Abacus Property Group Annual Report 2013

Plain-text annual report

abacus property Group level 34 australia Square 264-278 George Street Sydney nSW 2000 t +61 2 9253 8600 F +61 2 9253 8616 e enquiries@abacusproperty.com.au www.abacusproperty.com.au 2013 abacus property group annual report a b a c u S p r o p e r t y G r o u p 2 0 1 3 a n n u a l r e p o r t AbAcus ProPerty GrouP GLossAry At 30 June 2013, Abacus Property Group comprised Abacus Trust, Abacus Income Trust, Abacus Storage Property Trust, Abacus Group Holdings Limited, Abacus Group Projects Limited and Abacus Storage Operations Limited. The Group structure is illustrated below. Abacus Abacus Funds Management Limited, the responsible entity of the trusts AGHL Abacus Group Holdings Limited AGPL Abacus Group Projects Limited AGHL has been identified as the parent entity of the Group. The financial reports of the Group for the year ended 30 June 2013 comprise the consolidated financial reports of AGHL and its controlled entities, AT and its controlled entities, AGPL and its controlled entities, AIT and its controlled entities, ASOL and its controlled entities, ASPT and its controlled entities, Abacus Hospitality Fund and its controlled entities, Abacus Diversified Income Fund II and its controlled entities, Abacus Miller Street Holding Trust and its controlled entity and Abacus Wodonga Land Fund. AIT Abacus Income Trust APG Abacus Property Group ASOL Abacus Storage Operations Limited ASPT Abacus Storage Property Trust AT Abacus Trust Group Abacus Property Group AbAcus ProPerty GrouP Listed Entities: AGHL/AGPL/ ASOL/AT/AIT/ASPT Abacus Property Group has significant influence over these managed funds and the adoption of AASB 10 results in the consolidation of these funds. Investment Portfolio Office Storage Retail Industrial Other Property Ventures Funds Management Abacus Hospitatlity Funds Abacus Miller Street Fund ADIF II Abacus Wodonga Land Fund u a . m o c . e p o c s m a e t y b d e c u d o r p d n a d e n g i s e D 01 annual report 2013 Chairman & Managing Director’s report Senior executive team Sustainability Who is Abacus Directors report Board members Financial highlights Recent acquisitions CONTENTS 02 06 08 12 15 18 20 22 52 54 55 56 58 59 60 141 142 144 149 Directors’ declaration Independent audit report Corporate governance report ASX additional information Auditor’s independence declaration Consolidated income statement Consolidated statement of other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flow Notes to the financial statements 02 abacus property group WhO IS ABACuS Currently Abacus has total assets of $1.8 billion and a market capitalisation of over $1 billion and is included in the S&P/ASX 200 Index. Abacus Property Group is a diversified property group that specialises in private equity style real estate investments. We seek to invest our capital in core plus property opportunities to drive long term total returns through the property cycle. We look for Australian assets in gateway cities that we actively manage through the asset cycle to increase prospective total returns. Where appropriate, we realise mature assets and redeploy capital into the next generation of higher growth opportunities. Abacus has a core plus, asset-centric business model where it is not the quantity of assets that is important, but rather the nature of each asset we control and the opportunities they present. Abacus’ disciplined property selection process maintains a firm focus on fundamental real estate value. Our experience has shown that strict adherence to our fundamental investment criteria enables Abacus to acquire assets well and provide opportunities for outperformance while minimising downside risk to equity. 1996 2001 2002 2012 Abacus was formed in 1996 as a boutique property syndicator, providing property based investment opportunities for retail clients of financial planners. In 2001, Abacus merged a number of property syndicates to form the diversified Abacus Property Group. In late 2002, Abacus listed the Group on the ASX. Since listing, Abacus has continued to expand its business to become one of Australia’s larger listed real estate investment trusts. In 2012, Abacus merged with its largest unlisted managed fund, Abacus Storage Fund. The merger added $330 million of quality storage assets to the Group’s portfolio. 03 annual report 2013 Our philOsOphy Our investment objective is to provide our investors with reliable and increasing returns. We look for property assets that are capable of providing growth in: • rental income; and • asset value as a result of our diligent active management. Abacus is first and foremost a property investor seeking to extract value through active management. The diagram on this page depicts the investment process that Abacus undertakes. Abacus has three integrated property businesses built on our core expertise in accessing properties and projects and actively managing them to realise their full value. Our flat corporate structure and business model supports strong synergies across our businesses and contributes to the overall success of the businesses and the Group. In total, Abacus has $2.1 billion of assets under management. PROPERTy ACquISITION Properties that have realistic prospects for increased capital growth through active managment ASSET MANAgEMENT Significant asset management experience is applied to drive returns INVESTMENT REAlISATION Where appropriate asset is returned to market 04 abacus property group WhO IS ABACuS CONTINuED investment pOrtFOliO prOperty ventures Funds management Abacus participates in a range of projects by combining our capital and property expertise with the regional or sector-specific expertise of our business partners. Abacus has historically offered a wide range of high quality investment solutions designed to meet the needs of different groups of retail investors. The Group has now redirected its focus towards wholesale third party capital. Abacus Property Group holds a diversified investment portfolio of primarily commercial, storage, industrial and retail properties. Rental income from these properties is the largest contributor to the earnings of the Group. Abacus’ disciplined property selection process maintains a firm focus on fundamental real estate value. The Group’s property portfolio is primarily located on the Eastern seaboard of Australia and New Zealand. annual report 201305 5 annual report 2013 199 geOrge street BrisBane Qld abacus property group 06 FINANCIAl hIghlIghTS pleasing grOWth and COrrelatiOn BetWeen COre FinanCial metriCs 25.4 FY10 28.6 FY11 8.5 FY12 61.1 FY13 64.9 FY10 72.2 FY11 76.8 FY12 83.8 FY13 statutOry prOFit ($ milliOn) underlying prOFit ($ milliOn) 64.6 FY10 66.8 FY11 79.6 FY12 105.7 FY13 52.8 FY10 61.8 FY11 67.8 FY12 74.1 FY13 CashFlOW FrOm OperatiOns ($ milliOn) distriButiOns ($ milliOn) 07 annual report 2013 2012 $8.5m $76.8m $79.6m 19.9c 16.5c 3.2x $1.7bn $1.0bn $2.34 28.6% 36.8% $567m 3.0yrs 7.3% 2013 $61.1m $83.8m $105.7m 23.7c 16.5c 3.3x $1.8bn $1.0bn $2.32 28.4% 36.6% $565m 2.1yrs 6.1% FinanCial highlights Consolidated statutory net profit1 Underlying profit2 Cashflow from operations Cashflow from operations per security Distributions per security3 Interest over ratio4 BalanCe sheet metriCs Total assets Net tangible assets5 NTA per security Gearing6 Covenant gearing7 Total debt drawn Debt term to maturity Average cost of debt8 1 Excludes non controlling interests. 2 Calculated in accordance with the AICD/Finsia principles for reporting underlying profit. 3 Includes distributions declared post period end (1 July 2013, 2 July 2012). 4 Calculated as underlying EBITDA divided by interest expense. 5 Excludes external non-controlling interests pf $43.8 million (2012: $51.0 million). 6 Bank debt minus cash divided by total assets minus cash. 7 Total liabilities (net of cash) divided by Total Tangible Assets (net of cash). 8 Weighted average base rate plus margin on drawn amount plus facility line fees. abacus property group 08 CHAIRMAN & MANAGING DIRECTOR’S REPORT 09 annual report 2013 dear seCurityhOlders We are very pleased tO present tO yOu Our 2013 annual repOrt. Once again, Abacus Property Group has delivered a strong result for the financial year. It was pleasing to see consistent growth of our underlying profit and cashflow from operations which illustrates the strength of our diversified business. These metrics remain our key focus as we believe they best illustrate the health of the business. Abacus is a long term investor in property. We are focused on the performance of our portfolio over the investment cycle and will not be drawn into short term asset acquisitions if they do not represent fundamental property value. The underlying profit for the financial year to 30 June 2013 was $83.8 million, a 9.1% increase over the prior year. Abacus also improved its cashflow from operations to $105.7 million from $79.6 million a year before. These results underwrote Abacus’s distributions to securityholders of approximately $74.1 million and allowed for capital to be re-invested to further grow returns to securityholders. We achieved a 19.4% total securityholder return over the year. Since 2010, 96% of securityholder distributions have been paid from recurring revenue sources. Abacus has, over this time, focused on driving revenues from recurring sources to support and grow our distributions. Surplus profits provide Abacus with additional capital to be re-invested into business activities to drive longer term returns to securityholders. The accompanying annual financial report includes our operating and financial review (OFR) on pages 22 to 33. The objectives of the OFR are to provide our securityholders with a narrative and analysis to supplement the financial report and assist in understanding our operations, financial position, business strategies and prospects. It contains information you need to make an informed assessment of the Group and we encourage you to read the OFR in its entirety. Fy13 FinanCial results The main financial and capital metrics are presented below: • Statutory profit increased to $61.1 million, up from $8.5 million in the 2012 financial year • Underlying profit increased to $83.8 million, up 9.1% • Cashflow from operations increased to $105.7 million, up 32.8% to 23.7 cents per security Abacus’ total assets remained fairly stable over the year at $1.8 billion, with net assets of $1.0 billion. The Group’s net tangible asset backing per security improved slightly to $2.32 from $2.30 in December 2012. The Abacus balance sheet continues to be strong with gearing remaining low at 28.4%, well within our target gearing limit of 35%. Abacus has no significant debt expiries until late 2014 and an average debt term to maturity of over two years. We continue to improve and reweight the balance sheet with a focus on disciplined capital management strategies. We anticipate Abacus’ weighted average interest rate will remain relatively stable as current capacity is utilised and anticipate it should be no greater than 6.5% over the 2014 financial year. 1 Underlying profit and earnings per security are a non-AIFRS measure that the Group uses to assess performance and distribution levels. They are calculated in accordance with the AICD/Finsia principles. 2 Cashflow from operations of Abacus excludes cost of inventory sales of $47.9 million. 10 abacus property group ChAIRMAN & MANAgINg DIRECTOR’S REPORT CONTINuED OvervieW OF Our Operating divisiOns investment pOrtFOliO 47 commercial properties valued at $888 million 47 storage facilities valued at $373 million 94 investment properties valued at $1.26 billion • Commercial portfolio occupancy of 92.8% Commercial portfolio rent growth3 of 3.4% • Retail portfolio continues to deliver strong results Storage portfolio occupancy: 83.5% Storage facility rental gross rent: $237 per m2 Our investment portfolio generated a $63.8 million EBITDA4 result for the financial year. This result was below 2012 and was attributable to the delayed reinvestment of sales proceeds into new acquisitions. Our commercial portfolio metrics have largely remained consistent with the previous year despite a weakening economic environment. The slight decrease in occupancy and WALE was also largely due to the impact of sales and acquisitions during the year. The portfolio offers embedded long term capital and earnings growth that we are focused on delivering through the property cycle. The portfolio is diversified across asset classes that are well located, largely along the eastern seaboard in major metropolitan areas. While some geographic areas are challenging, we nevertheless believe the geographic diversification provides a level of security and stability to the portfolio’s property income and cashflows. The Group is focused on maintaining revenue and cashflows to support securityholder distributions. The storage portfolio has delivered a consistent trading performance across the portfolio providing resilient underlying cashflows despite the subdued economic environment and a competitive storage market. The Australian market has experienced increased competition leading to discounting by market participants. As a result the portfolio experienced a slight decrease over the year in average gross rental to $237 from $238 per m². Despite this fall in rate, the portfolio continued to deliver positive revenue growth of 0.5% pa from the Australian portfolio and 4.5% pa from the New Zealand portfolio largely from an overall improvement in occupancy. While focused on improving occupancy and rental growth from the storage facilities, Abacus also sees the delivery of expansion opportunities in the current portfolio where strong demand allows for low cost expansion as a core focus to driving portfolio returns. 