George, QLD (ii) 293-295 Grt eastern Highway, Midland WA (iv) 50 bamford Lane, Mt View Plaza, Kirwan, QLD Mid City Plaza, Maryborough, VIC Properties owned by AIT’s controlled entities 244 Liverpool Road, Ashfield, nsW (iv) 252 Liverpool Road, Ashfield, nsW (iv) 254 Liverpool Road, Ashfield, nsW (iv) 256 Liverpool Road, Ashfield, nsW (iv) Project development costs ACQuIsITIon DATe CosT InCLuDInG ALL ADDITIons $’000 InDePenDenT VALuATIon DATe ConsoLIDATeD VALue 2007 $’000 2006 $’000 23-Jan-04 17-Dec-04 7-Jun-05 18-Jul-05 7-Jun-04 5-Aug-04 11-May-05 11-May-05 18-Jul-05 29-sep-05 31-oct-05 21-Dec-05 18-Aug-05 21-Jun-06 31-Aug-06 29-Jun-07 26-Mar-98 2-Mar-00 31-Aug-01 29-sep-98 5,040 4,722 6,857 8,832 7,340 1,174 3,490 8,092 30-Jun-07 12,000 8,970 30-Jun-06 5,877 5,900 30-Jun-06 5,700 5,700 30-Jun-07 10,300 9,000 30-Jun-07 9,000 7,450 30-Jun-07 30-Jun-05 1,950 1,650 - 3,490 30-Jun-07 10,200 9,342 15,536 11-Aug-05 15,536 9,201 6,150 2,965 4,337 3,029 7,228 7,743 4,802 30-Jun-07 6,900 6,580 30-Jun-07 3,100 2,700 30-Jun-07 4,500 4,337 30-Jun-07 3,200 2,830 30-Jun-07 10,250 7,223 25-May-06 7,743 - 23-Apr-07 4,802 - 215,558 204,133 2,507 1,107 2,662 820 1,099 Independent valuation, 244-256 Liverpool Road 30-Jun-06 6,900 6,900 Woodlands Drive, braeside, VIC 4-8 Jacobs street, bankstown (vi) 20-Dec-06 1,007 1,007 - 2-Dec-02 5,161 30-Jun-06 5,200 5,200 13,107 12,100 660,536 582,312 673,060 600,567 Properties owned by AGHL and its controlled entities Non-current - investment properties Total investment properties (i) As valued by Knight Frank Pty Limited (ii) As valued by Colliers International Consultancy and Valuation Pty Ltd (iii) As valued by urbis Property Consultants (iv) As valued by Cb Richard ellis Pty Ltd (v) As valued by FPD savills (nsW) Pty Limited (vi) As valued by DTZ Australia 32 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group Notes: (a) The aggregated value at 30 June 2007 includes capital expenditures after the last valuation date. (b) The property at 109 Pitt street is currently under refurbishment and has been subdivided into strata units. The retail component and the leasehold interest in the car park were sold in prior financial years while the sale of the commercial units continues at 30 June 2007. (c) The Abacus Income Trust owns 98.4% of the units in the Wollongong Property Trust which owns 8 station street, Wollongong. (d) The Abacus Income Trust owns 100% of the units in the Abacus Matson Resort Trust which owns 75% of interest in 209-217 Abbot street, Cairns, QLD. (e) The Abacus Income Trust owns 100% of the units in Abacus Retail Property Trust which owns 75% of the units in Abacus Independent Retail Property Trust which owns: Gympie Market Place, Gympie , QLD; 29-47 & 18-20 Becker St, Cobar, NSW; 50 Mostyn street, Castlemaine, VIC. 93 Victoria street, eaglehawk, VIC 96-98 Victoria street, st George, QLD Mid city Plaza, Maryborough, VIC (f) The investment properties are used as security over the bank loans. 29 Queen Street, North Bundaberg, QLD 12 Docker Street, Wangaratta, QLD Kingscote Kangaroo Island, sA 293-295 Great eastern Highway, Midland, WA 50 bamford Lane, Mt View Plaza, Kirwan, QLD ReConCILIATIons Reconciliation of the carrying amounts of investment properties at the beginning and end of the current and previous financial year: Investment properties Carrying amount at beginning of the financial year Additions and capital expenditures Acquisition through business combinations net revaluation increments Disposals / transfer Carrying amount at end of the financial year ConsoLIDATeD VALue 2007 $’000 2006 $’000 600,567 352,744 105,890 47,788 - 179,596 33,270 40,507 (66,667) (20,068) 673,060 600,567 33 annual financial report / continued notes 9. ConTRIbuTeD eQuITY (a) Issued stapled securities stapled securities securities financed by APG under the esLP Total contributed equity (b) Movements in contributed equity for the year At 1 July 2005 - institutional equity raising - distribution reinvestment plan - net impact of merger with ADIF (1) - less transaction costs At 30 June 2006 - security purchase plan - institutional equity raising - distribution reinvestment plan - less transaction costs At 30 June 2007 - securities financed by APG under the esLP ConsoLIDATeD 2007 $’000 2006 $’000 670,937 572,503 (22,497) - 648,440 572,503 sTAPLeD seCuRITIes nuMbeR ‘000 VALue $’0000 342,836 351,825 92,636 125,500 1,600 2,256 79,310 96,199 - (3,277) 516,382 572,503 13,842 19,518 36,585 60,000 11,824 20,416 - (1,500) 578,633 670,937 - (22,497) 578,633 648,440 (1) net impact of merger with ADIF represents the aggregation of outstanding contributed equity (net of issue costs) as at 31 March 2006 (merger implementation date). securityholders have the right to receive dividends from AGHL and AGPL, as declared, and distributions from AT and AIT, and in the event of winding up of the Group entities, to participate in the proceeds from sale of all surplus assets in proportion to the number of stapled securities held. securityholders can vote their shares and units in accordance with the Corporations Act, either in person or by proxy, at a meeting of either AGHL, AGPL, AT and AIT (as the case maybe). 34 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group 10. eVenTs AFTeR THe bALAnCe sHeeT DATe on 26 July 2007, the Group completed a capital raising via an institutional placement for $100 million and issued 52.6 million stapled securities at $1.90 per stapled security. In July 2007, the Group exchanged contracts to acquire two commercial office buildings for $23 million in the Varsity Lakes business district on the Gold Coast, Queensland. other than as disclosed in this report and to the knowledge of directors, there has been no other matter or circumstance that has arisen since the end of the financial year that has or may affect the Group’s operations in future financial years, the results of those operations or the Group’s state of affairs in future financial years 35 annual financial report / continued directors’ declaration In accordance with a resolution of the Directors, we state that: (1) in the opinion of the Directors: (a) the concise financial statements, notes and the additional disclosures included in the Directors’ report designated as audited, of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. (2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial year ending 30 June 2007. on behalf of the board JoHn THAMe Chairman FRAnK WoLF Managing Director sydney, 12 september 2007 36 AbACus AnnuAL FInAnCIAL RePoRT 2007 n Ernst & Young Centre 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 n Tel 61 2 9248 5555 Fax 61 2 9248 5959 DX Sydney Stock Exchange 10172 independent auditor’s report to members of abacus group holdings limited The accompanying concise financial report of Abacus Group Holdings Limited comprises the balance sheet as at 30 June 2007, the income statement, statement of changes in equity and cash flow statement for the year then ended and related notes, derived from the audited financial report of Abacus Group Holdings Limited for the year ended 30 June 2007. The concise financial report also includes the director’s declaration. The concise financial report does not contain all the disclosures required by the Australian Accounting standards. Director’s Responsibility for the Concise Financial Report The Directors are responsible for the preparation and presentation of the concise financial report in accordance with Accounting standard AAsb 1039 Concise Financial Reports, and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation of the concise financial report; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Autitor’s Responsibility our responsibility is to express an opinion on the concise financial report based on our audit procedures. We have conducted an independent audit, in accordance with Australian Auditing standards, of the financial report of Abacus Group Holdings Limited for the year ended 30 June 2007. our audit report on the financial report for the year was signed on 30 August 2007 and was not subject to any modification. The Australian Auditing standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report for the year is free from material misstatement. our procedures in respect of the concise financial report included testing that the information in the concise financial report is derived from, and is consistent with, the financial report for the year, and examination on a test basis, of evidence supporting the amounts and other disclosures which were not directly derived from the financial report for the year. These procedures have been undertaken to form an opinion whether, in all material respects, the concise financial report complies with Accounting standard AAsb 1039 Concise Financial Reports. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001 provided to the directors of Abacus Group Holdings Limited on 30 August 2007. Liability limited by a scheme approved under Professional Standards Legislation. 37 independent auditor’s report to members of abacus group holdings limited Auditor’s Opinion In our opinion, the concise financial report and the directors’ declaration of Abacus Group Holdings Limited for the year ended 30 June 2007 complies with Accounting standard AAsb 1039 Concise Financial Reports. eRnsT & YounG eD PsALTIs Partner sydney, 12 september 2007 38 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus trust Directory Responsible entity Abacus Funds Management Limited Level 34, Australia Square 264-278 George Street SYDNEY NSW 2000 Tel (02) 9253 8600 Fax (02) 9253 8616 Website www.abacusproperty.com.au Directors of responsible entity John Thame, Chairman Frank Wolf, Managing Director David Bastian* (appointed 14/11/06) Dennis Bluth Malcolm Irving Len Lloyd William Bartlett (appointed 14/02/07) Phillip Green (resigned 1/9/06) *Resigned as Managing Director on 30/09/06 Company secretary Ellis Varejes Custodian Perpetual Trustee Company Limited Level 12, Angel Place 123 Pitt Street SYDNEY NSW 2000 Auditor Ernst & Young Ernst & Young Centre 680 George Street SYDNEY NSW 2000 Compliance Plan Auditor Ernst & Young Ernst & Young Centre 680 George Street SYDNEY NSW 2000 Registry Computershare Investor Services Pty Ltd Level 3, 60 Carrington Street SYDNEY NSW 2000 Tel (02) 1800 635 323 Toll free Fax (02) 8234 5050 Contents 40 Directors’ Report 44 Auditor’s Independence Declaration 45 46 47 Consolidated Income and Distribution Statements Consolidated Balance Sheet Consolidated Statement of Changes in Equity 48 Consolidated Cash Flow Statement 49 Notes to the Concise Financial Statements Directors’ Declaration Independent Auditor’s Report 58 59 It is recommended that this Annual Financial Report should be read in conjunction with the Annual Financial Reports of Abacus Income Trust, Abacus Group Holding Limited and Abacus Group Projects Limited for the year ended 30 June 2007. It is also recommended that the report be considered together with any public announcements made by the Abacus Property Group in accordance with its continuous disclosure obligations arising under the Corporations Act 2001. 39 annual financial report / continued directors’ report DIReCToRs RePoRT The directors of Abacus, the responsible entity of the Abacus Trust (AT or the Trust) submit their report for the Trust for the year ended 30 June 2007 and the auditor’s report thereon. DIReCToRs The directors of the responsible entity in office during the financial year and until the date of this report are set out below: John Thame Chairman (non-executive) Frank Wolf Managing Director (executive) David bastian* William bartlett non-executive director (appointed 14/11/06) non-executive director (appointed 14/02/07) Dennis bluth non-executive director Phillip Green non-executive director (resigned 1/9/06) Malcolm Irving non-executive director Len Lloyd executive director * Resigned as Managing Director on 30 september 2006 As at the date of this report, the relevant interests of the directors and specified executives in the stapled securities of Abacus Property Group were as follows: DIReCToRs J Thame F Wolf D bastian M Irving L Lloyd APG seCuRITIes HeLD nuMbeR oF oPTIons oVeR APG seCuRITIes 50,000 9,710,274* 4,486,352 30,014 785,925* - 1,343,284 - - 477,612 * The holdings of Dr Wolf and Mr Lloyd include securities acquired under the executive share Loan Plan that are treated as options. PRInCIPAL ACTIVITIes The principal activities of the Trust during the course of the year ended 30 June 2007 include: • investment in commercial, retail and industrial properties; • property finance; and • participation in property joint ventures and developments TRusT sTRuCTuRe Abacus Property Group (APG) comprises Abacus Group Holding Limited (AGHL), Abacus Trust (AT), Abacus Group Project Limited (AGPL) and Abacus Income Trust (AIT). shares in AGHL and AGPL and units in AT and AIT and have been stapled together so that none can be dealt with without the other. An APG security consists of one share in AGHL, one unit in AT, one share in AGPL and one unit in AIT. A transfer, issue or reorganisation of a share or unit in any of the component parts is accompanied by a transfer, issue or reorganisation of a share or unit in each of the other component parts. AT is an Australian registered managed investment scheme. Abacus, the responsible entity of AT, is incorporated and domiciled in Australia and is a wholly owned subsidiary of AGHL. oPeRATInG PRoFIT The Trust earned a net profit attributable to unitholders of $89.12 million for the year ended 30 June 2007 (June 2006: $82.17 million). The Trust earned a net profit attributable to unitholders (excluding net property and derivative financial instruments revaluation movements) of $64.39 million (June 2006: $54.05 million). DIsTRIbuTIons AT has a distribution of $7.84 million (1.36 cents per unit) declared and provided for in respect of the quarter ended 30 June 2007. AT funded all distributions to securityholders for the year ended 30 June 2007. 40 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus trust ReVIeW oF oPeRATIons TRusT oVeRVIeW The Trust operates within Australia and holds an investment portfolio of commercial, retail and industrial properties, and mortgage loan investments. AT’s revenues and net profit grew in the year ended 30 June 2007: Revenue net profit earnings per unit ex fair value adjustments Distributions per unit (cents) similarly AT’s financial condition also strengthened during the year: Total assets ($ million) Gearing (%) net assets ($ million) net tangible assets ($ million) nTA per security ($) securities on issue ($ million) Weighted average securities on issue ($ million) 30 June 2007 $’000 30 June 2006 $’000 % CHAnGe 119,394 89,123 16.11 10.61 98,478 82,172 19.66 11.80 21% 8% (18%) (10%) 30 June 2007 $’000 30 June 2006 $’000 % CHAnGe 966 28% 620 620 1.07 579 557 775 27% 514 514 1.00 516 418 25% 4% 21% 21% 7% 12% 33% busIness ACTIVITIes business activities which contributed to the Trust’s operating performance and financial condition for the year were: Investment property portfolio • The Trust acquired Moorabbin House and Home Centre for $ 38.7 million. The acquisition brought the value of the total investment property portfolio to $414.2 million at 31 December 2006 from $366.1 million at 30 June 2006. • The Trust acquired 12-14 Butler Road, Hurstville for $18.71 million. • The Trust acquired 27 Grant Street, Port Macquarie for $16.02 million. • On 30 June 2007, the Trust completed sale of 70% units in Miller Street Holding Trust, which is the parent entity of Miller street Trust, realising a profit of $9.8 million. Property finance • AT increased the size of its lending portfolio (including accrued interest) by $8.7 million to $108.7 million at 30 June 2007 compared to $100 million at 30 June 2006. • AT advanced approximately $19.6 million in loan funds to AFP and $18 million in loan funds to AGHL. At 30 June 2007, the balance of the loan to associated Group entities was approximately $205 million. 