3 Like for like properties excluding those assets classified as development 4 Earnings before interest, depreciation, tax and amortisation 11 annual report 2013 prOperty ventures The property ventures business invests in projects that focus on select residential and commercial development opportunities in core locations with experienced local joint venture partners. Abacus has total assets of $313 million in property venture projects, reflecting only 17% of the balance sheet assets but provides potential for outperformance as projects and investments complete. The division generated a strong EBITDA result, which was 5% above that delivered in the previous year. A site at Lewisham, which was part of the RCL portfolio, was sold in August 2012 for $48.5 million. Our residential development projects at Rosebery (Sydney, NSW) and Bay Street (Brighton, VIC) made significant progress during the year. Rosebery was completed in May 2013. Our Bay Street project is progressing well and is currently ahead of schedule. Settlement is anticipated by the end of the current calendar year. Abacus also initiated a number of new projects during the year including Jack Road in Cheltenham VIC which comprises a mixed townhouse development of up to 160 residential products and Carlton project in Melbourne VIC, a high density residential apartment development of up to 190 units. Funds management The funds management business generated a contribution of $16.6 million for the year providing a return of 7.8% on total funds invested across the platform. This contribution before fair value adjustments was slightly below the 2012 financial year as a consequence of the merger of the Storage Fund. sustainaBility Abacus has always operated its business activities in a sustainable manner and with regard for the natural environment. Abacus has now enhanced its commitment in this area by adopting a formal sustainability protocol. The protocol is on page 15 of the Annual Report. We have developed a number of measures that will enable us to monitor and benchmark the sustainability performance of our assets. We intend to report on these measures in next year’s Annual Report. Page 17 of this report highlights one such example at our property at 51 Allara Street in Canberra. Here Abacus has completed an upgrade to the building for a Government tenant to include energy efficient lighting, upgraded and efficient air conditioning systems and a 60 place childcare centre. OutlOOk Abacus has delivered a good result that illustrates the strength of the Abacus business, with a strong underlying profit and cashflow from operations. We have a clear focus on activities that will support and generate cashflow. We believe the Abacus portfolio is well placed to cope with the current challenging conditions and we have created a strong diversified asset base with a clear strategy for major assets and projects. Our income is diversified by asset class, tenancy and geography. We are long term property investors seeking to develop, deliver and acquire new opportunities to drive long term securityholder returns. Finally, we and the other members of our Board would like to thank you, our investors and our other stakeholders for your continued support. We are pleased with what we have been able to achieve in light of that and we are confident that we are positioning Abacus well in order to deliver strong long term total returns to investors in the future. This would not be possible without the dedication and hard work of everyone at Abacus. Therefore, on behalf of the Board, we would like to thank our executive team and all our staff. John Thame Chairman Frank Wolf Managing Director abacus property group 12 RECENT ACquISITIONS 01 33 Queen street and 199 geOrge street, BrisBane Qld These properties were acquired as one for $34 million in April 2013 and represented an initial yield of 9.4%. 33 Queen Street is an historic seven level building with frontage to the Queen Street Mall and immediately adjoining and connected is 199 George Street, a recently constructed modern office and retail tower with frontage to George Street. 33 Queen Street has an unrivalled location at the top of Queen Street Mall, on one of Brisbane’s best corners. The heritage building has total NLA of 3,313m2, including 1,290m2 of retail space leased to Westpac Bank and 2,023m2 leased to a number of smaller tenants. Westpac Bank has occupied the retail area for over 160 years. The building is almost fully let. 199 George Street is a near new 2,769m2 ten level, A grade commercial office building that connects to all floors of the adjoining heritage building. The property is approximately 90% occupied and has 16 car spaces. 13 annual report 2013 14 abacus property group RECENT ACquISITIONS CONTINuED 02 03 BrOWns rOad, ClaytOn viC This industrial property in Clayton was acquired in May 2013 for $19.55 million. The transaction represents a sale and lease back for 10 years on triple net terms and represented an initial yield of 9.8%. The property comprises 31,873 sqm of improvements on 6.1 hectares of land. The property represents a strong acquisition with appropriate risk adjusted returns providing an attractive yield and triple net lease. The site’s location is an established residential area 21km’s SE from the Melbourne CBD, close to local railway and transport nodes and shopping and medical facilities suggesting a residential rezoning, with initial indications showing up to 325 dwellings, may be the highest and best use for the site at some time in the future. BaCChus marsh village shOpping Centre, BaCChus marsh viC This sub-regional shopping centre was acquired for $31.6 million in June 2013. The property is a well presented and dominant convenience based shopping centre located approximately 50km west of the Melbourne CBD. The total site area is 4.4 hectares of which 0.84 hectares is vacant land with development potential. The acquisition reflects $2,086psm of gross lettable area representing strong value metrics for an established centre in a location illustrating good demographics and an undersupply of supermarket facilities. The shopping centre has a total gross lettable area of 15,147sqm and is anchored by a Coles supermarket. The other major retail tenants include Aldi, Target Country and Reject Shop. The property provides great enhancement opportunities to increase the net income over the medium term via a renewed leasing and re-positioning strategy, with the vacant land allowing strong development potential. 03 02 01 15 annual report 2013 SuSTAINABIlITy sustainaBility prOtOCOl Abacus Property Group (Abacus) is a diversified A-REIT that specialises in investing in core plus property opportunities across Australia. We seek to take advantage of value-adding opportunities to maximise securityholder value, through the acquisition, re-development, refurbishment, re-positioning and re-leasing of assets. Our core plus approach means that our assets are actively managed and often undergo significant change over their lifecycle. Abacus believes it is important to understand and respond to the environmental, social and governance impacts of our business activities. We believe that integrating sustainability issues into our investment decision-making and business operations is congruent with the responsibility we have to our stakeholders. We are committed to implementing sustainability practices in our investments, property management, development activities and workplaces. We will use these practices to manage risks, create opportunities and strengthen our operations. We have always applied an ethical approach to our business and we are committed to: • Ongoing communication with our stakeholders on environmental, social and governance issues. • Incorporating environmental issues including climate change in our decision-making processes. • Managing our buildings efficiently to conserve the use of limited natural resources. • Supporting and developing our employees to use their skills and expertise to respond to the sustainability challenges. • Maintaining a safety-aware culture ensuring proper standards of workplace health and safety for our staff, contractors and other users of, and visitors to, our properties. We will work to implement these commitments over time having regard to the nature, context and strategy of individual property assets and the interests of our stakeholders by: • Developing and implementing appropriate systems to monitor and benchmark the sustainability performance of our assets. • Pursuing cost effective and efficient use of energy and water and waste reduction. • Adopting sustainable design practices in our asset improvement and development projects where appropriate. • Reporting on our sustainability progress and performance. • Implementing our commitment to sustainability in a practicable manner. • Influencing our employees and other stakeholders to operate in a manner that supports our sustainability commitments. This protocol provides the foundation for Abacus’ commitment to sustainability. All our employees are responsible for the implementation of this protocol, which will evolve over time in response to our business needs and the reasonable expectations of our stakeholders. Signed by: Frank Wolf Managing Director 16 abacus property group SuSTAINABIlITy CONTINuED 17 annual report 2013 DRET had also made enquiries regarding childcare requirements for its employees during its leasing negotiation. Working with the tenant, we were able to convert some commercial internal and external space into a brand new childcare centre. The centre caters for 60 children and provides a useful community service to the building. Our work at 51 Allara Street showcases the ability of Abacus to work with its tenants and properties to deliver sustainable requirements where required with regard to the natural environment. In undertaking the refurbishment and upgrade works Abacus was able to secure a long term high quality covenant on a 10 year lease to 2021 and maintain the building’s standing and desirability into the future. Case study 51 allara street CanBerra aCt 51 Allara Street was acquired by Abacus Property Group in January 2008. The eight level office block is centrally located in the Canberra CBD in the major government office precinct. When the property was acquired it was leased to a number of tenants including EY and the Australian Taxation Office. With the property facing upcoming lease expiries from EY the ATO, Abacus looked to the future and understood that significant private and government sector tenants require properties that satisfy their sustainability requirements. We then undertook a comprehensive review of the property’s services. Abacus identified a number of services in the building that could be upgraded. These included lighting, lifts, air conditioning, mechanical ventilation, hot water systems and sub-metering of equipment. A complete modelling of energy usage led to a plan for refurbishment that would not only reduce energy usage but also upgrade building services which were approximately 20 years old. Abacus commenced a substantial refurbishment of the property in 2011 which included an upgrade to the builders 3.5 star NABERS rating with the aim of achieving a 4.5 star rating. While the refurbishment was underway Abacus negotiated an improved lease with the Department of Resources, Energy and Tourism to increase the area it currently leased to include all vacated space to approximately 8,000m² or approximately 65% of the building’s lettable area for 10 years. Abacus’ commitment to improving the NABERS rating assisted in positive leasing negotiations. The major works on the above systems includes the following: • Conversion of lights in office areas to T5 and low voltage lights in the common areas plus the use of timers and motion sensors to automatically turn off excess lighting when not in use; • Upgrade of lifts including new traction gearless motors which are more efficient; • Replacement of chillers with more efficient chillers, installation of variable speed drives on high efficiency motors and upgrading boiler burners; • Installation of solar panels to generate domestic hot water; and • Sub-metering mains power to allow for more efficient monitoring. The works were completed in November 2012 and the building has since achieved a NABERS rating of 4.5 stars. These works dramatically reduce the amount of energy required across the property and not only save ongoing costs but also the carbon impact on the environment. Abacus was able to access the Federal Government’s Green Building Fund program to assist in the cost of the building upgrade. Additional fine tuning of the building systems indicate that the building may achieve a NABERS rating of 5 stars when the next assessment is undertaken in late 2013. abacus property group 18 BOARD MEMBERS JOhn thame Mr Thame is the Chairman and 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 was Chairman (2004 to 2008) and a director (1997 to 2008) of St George Bank Limited and St George Life Limited. He is also a director of Reckon Limited. Frank WOlF Dr Wolf is the Managing Director and 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 the retirement and hospitality sectors. He is also a director of HGL Limited, a diversified public listed investment company. malCOlm irving Mr Irving is a Non-Executive Director and has over 40 years’ experience in company management, including 12 years as Managing Director of CIBC Australia Limited. He is also a director of O’Connell Street Associates Pty Ltd, Macquarie University Hospital and is Chairman of Macquarie Graduate School of Management. 19 annual report 2013 William J Bartlett Mr Bartlett is a Non-Executive Director. As a partner at Ernst & Young for 23 years, 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 Group Limited, GWA Limited, Reinsurance Group of America Inc and RGA Reinsurance Company of Australia Limited. He is Chairman of the Cerebral Palsy Foundation of Australia. myra salkinder Mrs Salkinder is a Non-Executive Director and is a senior executive of the Kirsh Group. She has been integrally involved over many years with the continued expansion of the Kirsh Group’s property and other investments, both in South Africa and internationally. Mrs Salkinder is a director of various companies associated with the Kirsh Group worldwide. abacus property group 20 SENIOR EXECuTIVE TEAM Cate aarOns (nOt piCtured) head of strategy rOB BaulderstOne Chief Financial Officer CamerOn laird Joint director property ventures Cate is responsible for strategy for the Group and for its managed funds. Rob is responsible for the Group’s and its managed funds financial management, financial reporting and treasury functions. Cameron is responsible for the Group’s joint venture developments and fostering new property ventures. In addition he is responsible for the asset management and development activities across the Group’s retail portfolio. phil petersOn associate director – investments peter strain director property Phil is responsible for all investment and development activities in addition to the general day to day management of the Group’s Storage assets. Peter is responsible for the asset management activities of the Group. neil summerField head of investor relations Neil is responsible for investor relations, communications and marketing activities to the Group’s listed and wholesale stakeholders. 