41 annual financial report / continued directors’ report ReVIeW oF FInAnCIAL ConDITIon During the year ended 30 June 2007, the contributed equity of the Trust increased $74 million (17%) to $521 million compared to $447 million at 30 June 2006. • Total equity increased 21% or $106 million to $619.5 million at 30 June 2007 compared to $513.9 million at 30 June 2006, reflecting the additional capital raised, growth in retained earnings and net positive revaluations during the year. In early July 2006, the APG completed a $19.5 million capital raising via a security Purchase Plan (13.8 million securities at $1.41) and approximately $15.3 million has been allocated to AT. In early December 2006, the APG completed a $60 million capital raising via a security Purchase Plan (36.59 million securities at $1.64) and approximately $45.59 million has been allocated to AT. Total equity increased net $105.62 million to $619.53 million at 30 June 2007 compared to $513.91 million at 30 June 2006. net tangible assets per AT unit is $1.07 at 30 June 2007 compared to $1.00 at 30 June 2006. At 30 June 2007, existing bank loan facilities totalled approximately $262 million, of which approximately $232 million was drawn. The Trust manages interest rate exposure on debt facilities through the use of interest rate swap contracts. At 30 June 2007, approximately $165 million or 71% of total bank debt facilities were covered by interest rate swap arrangements at an average interest rate (including bank margin) of 6.29% and an average term to maturity of 3.5 years. The Trust’s net debt gearing ratio (calculated as total interest bearing liabilities less cash assets divided by total assets) was 28% at 30 June 2007 compared to 27% at 30 June 2006. unITs on Issue At 30 June 2007, 578,633,460 units in AT were on issue (2006: 516,381,609). units on issue increased net 62,251,851 during the year ended 30 June 2007. Fees PAID To THe ResPonsIbLe enTITY AnD AssoCIATes AT paid a management fee out of scheme property to the responsible entity of $2 million for the year ended 30 June 2007 (2006: $2 million). In addition, AT paid property management fees to an associate of the responsible entity, Abacus Property services Pty Limited of $0.5 million (2006: $0.4 million) for the year ended 30 June 2006. sIGnIFICAnT CHAnGes In THe sTATe oF AFFAIRs The following significant changes in the state of affairs of the Trust occurred during the financial year: • Retained earnings (including the impact of revaluations of investment properties and derivative financial instruments) increased $30.9 million to $98.3 at 30 June 2007 compared to $67.4 million at 30 June 2006; 42 AbACus AnnuAL FInAnCIAL RePoRT 2007 sIGnIFICAnT eVenTs AFTeR bALAnCe DATe on 26 July 2007, the APG completed a capital raising via an institutional placement for $100 million (of which $74.45 million was allocated to AT) and issued 52.6 million stapled securities at $1.90 per stapled security. In July 2007, AT exchanged contracts to acquire two commercial office buildings for $23 million in the Varsity Lakes business district on the Gold Coast, Queensland. other than as disclosed in this report and to the knowledge of directors, there has been no matter or circumstance that has arisen since the end of the financial year that has significantly affected, or may affect, the Trust’s operations in future financial years, the results of those operations or the Trust’s state of affairs in future financial years. LIKeLY DeVeLoPMenTs AnD eXPeCTeD ResuLTs The directors have excluded from this report any other information on the likely developments in the operations of the Trust and the expected results of those operations in future financial years which are not of a material nature and would not in the directors’ view be likely to result in unreasonable prejudice to the operation of the Trust. enVIRonMenTAL ReGuLATIon AnD PeRFoRMAnCe The Trust’ environmental responsibilities, such as waste removal and water treatment, have been managed in compliance with all applicable regulations and licence requirements and in accordance with industry standards. no breaches of requirements or any environmental issues have been discovered and brought to the board’s attention. There has been no known significant breaches of any environmental requirements applicable to the Trust. InDeMnIFICATIon AnD InsuRAnCe oF DIReCToRs AnD oFFICeRs As responsible entity of the Trust, Abacus has paid an insurance premium in respect of a contract insuring its directors and full time executive officers and secretary. The terms of this policy prohibit disclosure of the nature of the risks insured or the premium paid. abacus trust AuDIToRs InDePenDenCe DeCLARATIon We have obtained an independence declaration from our auditor, ernst & Young, and such declaration is shown on the following page. RounDInG The amounts contained in this report and in the annual financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Trust under AsIC Class order 98/100. The Trust is an entity to which the Class order applies. signed in accordance with a resolution of the directors. Abacus Funds Management Limited (Abn 66 007 415 590) John Thame Chairman Frank Wolf Managing Director sydney, 12 september 2007 43 n Ernst & Young Centre 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 n Tel 61 2 9248 5555 Fax 61 2 9248 5959 DX Sydney Stock Exchange 10172 auditor’s independence declaration to the directors of abacus funds management limited as the responsible entity for abacus trust In relation to our audit of the financial report of Abacus Trust for the financial year ended 30 June 2007, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. eRnsT & YounG eD PsALTIs Partner sydney, 30 August 2007 44 AbACus AnnuAL FInAnCIAL RePoRT 2007 Liability limited by a scheme approved under Professional Standards Legislation. consolidated income and distribution statements YeAR enDeD 30 June 2007 noTes ConsoLIDATeD 2007 $’000 2006 $’000 Revenue Rental income Finance income Profit from equity accounted investments Income from distributions net realised gains on investments net unrealised gains on investments Total revenue Depreciation and amortisation expense Finance costs other expenses Net profit attributable to unitholders of Abacus Trust Basic earnings per unit Diluted earnings per unit basic earnings per unit excluding fair value adjustments* Diluted earnings per unit excluding fair value adjustments* * based on net profit adjusted for AIFRs fair value adjustments (namely property revaluations, swap mark to market revaluations) sTATeMenT oF DIsTRIbuTIon net profit attributable to unitholders net transfer of undistributed income to unitholders’ funds Distributions paid and payable Distributions paid and payable Weighted average number of securities (‘000) 38,383 4(a) 49,570 1,462 - 9,823 20,156 35,959 37,770 255 - 1,767 22,727 4(b) 4(c) 4(e) 4(d) 4(f) 6 6 6 6 5 5 6 119,394 98,478 (1,067) (10,432) (18,772) 89,123 CenTs 16.11 16.00 11.64 11.56 (653) (6,421) (9,232) 82,172 CenTs 19.66 19.66 12.93 12.93 2007 $’000 2006 $’000 89,123 82,172 (30,566) (31,211) 58,557 50,961 58,557 50,961 556,887 418,056 45 annual financial report / continued consolidated balance sheet As AT 30 June 2007 Current assets Cash and cash equivalents Trade and other receivables Inventories other financial assets other Total current assets Non–current assets Investment properties Investments accounted for using the equity method other financial assets other Total non-current assets Total assets Current liabilities Trade and other payables Interest-bearing loans and borrowings Total current liabilities Non-current liabilities IInterest-bearing loans and borrowings Total non-current liabilities Total liabilities Net assets Equity Contributed equity undistributed income Total equity 46 AbACus AnnuAL FInAnCIAL RePoRT 2007 noTes ConsoLIDATeD 2007 $’000 2006 $’000 884 11,843 50,169 6,789 2,728 - 392,382 316,890 937 1,102 447,100 336,624 7 431,870 366,079 59,201 52,411 23,245 16,725 4,174 3,410 518,490 438,625 965,590 775,249 76,996 43,559 169,575 8,250 246,571 51,809 99,493 209,533 99,493 209,533 346,064 261,342 619,526 513,907 8 521,265 446,550 98,261 67,357 619,526 513,907 abacus trust consolidated statement of changes in equity As AT 30 June 2007 At 1 July 2006 Recognition of 30% swap revaluation Total income and expense for the period recognised directly in equity net income for the period Total income for the period equity raisings (net of issue costs) Distribution to unitholders At 30 June 2007 At 1 July 2005 Fair value adjustment of interest rate swaps Recognition of unearned revenue for amortisation Total income and expense for the period recognised directly in equity net income for the period Total income for the period equity raisings (net of issue costs) net impact of merger with ADIF Distribution to unitholders At 30 June 2006 IssueD CAPITAL $’000 ReTAIneD eARnInGs $’000 ToTAL eQuITY $’000 446,550 67,357 513,907 337 337 337 337 89,123 89,123 - - - - 89,460 74,715 - - (58,558) 89,460 74,715 (58,558) 521,265 98,259 619,524 339,782 41,292 381,074 - - - (4,869) (277) (4,869) (277) (5,146) (5,146) - 82,172 82,172 - 77,026 115,877 - (9,109) - - (50,961) 77,026 115,877 (9,109) (50,961) 446,550 67,357 513,907 47 annual financial report / continued consolidated cash flow statement YeAR enDeD 30 June 2007 Cash flows from operating activities Income receipts Interest received borrowing costs Payments to suppliers and employees Net cash flows from operating activities Cash flows from investing activities Payments for investments and funds advanced Proceeds from settlement of investments and funds repaid Purchase of investment properties Disposal of investment properties Net cash flows used in investing activities Cash flows from financing activities Proceeds from issue of units Payment of issue costs Repayment of borrowings Proceeds from borrowings Distributions paid Net cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period ConsoLIDATeD 2007 $’000 2006 $’000 24,079 27,640 11,728 8,630 (13,860) (3,230) (11,251) (1,711) 18,717 23,308 (246,648) (340,947) 241,554 259,846 (50,492) (40,971) - 14,035 (55,586) (108,037) 43,071 130,436 (2,373) (84,000) (3,277) (91,000) 135,285 104,260 (66,073) 25,910 (45,412) 95,007 (10,959) 10,279 11,843 1,564 884 11,843 48 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus trust abacus trust notes to the concise financial statements 30 June 2007 1. TRusT InFoRMATIon AT is a registered managed investment scheme and is a component entity of the APG which comprises AGHL, AT, AGPL and AIT. shares in AGHL and AGPL and units in AT and AIT have been stapled together so that neither can be dealt with without the other. The securities trade as one security on the Australian stock exchange under the code AbP. The concise financial report has been derived from the annual financial report but does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financial and investing activities of the Trust as the full financial report. The nature of the operations and principal activities of the Trust are described in the Directors’ Report. 2. suMMARY oF sIGnIFICAnT ACCounTInG PoLICIes bAsIs oF PRePARATIon The concise financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting standards. The concise financial report has also been prepared on a historical cost basis, except for investment properties and derivative financial instruments which have been measured at fair value, interests in joint ventures which are accounted for using the equity method, and certain investments measured at net market value. The carrying values of recognized assets and liabilities that are covered by interest rate swap arrangements, are adjusted to record changes in the fair values attributable to the risks that are being covered by derivative financial instruments. It is also recommended that the annual financial report be considered together with any public announcements made by the Trust during the year ended 30 June 2007 in accordance with the continuous disclosure obligations arising under the Corporations Act 2001. The concise financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Trust under AsIC Class order 98/100. The Trust is an entity to which the class order applies. sTATeMenT oF CoMPLIAnCe except for the amendments of AAsb 101 Presentation of Financial Statements and AAsb 2007-4 amendments to Australian Accounting Standards arising from ED 151 and Other Amendments, which the Group has early adopted, Australian Accounting standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 30 June 2007. These are outlined in the following table. 49 ReFeRenCe suMMARY AAsb 2005-10 Amending standard issued as a consequence of AAsb 7 Financial Instruments: Disclosures. APPLICATIon DATe oF sTAnDARD* 1 January 2007 AAsb 2007-1 Amending standard issued as a consequence of AAsb Interpretation 11 AAsb 2 – Group and Treasury Share Transactions. 1 March 2007 AAsb 2007-3 Amending standard issued as a consequence of AAsb 8 Operating Segments. 1 January 2009 AAsb 2007-7 Amending standards for wording errors, discrepancies and inconsistencies. 1 July 2007 IMPACT on TRusT FInAnCIAL RePoRT AAsb 7 is a disclosure standard so will have no direct impact on the amounts included in the Trust’s financial statements. However, the amendments will result in changes to the financial instrument disclosures included in the Trust’s financial report. This is consistent with the Trust’s existing accounting policies for share-based payments, so the standard is not expected to have any impact on the Trust’s financial report. AAsb 8 is a disclosure standard so will have no direct impact on the amounts included in the Trust’s financial statements. However, the standard is expected to have an impact on the Trust’s segment disclosures as segment information included in internal management reports is more detailed than that currently reported under AAsb 114 Segment Reporting. The amendments are minor and do not affect the recognition, measurement or disclosure requirements of the standards. Therefore the amendments are not expected to have any impact on the Trust’s financial report. APPLICATIon DATe FoR TRusT* 1 July 2007 1 July 2007 1 July 2009 1 July 2007 1 January 2007 Refer to AAsb 2005-10 above. 1 July 2007 1 January 2009 1 november 2006 Refer to AAsb 2007-3 above. 1 July 2009 The prohibitions on reversing impairment losses in AAsb 136 and AAsb 139, which are to take precedence over the more general statement in AAsb 134, are not expected to have any impact on the Trust’s financial report. 