21 annual report 2013 gavin leChem director specialised Capital JOhn l’estrange Joint director property ventures len llOyd managing director abacus property services Gavin is responsible for matching the capital requirements of the Group’s current and future opportunities with those of the investment community. John is responsible for building the Group’s property ventures business by overseeing current projects and fostering new opportunities. Len overviews management and administration activities of the Group’s property portfolio. Len is also involved in acquisitions, sales and development activities of the portfolio. alan thake associate director – investments ellis vareJes Chief Operating Officer and Company secretary Ellis is responsible for the Group’s transactional and business functions. Alan is the fund manager for the Groups other unlisted funds including the Abacus Hospitality Fund and ADIF II. He is responsible for investment, development and capital management activities in addition to the general day to day management of the funds. abacus property group 22 DIRECTORS’ REPORT 30 JuNE 2013 The Directors of Abacus Group Holdings Limited (“AGHL”), Abacus Funds Management Limited (“AFML”) – the Responsible entity of Abacus Trust (“AT”) and Abacus Income Trust (“AIT”), Abacus Group Projects Limited (“AGPL”), Abacus Storage Funds Management Limited (“ASFML”) – the Responsible Entity of Abacus Storage Property Trust (“ASPT”) and Abacus Storage Operations Limited (“ASOL”) present their report for the year ended 30 June 2013. prinCipal aCtivities The principal activities of Abacus Property Group were investment in office, retail and industrial properties, investment in self-storage facilities, participation in property ventures and developments and property funds management. There has been no significant change in the nature of these activities during the year. Operating and FinanCial revieW The operating and financial review is intended to convey the Directors’ perspective of Abacus Property Group and its operational and financial performance. It sets out information to assist securityholders to understand and interpret the financial statements prepared in accordance with Australian International Financial Reporting Standards (“AIFRS”) included in this report. It should be read in conjunction with the financial statements and accompanying notes. Listed Structure / Entities The listed Abacus Property Group is a diversified property group that operates predominantly in Australia. It comprises AGHL, AT, AGPL, AIT, ASPT and ASOL (collectively “Abacus”) and its securities trade on the Australian Securities Exchange (“ASX”) as ABP. Abacus was listed on the ASX in November 2002 and its market capitalisation was over $1 billion at 30 June 2013. Shares in AGHL, AGPL and ASOL and units in AT, AIT and ASPT have been stapled together so that none can be dealt with without the others and are traded together on the ASX as Abacus securities. An Abacus security consists of one share in AGHL, one unit in AT, one share in AGPL, one unit in AIT, one share in ASOL and one unit in ASPT. A transfer, issue or reorganisation of a share or unit in any of the component parts requires, while they continue to be stapled, a corresponding transfer, issue or reorganisation of a share or unit in each of the other component parts. AGHL, AGPL and ASOL are companies that are incorporated and domiciled in Australia. AT, AIT and ASPT are Australian registered managed investment schemes. AFML is the Responsible Entity of AT and AIT and ASFML is the Responsible Entity of ASPT. Both AFML and ASFML are incorporated and domiciled in Australia and are wholly-owned subsidiaries of AGHL. Abacus Property Group Consolidation The application of AASB10 by Abacus results in the consolidation of Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund (the “Group”). This is due to the combination of Abacus’ role as responsible entity, variable returns arising from its collective equity and loan investments in these funds, and certain guarantees. AGHL has been identified as the parent entity of the Group. The financial reports of the Group for the year ended 30 June 2013 comprise the consolidated financial reports of AGHL and its controlled entities, AT and its controlled entities, AGPL and its controlled entities, AIT and its controlled entities, ASOL and its controlled entities, ASPT and its controlled entities, Abacus Hospitality Fund and its controlled entities, Abacus Diversified Income Fund II and its controlled entities, Abacus Miller Street Holding Trust and its controlled entity and Abacus Wodonga Land Fund. The principal activities of Abacus that contributed to its earnings during the course of the year ended 30 June 2013 included: • investment in office, retail and industrial properties to derive rental and fee income; • investment in self-storage facilities to derive storage fee income; • participation in property ventures and developments to derive interest income and capital profits; and • property funds management to derive fee income and equity returns. 23 annual report 2013 Operating and FinanCial revieW (COntinued) These activities are reported through our four core reportable segments of Property, Storage, Property Ventures and Funds Management, respectively. Abacus is also a member of the S&P/ASX 200 A-REIT index (ASX:XPJ), a sub-index of the S&P/ASX 200 index that contains the listed vehicles classified as A-REITs. Abacus is the only dedicated core plus investor in the XPJ index and offers some differentiation to the market providing a more active management model to the other members of the XPJ index which are focused on rent collection or funds management. OuR STRATEgy Abacus’ objective is to provide securityholders with strong and stable cash backed distributions from a diversified portfolio of property exposures that provides genuine potential for capital growth. Our strategy is to invest Abacus’ capital into core plus properties and take advantage of value adding opportunities to drive long term total returns and maximise securityholder value. Abacus does this through the acquisition, development and active management of property assets. In particular: • We take advantage of our specialised knowledge and market position as the only listed core plus investor. • We drive value through active management of the asset portfolio and through the reinvestment of proceeds from the sales of mature or low growth core plus assets, assets that have realised their core plus potential and assets that require a disproportionate investment of management time relative to their value or potential. • We are committed to simplifying our balance sheet and redeploying realised capital into accretive core plus property investments that are expected to yield 12-15% per annum equity total returns over time. • Our core plus presence and track record has facilitated joint ventures with a number of sophisticated global third party capital providers, and we are actively working within this market to expand our capacity. Abacus seeks assets in capital cities, typically on the Eastern seaboard of Australia and New Zealand that are mispriced by the market and which we believe are capable of both cashflow and capital growth. Abacus generally invests in commercial assets up to $100 million in value. These assets are usually B-Grade assets in good core locations in major trading or CBD areas, as they generally offer more attractive core plus and enhancement characteristics and therefore better opportunities to deliver enhanced returns. Our philosophy with self-storage properties is focused on Australia and New Zealand and includes regional locations. gROuP RESulTS SuMMARy The Board monitors a range of financial information and operating performance indicators to measure performance over time. We use several measures to monitor the financial success of our overall strategy. The key measure is underlying profit. Revenue ($ million) Total income ($ million) Statutory net profit excluding non-controlling interests ($ million) Underlying profit^ ($ million) Underlying profit per security^ (c) Cashflow from operating activities ($ million) Cashflow from operating activities per security (c) Distributions per security^ (c) Interest cover ratio Weighted securities on issue^ (million) ^ Abacus 2013 281.0 305.9 61.1 83.8 18.76 168.8 37.82 16.50 3.3x 446.4 2012 236.1 250.0 8.5 76.8 19.17 86.3 21.51 16.50 3.2x 400.9 24 abacus property group Operating and FinanCial revieW (COntinued) The Group earned a statutory net profit excluding non-controlling interests of $61.1 million for the year ended 30 June 2013 (2012: $8.5 million). This profit has been calculated in accordance with Australian Accounting Standards. It includes certain significant items that need adjustment to enable securityholders to obtain an understanding of Abacus’ underlying profit of $83.8 million, a 9% increase on the 2012 underlying profit of $76.8 million. The underlying profit reflects the statutory profit as adjusted in order to present a figure that reflects the Directors’ assessment of the result for the ongoing business activities of Abacus, in accordance with the AICD/Finsia principles for reporting underlying profit. The consolidated profits / (losses) which belong to the securityholders of Abacus Hospitality Fund, Abacus Diversified Income Fund II and Abacus Miller Street Holdings Trust are excluded as these profits cannot and do not form part of the distributable income of Abacus. The calculation of underlying profit excludes items such as unrealised fair value gains / (losses) on investment properties, unrealised provision gains / (losses), adjustments arising from the effect of revaluing assets / liabilities carried at fair value (such as derivatives, financial instruments and investments), the consolidated profits / (losses) of managed funds which do not form part of the assessable or distributable profits of Abacus and other adjustments in the determination of underlying profit including transactions that occur infrequently and those that are outside the scope of Abacus’ core ongoing business activities. Underlying profit is the basis on which distributions are determined. The reconciliation between the Group’s statutory profit excluding non-controlling interests and Abacus’ underlying profit is as follows: 2013 $’000 2012 $’000 Consolidated statutory net profit after tax attributable to members of the Group 61,052 8,470 add back: Consolidated losses relating to the managed funds (these losses are excluded as the profits/losses of the managed funds cannot and do not form part of the assessable and distributable income of Abacus) Net profit attributable to Abacus securityholders Certain significant items: Net (gain) / loss in fair value of investment properties held at balance date Net change in fair value of investments and financial instruments held at balance date Net loss in fair value of derivatives Net change in fair value of property, plant and equipment, inventory and investment properties included in equity accounted investments Costs relating to the merger and restructuring of managed funds Consolidation of Abacus Wodonga Land Fund 7,299 16,033 68,351 24,503 (7,484) (3,752) 3,612 4,100 – 18,943 4,958 1,908 35,205 4,707 5,564 – Underlying profit attributable to Abacus securityholders 83,770 76,845 Basic earnings per security (cents) Basic underlying earnings per security^ (cents) Distribution per security^ (cents – including proposed distribution) Weighted average securities on issue (million) ^ Abacus 2013 13.68 18.76 16.50 446.4 2012 2.11 19.17 16.50 400.9 DIRECTORs’ REPORT 30 JUNE 2013CONTINUED 25 annual report 2013 Operating and FinanCial revieW (COntinued) The Australian property market throughout the period has been characterised by a dislocation between pricing and underlying fundamentals. This is driven by strong demand for product by domestic and international buyers attributable to large gaps between bond rates and property yields in institutional markets across the developed world. This demand has largely ignored the weak fundamentals attributable to a slowdown in office activity and uncertain economic conditions. As a result, Abacus proceeded cautiously with its acquisition strategy during the year as fundamental value was difficult to find in traditional Sydney or Melbourne CBD markets. This provided a lag between asset realisations of $74 million of sales of mature, lower growth assets early in the financial year and the purchase of $84 million of property (including equity accounted properties) in the final months of the year as Abacus was able to re-invest the capital proceeds appropriately outside of its traditional markets causing a drag on rental income. The market outlook for the short term remains relatively subdued with a continuation of tough leasing conditions and high market incentives, which will impact our ability to find attractive core plus opportunities. However, as demonstrated towards the end of the current year, Abacus remained able to find sound, mispriced core plus properties. The medium term expectations are anticipating an improvement driven by better economic conditions and white collar employment growth. The increase in the Group’s statutory net profit excluding non-controlling interests was principally due to a movement of $53 million in the fair value decrement to interest rate swaps in the prior year. The Group has sought to use these interest rate swaps to fix the cost of its borrowings, manage interest cover covenants and align these borrowings with the net revenue earned by the property portfolio. When considering the underlying profit attributable to Abacus securityholders, the increase in profits by 9% was largely driven by the completion of transactions including the sale of the Lewisham joint venture residential development project. The impact of both year-end fair value adjustments and the Group’s performance on its financial position were as follows: Total assets ($ million) Gearing^ (%) Net assets* ($ million) Net tangible assets*^ ($ million) NTA per security^ ($) NTA per security post distribution^ ($) 2013 2,127.8 28.4 1,084.0 1,049.2 2.32 2.23 2012 2,106.8 28.6 1,056.9 1,016.1 2.34 2.25 ^ Abacus – gearing calculated as debt minus cash divided by total assets minus cash. * Excluding external non-controlling interests of $43.8 million (2012: $51.0 million). The increase in net assets of the Group by 3% reflects the improved performance compared to the previous year. During the year, the Group’s total assets increased slightly due to property acquisitions towards the end of the year, while the Group’s total liabilities year on year remained constant. The Group has $164.3 million of interest bearing loans and borrowings maturing in the coming year, of which $124.4 million are in the managed funds. The Group is actively engaging with counterparties to either extend or refinance most of the loans and $27.1 million of vendor finance loans will be repaid in the coming financial year. Despite the increase in current liabilities and a reduction in investment properties earmarked for sale, net current assets remained positive at $72.3 million. 