1 July 2007 1 March 2007 Refer to AAsb 2007-1 above 1 July 2007 AAsb 7 AAsb 8 AAsb Interpretation 10 AAsb Interpretation 11 new standard replacing disclosure requirements of AAsb 130 Disclosures in the Financial Statements of Banks and Similar Financial Institutions and AAsb 132 Financial Instruments: Disclosure and Presentation. new standard replacing AAsb 114 Segment Reporting, which adopts a management approach to segment reporting. Addresses an inconsistency between AAsb 134-interim Financial Reporting and the impairment requirements relating to goodwill in AAsb 136 Impairment of Assets and equity instruments classified as available for sale in AAsb 139 Financial Instruments: Recognition and Measurement Addresses whether certain types of share-based payment transactions with employees (or other suppliers of goods and services) should be accounted for as equity-settled or as cash-settled transactions under AAsb 2 share-based-Payment. It also specifies the accounting in a subsidiary’s financial statements for share-based payment arrangements involving equity instruments of the parent. *designates the beginning of the applicable annual reporting period 50 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus trust AAsb 2007-2, AAsb 2007-5, AAsb 2007-6, AAsb 123 and AAsb Interpretation 12 will have no application to the Trust. The financial report complies with Australian Accounting standards, which include Australian equivalents to International Financial Reporting standards (AIFRs). The financial report also complies with International Financial Reporting standards (IFRs). 3. seGMenT InFoRMATIon The Trust predominantly operates in Australia. The Trust’s segment reporting format is business segments as its risks and rates of return can be readily identified with the type of business and services provided. segment revenue, segment expense and segment result do not include transactions between business segments. The Trust’s primary business segments are Property, Property Finance and Joint Ventures and Developments. The Property division comprises the leasing and maintenance of commercial, retail and industrial properties and the conversion of commercial properties into commercial strata units intended for sale. Property Finance comprises mortgage lending and related property financing solutions. Joint Ventures & Developments comprise investments in joint venture activities and in securities of other listed and unlisted property trusts. bAsIs oF ConsoLIDATIon The constitution of AT was amended to remove the finite The consolidated financial statements comprise the financial statements of AT and its subsidiaries, AT and its subsidiaries as from the date of the Abacus Trust obtained control until such time control ceases. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies with adjustments made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits from intra-Trust transactions, have been eliminated in full and subsidiaries are consolidated from the date on which control is obtained by the Trust and cease to be consolidated from the date on which control is transferred out of the Trust. The acquisition of subsidiaries is accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition. 51 annual financial report / continued notes busIness seGMenTs Year ended 30 June 2007 Revenue Revenue from external customers Realised and unrealised gains on investments bank interest Total consolidated revenue Result segment results Interest income Profit/(loss) before finance costs Finance costs Net profit for the year Assets segment assets Total assets Liabilities segment liabilities Interest bearing liabilities unallocated liabilities Total liabilities Other segment information Capital expenditure Depreciation and amortisation Cash flow net cash flow from operating activities net cash flow from investing activities net cash flow from financing activities 52 AbACus AnnuAL FInAnCIAL RePoRT 2007 PRoPeRTY $’000 PRoPeRTY JoInT VenTuRes FInAnCe & DeVeLoPMenTs $’000 $’000 ToTAL $’000 38,383 48,712 1,462 88,557 64,113 33,402 1,183 29,979 858 119,394 98,697 858 99,555 (10,432) 89,123 513,285 413,284 39,021 965,590 965,590 78,927 299 - 79,226 263,965 2,873 346,064 6,930 - 1,067 - - 6,930 - 1,067 6,385 10,870 (4,680) (42,054) - 25,910 1,462 (8,852) - 18,717 (55,586) 25,910 abacus trust abacus trust busIness seGMenTs Year ended 30 June 2006 Revenue Revenue from external customers Realised and unrealised gains on investments bank interest Total consolidated revenue Result segment results Interest income Profit/(loss) before finance costs Finance costs Net profit for the year Assets segment assets Total assets Liabilities segment liabilities Interest bearing liabilities unallocated liabilities Total liabilities Other segment information Capital expenditure Depreciation and amortisation Cash flow net cash flow from operating activities net cash flow from investing activities net cash flow from financing activities PRoPeRTY $’000 PRoPeRTY JoInT VenTuRes FInAnCe & DeVeLoPMenTs $’000 $’000 ToTAL $’000 35,704 37,343 255 73,302 24,494 682 98,478 51,069 36,592 250 87,911 682 88,593 (6,421) 82,172 402,027 334,416 38,806 775,249 25,048 1,484 2,063 775,249 28,595 217,256 15,491 261,342 13,658 - 653 - - 13,658 - 653 15,105 (26,935) 7,948 (67,497) 95,008 255 23,308 (13,605) (108,037) 95,008 53 annual financial report / continued notes 4. ReVenue AnD eXPenses (a) Finance income Interest on loans bank interest Total finance income (b) Net realised gains on investments sale of investment properties expenses on sale of investment properties Total net realised gains on investments (c) Unrealised gains on investments Change in fair value of investment properties Total unrealised gains on investments (d) Finance costs Interest on bank loans Amortisation of finance costs unrealised loss (gains) on interest rate swap Total finance costs (e) Depreciation and amortisation Amortisation of leasing incentives (f) Other expenses Property outgoings bad and doubtful debts Auditor’s remuneration Custody fees Registry maintenance costs other Total other expenses 54 AbACus AnnuAL FInAnCIAL RePoRT 2007 ConsoLIDATeD 2007 $’000 2006 $’000 48,712 37,088 858 682 49,570 37,770 10,093 1,950 (270) (183) 9,823 1,767 20,156 22,727 20,156 22,727 14,677 11,495 330 322 (4,575) (5,396) 10,432 6,421 1,067 653 9,888 7,332 3,000 21 100 62 121 98 30 60 5,633 1,659 18,772 9,232 abacus trust 5. DIsTRIbuTIons PAID AnD PRoPoseD (a) Distributions paid during the year Final distribution for financial year 30 June 2006: 3.00 cents per unit (2005: 2.90 cents) Interim distributions paid during the year: september: 3.00 cents per unit (2006: 2.90 cents) December: 3.00 cents per unit (2006: 2.90 cents) March: 3.25 cents per unit (2006: 3.00 cents) Total (b) Distributions proposed and recognised as a liability Final distribution payable for the June quarter: 1.36 cents per unit (2006: 3.00 cents)* ConsoLIDATeD 2007 $’000 2006 $’000 15,491 9,942 15,973 11,179 16,059 11,179 18,681 13,112 66,204 45,412 7,844 15,491 * Remaining 1.89 cents per unit was paid by AIT to total APG 3.25 cents per unit distribution The distributions were paid from the AT (which does not pay tax provided it distributes all its taxable income) hence, there were no franking credits attached. 6. eARnInGs PeR unIT basic earnings per unit Diluted earnings per unit basic earnings per unit excluding fair value adjustments (1) Diluted earnings per unit excluding fair value adjustments (1) net profit attributable to unitholders net profit attributable to unitholders excluding fair value adjustments (1) Weighted average number of stapled securities: Weighted average number of stapled securities for basic earnings per stapled security effect of dilution: stapled security options Weighted average number of stapled securities adjusted for the effect of dilution ConsoLIDATeD 2007 CenTs 16.11 16.00 11.64 11.56 2006 CenTs 19.66 19.66 12.93 12.93 $‘000 $‘000 89,123 64,392 82,172 54,049 ‘000 ‘000 553,184 418,056 3,703 - 556,887 418,056 options granted to employees (including key management personnel) are considered to be potential stapled securities and have been included in the determination of diluted earnings per stapled security to the extent they are dilutive. These options have not been included in the determination of basic earnings per stapled security. (1) Fair value adjustments include property revaluations, swap mark to market revaluations and share based payments. 55 annual financial report / continued notes 7. non-CuRRenT AsseTs - InVesTMenT PRoPeRTIes Investment properties are carried at the directors’ determination of fair value and are based on independent valuations where appropriate. The determination of fair value includes reference to the original acquisition cost together with capital expenditure since acquisition and either the latest full independent valuation or latest independent update. Total acquisition costs include incidental costs of acquisition such as property taxes on acquisition, legal and professional fees and other acquisition related costs. Independent valuation of each investment property is conducted annually either in December or June of each year. Independent valuations are prepared using both the capitalisation of net income method and the discounting of future cashflows to their present value method. Capital expenditure since valuation may include purchases of sundry properties (and associated expenses of stamp duty, legal fees etc) and other capital refurbishment and repair expenditure. PRoPeRTY ACQuIsITIon CosT InCLuDInG ALL ADDITIons $’000 DATe InDePenDenT VALuATIon DATe ConsoLIDATeD VALue 2007 $’000 2006 $’000 66 Christina Road, Villawood, nsW (i) 28-May-02 8,187 30-Jun-06 12,426 12,400 Properties owned by the parent entity, Abacus Trust 12,426 12,400 CsIRo, Limestone Ave., Campbell, ACT (v) 4 Ray Road, epping, nsW (ii) Ashfield Mall, Ashfield, nsW (iv) 10-12 Pike street, Rydalmere, nsW (v) Liverpool Plaza, Liverpool, NSW (iv) Macquarie street, Liverpool, nsW (iii) Moore street, Liverpool, nsW (iii) Aspley Village shopping Centre (iii) Westpac (formerly santos) House, Adelaide sA (i) 50 Miller street, north sydney, nsW (ii) 970 nepean Highway, Moorabbin, nsW (ii) 12-14 butler Road, Hurstville (iv) 27 Grant street, Port Macquarie (vi) 21-Jun-02 12,686 30-Jun-07 20,000 18,000 30-Apr-97 26,959 30-Jun-07 54,500 51,000 15-sep-97 82,964 30-Jun-06 116,842 113,000 1-oct-98 14,262 30-Jun-07 22,400 19,300 16-Aug-04 32,840 30-Jun-06 37,020 37,000 21-sep-05 5,451 30-Jun-06 5,503 5,503 14-oct-05 2,265 30-Jun-06 2,297 2,297 15-Feb-06 16,579 01-Feb-06 18,607 16,579 5-oct-04 54,328 30-Jun-07 68,850 51,000 17-Dec-04 38,349 30-Jun-06 - 40,000 11-Aug-06 38,688 6-Jul-06 38,690 31-May-07 18,714 18-May-07 18,714 26-Jun-07 16,021 6-Jun-07 16,021 - - - Properties owned by AT and its controlled entities 431,871 366,079 Notes: (a) The aggregated value at 30 June 2007 includes capital expenditures after the last valuation date. (i) As valued by Knight Frank Pty Limited (iii) As valued by urbis Property Consultants (v) As valued by FPD savills (nsW) Pty Limited (ii) As valued by Colliers International Consultancy and Valuation Pty Ltd (iv) As valued by Cb Richard ellis Pty Ltd (vi) As valued by Jeffrey Reid Flanagan ReConCILIATIons Reconciliation of the carrying amounts of investment properties at the beginning and end of the current and previous financial year: Investment properties Carrying amount at beginning of the financial year Additions and capital expenditure net revaluation increments Disposals ConsoLIDATeD VALue 2007 $’000 2006 $’000 366,079 317,808 85,635 38,166 20,156 22,727 (40,000) (12,622) Carrying amount at end of the financial year 431,870 366,079 56 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus trust abacus trust 8. ConTRIbuTeD eQuITY (a) Issued Units Issued capital Finance and issue costs Total contributed equity (b) Movements in contributed equity for the year At 1 July 2005 - net impact of merger with ADIF (1) - institutional equity raising - distribution reinvestment plan - less transaction costs At 1 July 2006 - institutional equity raising - distribution reinvestment plan - security purchase plan - less transaction costs End of the financial year June 2007 ConsoLIDATeD 2007 $’000 2006 $’000 535,690 459,475 (14,425) (12,925) 521,265 446,550 ConsoLIDATeD nuMbeR $’000 VALue $’0000 342,836 339,782 79,310 (9,109) 92,636 117,048 1,600 2,106 - (3,277) 516,382 446,550 36,585 45,588 11,824 13,842 15,294 15,333 - (1,500) 578,633 521,265 (1) net impact of merger with ADIF represents the aggregation of outstanding contributed equity (net of issue costs) as at 31 March 2006 (merger implementation date). unitholders have the right to receive distributions from the Trust, as declared, and in the event of winding up of the Trust, are entitle to participate in the proceeds from sale of all surplus assets in proportion to the number of units held. unitholders can vote their units in accordance with the Corporations Act, either in person or by proxy, at a meeting of the Trust. 9. eVenTs AFTeR THe bALAnCe sHeeT DATe since the end of the financial year: on 26 July 2007, APG completed a capital raising via an institutional placement for $100 million (of which $74.45 million was allocated to AT) and issued 52.6 million stapled securities at $1.90 per stapled security. In July 2007, the Trust exchanged contracts to acquire two commercial office buildings for $23 million in the Varsity Lakes business district on the Gold Coast, Queensland. other than as disclosed in this report and to the knowledge of directors, there has been no other matter or circumstance that has arisen since the end of the financial year that has or may affect the Trust’s operations in future financial years, the results of those operations or the Trust’s state of affairs in future financial years. 57 annual financial report / continued directors’ declaration In accordance with a resolution of the directors of the responsible entity, we state that: (1) in the opinion of the directors: (a) the concise financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2006 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Trust will be able to pay its debts as and when they become due and payable. (2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial period ended 30 June 2007. on behalf of the board of Abacus Funds Management Limited JoHn THAMe Chairman FRAnK WoLF Managing Director sydney, 12 september 2007 58 AbACus AnnuAL FInAnCIAL RePoRT 2007 n Ernst & Young Centre 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 n Tel 61 2 9248 5555 Fax 61 2 9248 5959 DX Sydney Stock Exchange 10172 independent auditor’s report to members of abacus trust The accompanying concise financial report of Abacus Trust comprises the balance sheet as at 30 June 2007, the income statement, statement of changes in equity and cash flow statement for the year then ended and related notes, derived from the audited financial report of Abacus Trust for the year ended 30 June 2007. The concise financial report also includes the director’s declaration. The concise financial report does not contain all the disclosures required by the Australian Accounting standards. Director’s Responsibility for the Concise Financial Report The Directors of the Responsible entity for the trust are responsible for the preparation and presentation of the concise financial report in accordance with Accounting standard AAsb 1039 Concise Financial Reports, and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation of the concise financial report; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Autitor’s Responsibility our responsibility is to express an opinion on the concise financial report based on our audit procedures. We have conducted an independent audit, in accordance with Australian Auditing standards, of the financial report of Abacus Trust for the year ended 30 June 2007. our audit report on the financial report for the year was signed on 30 August 2007 and was not subject to any modification. The Australian Auditing standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report for the year is free from material misstatement. our procedures in respect of the concise financial report included testing that the information in the concise financial report is derived from, and is consistent with, the financial report for the year, and examination on a test basis, of evidence supporting the amounts and other disclosures which were not directly derived from the financial report for the year. These procedures have been undertaken to form an opinion whether, in all material respects, the concise financial report complies with Accounting standard AAsb 1039 Concise Financial Reports. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001 provided to the directors of the Responsible entity for Abacus Trust on 30 August 2007. Liability limited by a scheme approved under Professional Standards Legislation. 59 independent auditor’s report to members of abacus trust Auditor’s Opinion In our opinion, the concise financial report and the directors’ declaration of Abacus Trust for the year ended 30 June 2007 complies with Accounting standard AAsb 1039 Concise Financial Reports. eRnsT & YounG eD PsALTIs Partner sydney, 12 september 2007 60 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus income trust Directory Responsible entity Abacus Funds Management Limited Level 34, Australia Square 264-278 George Street SYDNEY NSW 2000 Tel (02) 9253 8600 Fax (02) 9253 8616 Website www.abacusproperty.com.au Directors of responsible entity John Thame, Chairman Frank Wolf, Managing Director David Bastian* (appointed 14/11/06) Dennis Bluth Malcolm Irving Len Lloyd William Bartlett (appointed 14/02/07) Phillip Green (resigned 1/9/06) *Resigned as Managing Director on 30/09/06 Company secretary Ellis Varejes Custodian Perpetual Trustee Company Limited Level 12, Angel Place 123 Pitt Street SYDNEY NSW 2000 Auditor Ernst & Young Ernst & Young Centre 680 George Street SYDNEY NSW 2000 Compliance Plan Auditor Ernst & Young Ernst & Young Centre 680 George Street SYDNEY NSW 2000 Registry Computershare Investor Services Pty Ltd Level 3, 60 Carrington Street SYDNEY NSW 2000 Tel (02) 1800 635 323 Toll free Fax (02) 8234 5050 Contents 62 Directors’ Report 66 Auditor’s Independence Declaration 67 68 69 70 71 82 83 Consolidated Income and Distribution Statements Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Concise Financial Statements Directors’ Declaration Independent Auditor’s Report It is recommended that this Annual Financial Report should be read in conjunction with the Annual Financial Reports of Abacus Trust, Abacus Group Holdings Limited and Abacus Group Projects Limited for the year ended 30 June 2007. It is also recommended that the report be considered together with any public announcements made by the Abacus Property Group in accordance with its continuous disclosure obligations arising under the Corporations Act 2001. 61 annual financial report / continued TRusT sTRuCTuRe Abacus Property Group (APG or the Group) comprises of Abacus Group Holding Limited (AGHL), Abacus Trust (AT), Abacus Group Project Limited (AGPL) and Abacus Income Trust (AIT). shares in AGHL and AGPL and units in AT and AIT and have been stapled together so that none can be dealt with without the other. An APG security consists of one share in AGHL, one unit in AT, one share in AGPL and one unit in AIT. A transfer, issue or reorganisation of a share or unit in any of the component parts is accompanied by a transfer, issue or reorganisation of a share or unit in each of the other component parts. AIT is an Australian registered managed investment scheme. Abacus, the responsible entity of AIT, is incorporated and domiciled in Australia and is a wholly owned subsidiary of AGHL. oPeRATInG PRoFIT The Trust earned a net profit attributable to members of $29.4 million for the year ended 30 June 2007 (June 2006: $26.1 million). The Trust earned a net profit attributable to members (excluding net property and derivative financial instruments revaluation movements) of $14.6 million (June 2006: $7.5 million). DIsTRIbuTIons AIT has a distribution of $10.96 million (1.89 cents per unit) declared and provided for in respect of the quarter ended 30 June 2007. The AT funded all distributions to APG security holders for the year ended 30 June 2007. directors’ report 30 June 2007 The directors of Abacus, the responsible entity of the Abacus Income Trust (AIT or the Trust) submit their report for the Trust for the year ended 30 June 2007 and the auditor’s report thereon. DIReCToRs The directors of the responsible entity in office during the financial year and until the date of this report unless otherwise stated: John Thame Chairman (non-executive) Frank Wolf Managing Director (executive) David bastian* William bartlett non-executive director (appointed 14/11/06) non-executive director (appointed 14/02/07) Dennis bluth non-executive director Phillip Green non-executive director (resigned 1/9/06) Malcolm Irving non-executive director Len Lloyd executive director (appointed 14/11/06) *Resigned as Managing Director on 30 september 2006 As at the date of this report, the relevant interests of the directors and specified executives in the stapled securities of Abacus Property Group were as follows: DIReCToRs J Thame F Wolf D bastian M Irving L Lloyd APG seCuRITIes HeLD nuMbeR oF oPTIons oveR APG seCuRITIes 50,000 9,710,274* 4,486,352 30,014 785,925* - 1,343,284 - - 477,612 * The holdings of Dr Wolf and Mr Lloyd include securities acquired under the executive share Loan Plan that are treated as options. PRInCIPAL ACTIvITIes The principal activities of the Trust during the course of the year ended 30 June 2007 include: • investment in commercial, retail and industrial properties; and • property finance. 62 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus income trust RevIeW oF oPeRATIons TRusT oveRvIeW The Trust operates within Australia and holds an investment portfolio of commercial, retail and industrial properties, and mortgage loan investments. AIT’s revenues and net profit grew in the year ended 30 June 2007: Revenue net Profit earnings per security (cents) Distributions per security (cents) AIT’s financial condition also strengthened during the year: Total assets ($ million) Gearing (%) net assets ($ million) net tangible assets ($ million) nTA per security ($) securities on issue ($ million) Weighted average securities on issue ($ million) 30 June 2007 $’000 30 June 2006 $’000 % CHAnGe 27,700 29,475 5.29 1.89 23,370 26,053 12.71 6.93 18.53 13.13 (58.38) (72.73) 30 June 2007 30 June 2006 % CHAnGe 314 42.4 160 160 0.28 579 557 272 52.8 122 122 0.24 516 205 15.44 (19.70) 31.15 31.15 16.67 12.21 171.71 busIness ACTIvITIes business activities which contributed to the Trust’s operating performance and financial condition for the year were: Investment property portfolio • The Trust acquired, through a 75% owned subsidiary, two additional retail properties in Townsville, QLD and Maryborough, VIC for approximately $12.5 million. • The revaluation of 14 existing properties in the portfolio resulted in a net increase of $13 million in the carrying value of investment properties. • In September 2006, the Trust sold an investment property in Kings Park, New South Wales realising a profit of approximately $2.5 million. In addition, through a 75% owned subsidiary, the Trust completed the sale of an investment property in Bathurst, New South Wales realising a profit of approximately $0.5 million. • In April 2007, the Trust completed the sale of a 300 year carpark leasehold at 109 Pitt Street, New South Wales realising a profit of approximately $3.3 million. • Recurring net income from contracted rental receipts comprised approximately 85% of Trust earnings before interest, tax, depreciation and amortisation for the year. Property finance • AIT decreased the size of its lending portfolio (including accrued interest) by $13 million to $4 million at 30 June 2007 compared to $17 million at 30 June 2006. • AIT advanced approximately $13 million in loan funds to AGHL. At 30 June 2007, the balance of the loan to associated Group entities was approximately $23 million. 63 annual financial report / continued directors’ report RevIeW oF FInAnCIAL ConDITIon During the year ended 30 June 2007, the contributed equity of the Trust increased $17 million (17%) to $117 million compared to $100 million at 30 June 2006. sIGnIFICAnT evenTs AFTeR bALAnCe DATe on 26 July 2007, the APG completed a capital raising via an institutional placement for $100 million and issued 52.6 million stapled securities at $1.90 per stapled security. other than as disclosed in this report and to the knowledge of directors, there has been no matter or circumstance that has arisen since the end of the financial year that has significantly affected, or may affect, the Trust’s operations in future financial years, the results of those operations or the Trust’s state of affairs in future financial years. LIKeLY DeveLoPMenTs AnD eXPeCTeD ResuLTs The directors have excluded from this report any other information on the likely developments in the operations of the Trust and the expected results of those operations in future financial years which are not of a material nature and would not in the directors’ view be likely to result in unreasonable prejudice to the operation of the Trust. envIRonMenTAL ReGuLATIon AnD PeRFoRMAnCe The Trust’ environmental responsibilities, such as waste removal and water treatment, have been managed in compliance with all applicable regulations and licence requirements and in accordance with industry standards. no breaches of requirements or any environmental issues have been discovered and brought to the board’s attention. There has been no known significant breaches of any environmental requirements applicable to the Trust. InDeMnIFICATIon AnD InsuRAnCe oF DIReCToRs AnD oFFICeRs As responsible entity of the Trust, Abacus has paid an insurance premium in respect of a contract insuring its directors and full time executive officers and secretary. The terms of this policy prohibit disclosure of the nature of the risks insured or the premium paid. In early July 2006, the APG completed a $19.5 million capital raising via a security Purchase Plan (13.8 million securities at $1.41) of which approximately $2.9 million was allocated to AIT. Total equity increased net $38 million to $160 million at 30 June 2007 compared to $122 million at 30 June 2006. net tangible assets per unit is $0.28 at 30 June 2007 compared to $0.24 at 30 June 2006. At 30 June 2007, existing bank loan facilities totalled approximately $104 million, of which approximately $95 million was drawn. The Trust manages interest rate exposure on debt facilities through the use of interest rate swap contracts. At 30 June 2007, approximately $73 million or 77% of total bank debt facilities were covered by interest rate swap arrangements at an average interest rate (including bank margin) of 6.38% and an average term to maturity of 5 years. The Trust’s net debt gearing ratio (calculated as total interest bearing liabilities less cash assets divided by total assets) was 42.4% at 30 June 2007 compared to 52.8% at 30 June 2006. unITs on Issue At 30 June 2007, 578,633,460 units in AIT were on issue (2006: 516,381,609). Fees PAID To THe ResPonsIbLe enTITY AnD AssoCIATes AIT paid a management fee of $2.2 million out of scheme property to the responsible entity for the year ended 30 June 2007 (2006: $1.9 million). In addition, AIT paid property management fees to an associate of the responsible entity, Abacus Property services Pty Limited, of $0.4 million (2006: $0.5 million) for the year ended 30 June 2007. sIGnIFICAnT CHAnGes In THe sTATe oF AFFAIRs The following significant changes in the state of affairs of the Trust occurred during the financial year: - Retained earnings (including the impact of revaluations of investment properties and derivative financial instruments) increased $20.4 million to $40.6 million at 30 June 2007 compared to $20.2 million at 30 June 2006; - Total equity increased 31% or $37.7 million to $160 million at 30 June 2007 compared to $122.3 million at 30 June 2006, reflecting the additional capital raised, growth in retained earnings and net positive revaluations during the year. 64 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus income trust AuDIToR’s InDePenDenCe DeCLARATIon We have obtained an independence declaration from our auditor, ernst & Young, and such declaration is shown on the following page. RounDInG The amounts contained in this report and in the annual financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Trust under AsIC Class order 98/100. The Trust is an entity to which the Class order applies. signed in accordance with a resolution of the directors. Abacus Funds Management Limited (Abn 66 007 415 590) JoHn THAMe Chairman FRAnK WoLF Managing Director sydney, 12 september 2007 65 annual financial report / continued n Ernst & Young Centre 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 n Tel 61 2 9248 5555 Fax 61 2 9248 5959 DX Sydney Stock Exchange 10172 auditor’s independence declaration to the directors of abacus funds management limited as the responsible entity for abacus income trust In relation to our audit of the financial report of Abacus Income Trust for the financial year ended 30 June 2007, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. eRnsT & YounG eD PsALTIs Partner 30 August 2007 66 AbACus AnnuAL FInAnCIAL RePoRT 2007 Liability limited by a scheme approved under Professional Standards Legislation. abacus income trust consolidated income and distribution statements YeAR enDeD 30 June 2007 Revenue Property income Finance income Income from distributions net realised gains on investments net realised gains on property, plant and equipment net unrealised gains on investment Total revenue Depreciation Finance costs other expenses Profit before and after income tax net profit attributable to minority interests – external Net profit attributable to unitholders Basic earnings per unit (cents) Diluted earnings per unit (cents) basic earnings per unit ex fair value adjustments* Diluted earnings per unit ex fair value adjustments* *based on net profit adjusted for AIFRs fair value adjustments (namely property revaluations and swap mark to market revaluations) sTATeMenT oF DIsTRIbuTIon net profit attributable to unitholders net transfer of undistributed income to unitholders’ funds Distributions paid and payable Distribution per unit (cents per unit) Weighted average number of