26 abacus property group Operating and FinanCial revieW (COntinued) Capital management The Abacus balance sheet continues to be strong with gearing remaining low at 28.4%, well within our target gearing limit of 35%. At 30 June 2013, Abacus had $108 million of available liquidity that provided capacity for use for up to $160 million of accretive acquisitions. Following the settlement of Bacchus Marsh Village Shopping Centre for $31.6 million in late July, Abacus’ acquisition capacity reduced to circa $125 million. Abacus has no significant debt expiring until late 2014. We continue to improve and reweight the balance sheet to larger, higher quality assets with a focus on disciplined capital management strategies. We anticipate Abacus’ weighted average interest rate will remain relatively stable as current capacity is utilised and anticipate it should be no greater than 6.5% over the next year. CORE SEgMENT RESulTS SuMMARy Business activities that specifically contributed to the Abacus’ operating performance and financial condition for the financial year were: Property As at 30 June 2013, Abacus’ property segment delivered a result of $64.1 million for the year. This represented an increase of 15.0% largely attributable to the impact of an increase in the fair value of investment properties offsetting the lost income from significant asset sales at the beginning of the period. These properties were not replaced until the end of the year. The 47 assets that make up the commercial portfolio (45 at the commencement of the year) had a total value of $888 million at year end. Pursuant to the 2013 portfolio valuation process 23 out of 37 of the commercial properties (excluding equity accounted properties) or 73% by value were independently valued during the year to 30 June 2013. The remaining properties were subject to internal review and, where appropriate, their values were adjusted. The valuation process resulted in a net full year revaluation gain of $6.6 million (2012: $7.2 million charge) or 0.7% of assets. A significant contributor to this increase was Ashfield Mall, Sydney NSW as a result of a combined improvement in capitalisation rate and rental income following encouraging repositioning and re-leasing works. During the year Abacus acquired an interest in the following properties: Office 180 Queen Street, Brisbane QLD (25% indirect ownership) Wharf 10, Sydney NSW (25% indirect ownership) 35 Boundary Street, Brisbane QLD (25% indirect ownership) 33 Queen Street, Brisbane QLD (100% direct ownership) Industrial Browns Road, Clayton VIC (100% direct ownership) $7.4m $8.0m $10.1m $34.0m $19.6m The acquisition of Bacchus Marsh Village Shopping Centre, Victoria for $31.6 million was announced on 24 June 2013 (although settlement occurred after year end). Abacus sold five properties during the year, including Lennon’s Plaza in the Brisbane CBD, for $74.0 million which realised a gain of $2.8 million. The commercial portfolio is diversified across asset classes which are well located, largely along the eastern seaboard in major metropolitan areas. While some geographic areas are challenging we nevertheless believe this provides a level of security and stability to the portfolio’s property income and cash flows. DIRECTORs’ REPORT 30 JUNE 2013CONTINUED27 annual report 2013 Operating and FinanCial revieW (COntinued) 53% NSW 17% VIC 14% QLD 8% ACT 8% SA 45% OFFICE 39% RETAIL 16% INDUSTRIAL & OTHER COMMERCIAL PORTFOLIO: $888 MILLION COMMERCIAL PORTFOLIO: $888 MILLION Commercial portfolio • $888 million of commercial properties across 47 assets (including equity accounted properties) • Portfolio capitalisation rate: 8.45% • Portfolio occupancy: 92.8% • Like for like rental growth of 4.4% • Weighted average lease expiry (“WALE”) profile of 4.0 years. Abacus’ commercial portfolio metrics have largely remained consistent with FY12, that is, the metrics remain robust despite a weakening economic environment. The portfolio offers embedded long term capital and earnings growth that Abacus is focused on delivering through the property cycle. The portfolio has approximately 16% of leases up for renewal over the next year to 30 June 2014. This is consistent with prior periods where between 10-20% of leases were due for renewal, and this level or near term expiry is consistent with the length of our WALE and business model. As illustrated in the table below, Abacus has a long and successful track record of leasing up near term expiries and maintaining occupancy thereby mitigating perceived risk to cashflows and distributions. KEY LEASING METRICS Period opening occupancy Impending years’ vacancy Total space leased during year Period close occupancy FY10 90.3% 14% FY11 94.6% 21% FY12 92.8% 13% FY13 94.3% 19% 55,556m² 44,982m² 82,565m² 42,243m² 94.6% 92.8% 94.3% 92.8% FY14 92.8% 16% – – Notwithstanding our strong track record, the office leasing environment, as we have mentioned, during the current year has been challenging, particularly in South East Queensland. This is expected to continue into the coming year. Market expectation on incentives for new leases has risen to circa 30% in Sydney. These factors combined with poor business confidence will continue to create challenges to achieving positive rental growth and occupancy. We believe Abacus’ office portfolio is well suited to these challenging conditions. The portfolio has limited exposure to full floor or multi-floor tenants, and is configured more for multi-tenanted floors. We have found the potential cost (financial and time) of relocating to another property in the same location often outweighs the benefit of a cheaper rent. Our tenants are also strongly connected to the property’s location which is traditionally the reason they initially leased the property and results in a positive predisposition to remain. Due to the multi-tenanted floor structure we also have the ability to work proactively with our tenants to contract or expand and adjust their space requirements. Abacus is focused on maintaining revenue and cashflows to support securityholder distributions but nevertheless being conscious of the market’s leasing requirements and competitive offerings. 28 abacus property group Operating and FinanCial revieW (COntinued) Contribution from Third Party Capital Abacus has continued to grow its third party capital joint ventures and envisages the platform being an integral component of Abacus’ future strategy. Abacus typically acquires 25% to 50% of the assets and our capital partners own the balance. Management of the property remains with Abacus and as a result we are able to leverage our capital to gain greater exposure to a higher number of core plus assets. This leads to greater earnings from fees and rental income. We will focus on driving our third party strategy to expand our capital base to add to the $570 million of high quality assets that Abacus has acquired with its joint venture partners since 2009. Storage As at 30 June 2013, Abacus’ storage portfolio delivered a result of $24.4 million for the year. This represents an increase on the FY12’s result of $12.6 million and can be attributed to the impact of a full year’s contribution from the storage portfolio. Portfolio assets totalled $373 million across a total portfolio of 47 assets, an overall increase of two assets during the period. Pursuant to the 2013 valuation process 24 storage assets out of 47 or 54% by value were independently valued during the year to 30 June 2013. The remaining properties were subject to internal review and, where appropriate, their values were adjusted. The valuation process resulted in a net full year revaluation gain of $0.9 million (2012: $2.3 million gain) or 0.2% of assets. The storage portfolio is well diversified in Australia and New Zealand. 27% VIC 21% NZ 19% QLD 17% ACT 16% NSW STORAGE PORTFOLIO: $373 MILLION • $373 million of storage assets • Portfolio capitalisation rate: 9.2% • Occupancy: 81.8% • Rental gross rent: $237 per m² A consistent trading performance across the storage portfolio has continued to deliver resilient underlying cashflows despite the subdued economic environment and a competitive storage market. The Australian market has experienced competition leading to increased discounting from other market participants during the year. The portfolio experienced a slight decrease over the year in gross rental to $237 from $238 per m² as a result. Despite this fall in rate, the portfolio continued to deliver positive revenue growth via the Australian portfolio at 0.5% pa and the New Zealand market at 4.5% pa largely from an overall improvement in occupancy. DIRECTORs’ REPORT 30 JUNE 2013CONTINUED29 annual report 2013 Operating and FinanCial revieW (COntinued) While focused on improving occupancy and rental growth, Abacus also sees the delivery of expansion opportunities in the current portfolio where strong demand allows for low cost expansion as a core focus to driving portfolio returns. Abacus currently has a number of store expansions and new store developments that will utilise existing Abacus property holdings to grow the storage platform. These include: • Expansion of our store at Riccarton, NZ which will be completed by December 2013. It will provide around 3,000m² of new fitout over 2 levels. • Acquisition of the neighbouring property to our Blacktown, NSW facility which settled in June 2013 providing an additional 3,300m² of gross floor area. We will look to integrate this with the existing storage operation to expand and provide a mix of storage and warehouse space until demand warrants full conversion to storage. • Castle Hill, NSW: Development approval has been obtained to develop a new facility. This will deliver a new facility of circa 3,500m² on completion once fully developed. We anticipate trading to commence during FY14. • Wodonga, VIC: A development application has been lodged with council to develop a new facility on our land. This should deliver circa 3,000m² of net lettable area once fully developed. • Villawood, NSW: A development application has been lodged with council in one tenancy of an Abacus industrial property. This should deliver circa 2,000m² as part of stage one, with potential to grow the facility as demand requires. Property Ventures The Property Ventures business invests in projects that focus on select residential and commercial development opportunities in core locations with experienced local joint venture partners. Abacus has total assets of $325 million in property venture projects, an increase of $69 million from the previous year. Abacus initiated a number of new projects during the year including: • Jack Road, Cheltenham VIC. A mixed townhouse development of up to 160 residential products. • Carlton, Melbourne VIC. A high density residential apartment development of up to 190 units. The Property Ventures division generated a result of $30.4 million for the year, an increase of 43% to FY12 result of $21.3 million following strong transactional profits in the year. A site at Lewisham, which was part of the RCL portfolio, was sold in August 2012 for $48.5 million. The sale contributed $6.3 million to the division’s result. Our residential development projects at Rosebery (Sydney, NSW) and Bay Street (Brighton, VIC) made significant progress during the year. Rosebery was completed in May 2013 with Abacus generating a total profit of over $5 million. Our Bay Street project is progressing well and is currently ahead of schedule. It remains on target for settlement by the end of the current calendar year. Funds Management The funds management business generated a result of $16.6 million for the year providing a return of 7.8% on total funds invested across the platform. This result before fair value adjustments was slightly below the FY12 result of $18 million, which is consistent with a reduction of fee and interest income by virtue of the merger of the Storage Fund in FY12 and a reduction in assets under management. Abacus continues to manage these unlisted funds to try to optimise the returns with selective sales of assets where opportunity and market conditions allow. The progress of the management for each of the funds is set out in the non-core segment results summary is as follows. 30 abacus property group Operating and FinanCial revieW (COntinued) NON-CORE SEgMENT RESulTS SuMMARy As a result of AASB10, the managed funds are consolidated into the Group financial statements and the Group’s statutory profit includes the financial performance of these funds. These funds are treated as non-core segments as the assets of the funds are not directly owned by Abacus securityholders and do not contribute directly to Abacus’ underlying profit and distributable income. An overview of the financial performance of each of the funds for the year ended 30 June 2013 is as follows: Abacus Hospitality Fund (AHF) AHF owns four hotels: Rydges Tradewinds in Cairns, North Queensland with 246 rooms; Rydges Esplanade in Cairns, North Queensland with 242 rooms; Novotel Twin Waters Resort on the Sunshine Coast, Queensland with 374 rooms and Chateau on the Park, Christchurch, New Zealand with 192 rooms. The Queensland market remains difficult. Domestic and overseas visitor numbers are lower than in previous years because of the strong Australian dollar (although recent weakening should improve overseas visitor numbers). There are however some signs of improvement in the Cairns market with a pick-up in demand from Japanese tourists which had declined in previous years after the Japanese tsunami natural disaster. The Novotel Twin Waters Resort on the Sunshine Coast has experienced a reduction in revenue largely due to a weak corporate conference market. AHF has exchanged contracts to purchase a 7ha parcel of land adjacent to the hotel for $1.3 million which is currently used for car parking. The land was previously leased from the Crown. The Chateau on the Park hotel in Christchurch is presently undergoing a major repair to fix the damage caused by the 2011 earthquake. Repair work has continued for almost a year and is expected to be completed in this calendar year. A number of rooms have consequently been unavailable resulting in lower hotel occupancy and room revenue compared with the prior year corresponding period (the previous year benefited from high occupancy through demand from emergency and construction workers assessing the earthquake damage throughout the Christchurch CBD). The total cost of the repair works is around NZ$7.0 million. Most of the repair cost is expected to be covered by insurance, but there will be an assessment by the insurer to determine if any of the works are improvements rather than repairs to damage caused by the earthquake. The insurer also provided business interruption cover until the end of February 2013. AHF has a bank facility expiring in June 2014. Abacus Diversified Income Fund II (ADIF II) At 30 June 2013 ADIF II owned 21 investment properties diversified by sector and state. The property portfolio was approximately 95% occupied and had a weighted average lease term of 3.5 years. The portfolio occupancy and average lease term have remained relatively stable during the year as a result of signing new leases and renewing expiring leases. During the year ADIF II sold four properties for $18.4 million. Sales proceeds were used to acquire 37 Epping Road, Macquarie Park, NSW for $17.4 million in March 2013. ADIF II also exercised the property option over 79-85 Melville Street, Hobart, TAS in May 2013. ADIF II has two bank facilities. One of the facilities with a drawn balance of $32.2 million expires in September 2013. The other facility expires in November 2014. Abacus Miller Street Holdings Trust (AMSHT) AMSHT owns the commercial property at 50 Miller Street North Sydney. The ten floors of office space are leased by National Australia Bank (“NAB”) and there are six retail tenancies on the ground floor. In accordance with the lease agreement, NAB will hand back one floor of 750 m² around November 2013 and continue to lease the remaining nine floors until October 2017. NAB has sublet six of its nine floors to National Broadband Network (“NBN”). The property is being marketed for sale in accordance with the recommendation from the responsible entity. It has a weighted average lease expiry of approximately 4 years, a NABERs rating of 5, large contiguous floor space and it is well located in North Sydney. The bank facility which was to expire in September 2013 has been extended to March 2014 to allow for an orderly sales process to occur. DIRECTORs’ REPORT 30 JUNE 2013CONTINUED31 annual report 2013 Operating and FinanCial revieW (COntinued) Abacus Wodonga Land Fund (AWLF) AWLF owns the estate known as White Box Rise located in Wodonga, Victoria. During the year 84 residential lots and 5 commercial lots were sold for combined gross proceeds of $15.7 million. Construction of new residential stages is ongoing to maintain inventory for a range of markets including first home buyers, families, investors and retirees. In February 2013 Wodonga council opened its new aquatic centre located at White Box Rise. This will complement the estate’s primary school and Woolworths shopping centre. White Box Rise has approximately 700 residential lots left in accordance with the approved masterplan. At 30 June 2013, the bank loan was drawn to $6.7 million against a facility limit of $12 million. The loan was re-drawn to $10.5 million at August 2013, secured on the new residential lots constructed. FuTuRE PROSPECTS AND RISKS Abacus remains