units (‘000) noTes 2007 $’000 2006 $’000 4(a) 4(b) 4(c) 4(d) 4(e) 4(f) 23,527 4,173 – 2,985 3,269 13,114 47,068 (759) (7,630) (7,460) 19,842 3,528 – – – 16,219 39,589 (922) (6,413) (5,777) 31,219 26,477 (1,744) (424) 29,475 26,053 5.33 5.29 12.71 – 2.64 3.67 2.63 - 2007 $’000 29,475 (18,511) 10,964 1.89 2006 $’000 26,053 (18,998) 7,055 6.93 556,887 204,997 5 6 67 annual financial report / continued consolidated balance sheet As AT 30 June 2007 Current assets Cash and cash equivalents Trade and other receivables other financial assets other Total current assets Non-current assets Investment properties Property, plant and equipment other financial assets other Total non-current assets Total assets Current liabilities Trade and other payables Interest-bearing loans and borrowings Total current liabilities Non-current liabilities Interest-bearing loans and borrowings Total non-current liabilities Total liabilities Net assets Equity Contributed equity Asset revaluation reserve undistributed income Total parent entity interest in equity Total outside equity interest Total equity 68 AbACus AnnuAL FInAnCIAL RePoRT 2007 noTes 2007 $’000 2006 $’000 4,208 46,976 27,273 516 1,348 2,959 27,229 552 78,973 32,088 7 215,558 204,132 15,991 2,825 307 30,725 4,893 274 234,681 240,024 313,654 272,112 16,302 32,250 4,861 39,238 48,552 44,099 105,012 105,702 105,012 105,702 153,564 149,801 160,090 122,311 8(a) 117,196 – 40,615 157,811 2,279 99,672 1,907 20,197 121,776 535 160,090 122,311 abacus income trust consolidated statement of changes in equity YeAR enDeD 30 June 2007 AsseT RevALuATIon ReseRve $’000 1,907 (1,907) ReTAIneD eARnInGs $’000 20,197 1,907 MInoRITY InTeResT $’000 ToTAL equITY $’000 535 – 122,311 – (1,907) 1,907 – – – (1,907) – – – 29,475 31,382 – (10,964) 40,615 1,744 1,744 – – 31,219 31,219 17,524 (10,964) 2,279 160,090 At 1 July 2006 sale of property, plant & equipment Total income and expense for the period recognised directly in equity net income for the period Total income for the period equity raisings (net of issue costs) Distribution to unitholders At 30 June 2007 At 1 July 2005 IssueD CAPITAL $’000 99,672 – – – – 17,524 – 117,196 92,029 Revaluation of property, plant & equipment – Total income and expense for the period recognised directly in equity net income for the period Total income for the period equity raisings (net of issue costs) Distribution to unitholders At 30 June 2006 857 1,050 2,411 – 1,050 – – – – – 24,841 24,841 – (7,055) 20,197 – – – 7,643 – 99,672 1,907 113 – – 422 422 – – 95,410 1,050 1,050 25,263 25,263 7,643 (7,055) 535 122,311 69 annual financial report / continued consolidated cash flow statement YeAR enDeD 30 June 2007 Cash flows from operating activities Income receipts Interest received Interest paid operating payments Net cash flows from operating activities Cash flows from investing activities Payments for investments Proceeds from sale and settlement of investments Advances to/(from) related entities Disposal of property, plant and equipment Purchase of investment properties Disposal of investment properties Payments for other investments Net cash flows used in investing activities Cash flows from financing activities Proceeds from issue of units Payment of issue costs Payment of finance cost Repayment of borrowings Proceeds from borrowings Distributions paid Net cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of the year 70 AbACus AnnuAL FInAnCIAL RePoRT 2007 2007 $’000 2006 $’000 18,027 4,042 (8,321) (2,405) 16,445 6,631 (7,980) (3,535) 11,343 11,561 (7,134) 11,000 (43,329) 17,735 (19,113) 23,575 3 (14,411) 12,821 2,945 – (42,470) – 1,966 (17,263) (39,149) 17,524 (219) (213) (35,245) 26,935 (2) 8,780 2,860 1,348 4,208 7,909 (47) – (23,318) 52,964 (9,397) 28,111 523 825 1,348 abacus income trust notes to the concise financial statements 30 June 2007 recently been issued or amended but are not yet effective have not been adopted by the Trust for the annual reporting period ending 30 June 2007. These are outlined in the table below. 1. TRusT InFoRMATIon AIT is a registered managed investment scheme and is a component entity of the APG which comprises AGHL, AT, AGPL and AIT. shares in AGHL and AGPL and units in AT and AIT have been stapled together so that neither can be dealt with without the other. The securities trade as one security on the Australian stock exchange (the As”) under the code AbP. The nature of the operations and principal activities of the Trust are described in the Directors’ Report. 2. suMMARY oF sIGnIFICAnT ACCounTInG PoLICIes bAsIs oF PRePARATIon The concise financial report has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting standards. The concise financial report has also been prepared on a historical cost basis, except for investment properties and derivative financial instruments which have been measured at fair value, interests in joint ventures which are accounted for using the equity method, and certain investments measured at net market value. The carrying values of recognised assets and liabilities that are covered by interest rate swap arrangements, are adjusted to record changes in the fair values attributable to the risks that are being covered by derivative financial instruments. The concise financial report has been derived from the annual financial report but does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financial and investing activities of the Trust as the full financial report. It is also recommended that the annual financial report be considered together with any public announcements made by the Group during the year ended 30 June 2007 in accordance with the continuous disclosure obligations arising under the Corporations Act 2001. The concise financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Trust under AsIC Class order 98/100. The Trust is an entity to which the class order applies. sTATeMenT oF CoMPLIAnCe except for the amendments of AAsb 101 Presentation of Financial Statements and AAsb 2007-4 amendments to Australian Accounting Standards arising from ED 151 and Other Amendments, which the Trust has early adopted, Australian Accounting standards and Interpretations that have 71 annual financial report / continued notes ReFeRenCe suMMARY AAsb 2005-10 Amending standard issued as a consequence of AAsb 7 Financial Instruments: Disclosures. APPLICATIon DATe oF sTAnDARD* 1 January 2007 AAsb 2007-1 Amending standard issued as a consequence of AAsb Interpretation 11 AAsb 2 – Group and Treasury Share Transactions. 1 March 2007 AAsb 2007-3 Amending standard issued as a consequence of AAsb 8 Operating Segments. 1 January 2009 AAsb 2007-7 Amending standards for wording errors, discrepancies and inconsistencies. 1 July 2007 IMPACT on TRusT FInAnCIAL RePoRT AAsb 7 is a disclosure standard so will have no direct impact on the amounts included in the Trust’s financial statements. However, the amendments will result in changes to the financial instrument disclosures included in the Trust’s financial report. This is consistent with the Trust’s existing accounting policies for share-based payments, so the standard is not expected to have any impact on the Trust’s financial report. AAsb 8 is a disclosure standard so will have no direct impact on the amounts included in the Trust’s financial statements. However, the standard is expected to have an impact on the Trust’s segment disclosures as segment information included in internal management reports is more detailed than that currently reported under AAsb 114 Segment Reporting. The amendments are minor and do not affect the recognition, measurement or disclosure requirements of the standards. Therefore the amendments are not expected to have any impact on the Trust’s financial report. APPLICATIon DATe FoR TRusT* 1 July 2007 1 July 2007 1 July 2009 1 July 2007 1 January 2007 Refer to AAsb 2005-10 above. 1 July 2007 1 January 2009 1 november 2006 Refer to AAsb 2007-3 above. 1 July 2009 The prohibitions on reversing impairment losses in AAsb 136 and AAsb 139, which are to take precedence over the more general statement in AAsb 134, are not expected to have any impact on the Trust’s financial report. 1 July 2007 AAsb 7 AAsb 8 AAsb Interpretation 10 new standard replacing disclosure requirements of AAsb 130 Disclosures in the Financial Statements of Banks and Similar Financial Institutions and AAsb 132 Financial Instruments: Disclosure and Presentation. new standard replacing AAsb 114 Segment Reporting, which adopts a management approach to segment reporting. Addresses an inconsistency between AAsb 134-interim Financial Reporting and the impairment requirements relating to goodwill in AAsb 136 Impairment of Assets and equity instruments classified as available for sale in AAsb 139 Financial Instruments: Recognition and Measurement. 72 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus income trust abacus income trust APPLICATIon DATe oF sTAnDARD* 1 March 2007 IMPACT on TRusT FInAnCIAL RePoRT Refer to AAsb 2007-1 above APPLICATIon DATe FoR TRusT* 1 July 2007 ReFeRenCe suMMARY AAsb Interpretation 11 Addresses whether certain types of share-based payment transactions with employees (or other suppliers of goods and services) should be accounted for as equity-settled or as cash-settled transactions under AAsb 2 share- based-Payment. It also specifies the accounting in a subsidiary’s financial statements for share- based payment arrangements involving equity instruments of the parent. *designates the beginning of the applicable annual reporting period AAsb 2007-2, AAsb 2007-5, AAsb 2007-6, AAsb 123 and AAsb Interpretation 12 will have no application to the Trust. The financial report complies with Australian Accounting standards, which include Australian equivalents to International Financial Reporting standards (AIFRs). The financial report also complies with International Financial Reporting standards (IFRs). bAsIs oF ConsoLIDATIon The consolidated financial statements comprise the financial statements of AIT and its subsidiaries collectively referred to as the Trust. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies with adjustments made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits from intra-group transactions, have been eliminated in full and subsidiaries are consolidated from the date on which control is obtained by the Trust and cease to be consolidated from the date on which control is transferred out of the Trust. The acquisition of subsidiaries is accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition. Minority interests represent those equity interests in The Wollongong Property Trust and Abacus Independent Retail Property Trust that are not held by the Trust and are presented separately in the income statement and within equity in the consolidated balance sheet. 3. seGMenT InFoRMATIon The Trust predominantly operates in Australia. The Trust’s segment reporting format is business segments as its risks and rates of return can be readily identified with the type of business and services provided. segment revenue, segment expense and segment result do not include transactions between business segments. The Trust’s primary business segments are Property, and Property Finance. The Property division comprises the leasing and maintenance of commercial, retail and industrial properties. Property Finance comprises mortgage lending and related property financing solutions. 73 annual financial report / continued notes busIness seGMenTs Year ended 30 June 2007 Revenue Revenue from external customers Realised and unrealised gains on investments bank interest Total consolidated revenue Result segment results Interest income Profit/(loss) before finance costs Finance costs Net profit for the year Assets segment assets Total assets Liabilities segment liabilities Interest bearing liabilities Total liabilities Other segment information: Capital expenditure Depreciation and amortisation Cashflow net cash flow from operating activities net cash flow from investing activities net cash flow from financing activities 74 AbACus AnnuAL FInAnCIAL RePoRT 2007 PRoPeRTY $’000 PRoPeRTY FInAnCe $’000 ToTAL $’000 23,527 3,905 33,994 2,843 27,432 19,368 268 47,068 36,837 268 37,105 (7,630) 29,475 283,556 30,098 313,654 (13,796) 30,098 313,654 16,302 137,262 153,564 6,391 759 – – 6,391 759 7,549 (21,129) 8,780 3,794 3,866 – 11,343 (17,263) 8,780 abacus income trust abacus income trust busIness seGMenTs Year ended 30 June 2006 Revenue Revenue from external customers Realised and unrealised gains on investments bank interest Total consolidated revenue Result segment results Interest income Profit/(loss) before finance costs Finance costs Net profit for the year Assets segment assets Total assets Liabilities segment liabilities Interest bearing liabilities Total liabilities Other segment information: Capital expenditure Depreciation and amortisation net cash flow from operating activities net cash flow from investing activities net cash flow from financing activities PRoPeRTY $’000 PRoPeRTY FInAnCe $’000 ToTAL $’000 19,842 3,357 29,639 2,656 239,990 32,122 4,861 32,122 4,750 922 5,272 (37,559) 28,111 – – 6,289 (1,590) – 23,199 16,219 171 39,589 32,295 171 32,466 (6,413) 26,053 272,112 272,112 36,983 112,818 149,801 4,750 922 11,561 (39,149) 28,111 75 annual financial report / continued notes 4. Revenue AnD eXPenses (a) Finance income Interest on mortgage loans bank interest Total finance income (b) Net realised gains on investments sale of investment properties expenses on sale of investment properties Total net realised gains on investments (c) Net realised gains on property, plant and equipment sale of property , plant and equipment expenses on sale of property, plant and equipment Total net realised gains on investments (d) Unrealised gains on investments Change in fair value of investment properties Total unrealised gains on investments (e) Finance costs Interest on loans Amortisation of finance costs unrealised gains on interest rate swaps Total finance costs (f) Other expenses Property outgoings Audit fees Registry maintenance costs Custody fee Management Fee other Total other expenses 76 AbACus AnnuAL FInAnCIAL RePoRT 2007 ConsoLIDATeD 2007 $’000 2006 $’000 3,905 268 4,173 3,357 171 3,528 23,600 (20,615) 2,985 18,148 (14,879) 3,269 – – – – – – 13,114 13,114 16,219 16,219 9,285 77 (1,732) 7,630 8,662 57 (2,306) 6,413 4,981 3,448 118 3 43 2,204 111 7,460 55 50 25 1,898 301 5,777 abacus income trust 5. DIsTRIbuTIons PAID AnD PRoPoseD (a) Distributions paid during the year Final distribution for financial year 30 June 2006: nil (2005: 2.31 cents) Interim distributions paid during the year: september: nil (2006: 2.31 cents) December: nil (2006: 2.31 cents) March: nil (2006: 2.31 cents) (b) Distributions proposed and recognised as a liability Final distribution payable for the June quarter: 1.89 cents per unit (2006: nil) 6. eARnInGs PeR unIT basic earnings per unit Diluted earnings per unit basic earnings per unit excluding fair value adjustments (1) Diluted earnings per unit excluding fair value adjustments(1) Earnings used in calculating earnings per unit: net profit attributable to unitholders net profit attributable to unitholders excluding fair value adjustments (1) noTes 2007 $’000 2006 $’000 1 – 1 – 2 2,342 2,366 2,370 2,319 9,397 10,963 1 2007 CenTs 2006 CenTs 5.33 12.71 5.29 – 2.64 2.63 2007 CenTs 3.67 – 2006 CenTs 29,475 14,628 26,053 7,528 Weighted average number of stapled securities: Weighted average number of stapled securities for basic earnings per share 553,184 204,997 effect of dilution: stapled security options Weighted average number of stapled securities adjusted for the effect of dilution 3,703 – 556,887 204,997 options granted to employees (including key management personnel) are considered to be potential stapled securities and have been included in the determination of diluted earnings per stapled security to the extent they are dilutive. These options have not been included in the determination of basic earnings per stapled security. (1) Fair value adjustments include property revaluations, revaluations of derivatives and other financial instruments and share based payments. 77 annual financial report / continued notes 7. non-CuRRenT AsseTs - InvesTMenT PRoPeRTIes Investment properties are carried at the directors’ determination of fair value and are based on independent valuations where appropriate. The determination of fair value includes reference to the original acquisition cost together with capital expenditure since acquisition and either the latest full independent valuation or latest independent update. Total acquisition costs include incidental costs of acquisition such as property taxes on acquisition, legal and professional fees and other acquisition related costs. Independent valuation of each investment property is conducted annually either in December or June of each year. Independent valuations are prepared using both the capitalisation of net income method and the discounting of future cashflows to their present value method. Capital expenditure since valuation may include purchases of sundry properties (and associated expenses of stamp duty, legal fees etc) and other capital refurbishment and repair expenditure. 78 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus income trust ACquIsITIon DATe (b) 28-May-03 30-Jun-03 22-Feb-04 27-nov-03 03-nov-03 19-Dec-03 16-Feb-04 23-Jan-04 17-Dec-04 07-Jun-05 07-Jun-04 18-Jul-05 05-Aug-04 11-May-05 18-Aug-05 31-oct-05 11-May-05 29-sep-05 18-Jul-05 21-Dec-05 21-Jun-06 31-Aug-06 29-Jun-07 CosT InCL. InDePenDenT vALuATIon ADDITIons DATe $’000 11,956 30/06/2006 2007 $’000 13,300 ConsoLIDATeD vALue 2008 $’000 13,300 7,866 30/06/2006 12,000 12,000 11,961 30/06/2006 12,700 12,700 19,222 30/06/2007 21,000 19,920 5,109 30/06/2007 6,500 5,740 32,272 30/06/2006 39,000 39,000 15,937 30/06/2006 – 17,100 5,040 30/06/2007 12,000 8,970 4,722 30/06/2006 5,877 5,900 6,857 30/06/2006 5,700 5,700 7,340 30/06/2007 9,000 7,450 8,832 30/06/2007 10,300 9,000 1,173 30/06/2007 1,950 1,650 8,092 30/06/2007 10,200 9,342 3,030 30/06/2007 3,200 2,830 2,965 30/06/2007 3,100 2,700 3,484 30/06/2005 – 3,490 6,150 30/06/2007 6,900 6,580 15,536 30/06/2007 15,536 9,201 4,337 30/06/2007 4,500 4,337 7,228 30/06/2007 10,250 7,222 7,743 30/06/2007 7,743 – 4,802 23/04/2007 4,802 – 215,558 204,132 PRoPeRTY 1-5 Lake Drive, Dingley, Melbourne 8 station street, Wollongong, nsW (d) 367 Peel street, Tamworth, nsW 500 Princes Highway,noble Park,vIC (ii) 31-33 Windorah Avenue, stafford, qLD (i) Lennons Plaza, 66 queen street, qLD 23-43 Tattersall Rd, Kings Park, nsW 26 savage street & 681 Curtin Avenue, Pinkenba, qLD (i) 671 Gympie Rd, Chermside, qLD 9-14 Yates street, Mawson Lakes, sA Gympie Market Place, Gympie (ii) (e) 36-52 national blvd, Campbellfield, vIC (i) 29-47 & 18-20 becker st, Cobar, nsW (i) (e) 50 Mostyn street, Castlemaine, vIC (i) (e) 96-98 victoria street, st.George, qLD (ii) (e) 12 Docker street, Wangaratta, qLD (i) (e) 208 Howick street, bathurst, nsW 93 victoria street, eaglehawk, vIC (i) (e) 29 queen street, north bundaberg, qLD (e) Kingscote Kangaroo Island, sA (i) (e) 293-295 Grt eastern Hwy, Midland WA (i) (e) 50 bamford Lane, Kirwan, qLD (e) Corner nolan & napier streets, Maryborough, vIC (e) Properties owned by AIT and its controlled entities (i) As valued by Cb Richard ellis (ii) As valued by Colliers Notes: (a) The aggregated value at 30 June 2007 includes capital expenditures after the last valuation date. (b) Refers to the date of acquisition by the underlying entity. (c) The investment properties are used as security over the bank loans. (d) AIT owns 98.4% of the units in the Wollongong Property Trust which owns 8 station street, Wollongong. (e) AIT owns 100% of the units in Abacus Retail Property Trust which owns 75% of the in the Abacus Independent Retail Property Trust which owns: - Gympie Market Place, Gympie , qLD; - 50 bamford Lane, Kirwan, qLD; - 29-47 & 18-20 becker st, Cobar, nsW; - 12 Docker street, Wangaratta, qLD; - 50 Mostyn street, Castlemaine, vIC; - Kingscote Kangaroo Island, sA; - 96-98 victoria street, st Geroge, qLD ; - 29 queen st. north bundaberg, qLD; and - 93 victoria street, eaglehawk, vIC; - 293-295 Grt Western Hwy, Midland, WA - Corner nolan & napier streets, Maryborough, vIC; 79 annual financial report / continued notes Reconciliations Reconciliation of the carrying amounts of investment properties at the beginning and end of the current and previous financial year: Carrying amount at beginning of financial year Additions Disposals net revaluation increments Carrying amount at end of financial year 8. ConTRIbuTeD equITY (a) Issued units Issued units Finance and issue costs Total contributed equity (b) Movements in contributed equity for the year At 1 July 2005 - distribution reinvestment plan - net impact of merger with APG - less transaction costs At 30 June 2006 - institutional equity raising At 30 June 2007 ConsoLIDATeD vALue 2006 $’000 2007 $’000 204,132 18,902 (20,590) 13,114 146,050 41,863 – 16,219 215,558 204,132 noTes 2007 $’000 2006 $’000 122,517 (5,321) 117,196 104,992 (5,320) 99,672 nuMbeR ‘000 2007 vALue $‘000 101,479 92,029 200 414,703 – 516,382 62,251 190 7,719 (266) 99,672 17,524 578,633 117,196 unitholders have the right to receive distributions from AIT, as declared, and in the event of winding up of the Trust, are entitled to participate in the proceeds from sale of all surplus assets in proportion to the number of units held. unitholders of units can vote their shares and units in accordance with the Corporations Act, either in person or by proxy, at a meeting of Trust. 80 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus income trust 9. evenTs AFTeR THe bALAnCe sHeeT DATe on 26 July 2007, the Group completed a capital raising via an institutional placement for $100 million and issued 52.6 million stapled securities at $1.90 per stapled security. other than as disclosed in this report and to the knowledge of directors, there has been no matter or circumstance that has arisen since the end of the financial year that has or may affect the Group’s operations in future financial years, the results of those operations or the Group’s state of affairs in future financial years. 81 annual financial report / continued directors’ declaration In accordance with a resolution of the directors of the responsible entity, we state that: (1) in the opinion of the directors: (a) the concise financial statements and notes, of the Trust and of the consolidated entity are in accordance with the Corporations Act 2001, including : (i) giving a true and fair view of the Trust’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and (ii) complying with Accounting standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Trust will be able to pay its debts as and when they become due and payable. (2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial period ended 30 June 2007. on behalf of the board of Abacus Funds Management Limited: JoHn THAMe Chairman FRAnK WoLF Managing Director sydney, 12 september 2007 82 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus income trust n Ernst & Young Centre 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 n Tel 61 2 9248 5555 Fax 61 2 9248 5959 DX Sydney Stock Exchange 10172 independent auditor’s report to the members of abacus income trust The accompanying concise financial report of Abacus Income Trust comprises the balance sheet as at 30 June 2007, the income statement, statement of changes in equity and cash flow statement for the year then ended and related notes, derived from the audited financial report of Abacus Income Trust for the year ended 30 June 2007. The concise financial report also includes the directors’ declaration. The concise financial report does not contain all the disclosures required by the Australian Accounting standards. Directors’ Responsibility for the Concise Financial Report The Directors of the Responsible entity for the trust are responsible for the preparation and presentation of the concise financial report in accordance with Accounting standard AAsb 1039 Concise Financial Reports, and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation of the concise financial report; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility our responsibility is to express an opinion on the concise financial report based on our audit procedures. We have conducted an independent audit, in accordance with Australian Auditing standards, of the financial report of Abacus Income Trust for the year ended 30 June 2007. our audit report on the financial report for the year was signed on 30 August 2007 and was not subject to any modification. The Australian Auditing standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report for the year is free from material misstatement. our procedures in respect of the concise financial report included testing that the information in the concise financial report is derived from, and is consistent with, the financial report for the year, and examination on a test basis, of evidence supporting the amounts and other disclosures which were not directly derived from the financial report for the year. These procedures have been undertaken to form an opinion whether, in all material respects, the concise financial report complies with Accounting standard AAsb 1039 Concise Financial Reports. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001 provided to the directors of the Responsible entity of Abacus Income Trust on 30 August 2007. Liability limited by a scheme approved under Professional Standards Legislation. 83 annual financial report / continued independent auditor’s report to members of abacus income trust Auditor’s Opinion In our opinion, the concise financial report and the directors’ declaration of Abacus Income Trust for the year ended 30 June 2007 complies with Accounting standard AAsb 1039 Concise Financial Reports. eRnsT & YounG eD PsALTIs Partner sydney, 12 september 2007 abacus group projects limited Directory Abacus Group Projects Limited ABN: 11 104 066 104 Level 34, Australia Square 264-278 George Street SYDNEY NSW 2000 Tel (02) 9253 8600 Fax (02) 9253 8616 Website www.abacusproperty.com.au Directors John Thame, Chairman (appointed 14/11/06) Frank Wolf, Managing Director David Bastian * (appointed 14/11/06) Dennis Bluth (appointed 14/11/06) Malcolm Irving (appointed 14/11/06) Len Lloyd William Bartlett (appointed 14/02/07) *Resigned as Managing Director on 30/09/06 Company secretary Ellis Varejes Registry Level 3, 60 Carrington Street SYDNEY NSW 2000 Tel (02) 1800 635 323 Toll free Fax (02) 8234 5050 Auditor Ernst & Young Ernst & Young Centre 680 George Street SYDNEY NSW 2000 Computershare Investor Services Pty Ltd 92 Consolidated Cash Flow Statement Contents 86 Directors’ Report 88 Auditor’s Independence Declaration 89 Consolidated Income and Distribution Statements Consolidated Balance Sheet Consolidated Statement of Changes in Equity 93 Notes to the Concise Financial Statements Directors’ Declaration Independent Auditor’s Report 90 91 98 99 84 AbACus AnnuAL FInAnCIAL RePoRT 2007 It is recommended that this Annual Financial Report should be read in conjunction with the Annual Financial Reports of Abacus Property Group, Abacus Trust and Abacus Income Trust as at 30 June 2007. It is also recommended that the report be considered together with any public announcements made by the Abacus Property Group in accordance with its continuous disclosure obligations arising under the Corporations Act 2001. abacus group projects limited Directory Abacus Group Projects Limited ABN: 11 104 066 104 Level 34, Australia Square 264-278 George Street SYDNEY NSW 2000 Tel (02) 9253 8600 Fax (02) 9253 8616 Website www.abacusproperty.com.au Directors John Thame, Chairman (appointed 14/11/06) Frank Wolf, Managing Director David Bastian * (appointed 14/11/06) Dennis Bluth (appointed 14/11/06) Malcolm Irving (appointed 14/11/06) Len Lloyd William Bartlett (appointed 14/02/07) *Resigned as Managing Director on 30/09/06 Company secretary Ellis Varejes Registry Computershare Investor Services Pty Ltd Level 3, 60 Carrington Street SYDNEY NSW 2000 Tel (02) 1800 635 323 Toll free Fax (02) 8234 5050 Auditor Ernst & Young Ernst & Young Centre 680 George Street SYDNEY NSW 2000 Contents 86 Directors’ Report 88 Auditor’s Independence Declaration 89 90 91 Consolidated Income and Distribution Statements Consolidated Balance Sheet Consolidated Statement of Changes in Equity 92 Consolidated Cash Flow Statement 93 Notes to the Concise Financial Statements Directors’ Declaration Independent Auditor’s Report 98 99 It is recommended that this Annual Financial Report should be read in conjunction with the Annual Financial Reports of Abacus Property Group, Abacus Trust and Abacus Income Trust as at 30 June 2007. It is also recommended that the report be considered together with any public announcements made by the Abacus Property Group in accordance with its continuous disclosure obligations arising under the Corporations Act 2001. 85 annual financial report / continued directors’ report 30 June 2007 The directors present their report together with the consolidated financial reports of Abacus Group Projects Limited (AGPL or the Company) and the auditor’s report thereon. DIReCToRs The directors of AGPL in office during the year and until the date of this report are set out below: DIReCToRs The directors of AGPL in office during the financial year and until the date of this report unless otherwise stated: John Thame Chairman (non-executive) Frank Wolf Managing Director (executive) David bastian* William bartlett non-executive director (appointed 14/11/06) non-executive director (appointed 14/02/07) Dennis bluth non-executive director Phillip Green non-executive director (resigned 1/9/06) Malcolm Irving non-executive director Len Lloyd executive director (appointed 14/11/06) *Resigned as Managing Director on 30 september 2006 As at the date of this report, the relevant interests of the directors and specified executives in the stapled securities of Abacus Property Group were as follows: DIReCToRs J Thame F Wolf D bastian M Irving L Lloyd APG seCuRITIes HeLD nuMbeR oF oPTIons oveR APG seCuRITIes 50,000 9,710,274* 4,486,352 30,014 785,925* - 1,343,284 - - 477,612 * The holdings of Dr Wolf and Mr Lloyd include securities acquired under the executive share Loan Plan that are treated as options. PRInCIPAL ACTIvITIes The principal activity of AGPL during the year was the management of hotel operations, specifically, the Rydges esplanade Hotel, Cairns. 