committed to growing its core segments and will achieve this through the acquisition and ownership of core plus assets either through joint venture or directly on balance sheet. We will continue to actively manage our portfolio and where appropriate recycle the mature, lower growth assets realising its improved capital position to help provide liquidity to fund future acquisitions. We believe that increasing our allocation to core plus assets will improve recurring earnings to support and grow our distributions and cash flows, optimising securityholder returns in the coming years. At 30 June 2013 Abacus held sufficient acquisition capacity to acquire a further $160 million of properties directly on the balance sheet. This capacity can be further leveraged to acquire a larger number of assets through joint venture acquisitions. The total portfolio is anticipated to deliver an increased level of rental income in the coming year as the full year impact of recent acquisitions is captured. The on-going weakness in the leasing markets and the currently high level of incentives provided to new tenants is likely to have a negative influence on revenue growth. Growth in revenue through further acquisitions will be driven by our ability to access markets for core plus opportunities that deliver our required equity returns. Abacus remains committed to delivering transactional returns to securityholders in addition to returns from recurring income. The timing and nature of transactional returns are unpredictable and uncertain therefore making it difficult to forecast. There are a number of risk factors associated with property-related businesses that may have an impact on the financial prospects of Abacus. Some of the key risks are outlined below. This outline is not exhaustive, and performance may be affected adversely by any of these risk and other factors. • Returns from investment – Returns from investment in real property and other related property exposures depend largely on the amount of rental income that can be generated from the property, the expenses incurred in operations, including the management and maintenance of the property, as well as changes in the market value of the property. Factors which may adversely impact these returns include: • the overall conditions in the national and local economy, such as changes in gross domestic product, employment trends, inflation and interest rates; • local real estate conditions, such as the level of demand for and supply of retail, commercial and industrial space; • the perception of prospective tenants of the attractiveness, practicality and convenience of the rental space; • changes in tenancy laws and planning approval requirements; • external factors including major world events such as war, terrorist attacks or force majeure events; • unforeseen capital expenditures; • supply of new property and other investment assets; • cost of property outgoings and recoverability from tenants; and • investor demand/liquidity in investment markets. 32 abacus property group Operating and FinanCial revieW (COntinued) • Leasing terms and tenant defaults – The future financial performance of Abacus will depend, in part, on its ability to continue to lease existing retail, office, industrial, storage and hotel space that is vacant or becomes vacant on economically favourable terms. In addition, the ability to lease new asset space in line with expected terms will impact on the financial performance of Abacus. The ability of major tenants to meet their rental and other contractual commitments to Abacus (such as in situations of insolvency or closure of their businesses) may have an adverse impact on the income from properties, which may result in an adverse impact on the financial performance of Abacus. This risk is managed through active asset management including ongoing liaison with tenants, regular maintenance and refurbishment of properties to attract tenants, timely marketing programs for vacant space and due diligence on the financial strength of prospective tenants prior to completing leases. • Funding – The property investment and development sector is highly capital intensive. The ability of Abacus to raise funds (equity and debt) on acceptable terms will depend on a number of factors including capital market conditions, general economic and political conditions, Abacus’ performance, and credit availability. Changes in the cost of current and future borrowings and equity raisings may impact the earnings of Abacus, and impact the availability of funding for new acquisitions, projects or increase the refinancing risks as debt facilities mature. Abacus uses debt funding provided by major banks. Any downgrade of Abacus’ bank credit assessment may increase overall debt funding costs and adversely affect Abacus’ access to debt funding and the terms on which that funding is offered. Abacus staggers the debt maturity profile to reduce the concentration of refinancing risks at any point in time and obtains funding through different banks to reduce credit and counterparty risks. • Insurance – While Abacus will carry customary property insurance, there are types of losses (such as against floods and earthquakes) that are generally not insured at full replacement cost or that are insured subject to larger deductibles or insurance may not be able to be obtained. Additionally, Abacus will face risks associated with the financial strength of its insurers to meet their indemnity obligations when called upon which could lead to an adverse effect on earnings. Abacus mitigates this risk through the use of insurance brokers to seek to place cover with well rated insurers and ensure that this insurance risk is diversified across various insurers. The diversification of the property portfolio across geographical regions reduces the impact of any potential losses to Abacus. • Environmental – Abacus may from time to time be exposed to a range of environmental risks including those resulting from soil and water contamination, construction, cultural heritage and flora and fauna (e.g. native vegetation). In addition, there is a risk that property owned by or projects undertaken by Abacus from time to time may be contaminated by materials harmful to human health (such as asbestos or other hazardous materials). Also, returns may be adversely impacted by changes to sustainability and environmental requirements and potentially costs associated with the carbon pricing or the introduction of new regulations referable to the property industry. In these circumstances, Abacus may be required to undertake remedial works on contaminated sites. Additional expenses may result from changes in environmental regulations across the industry. Abacus as part of the property acquisition due diligence engages experts to advise on any potential environmental risks and factors these into the acquisition price of the property. Abacus also constantly monitors for any potential exposure in changes in environmental regulations to manage any costs and impacts associated with these risks. DIRECTORs’ REPORT 30 JUNE 2013CONTINUED33 annual report 2013 Operating and FinanCial revieW (COntinued) • Treasury risk – Abacus manages its exposure to financial market risks by way of a formal treasury policy encompassing among other things interest rate, funding, liquidity and credit risk management. Risk management is undertaken over multiple timeframes with risk management activity reviewed on a regular basis by our Treasury Management Committee, a formally documented senior management committee. The overarching treasury policy parameters for interest rate and funding risk management reflect the objective of balancing a desired level of certainty for interest expense against retaining an appropriate level of flexibility to respond to external developments within not only domestic and global financial markets but also the wider domestic and global economies. The Treasury Policy is reviewed on a regular basis by senior management and the Board. This is enhanced by utilising the in-depth market knowledge of Abacus’ external independent treasury adviser. With high levels of uncertainty not only in domestic financial markets but also in the Australasian residential and commercial property sectors and the wider global economy, Abacus has focused its interest rate risk management activity over the last financial year on the near-term, albeit within the overall interest rate risk management hedging requirements of our Treasury Policy. Funding risk management has focused on the timely renegotiation of maturing facilities and where possible seeks to increase the overall maturity profile. signiFiCant Changes in the state OF aFFairs The contributed equity of the Group increased $36.4 million to $1,268.4 million compared to $1,232.0 million as at 30 June 2012 due to securityholder participation in the distribution reinvestment plan. Total equity increased by $19.9 million to $1,127.8 million at 30 June 2013 compared to $1,107.9 million at 30 June 2012 principally as a result of the performance of the Group. On 30 June 2013 the Group consolidated Abacus Wodonga Land Fund in application of AASB10 – Consolidated Financial Statements. This is due to the combination of Abacus’ role as responsible entity and variable returns arising from its equity and loan investments in the fund. The fair value of the fund’s assets and liabilities were determined at the date of consolidation and a loss of $18.9 million was recognised by the Group. distriButiOns Abacus’ distributions in respect of the year ended 30 June 2013 were $74.1 million (2012: $67.8 million), which is equivalent to 16.5 cents per stapled security (2012: 16.5 cents). This distribution includes 8.25 cents ($37.4 million) that was paid on 15 August 2013. Further details on the distributions, including distributions by the managed funds are set out in note 9 of the financial statements. signiFiCant events aFter BalanCe date 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 significantly affected, 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 Group will continue to pursue strategies that seek to improve total securityholder returns during the coming year as described in the operating and financial review section of this report. 34 abacus property group direCtOrs and seCretary The Directors of AGHL, AFML, ASOL and AGPL 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 Frank Wolf William Bartlett David Bastian Malcolm Irving Myra Salkinder Chairman (Non-executive) Managing Director Non-executive Director Non-executive Director (retired 14 November 2012) Non-executive Director Non-executive Director The qualifications, experience and special responsibilities of the Directors and Company Secretary are as follows: John Thame AIBF, FCPA – Chairman (non-executive) 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 was Chairman (2004 to 2008) and a director (1997 to 2008) of St George Bank Limited and St George Life Limited. He is also a director of Reckon Limited. Mr Thame is Chairman of the Due Diligence Committee and a member of the Audit & Risk and Remuneration & Nomination Committees. Frank Wolf OAM, PhD, BA (Hons) – Managing 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. He is also a director of HGL Limited, a diversified publicly listed investment company. Malcolm Irving AM, FCPA, SF Fin, BCom, Hon DLitt Mr Irving is a Non-Executive Director and has over 40 years’ experience in company management, including 12 years as Managing Director of CIBC Australia Limited. He is also a director of O’Connell Street Associates Pty Ltd, Macquarie University Hospital and is Chairman of Macquarie Graduate School of Management. Mr Irving is Chairman of the Audit & Risk and Compliance Committees and a member of the Due Diligence Committees. William J Bartlett FCA, CPA, FCMA, CA(SA) Mr Bartlett is a Non-Executive Director. As a partner at Ernst & Young for 23 years, 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 Group Limited, GWA Limited, Reinsurance Group of America Inc and RGA Reinsurance Company of Australia Limited. He is Chairman of the Cerebral Palsy Foundation of Australia. Mr Bartlett is Chairman of the Remuneration & Nomination Committee and a member of the Due Diligence and Audit & Risk Committee. DIRECTORs’ REPORT 30 JUNE 2013CONTINUED35 annual report 2013 direCtOrs and seCretary (COntinued) Myra Salkinder MBA, BA Mrs Salkinder is a Non-Executive Director and is a senior executive of the Kirsh Group. She has been integrally involved over many years with the continued expansion of the Kirsh Group’s property and other investments, both in South Africa and internationally. Mrs Salkinder is a director of various companies associated with the Kirsh Group worldwide. Mrs Salkinder is a member of the Due Diligence and Remuneration & Nomination Committees. Ellis Varejes BCom, LLB – Company Secretary and Chief Operating Officer Mr Varejes has been the Company Secretary since September 2006. He has over 25 years’ experience as a corporate lawyer in private practice. As at the date of this report, the relevant interests of the directors in the stapled securities of ABP Group were as follows: DIRECTORS J Thame F Wolf W Bartlett M Irving ABP SECURITIES HELD 55,364 2,837,464 22,806 31,471 direCtOrs’ meetings The number of meetings of directors (including meetings of committees of directors) of AGHL, AFML (the Responsible Entity of AT and AIT), AGPL, ASFML (the Responsible Entity of ASPT) and ASOL, held during the year and the number of meetings attended by each director were as follows: BOARD AUDIT & RISK COMMITTEE REMUNERATION & NOMINATION COMMITTEE HELD ATTENDED HELD ATTENDED HELD ATTENDED J Thame F Wolf W Bartlett D Bastian M Irving M Salkinder 14 14 14 6 14 14 14 14 14 6 14 14 4 4 4 4 4 4 4 4 2 2 1 2 2 2 1 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 the 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 is subject to significant environmental regulation in respect of its property activities. Adequate systems are in place for the management of the Group’s environmental responsibilities and compliance with the various licence requirements and regulations. No material breaches of requirements or any environmental issues have been identified during the year. The Group is a core plus investor, not a builder of new buildings. The Group endeavours to choose sustainable options whenever that is a cost-effective outcome. 36 abacus property group auditOrs independenCe deClaratiOn We have obtained an independence declaration from our auditor, Ernst & Young, and such declaration is shown on page 52. 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 did not receive or are due to receive amounts for the provision of non-audit services: rOunding The amounts contained in this report and in the half-year 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. remuneratiOn repOrt (audited) This Remuneration Report outlines Abacus’ remuneration arrangements for directors and executives in accordance with the requirements of the Corporations Act and Regulations. For the purposes of this report Key Management Personnel are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of Abacus, directly or indirectly, including any director (whether executive or otherwise) of the parent company, and includes the executives receiving the highest remuneration. For the purposes of this report, the term executive encompasses the Managing Director and other senior executives of Abacus. Details of key management personnel (KMPs) (i) Non-executive Directors J. Thame W. Bartlett D. Bastian M. Irving M. Salkinder (ii) Executive Director F. Wolf (iii) Executives E. Varejes C. Aarons R. Baulderstone R. de Aboitiz C. Laird J. L’Estrange L. Lloyd P. Strain Chairman Director Director (retired 14 November 2012) Director Director Managing Director Chief Operating Officer Head of Strategy Chief Financial Officer (appointed 30 November 2012) Chief Financial Officer (resigned 30 November 2012) Director Property Ventures Director Property Ventures Managing Director – Abacus Property Services Director Property REMuNERATION AT A glANCE Fixed Remuneration Base salaries paid to executives increased by an average of 5% in the year ended 30 June 2013. The average annual increase over the last two years was 2.5% (as there was no increase in the previous year). DIRECTORs’ REPORT 30 JUNE 2013CONTINUED 37 annual report 2013 remuneratiOn repOrt (audited) (COntinued) Variable Remuneration Current Variable Remuneration Current variable remuneration totalling $1,560,000 is payable to the executives of Abacus for the year ended 30 June 2013 as compared with $1,700,000 paid in the previous year. The details are set out in table 1. Current variable remuneration is generally payable only if the underlying profit target is met. The group target was exceeded in the current year. The amount of each award was determined by reference to the performance of the executive against key performance indicators (KPIs) and other aspects of the executive’s performance considered relevant in the context of the assessment. Deferred Variable Remuneration In June 2012 the rights issued under the former long term incentive plan were cancelled. The executives had received no benefits from the operation of the plan. During the 2013 financial year the Remuneration & Nomination Committee worked with its independent remuneration consultant, Guerdon Associates, to update the deferred variable remuneration plan in order to align it more closely with Abacus’ growth objectives. The first issue of security acquisition rights (SARs) was made in May 2013 under the Security Acquisition Rights Plan (SARs Plan). A total of 701,316 SARs were issued to key management personnel under the SARs Plan. The rights will (subject to the terms of the Plan, which include claw back provisions) vest in equal tranches over a four year period. Board oversight of remuneration Remuneration & Nomination Committee The Remuneration & Nomination Committee of the Board of Directors is responsible for making recommendations to the Board on the remuneration arrangements for the non-executive directors and executives. The Committee must comprise at least three non-executive directors with a majority of independent members. The members of the Committee during the year were: W. Bartlett – Chairman (independent non-executive) D. Bastian – (independent non-executive) – retired 14 November 2012 M. Irving – (independent non-executive) J. Thame – Ex-officio member (independent non-executive) On 10 July 2013 Ms Salkinder replaced Mr Irving as a member of the Committee. Under its charter the Committee must meet at least two times during a year. The Committee met two times during the year and the attendance records are set out in the Directors’ Report. The Committee’s charter can be downloaded from the Corporate Governance section of the Abacus website. The Committee assesses the appropriateness of the nature and amount of remuneration of non-executive directors and 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 quality performing Board and attracting motivating and retaining a quality executive team. 38 abacus property group remuneratiOn repOrt (audited) (COntinued) Board oversight of remuneration (continued) Remuneration policy The remuneration policy supports the achievement of the group’s overall objective of producing sustainable earnings growth and continuing growth in security value. Total remuneration levels are positioned at market median, with higher rewards justified by performance. The policy framework is designed to reward individual performance while closely aligning the interests of the executives to those of securityholders through the use of variable remuneration. To this end, Abacus embodies the following principles in its remuneration framework: • provide sufficient rewards to attract and retain skilled executives who are well qualified and experienced; • link executive rewards to Abacus’ performance; • have a reasonable portion of executive remuneration at risk while not encouraging excessive risk taking so as to protect the defensive nature of the stock; and • establish performance hurdles for the variable components of executive remuneration that require sustainable non-volatile earnings performance over time. Executive remuneration consists of the following key elements: • fixed remuneration • variable remuneration o current variable remuneration o deferred variable remuneration with a claw back feature. The fixed remuneration component includes base salary, statutory superannuation and non-monetary benefits (car parking and the applicable fringe benefits tax). Abacus aims to ensure that the split of fixed and variable remuneration for executives is appropriate for the type of business it operates, namely, a cyclical, mature business that seeks to provide stable income earnings with a high level of distribution to securityholders. Volatile outcomes are not valued by the stock market and therefore remuneration is not highly incentive leveraged. The variable remuneration is designed to reward consistency of sustainable distributions and steady improvement to the underlying financial strength of the business. The result is a higher proportion of fixed remuneration for executives compared to other A-REITs and a lower proportion of variable remuneration. It also recognises that long term value is the outcome of a string of sustained short term outcomes. Volatile earnings and security distribution outcomes are not acceptable. For this reason, reward is contingent on annual performance, and the maintenance of that annual performance in succeeding years. The two are not considered independent, and therefore the reward structure does not allow for separate short term and long term measures. This is a deliberate remuneration strategy that differs from traditional standards and, in the board’s view, better reflects the group’s positioning in the A-REIT industry. Security Trading policy Abacus has a security trading policy in place for directors and employees. The policy can be downloaded from the Corporate Governance section of the Abacus website. Trading in Abacus securities is only permitted within the six week periods commencing on the second trading day after the half-year and full-year results are announced and after the annual general meeting. The Chairman may approve trading windows at other times of the year. Trading is not permitted at any time if directors and employees are in receipt of confidential information. Remuneration structure In accordance with corporate governance best practice, the separate structure of non-executive director and executive remuneration is as follows. DIRECTORs’ REPORT 30 JUNE 2013CONTINUED39 annual report 2013 remuneratiOn repOrt (audited) (COntinued) Board oversight of remuneration (continued) Non-executive director remuneration Objective The Board seeks to set aggregate remuneration at a level that enables Abacus to attract, motivate and retain directors of the highest calibre, while incurring a cost that is market competitive. Structure Abacus’ constituent documents and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors must be determined from time to time by securityholders. The last determination was at the annual general meeting held on 12 November 2010 when securityholders approved an aggregate remuneration limit of $800,000 per year. This amount is a limit on non-executive directors’ total fees, not the actual fees paid to non-executive directors which are set out in Table 1. Following the review of the Board’s composition Mr David Bastian retired as a director in November 2012. This reduced the number of directors to five, the majority of whom are independent. The Board believes that it has a sufficient complement of experienced directors to manage the group. The aggregate remuneration limit and the fee structure are reviewed annually and fees were last increased in October 2011. There was no increase in the year ended 30 June 2013. Fees payable, inclusive of superannuation, to non-executive directors are as follows: BOARD/COMMITTEE Board Board Audit & Risk Committee Audit & Risk Committee Compliance Committee Due Diligence Committee Due Diligence Committee Remuneration & Nomination Committee Remuneration & Nomination Committee Abacus Storage Funds Management Limited Board ROLE Chairman Member Chairman Member Chairman Chairman Member Chairman Member Member FEE $191,000 $71,000 $20,000 $10,000 $10,000 $15,000 $5,000 $12,000 $8,000 $9,000 The payment of additional fees for serving on a Board committee or on the Board of Abacus Storage Funds Management Limited recognises the additional time commitment required by directors who serve in those capacities. 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 2013 and 2012 is detailed in Table 1 of this report. 40 abacus property group remuneratiOn repOrt (audited) (COntinued) Executive remuneration Objective Abacus aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities so as to: • reward executives for group, business unit and individual performance against targets set by reference to appropriate benchmarks; • maintain consistent performance over time; • align the interests of executives with those of securityholders; and • ensure remuneration is appropriate by market standards. Abacus’ key gateway financial measure for variable remuneration is underlying profit, which the Board believes is the appropriate way to ensure that variable remuneration is aligned with the interests of securityholders. Abacus does not issue market guidance, but the gateway has been determined by the Board as appropriately challenging. Structure In determining the level and make-up of executive remuneration, the Remuneration & Nomination Committee received advice from its external consultants, Guerdon Associates. (Guerdon Associates did not make remuneration recommendations in relation to any of the KMPs.) Executive remuneration consists of the following key elements: • fixed remuneration (base salary, superannuation and non-monetary benefits) • variable remuneration o current variable remuneration; and o deferred variable remuneration with a claw back feature. The Board has determined that within the context of providing median levels of total remuneration to Abacus executives, it is appropriate that: (a) executives have a reasonable and motivating portion of their total remuneration at risk by linking it to the performance of the business and their own contributions to that performance; and (b) executive remuneration be delivered with the proportion of fixed to potential maximum variable pay being, with exceptions for outstanding personal achievement, in the ratio of approximately 60:40 (with the variable component generally allocated as to half to current variable remuneration and half to deferred variable remuneration). These arrangements apply only to those executives who are invited to participate in the Abacus deferred variable remuneration plan. Participation is limited to those executives whose positions have the potential to affect the medium to long term value of the group. By definition, all KMPs are eligible to participate because of their potential to influence sustained underlying profit, security value and distributions over the longer term. Abacus has an investment strategy principally ensuring that at least 70% of its balance sheet exposure is to directly held core plus property providing a sustainable recurring income stream, with the balance focused on active real estate positions. Abacus’ investment philosophy is to provide investors with stable returns derived primarily from sound rental income and improvement of asset values results from diligent asset management of core plus assets with upside potential from active positions. Reflecting Abacus’ investment philosophy, the variable remuneration plan design is directed to rewarding activities that are in the medium to long term interests of securityholders. The variable remuneration strategy is consequently designed to drive sustainable and growing underlying profit (determined in accordance with the AICD/Finsia principles for reporting underlying profit) that covers the distribution level implicit in the Abacus security price and incremental growth in capital value. DIRECTORs’ REPORT 30 JUNE 2013CONTINUED41 annual report 2013 remuneratiOn repOrt (audited) (COntinued) Executive remuneration (continued) It follows that a current variable remuneration award for a financial year will generally be shadowed with an equal deferred variable remuneration award for the next financial year (as the short and medium term goals are essentially the same). The Board nevertheless retains the discretion whether or not to make deferred remuneration grants and to determine the amount of the deferred remuneration grants it makes. The primary purpose of the plan is to ensure that the best performers have an incentive to remain with the group, to give them an opportunity to extend and sustain their performance and to reduce risk taking associated with short term performance payments. The vehicle of payment provides exposure to the security price and yield. The table below sets out the structure of the Abacus executive remuneration arrangements: REMUNERATION COMPONENT METHOD PURPOSE LINK TO PERFORMANCE Fixed remuneration Paid in cash – comprises base salary, superannuation contributions and other benefits. Set with reference to role, market, experience and skill-set. Current variable component Paid in cash in September. To drive achievement of underlying profit target. Deferred variable component Awards are made in the form of security acquisition rights. Claw back of prior grants is considered if applicable. To reward executives for achieving sustainable underlying profit growth over the short to medium term and to reduce excessive risk taking associated with short term performance assessment models. No direct link to performance. Periodic increases are linked to market movements, changes in roles and responsibilities, and to performance in the previous year. Underlying profit is a key financial metric for availability of a current variable award. Individual performance is then tested against KPIs, key effectiveness indicators and other internal financial and performance measures. Directly linked to the increase in the Abacus security price over the vesting period, and the maintenance of distributions. Fixed Remuneration Objective Fixed remuneration is reviewed annually by the Remuneration & Nomination 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. Base Salary Base salary is set by reference to the executive’s position, performance and experience. In order to attract and retain executives with appropriate expertise and experience Abacus aims to set a fair base salary. Base salary levels are benchmarked periodically against objective benchmarking information and are reviewed on an annual basis having regard to performance, external market forces and promotion. Base salaries paid to executives increased by an average of 5% in the year ended 30 June 2013. The average annual increase over the last two years was 2.5% (there was no increase in the previous year). The fixed remuneration component of the Managing Director and other key management personnel is detailed in Table 1. 