86 AbACus AnnuAL FInAnCIAL RePoRT 2007 CoRPoRATe sTRuCTuRe AGPL is a company incorporated and domiciled in Australia. AGPL is a member of the Abacus Property Group (APG or the Group), which comprises Abacus Group Holdings Limited (AGHL), Abacus Trust (AT), Abacus Income Trust (AIT) and AGPL. shares in AGHL and AGPL and units in AT and AIT and have been stapled together so that none can be dealt with without the other. An APG security consists of one share in AGHL, one unit in AT, one share in AGPL and one unit in AIT. A transfer, issue or reorganisation of a share or unit in any of the component parts is accompanied by a transfer, issue or reorganisation of a share or unit in each of the other component parts. oPeRATInG PRoFIT AGPL incurred a consolidated net loss attributable to members of $0.4 million for the year ended 30 June 2007 (June 2006: $0.8 million loss). eARnInGs PeR sHARe basic earnings per share Diluted earnings per share YeAR enDeD 30 June 2007 CenTs YeAR enDeD 30 June 2006 CenTs (0.08) (0.07) (0.40) (0.40) DIvIDenDs There were no dividends paid by AGPL during the year ended 30 June 2007 (June 2006: nil). RevIeW oF oPeRATIons CoMPAnY oveRvIeW AGPL operates wholly within Australia and operates a hotel business via its 75% interest in Abacus Matson Holdings Pty Limited. oPeRATInG ResuLTs FoR THe YeAR Total revenues fell slightly from $12.7 million (2006) to $12.0 million (2007). Total expenses fell from $13.7 million (2006) to $13.1 million (2007). The net loss before tax marginally improved to $1.1 million (2007) from $1.2 million loss (2006) RevIeW oF FInAnCIAL ConDITIon Aside from the marginal improvement in operating performance, net assets grew from $5.8 million (2006) to $6.1 million (2007) through additional equity raising. abacus group projects limited Fees PAID To AbACus AnD AssoCIATes AGPL paid a management fee of $0.04 million (2006: $0.04 million) to Abacus for the year ended 30 June 2007. In addition, AGPL paid property management fees of $0.06 million (2006: $0.06 million) to an associate company, Abacus Property services Pty Limited, for the year ended 30 June 2007. LIKeLY DeveLoPMenTs AnD eXPeCTeD ResuLTs The Directors have excluded from this report any other information on the likely developments in the operations of the Company and the expected results of those operations in future financial years which are not of a material nature and would not in the Directors’ view be likely to result in unreasonable prejudice to the operation of the Company. sIGnIFICAnT CHAnGes In THe sTATe oF AFFAIRs There have been no significant changes other than the raising of $0.9 million in equity. envIRonMenTAL ReGuLATIon AnD PeRFoRMAnCe environmental responsibilities, such as waste removal and water treatment, have been managed in compliance with all applicable regulations and licence requirements and in accordance with industry standards. no breaches of requirements or additional environmental issues have been discovered nor brought to the board’s attention. There have been no known significant breaches of any environmental requirements applicable to the Company. InDeMnIFICATIon AnD InsuRAnCe oF DIReCToRs AnD oFFICeRs As Manager of AGPL, Abacus has paid an insurance premium in respect of a contract insuring its directors and full time executive officers and secretary. The terms of this policy prohibit disclosure of the nature of the risks insured or the premium paid. AuDIToR’s InDePenDenCe DeCLARATIon We have obtained an independence declaration from our auditors, ernst & Young, and such declaration is shown on the following page. RounDInG The amounts contained in this report and in the annual financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under AsIC Class order 98/100. The Company is an entity to which the Class order applies. signed in accordance with a resolution of the directors. Abacus Group Projects Limited (Abn 11 104 066 104) JoHn THAMe Chairman sIGnIFICAnT evenTs AFTeR bALAnCe DATe on 26 July 2007, APG completed a capital raising via an institutional placement for $100 million and issued 52.6 million stapled securities at $1.90 per stapled security. FRAnK WoLF Managing Director sydney, 12 september 2007 other than as disclosed already in this report and to the knowledge of directors, there has been no matter or circumstance that has arisen since the end of the financial year that has significantly affected, or may effect, the Company’s operations in future financial years, the results of those operations or the Company’s state of affairs in future financial years. 87 annual financial report / continued n Ernst & Young Centre 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 n Tel 61 2 9248 5555 Fax 61 2 9248 5959 DX Sydney Stock Exchange 10172 auditor’s independence declaration to the directors of abacus group projects limited In relation to our audit of the financial report of Abacus Group Projects Limited for the financial year ended 30 June 2007 to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. eRnsT & YounG eD PsALTIs Partner 30 August 2007 88 AbACus AnnuAL FInAnCIAL RePoRT 2007 Liability limited by a scheme approved under Professional Standards Legislation. abacus group projects limited consolidated income and distribution statements YeAR enDeD 30 June 2007 Revenue net hotel income Income from distributions Finance income net realised gains on investments Total revenue employee benefits expense Depreciation and amortisation expense Hotel overheads other expenses net unrealised loss on investments (Loss)/profit before income tax Income tax benefit Net (loss)/profit net loss/(profit) attributable to minority interests - external Net (loss)/profit attributable to members basic earnings per AGPL share Diluted earnings per AGPL share noTes 2007 $’000 2006 $’000 4a 12,025 12,265 – 15 383 9 4e – 142 12,040 12,799 4b 4c 4d 4f (5,181) (185) (3,578) (4,150) – (1,054) 511 (543) 128 (5,188) (192) (3,778) (4,511) (280) (1,150) 350 (800) (30) (415) (830) cents (0.08) (0.07) cents (0.40) (0.40) 89 annual financial report / continued consolidated balance sheet As AT 30 June 2007 Current assets Cash and cash equivalents Trade and other receivables Inventories other Total current assets Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Income tax payable Provisions Total current liabilities Non-current liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Retained earnings/(accumulated losses) Total parent interest in equity Total outside interest in equity Total equity 90 AbACus AnnuAL FInAnCIAL RePoRT 2007 2007 $’000 2006 $’000 2,031 4,585 125 64 1,243 3,978 128 133 6,805 5,482 924 915 954 2,793 9,598 3,155 – 139 3,294 – 209 209 871 1,035 486 2,392 7,874 1,601 121 152 1,874 15 227 242 3,503 2,116 6,095 5,758 6,437 (1,043) 5,394 701 6,095 5,557 (628) 4,929 829 5,758 abacus group projects limited consolidated statement of changes in equity YeAR enDeD 30 June 2007 At 1 July 2006 net income for the period Total income for the period equity raisings (net of issue costs) At 30 June 2007 At 1 July 2005 net income for the period Total income for the period equity raisings (net of issue costs) net impact of merger with ADIF At 30 June 2006 ReTAIneD eARnInGs $’000 MInoRITY InTeResT $’000 IssueD CAPITAL $’000 5,557 – – (628) (415) (415) 880 – 6,437 (1,043) ToTAL equITY $’000 5,758 (543) (543) 880 6,095 829 (128) (128) – 701 5,110 – – 10 437 5,557 202 (830) (830) – – 799 6,111 30 30 – – (800) (800) 10 437 (628) 829 5,758 91 annual financial report / continued consolidated cash flow statement YeAR enDeD 30 June 2007 Cash flows from operating activities net receipts from hotel business Interest received Distributions received Responsible entity’s fee paid Lease rental other operating payments Net cash flows from operating activities Cash flows from investing activities Proceeds from sale of investments Purchase of plant and equipment Net cash flows from/(used in) investing activities Cash flows from financing activities Proceeds from issue of stapled securities Advances from/(to) related entities Net cash flows from/(used in) financing activities net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 2007 $’000 2006 $’000 3,934 2,953 15 9 3 402 (101) (2,851) (129) 871 (99) (2,653) (271) 341 – (119) (119) 2,384 (27) 2,357 – 36 36 788 1,243 2,031 478 (2,902) (2,424) 274 969 1,243 92 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus group projects limited notes to the concise financial statements 30 June 2007 1. CoRPoRATe InFoRMATIon AGPL is a member of the APG which comprises AGHL, AT, AIT and AGPL. shares in AGHL and AGPL and units in AT and AIT and have been stapled together so that neither can be dealt with without the other. The securities trade as one security on the Australian stock exchange under the code AbP. 2. suMMARY oF sIGnIFICAnT ACCounTInG PoLICIes bAsIs oF PRePARATIon The concise financial report has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting standards. The concise financial report has also been prepared on a historical cost basis, except for investment properties and derivative financial instruments which have been measured at fair value, interests in joint ventures which are accounted for using the equity method, and certain investments measured at net market value. The carrying values of recognised assets and liabilities that are covered by interest rate swap arrangements, are adjusted to record changes in the fair values attributable to the risks that are being covered by derivative financial instruments. The concise financial report has been derived from the annual financial report but does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financial and investing activities of the Company as the full financial report. It is also recommended that the annual financial report be considered together with any public announcements made by the Company during the year ended 30 June 2007 in accordance with the continuous disclosure obligations arising under the Corporations Act 2001. The concise financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under AsIC Class order 98/100. The Company is an entity to which the class order applies. sTATeMenT oF CoMPLIAnCe except for the amendments of AAsb 101 Presentation of Financial Statements and AAsb 2007-4 amendments to Australian Accounting Standards arising from ED 151 and Other Amendments, which the Company has early adopted, Australian Accounting standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Company for the annual reporting period ending 30 June 2007. These are outlined in the table on the following page. 93 annual financial report / continued notes ReFeRenCe suMMARY AAsb 2005-10 Amending standard issued as a consequence of AAsb 7 Financial Instruments: Disclosures. APPLICATIon DATe oF sTAnDARD* 1 January 2007 AAsb 2007-1 Amending standard issued as a consequence of AAsb Interpretation 11 AAsb 2 – Group and Treasury Share Transactions. 1 March 2007 AAsb 2007-3 Amending standard issued as a consequence of AAsb 8 Operating Segments. 1 January 2009 AAsb 2007-7 Amending standards for wording errors, discrepancies and inconsistencies. 1 July 2007 IMPACT on CoMPAnY FInAnCIAL RePoRT AAsb 7 is a disclosure standard so will have no direct impact on the amounts included in the Company’s financial statements. However, the amendments will result in changes to the financial instrument disclosures included in the Company’s financial report. This is consistent with the Company’s existing accounting policies for share-based payments, so the standard is not expected to have any impact on the Company’s financial report. AAsb 8 is a disclosure standard so will have no direct impact on the amounts included in the Company’s financial statements. However, the standard is expected to have an impact on the Company’s segment disclosures as segment information included in internal management reports is more detailed than that currently reported under AAsb 114 Segment Reporting. The amendments are minor and do not affect the recognition, measurement or disclosure requirements of the standards. Therefore the amendments are not expected to have any impact on the Company’s financial report. APPLICATIon DATe FoR CoMPAnY* 1 July 2007 1 July 2007 1 July 2009 1 July 2007 1 January 2007 Refer to AAsb 2005-10 above. 1 July 2007 1 January 2009 1 november 2006 Refer to AAsb 2007-3 above. 1 July 2009 The prohibitions on reversing impairment losses in AAsb 136 and AAsb 139, which are to take precedence over the more general statement in AAsb 134, are not expected to have any impact on the Company’s financial report. 1 July 2007 AAsb 7 AAsb 8 AAsb Interpretation 10 new standard replacing disclosure requirements of AAsb 130 Disclosures in the Financial Statements of Banks and Similar Financial Institutions and AAsb 132 Financial Instruments: Disclosure and Presentation. new standard replacing AAsb 114 Segment Reporting, which adopts a management approach to segment reporting. Addresses an inconsistency between AAsb 134-interim Financial Reporting and the impairment requirements relating to goodwill in AAsb 136 Impairment of Assets and equity instruments classified as available for sale in AAsb 139 Financial Instruments: Recognition and Measurement 94 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus group projects limited APPLICATIon DATe oF sTAnDARD* 1 March 2007 IMPACT on CoMPAnY FInAnCIAL RePoRT Refer to AAsb 2007-1 above APPLICATIon DATe FoR CoMPAnY* 1 July 2007 ReFeRenCe suMMARY AAsb Interpretation 11 Addresses whether certain types of share-based payment transactions with employees (or other suppliers of goods and services) should be accounted for as equity-settled or as cash-settled transactions under AAsb 2 share- based-Payment. It also specifies the accounting in a subsidiary’s financial statements for share- based payment arrangements involving equity instruments of the parent. *designates the beginning of the applicable annual reporting period AAsb 2007-2, AAsb 2007-5, AAsb 2007-6, AAsb 123 and AAsb Interpretation 12 will have no application to the Company. The financial report complies with Australian Accounting standards, which include Australian equivalents to International Financial Reporting standards (AIFRs). The financial report also complies with International Financial Reporting standards (IFRs). bAsIs oF ConsoLIDATIon The consolidated financial statements comprise AGPL (the Parent Company) and Abacus Matson Holdings Pty Limited (the subsidiary). The financial statements of the subsidiary are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits arising from intra-Group transactions, have been eliminated in full. The subsidiary is consolidated from the date on which control is transferred to the AGPL and cease to be consolidated from the date on which control is transferred out of the AGPL. Where there is loss of control of the subsidiary, the consolidated financial statements include the results for the part of the reporting period during which the AGPL has control. Minority interests represent the interests in Abacus Matson Holdings Pty Ltd not held by the AGPL are presented separately in the income statement and within equity in the consolidated balance sheet. 3. seGMenT InFoRMATIon The Company operates wholly within Australia and derives income from management of a hotel in queensland. 95 annual financial report / continued notes 4. Revenue AnD eXPenses (a) Net hotel income Revenue Cost of sales Total net hotel income (b) Employee benefits expense Wages and salaries Leave provisions others Total employee benefits expense (c) Depreciation and amortisation expense Depreciation of plant and equipment Amortisation of intangibles - management rights Total depreciation and amortisation expense (d) Other expenses expenses on sale of investment properties Management fees Auditor’s remuneration Lease rental Provision for diminution in value of joint venture interest other Total other expenses (e) Net realised gains on investments sale of commercial office suites Total net realised gains on investments (f) Net unrealised loss on investments Change in fair value of property, plant and equipment Total net unrealised loss on investments 96 AbACus AnnuAL FInAnCIAL RePoRT 2007 2007 $’000 2006 $’000 14,393 (2,368) 12,025 14,702 (2,437) 12,265 4,110 347 724 5,181 66 119 185 – 101 31 4,015 – 3 4,150 – – – – 4,184 379 625 5,188 73 119 192 132 99 16 2,739 1,500 25 4,511 142 142 (280) (280) abacus group projects limited 5. ConTRIbuTeD equITY (a) Issued shares Issued shares (b) Movement in stapled securities on issue At 1 July 2005 - institutional equity raising - net impact of merger with ADIF At 30 June 2006 - security purchase plan - institutional equity raising - distribution reinvestment plan At 30 June 2007 nuMbeR ’000 vALue $’000 578,633 6,437 nuMbeR ’000 101,479 200 414,703 516,382 13,842 36,585 11,824 vALue $’000 5,110 10 437 5,557 176 525 179 578,633 6,437 shareholders have the right to receive dividends from AGPL and, in the event of winding up of the AGPL, are entitled to participate in the proceeds from sale of all surplus assets in proportion to the number of shares held. shareholders can vote their shares in accordance with the Corporations Act, either in person or by proxy, at a meeting of the AGPL. 97 annual financial report / continued directors’ declaration In accordance with a resolution of the directors, we state that: (1) in the opinion of the directors: (a) the concise financial statements and notes, of the Company and of the consolidated entity are in accordance with the Corporations Act 2001, including : (i) giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and (ii) complying with Accounting standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial year ending 30 June 2007. on behalf of the board: JoHn THAMe Chairman FRAnK WoLF Managing Director sydney, 12 september 2007 98 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus group projects limited n Ernst & Young Centre 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 n Tel 61 2 9248 5555 Fax 61 2 9248 5959 DX Sydney Stock Exchange 10172 independent auditor’s report to the members of abacus group projects limited The accompanying concise financial report of Abacus Group Projects Limited comprises the balance sheet as at 30 June 2007, the income statement, statement of changes in equity and cash flow statement for the year then ended and related notes, derived from the audited financial report of Abacus Group Projects Limited for the year ended 30 June 2007. The concise financial report also includes the directors’ declaration. The concise financial report does not contain all the disclosures required by the Australian Accounting standards. Directors’ Responsibility for the Concise Financial Report The Directors are responsible for the preparation and presentation of the concise financial report in accordance with Accounting standard AAsb 1039 Concise Financial Reports, and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation of the concise financial report; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility our responsibility is to express an opinion on the concise financial report based on our audit procedures. We have conducted an independent audit, in accordance with Australian Auditing standards, of the financial report of Abacus Group Projects Limited for the year ended 30 June 2007. our audit report on the financial report for the year was signed on 30 August 2007 and was not subject to any modification. The Australian Auditing standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report for the year is free from material misstatement. our procedures in respect of the concise financial report included testing that the information in the concise financial report is derived from, and is consistent with, the financial report for the year, and examination on a test basis, of evidence supporting the amounts and other disclosures which were not directly derived from the financial report for the year. These procedures have been undertaken to form an opinion whether, in all material respects, the concise financial report complies with Accounting standard AAsb 1039 Concise Financial Reports. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001 provided to the directors of Abacus Group Projects Limited on 30 August 2007. Liability limited by a scheme approved under Professional Standards Legislation. 99 annual financial report / continued independent auditor’s report to members of abacus group projects limited Auditor’s Opinion In our opinion, the concise financial report and the directors’ declaration of Abacus Group Projects Limited for the year ended 30 June 2007 complies with Accounting standard AAsb 1039 Concise Financial Reports. eRnsT & YounG eD PsALTIs Partner sydney, 12 september 2007 100 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group corporate governance This report sets out the Group’s position relating to each of the AsX Corporate Governance Council Principles of Good Corporate Governance during the year. Additional information, including charters and policies, is available through a dedicated corporate governance information section on the Abacus website at www.abacusproperty.com. au under ‘About Abacus’. PRInCIPLe 1: LAY soLID FounDATIons FoR MAnAGeMenT AnD oveRsIGHT The board has adopted a charter that sets out the responsibilities reserved by the board, those delegated to the Managing Director and those specific to the Chairman. PRInCIPLe 2: sTRuCTuRe THe boARD To ADD vALue Board size and composition The board is comprised of two executive directors and five non-executive directors. The majority of the board (Messrs Thame, bluth, Irving and bartlett) are independent members. The board has determined that an independent director is one who is not: • a current executive or a substantial securityholder of the Group; • a director who has been employed in an executive capacity by the Group; • involved in material contractual relationships with the Group; or • a principal of a material adviser or material consultant to the Group. Given the nature of the Group’s business and current stage of development, the board considers its current composition provides the necessary skills and experience to ensure a proper understanding of, and competence to deal with, the current and emerging issues of the business to optimise the financial performance of the Group and returns to securityholders. Details of the skills, experience and expertise of each director are set out on pages 13-14. Directors’ independent advice Directors may seek independent professional advice on any matter connected with the performance of their duties. In such cases, the Group will reimburse the reasonable costs of such advice. Nomination and Remuneration Committee The board has established a nomination and Remuneration committee. The Committee’s charter sets its role, responsibilities and membership requirements. The members of the committee and their attendance at meetings are provided on page 15. The selection and Appointment of non-executive Directors policy sets out the procedures followed when considering the appointment of new directors. PRInCIPLe 3: PRoMoTe eTHICAL AnD ResPonsIbLe DeCIsIon-MAKInG Standards of ethical behaviour The Group’s Code of Conduct promotes ethical practices and responsible decision making by directors and employees. The Code deals with confidentiality of information, protection of company assets, disclosure of potential conflicts of interest and compliance with laws and regulations. Trading in Group securities The Group policy restricts trading in Group securities by directors and employees. The policy sets out the periods in which trading in Group securities is permitted. PRInCIPLe 4: sAFeGuARD InTeGRITY In FInAnCIAL RePoRTInG Financial report accountability The Managing Director and the Chief Financial officer provide a written assurance to the board that the Group’s financial reports present a true and fair view, in all material respects, of the Group’s financial condition and operational results and are in accordance with relevant accounting standards. Audit committee The Audit Committee comprises two independent non- executive directors and the chairman of the Committee is not the chairman of the board. The members of the committee and their attendance at meetings are provided on page 15. The Audit Committee has a formal charter which sets out its specific roles and responsibilities, and composition requirements. The procedures for the selection and appointment of the external auditor are set out in the Audit Committee Charter. PRInCIPLe 5: MAKe TIMeLY AnD bALAnCeD DIsCLosuRe The Group has a policy and procedures designed to ensure compliance with AsX Listing Rule disclosure requirements. The Managing Director is responsible for ensuring that the Group complies with its disclosure obligations. 101 annual financial report / continued PRInCIPLe 10: ReCoGnIse THe LeGITIMATe InTeResTs oF sTAKeHoLDeRs The Code of Conduct discussed under Principle 3 guides compliance with legal and ethical responsibilities and also sets a standard for employees and directors dealing with the Group’s obligations to external stakeholders. corporate governance PRInCIPLe 6: ResPeCT THe RIGHTs oF seCuRITYHoLDeRs The Group aims to keep securityholders informed of significant developments and activities of the Group. The Group’s website is updated regularly and includes annual and half-yearly reports, distribution history and all other announcements lodged with the AsX. In addition, the Group publishes a newsletter from time to time which updates investors and their advisers on the current activities of the Group. External auditor The external auditor attends the annual general meetings of the Group and is available to answer securityholder questions. PRInCIPLe 7: ReCoGnIse AnD MAnAGe RIsK The Audit Committee has responsibility for reviewing the Group’s risk management framework. During the year a review of the risk management framework was undertaken in consultation with an external consultant. As a result of the review and the Group’s growth an updated risk management plan was adopted. The risk register is updated with any emerging risks and the responsibility for managing those risks. The Managing Director and Chief Financial officer confirm in writing to the board that the financial statements present a true and fair view and that this statement is based on a sound system of financial risk management and internal compliance. The statement also confirms that these controls implement the policies adopted by the board and that the Group’s financial risk and internal compliance controls are operating efficiently and effectively in all material respects. PRInCIPLe 8: enCouRAGe enHAnCeD PeRFoRMAnCe The nomination and Remuneration Committee is responsible for assessing the processes for evaluating the performance of the board and key executives. PRInCIPLe 9: ReMuneRATe FAIRLY AnD ResPonsIbLY The Group’s remuneration policies including security-based payment plans and the remuneration of key management personnel are discussed in the Remuneration Report. The members of the committee and their attendance at meetings are provided on page 15. non-executive directors are paid fees for their service and do not participate in other benefits which may be offered other than those which are statutory requirements. 102 AbACus AnnuAL FInAnCIAL RePoRT 2007 abacus property group asx additional information Abacus Property Group is made up of the Abacus Trust, Abacus Income Trust, Abacus Group Holdings Limited and Abacus Group Projects Limited. The responsible entity of the Abacus Trust and Abacus Income Trust is Abacus Funds Management Limited. unless specified otherwise, the following information is current as at 31 August 2007. number of holders of ordinary fully paid stapled securities voting rights attached to ordinary fully paid stapled securities one vote per stapled security 8,298 number of holders holding less than a marketable parcel of ordinary fully paid stapled securities 78 secretary, Abacus Funds Management Limited secretary, Abacus Group Holdings Limited secretary, Abacus Group Projects Limited Registered office Abacus Funds Management Limited Abacus Group Holdings Limited Abacus Group Projects Limited ellis varejes Level 34, Australia square 264-278 George street sydney nsW 2000 612 9253 8600 Registry Computershare Investor services Pty Ltd other stock exchanges on which Abacus Property Group securities are quoted number and class of restricted securities or securities subject to voluntary escrow that are on issue There is no current on-market buy-back subsTAnTIAL seCuRITYHoLDeR noTIFICATIons (CuRRenT As AT 14 sePTeMbeR 2007) seCuRITYHoLDeRs ubs nominees Pty Limited Deutsche bank Group babcock & brown Group InG Australia Holdings Limited Australia and new Zealand banking Group Limited seCuRITIes ReGIsTeR nuMbeR oF seCuRITIes 1-1000 1,001-5,000 5,001-10,000 10,001-100,000 100,001 – over GPo box 7045 sydney nsW 1115 1300 855 080 none none nuMbeR oF seCuRITIes 43,874,239 36,650,881 23,537,211 35,696,384 35,750,736 nuMbeR oF seCuRITYHoLDeRs 244 729 1,615 5,487 223 103 annual financial report / continued asx additional information ToP 20 LARGesT seCuRITYHoLDInGs seCuRITYHoLDeRs 1 national nominees Limited 2 HsbC Custody nominees (Australia) Limited 3 J P Morgan nominees Australia Limited 4 AnZ nominees Limited 5 AnZ nominees Limited 6 RbC Dexia Investor services Australia nominees Pty Ltd 7 Australian executor Trustees Limited 8 suncorp Custodian services Pty Limited 9 Cogent nominees Pty Limited 10 RbC Dexia Investor services Australia nominees Pty Ltd 11 Citicorp nominees Pty Limited 12 Citicorp nominees Pty Limited 13 Avanteos Investments Limited 14 Citicorp nominees Pty Limited 15 netwealth Investments Limited 16 Avanteos Investments Limited 17 Avanteos Investments Limited 18 Pluteus (no. 164) Pty Limited 19 RbC Dexia Investor services Australia nominees Pty Ltd 20 Multiplex Funds Management Limited nuMbeR oF seCuRITIes % oF IssueD seCuRITIes 80,706,845 67,904,104 67,587,188 34,922,392 20,325,425 18,116,372 17,233,170 15,757,831 13,238,904 12,810,920 11,164,624 9,861,040 9,121,088 6,834,482 5,699,008 3,268,562 3,168,388 2,734,146 2,647,060 2,359,592 12.72 10.70 10.65 5.50 3.20 2.86 2.72 2.48 2.09 2.02 1.76 1.55 1.44 1.08 0.90 0.52 0.50 0.43 0.42 0.37 104 AbACus AnnuAL FInAnCIAL RePoRT 2007 Abacus Property Group Level 34 Australia Square 264-278 George Street Sydney NSW 2000 T 612 9253 8600 F 612 9253 8616 E enquiries@abacusproperty.com.au www.abacusproperty.com.au Gillespie Advertising Pty Ltd www.abacusproperty.com.au

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