42 abacus property group remuneratiOn repOrt (audited) (COntinued) Managing Director’s remuneration In determining the Managing Director’s remuneration the Board considered independent benchmarking information for the property industry as well as data from the stock market (general listed industry companies of comparable size and, within that, A-REITs of comparable size) to determine an appropriate market-competitive level of pay, his personal performance and his value to the group. The board also evaluated his performance against agreed strategic goals and other performance metrics. Abacus considers that this approach works well in achieving its performance and remuneration objectives and that the Managing director has been appropriately rewarded based on his achievement of these goals and metrics. Variable Remuneration – current variable remuneration Objective The objective of the current variable remuneration plan is to link the achievement of Abacus’ operational targets with the remuneration received by the executives charged with meeting those targets. Structure The current variable remuneration plan is designed to link financial rewards with performance consistency, and steady improvement of the underlying financial strength of the business: • Current variable remuneration pool – available for current variable remuneration awards – is linked directly to the achievement of an underlying profit target for the assessment year that meets stakeholder and market expectations. • KPIs – the performance measures that determine individual current variable remuneration rewards represent the contributions to be made by executives to Abacus’ financial and operating performance. Securityholders expect that the Board consider the financial performance of the business when forming decisions about whether to pay a current variable remuneration award or not, and, if so, how much will be paid. The Board has established a process to manage the assessment and payment of current variable remuneration entitlements through KPIs and key effectiveness indicators. The process is set out as follows: year-end aFter year-end Measure Abacus financial performance • Is underlying profit target gateway met or exceeded? • If no, a payment will generally not be made (subject to Board discretion) • If yes, gateway is passed Distribute current variable remuneration • Assess individual performance against KPIs and other measures • Pay current variable remuneration entitlements Beginning OF the year Set the plan parameters • Underlying profit target gateway* for coming year • KPIs for each participant • Maximum current variable remuneration payable for each participant based on remuneration ratio • Determine maximum current variable remuneration • pool size based on the sum of individual theoretical maximum entitlements calculated in accordance with the remuneration ratio * The Board has compared Abacus’ performance against several financial performance measures over annual periods to determine the strength of the relationship between the measures and security-holder value creation (measured by total security-holder return) and hence the most appropriate measure to determine entitlements to variable remuneration. Based on this analysis the Board has adopted underlying profit as the measure. Underlying profit reflects the statutory profit as adjusted in order to present a figure that reflects the Directors’ assessment of the result for the ongoing business activities of Abacus, in accordance with the AICD/Finsia principles for reporting underlying profit. The underlying profit is not audited. DIRECTORs’ REPORT 30 JUNE 2013CONTINUED 43 annual report 2013 remuneratiOn repOrt (audited) (COntinued) Variable Remuneration – current variable remuneration (continued) Structure (continued) For each relevant year the Board will specify an underlying profit target that operates as a gateway that must be passed if current variable remuneration awards are to be generally payable. The Board retains the discretion, based on its view of the circumstances at the time, to adjust the current variable remuneration pool size. If the underlying profit target is missed, the Board retains the discretion to make the current variable remuneration pool, or a reduced pool, generally available if it determines the circumstances warrant such action. If performance has been exceptionally strong the Board may increase the total pool size to provide additional current variable remuneration awards reflective of the above target performance. Where the financial gateway has not been achieved and the Board determines that no part of the current variable remuneration pool will be generally available, it retains the discretion to pay current variable remuneration awards to selected individuals to reward them for their personal above target performance. The application of any of these discretions will be disclosed. If an executive is no longer employed at the time when Abacus pays current variable remuneration awards for any relevant year then that executive will generally not be entitled to be paid their current variable remuneration awards if the relevant executive resigned for any reason or if their employment was terminated with cause. Key Performance Indicators When the financial gateway has been passed, and current variable remuneration awards are to be paid, it is necessary to determine how these entitlements will be quantified for participating executives. Current variable remuneration payments made to each executive depend on the extent to which KPIs set at the beginning of the financial year are met. Account is also taken of qualitative indicators of effectiveness, performance and behaviour. They are the primary tools the Board uses as a means of determining performance against expectations in order to distribute current variable remuneration awards where the financial performance gateway specified by the Board has been achieved. PERFORMANCE MEASURES Financial measure: • Contribution to Abacus underlying profit • Contribution to sustainability of distribution • Contributions to projects expected to grow security value Non-financial measures: • Quality of analysis and recommendations • Reporting and financial requirements • Tax and compliance requirements • Transaction and project management • Key growth activities • Risk management • Leadership, staff management, teambuilding and succession • Other performance measures focuses on achieving business imperatives PROPORTION OF CURRENT VARIABLE REMUNERATION AWARD MEASURE APPLIES TO MANAGING DIRECTOR OTHER EXECUTIVES 60% 20-40% (dependent on role) 40% 60-80% These measures were chosen as they represent the key drivers for the short-term success of the business and provide a framework for long term securityholder value. The Board is mindful of the competing needs for Abacus to: • maintain a robust framework by which performance expectations are set and measured; and • retain its flexibility to reward exceptional achievement. 44 abacus property group remuneratiOn repOrt (audited) (COntinued) Key Performance Indicators (continued) The Board has the discretion to consider each executive’s total contribution to the group in addition to the specific KPIs selected for the relevant year. The target levels of performance set by the Board are challenging, and payment of 100% of the current variable remuneration award opportunity to an executive requires superior performance. The payment of current variable remuneration awards to executives is subject to a recommendation by the Remuneration and Nomination Committee to, and approval of, the Board. The Committee considers the performance of the executive against the KPIs and other applicable measures and approves the amount, if any, of the current variable remuneration to be paid. For the 2013 financial year current variable remuneration awards of $1,560,000 have been accrued and will be paid in September 2013. For the 2012 financial year, 100% of the current variable remuneration awards of $1,700,000 accrued in that year vested and were paid to executives in the 2013 financial year. There were no forfeitures. Performance and its link to variable remuneration of the Managing Director The financial measures driving variable remuneration outcomes are underlying profit and sustainable distributions. In addition Abacus has a number of non-financial measures that it uses to determine variable remuneration. The following table sets out performance of the Managing Director against these targets: PERFORMANCE MEASURE Financial Underlying profit Sustainable distribution Non-financial Strategic planning Reporting and financial requirements Key growth activities Risk management Leadership, team building FY13 PERFORMANCE AGAINST TARGETS Above target At target Above target At target Above target At target Above target Variable Remuneration – deferred variable remuneration The KMPs and other selected executives were invited by the Board to participate in the deferred variable remuneration plan which rewards sustainability of distributions each year over a four year period. Objective The objective of the deferred variable remuneration plan is to reward executives for sustaining underlying profit that covers the distribution level implicit in the Abacus security price. Deferred Security Acquisition Rights Plan The deferred variable remuneration plan has been designed to align the interests of executives with those of securityholders by providing for a significant portion of the remuneration of participating executives to be linked to the delivery of sustainable underlying profit that covers the distribution level implicit in the Abacus security price. The deferred security acquisition rights plan (SARs Plan) is a deferred variable remuneration plan under which deferred variable remuneration awards in the form of security acquisition right (SAR’s) may be awarded in accordance with the remuneration ratio. Key executives may be allocated a deferred variable remuneration award value in any financial year generally equal to the last current variable remuneration award paid. Allocations in a financial year are based on the performance assessment completed in determining current variable remuneration awards for the prior financial year, adjusted to take into account other factors that the Board considers specifically relevant to the purpose of providing deferred variable remuneration awards. Adjustments may be needed, for example, to take into account an award of a current variable remuneration award above the theoretical maximum, the potential of an executive, or their impending retirement. DIRECTORs’ REPORT 30 JUNE 2013CONTINUED45 annual report 2013 remuneratiOn repOrt (audited) (COntinued) Deferred Security Acquisition Rights Plan (continued) The Board has the discretion to award SARs in excess of the cap in the case of exceptional performance. The deferred variable remuneration grant value allocated to a plan participant for a financial year will be divided by the 10 day volume weighted average price (VWAP) of Abacus Property Group securities (ABP securities) for the period commencing on the second trading day after the full year results announcement for the previous financial year was released to the market (the business day after that 10 day period ends is the allocation date). The quotient will be the number of SARs to be allocated to the relevant executive for that financial year. The SARs allocated to an executive for a financial year will vest in four equal annual tranches on the first, second, third and fourth anniversaries of the allocation date. To receive the deferred remuneration award the executive must remain employed by Abacus, unless they are considered a “good leaver” (that is, through death, disability, or genuine retirement, or some other circumstance considered acceptable or the board in its discretion). All other leavers are considered a “bad leavers” for the purposes of the SARs Plan. As well the Board will have the discretion, if the amount of distributions per ABP security falls by more than a percentage determined by the Board for each respective SARs issue, to claw back any unvested tranches. For example, if the Board determines at the time of a new allocation of SARs that a sustainable annual distribution rate for the whole vesting period for that allocation of SARs is 16.5 cents per security then the Board may decide that if that rate falls by more than 5% in respect of any financial year before all of the tranches of SARs in that allocation have vested, the Board may claw back the unvested SARs that formed part of that allocation. The allocation of SARs for the following year may have a higher distribution rate and negative variance buffer set, and so on for succeeding years. If an executive is not a bad leaver but the Board determines that the executive is responsible for misconduct resulting in material non-compliance with financial reporting requirements or for excessive risk taking, the executive will forfeit all unvested SARs entitlements. When a tranche of SARs vests the SARs in that tranche will convert into ABP securities on a one for one basis or (exceptionally, subject to the discretion of the Board where an executive already has a significant holding of ABP securities) a cash amount equal to the product derived by multiplying the number of SARs in that tranche by the VWAP of ABP securities over the first 10 trading days after the date the relevant tranche vests. To achieve a closer alignment of the interests of securityholders and senior executives, when a tranche of SARs vests, the holder will also be paid in respect of each SAR vesting an amount (a notional distribution) equivalent to the aggregate of the distributions per ABP security paid during the period from allocation date of the relevant tranche to the vesting date for the relevant tranche plus the amount of any distribution per security declared and unpaid as at the vesting date . This entitlement will be satisfied in ABP securities . In that event the number of additional securities will be calculated by dividing the amount of the notional distribution by the VWAP of ABP securities over the first 10 trading days after the date the relevant tranche vests. Executives will be entitled before any trance of SARs vests, to extend the vesting date for that tranche by 12 months. This right may be exercised at any time and from time to time in respect of any unvested tranche while the executive’s employment continues. 1 If the entitlements on a vesting of SARs is satisfied in ABP securities that are cum distribution then the amount of that unpaid distribution will not be included in the notional distribution. 2 Subject to the Board’s discretion to satisfy this in cash. 46 abacus property group remuneratiOn repOrt (audited) (COntinued) Deferred Security Acquisition Rights Plan (continued) The grant and vesting levels of SARs for key management personnel during the 2013 financial year were as follows: Allocation of SARs to key management personnel GRANT DATE NUMBER FAIR VALUE PER RIGHT FAIR VALUE RECOGNISED IN FY13 ON UNVESTED RIGHTS THE FOLLOWING RIGHTS WILL VEST IN THE PERIODS INDICATED SUBJECT TO PERFORMANCE AND POTENTIAL CLAW BACK FY14 FY15 FY16 FY17 15/05/2013 212,420 $2.41 $266,632 53,105 53,105 53,105 53,105 Director F Wolf Executives E Varejes C Aarons 15/05/2013 15/05/2013 R Baulderstone 15/05/2013 J L'Estrange C Laird L Lloyd P Strain 15/05/2013 15/05/2013 15/05/2013 15/05/2013 84,968 65,360 65,360 74,920 71,652 61,276 65,360 701,316 $2.41 $2.41 $2.41 $2.41 $2.41 $2.41 $2.41 $106,653 $82,040 $82,040 $94,040 $89,938 $76,914 $82,040 21,242 16,340 16,340 18,730 17,913 15,319 16,340 21,242 16,340 16,340 18,730 17,913 15,319 16,340 21,242 16,340 16,340 18,730 17,913 15,319 16,340 21,242 16,340 16,340 18,730 17,913 15,319 16,340 $880,297 175,329 175,329 175,329 175,329 The expense recognised for security based payments (Note 29) includes SARs issued to other executives in the Group. There was no grant of rights in the previous period. For the purpose of determining remuneration Abacus subscribes to an independent property salary and remuneration survey recommended to it by EY and Abacus performs a review of the published remuneration of the members of the S&P ASX 200 Index and the S&P/ASX 300 A-REIT Index. Tax advice on the deferred variable remuneration plan was provided by Minter Ellison. DIRECTORs’ REPORT 30 JUNE 2013CONTINUED47 annual report 2013 remuneratiOn repOrt (audited) (COntinued) Link between remuneration policy and Abacus’ performance Abacus’ performance is compared with its peers in the S&P/ASX 300 A-REIT index. This peer group reflects Abacus’ competitors for capital transactions and talent. As previously discussed, KMPs and other selected executives are eligible to receive current variable remuneration and a deferred variable remuneration. Both are risk-related components of total remuneration as payment entitlements are dependent on performance. The group’s objective is for remuneration policy to encourage business strategy and implementation that achieves growth in total securityholder returns and favourable peer comparison. The variable remuneration strategy is designed to drive sustainable and growing underlying profit that covers the distribution level implicit in the Abacus security price. Abacus’ performance in comparison with the S&P/ASX 300 A-REIT index is set out in the following graph: 100 80 60 40 20 0 -20 -40 -60 -80 APG AND S&P/ASX 300 A-REIT ACCUMULATION INDEX TOTAL RETURN (Since 1 July 2008) ABP S&P/ASX 300 Accumulation Abacus’ performance for the past five years is as follows: Underlying earnings per security (cents) Distributions paid and proposed (cents) Closing security price (30 June) Net tangible assets per security** 2009 8.30 7.75 $0.37 $0.62 2010 3.90 3.15 $0.41 $0.58 2011* 19.38 16.50 $2.31 $2.51 2012 19.17 16.50 $2.04 $2.34 2013 18.76 16.50 $2.27 $2.32 Weighted average securities on issue 867.5m 1,662.5m 372.3m 400.9m 446.4m * Abacus securities were consolidated on a 5:1 basis on 29 November 2010. ** Net tangible assets per security includes the impact of the fair value movements. 48 abacus property group remuneratiOn repOrt (audited) (COntinued) 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 contract: • Dr Wolf receives a base salary that is reviewed annually; • he is eligible to participate in the deferred variable income plans that are made available and to receive current variable remuneration payments; • Dr Wolf may resign from his position and thus terminate this contract by giving 6 months written notice; and • Abacus may terminate this employment agreement by providing 12 months written notice or providing payment in lieu of notice (based on the fixed component of Dr Wolf’s remuneration). Other Executives The other executives are employed on an ongoing basis under letter agreements until (generally) one month’s notice is given by either party. Abacus 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. Deferred variable remuneration allocations vest according to the SARs plan rules. DIRECTORs’ REPORT 30 JUNE 2013CONTINUED I Y T R U C E S I I N O T S U Q C A I G N O L I E C V R E S N O E V A E L T R O H S D N A - N O N T N E R R U C M R E T Y R A T E N O M E L B A R A V I & Y R A L A S S T N E M Y A P H S A C L A T O T S R A S E C N A M R O F R E P D E T A L E R D E T A L E R L A T O T I - Y T R U C E S D E S A B T N E M Y A P I S T F E N E B M R E T - G N O L T N E M Y O L P M E T S O P I S T F E N E B M R E T - T R O H S 3 1 0 2 l e n n O s r e p t n e m e g a n a m y e k F O n O i t a r e n u m e r : 1 e l B a t % – – – – – 2 1 3 1 3 1 – 7 1 2 1 4 1 3 1 2 1 % – – – – – 0 4 2 3 9 2 – 8 4 6 3 0 3 0 3 4 3 $ 0 0 0 , 0 0 2 0 0 0 , 2 0 1 0 5 7 , 8 3 0 0 0 , 3 3 1 0 0 0 , 5 9 0 5 7 , 8 6 5 $ – – – – – – $ – – – – – – 0 9 7 , 4 3 2 , 2 2 3 6 , 6 6 2 3 2 0 , 8 3 7 8 2 , 2 9 7 6 4 5 , 1 2 6 3 2 0 , 8 2 2 6 6 2 , 0 8 4 7 9 0 , 4 4 7 9 4 4 , 4 7 6 6 7 1 , 3 8 5 6 5 9 , 3 8 6 3 5 6 , 6 0 1 0 4 0 , 2 8 – 0 4 0 , 2 8 8 3 9 , 9 8 0 4 0 , 4 9 4 1 9 , 6 7 0 4 0 , 2 8 9 9 4 , 0 1 1 7 3 , 4 3 9 0 6 , 2 6 2 2 , 3 1 9 0 , 8 3 4 7 7 , 6 2 6 2 , 6 1 3 0 , 9 $ – – – – – – – – – – – – – – 7 4 2 1 2 , * ) S R A S ( S T H G R I * E V A E L I N O T A N M R E T I I N O T A U N N A R E P U S I S T F E N E B I S T F E N E B I E V T N E C N I S E E F $ $ – 0 7 4 , 6 1 2 2 4 , 8 1 5 7 0 2 , 4 4 8 7 , 7 8 4 , 3 5 8 7 5 , 3 9 9 9 9 , 7 1 0 3 5 , 3 8 1 0 0 0 , 3 3 1 6 5 1 , 7 8 3 6 2 , 5 1 5 $ – – – – – – $ – – – – – – $ 8 7 5 , 3 9 9 9 9 , 7 1 0 3 5 , 3 8 1 6 5 1 , 7 8 0 0 0 , 3 3 1 3 6 2 , 5 1 5 0 0 0 , 5 2 5 3 1 , 5 0 9 , 1 5 3 1 5 , 0 0 0 , 5 2 6 0 0 0 , 5 7 2 , 1 ) 2 1 0 2 r e b m e v o N 4 1 d e r i t e r ( n a i t s a B D g n i v r I M s r o t c e r i d e v i t u c e x e - n o N n a m r i a h C – e m a h T J t t e l t r a B W i r e d n k a S M l s r o t c e r i d e v i t u c e x e - n o n l a t o t - b u S r o t c e r i i D g n g a n a M – f l o W F s r o t c e r i D e v i t u c e x E l e n n o s r e p t n e m e g a n a m y e k r e h t O r e c fi f O g n i t a r e p O i f e h C – s e e r a V E j # y g e t a r t S f o d a e H – s n o r a A C 0 0 0 , 0 5 1 0 0 0 , 5 9 4 0 0 0 , 0 0 1 0 0 0 , 5 7 3 0 0 0 , 5 2 0 0 0 , 5 2 3 6 8 , 6 3 8 5 , 4 1 0 7 4 , 6 1 0 0 0 , 5 2 0 0 0 , 5 2 0 0 0 , 5 2 5 3 1 , 0 5 6 5 3 1 , 0 8 4 4 0 3 , 7 9 1 7 1 4 , 0 8 3 8 9 5 , 9 9 5 5 3 6 , 8 4 5 0 0 0 , 5 7 4 5 8 8 , 7 6 5 – – 5 3 1 5 , 5 3 1 5 , – 8 6 5 , 2 5 3 1 5 , 5 3 1 5 , 0 0 0 , 0 5 1 0 5 7 , 2 1 4 y t r e p o r P r o t c e r i i D – n a r t S P – 4 0 3 , 7 9 1 ^ r e c fi f O l i i i a c n a n F f e h C – z i t i o b A e d R 0 0 0 , 0 5 1 7 1 4 , 0 3 2 ^ r e c fi f O l i i i a c n a n F f e h C – e n o t s r e d u a B R l 0 0 0 , 5 7 1 0 3 0 , 2 2 4 s e r u t n e V y t r e p o r P r o t c e r i D – d r i a L C 0 0 0 , 0 1 1 0 0 5 , 3 3 4 s e r u t n e V y t r e p o r P r o t c e r i D – e g n a r t s E ' L J 0 0 0 , 0 0 1 0 0 0 , 5 7 3 s e c i v r e S y t r e p o r P , r o t c e r i i D g n g a n a M – d y o L L l 49 annual report 2013 0 9 5 , 2 4 0 , 7 7 9 2 , 0 8 8 6 8 8 , 8 4 1 0 4 3 , 1 1 6 , 7 7 9 2 , 0 8 8 6 8 8 , 8 4 1 7 4 2 , 1 2 7 4 2 , 1 2 6 1 9 , 7 8 1 3 0 4 , 1 4 2 4 4 2 , 4 0 8 , 5 3 4 2 , 8 2 0 0 0 , 0 6 5 , 1 1 0 0 , 6 1 2 , 4 P M K e v i t u c e x e l a t o t - b u S 7 0 5 , 9 1 3 , 6 3 4 2 , 8 2 0 0 0 , 0 6 5 , 1 4 6 2 , 1 3 7 , 4 l a t o T . 2 1 0 2 y l u J 1 n o e e t t i m m o C e v i t u c e x E e h t o t d e t n o p p a s a w s n o r a A s i M # . 2 1 0 2 r e b m e v o N n i i d e t n o p p a s a w e n o t s r e d u a B r l M d n a d e n g i s e r z i t i o b A e d r M ^ d e l t i t n e y l t n e s e r p t o n d e u r c c A * 50 abacus property group E C N A M R O F R E P D E T A L E R L A T O T I - Y T R U C E S D E S A B T N E M Y A P I S T F E N E B M R E T - G N O L T N E M Y O L P M E T S O P I S T F E N E B M R E T - T R O H S 2 1 0 2 ) d e u n i t n O C ( l e n n O s r e p t n e m e g a n a m y e k F O n O i t a r e n u m e r : 1 e l B a t D E u N I T N O C 3 1 0 2 E N u J 0 3 T R O P E R ’ S R O T C E R D I % – – – – – _ 8 3 5 2 2 2 6 2 0 3 4 2 6 2 $ 0 0 0 , 8 9 1 0 5 2 , 8 9 0 5 2 , 2 9 0 5 7 , 6 2 1 0 5 7 , 3 9 0 0 0 , 9 0 6 3 3 8 , 4 7 9 , 1 2 6 1 , 8 8 6 7 8 0 , 7 8 6 7 9 9 , 7 7 5 5 2 6 , 6 5 6 5 3 3 , 1 3 5 4 6 8 , 6 8 5 3 0 9 , 2 0 7 , 5 3 0 9 , 1 1 3 , 6 $ – – – – – – – – – – – – – – – S T H G R I I I N O T A C E R P P A G N O L * E V A E L I E C V R E S I S T F E N E B T N E M E R T E R I S T N E M Y A P H S A C L A T O T T R O H S D N A - N O N I N O T A U N N A R E P U S I S T F E N E B I S T F E N E B S U N O B S E E F M R E T Y R A T E N O M H S A C & Y R A L A S $ – – – – – – 3 8 6 , 9 1 2 1 0 , 8 7 8 0 , 7 4 – 5 7 4 , 6 5 3 3 , 6 4 1 7 , 6 6 0 3 , 4 9 6 0 3 , 4 9 $ – – – – – – – – – – – – – – – $ $ 2 1 1 8 , 5 7 7 5 1 , 0 0 0 , 0 5 – 1 4 7 7 , 8 2 6 , 1 8 5 2 2 , 2 8 1 8 3 1 , 0 9 0 5 2 , 2 4 0 5 7 , 6 2 1 9 0 0 , 6 8 2 7 3 , 7 2 5 $ – – – – – – $ – – – – – – $ 5 2 2 , 2 8 1 8 3 1 , 0 9 0 5 2 , 2 4 0 5 7 , 6 2 1 9 0 0 , 6 8 2 7 3 , 7 2 5 0 0 0 , 0 5 0 5 1 , 5 0 9 , 1 0 5 1 5 , 0 0 0 , 0 5 7 0 0 0 , 0 5 1 , 1 s r o t c e r i d e v i t u c e x e - n o n l a t o t - b u S r o t c e r i i D g n g a n a M – f l o W F s r o t c e r i D e v i t u c e x E l e n n o s r e p t n e m e g a n a m y e k r e h t O s r o t c e r i d e v i t u c e x e - n o N n a m r i a h C – e m a h T J t t e l t r a B W n a i t s a B D g n i v r I M i r e d n k a S M l 7 7 7 0 4 , 5 7 7 5 1 , 5 7 7 5 1 , 5 7 7 3 3 , 0 0 0 , 0 5 0 0 0 , 0 5 2 0 1 , 6 5 2 0 3 7 , 7 3 3 3 7 3 , 9 3 6 5 2 2 , 4 2 6 2 2 2 , 2 6 5 5 7 3 , 6 1 6 0 0 0 , 5 7 4 0 5 1 , 0 3 5 0 5 1 5 , 0 0 0 , 5 7 1 3 2 2 , 9 5 4 r e c fi f O g n i t a r e p O i f e h C – s e e r a V E j – – 7 9 9 2 , 0 5 1 5 , 0 0 0 , 0 5 1 5 2 2 , 4 7 4 r e c fi f O l i i i a c n a n F f e h C – z i t i o b A e d R 0 0 0 , 0 5 1 5 2 2 , 9 0 4 s e r u t n e V y t r e p o r P r o t c e r i D – d r i a L C 0 0 0 , 0 0 2 5 2 2 , 1 1 4 s e r u t n e V y t r e p o r P r o t c e r i D – e g n a r t s E ' L J 0 0 0 , 5 2 1 0 0 0 , 0 5 3 s e c i v r e S y t r e p o r P , r o t c e r i i D g n g a n a M – d y o L L l 0 5 1 5 , 0 0 0 , 0 5 1 0 0 0 , 5 7 3 y t r e p o r P r o t c e r i i D – n a r t S P 5 9 4 , 2 5 3 , 5 7 9 5 , 3 2 0 0 0 , 0 0 7 , 1 8 9 8 , 8 2 6 , 3 P M K e v i t u c e x e l a t o t - b u S 7 6 8 , 9 7 8 , 5 7 9 5 , 3 2 0 0 0 , 0 0 7 , 1 0 7 2 , 6 5 1 , 4 l a t o T d e l t i t n e y l t n e s e r p t o n t u b d e u r c c A * 51 annual report 2013 Signed in accordance with a resolution of the directors. Abacus Group Holdings Limited (ABN 31 080 604 619) John Thame Chairman Sydney, 28 August 2013 Frank Wolf Managing Director 52 abacus property group DIRECTORs’ REPORT 30 JUNE 2013CONTINUED53 annual report 2013 FINANCIAL STATEMENTS 30 JuNE 2013 DIRECTORY Abacus Group Holdings Limited ABN: 31 080 604 619 Abacus Group Projects Limited ABN: 11 104 066 104 Abacus Storage Operations Limited ABN: 37 112 457 075 Abacus Funds Management Limited ABN: 66 007 415 590 Abacus Storage Funds Management Limited ABN: 41 109 324 834 Registered Office Level 34, Australia Square 264-278 George Street SYDNEY NSW 2000 Tel: (02) 9253 8600 Fax: (02) 9253 8616 Website: www.abacusproperty.com.au Custodian Perpetual Trustee Company Limited Level 12 Angel Place 123 Pitt Street SYDNEY NSW 2000 Directors of Responsible Entities and Abacus Group Holdings Limited John Thame, Chairman Frank Wolf, Managing Director William Bartlett Malcolm Irving Myra Salkinder Company Secretary Ellis Varejes Auditor (Financial and Compliance Plan) Ernst & Young Ernst & Young Centre 680 George Street SYDNEY NSW 2000 Share Registry Boardroom Pty Ltd Level 7, 207 Kent St SYDNEY NSW 2000 Tel: 1300 737 760 Fax: 1300 653 459 It is recommended that this Annual Financial Report should be read in conjunction with the Annual Financial Report of Abacus Trust, Abacus Group Projects Limited, Abacus Income Trust, Abacus Storage Property Trust and Abacus Storage Operations Limited as at 30 June 2013. 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 property group 54 CONSOLIDATED INCOME STATEMENT YEAR ENDED 30 JuNE 2013 NOTES 2013 $’000 2012 $’000 6(a) 6(b) 6(c) 17(b) 7(a) 7(b) 27 7(c) 7(d) 8(a) REVENUE Rental income Storage income Hotel income Finance income Funds management income Sale of inventory Total Revenue Net change in fair value of investment properties derecognised Net change in fair value of investments and financial instruments derecognised Net change in fair value of investment properties and property, plant & equipment held at balance date Net change in fair value of investments held at balance date Share of profit / (loss) from equity accounted investments Other Total Revenue and Other Income Property expenses and outgoings Storage expenses Hotel expenses Depreciation, amortisation and impairment expense Cost of inventory sales Net change in fair value of derivatives Loss on consolidation Finance costs Impairment charges – related parties Administrative and other expenses PROFIT BEFORE TAX Income tax expense NET PROFIT AFTER TAX PROFIT ATTRIBUTABLE TO: Equity holders of the parent entity (AGHL) Equity holders of other stapled entities AT members AGPL members AIT members ASPT members ASOL members Stapled security holders Net profit / (loss) attributable to external non-controlling interests NET PROFIT 95,010 45,249 55,184 21,721 7,509 56,347 281,020 1,973 6,854 497 5,409 10,164 – 101,506 47,093 52,011 28,997 6,509 – 236,116 9,456 (132) (2,235) (1,244) 7,379 686 305,917 250,026 (17,806) (15,981) (38,928) (6,999) (48,176) (1,153) (18,943) (56,244) – (27,368) 74,319 (6,839) 67,480 (18,123) (16,410) (40,010) (7,800) – (54,315) – (73,043) (3,507) (26,318) 10,500 (2,474) 8,026 3,691 450 32,074 5,391 6,751 (12,820) 25,965 61,052 6,428 67,480 6,507 208 1,964 (11,071) 10,412 8,470 (444) 8,026 Basic and diluted earnings per stapled security (cents) 10 13.68 2.11 CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME YEAR ENDED 30 JuNE 2013 NET PROFIT AFTER TAX OTHER COMPREHENSIVE INCOME Items that will not be reclassified subsequently to the income statement Revaluation of assets, net of tax Items that may be reclassified subsequently to the income statement Foreign exchange translation adjustments, net of tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR Total comprehensive income attributable to: Members of the APG Group External non-controlling interests TOTAL COMPREHENSIVE INCOME FOR THE YEAR Total comprehensive income / (loss) attributable to members of the Group analysed by amounts attributable to: AGHL members AT members AGPL members AIT members ASPT members ASOL members TOTAL COMPREHENSIVE INCOME AFTER TAX ATTRIBUTABLE TO MEMBERS OF THE GROUP 55 annual report 2013 2013 $’000 67,480 2012 $’000 8,026 (6,062) 3,957 1,737 3,782 63,155 15,765 62,099 1,056 63,155 9,808 5,957 15,765 3,288 32,074 5,469 6,751 (11,517) 26,034 1,788 6,507 208 1,964 (11,071) 10,412 62,099 9,808 abacus property group 56 CONSOLIDATED STATEMENT OF FINANCIAL POSITION YEAR ENDED 30 JuNE 2013 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Investment properties held for sale Inventory Property loans Other financial assets Other TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Investment properties Inventory Property loans Other financial assets Property, plant and equipment Equity accounted investments Deferred tax assets Intangible assets and goodwill TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Interest-bearing loans and borrowings Derivatives at fair value Income tax payable Other financial liabilities Other TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Trade and other payables Interest-bearing loans and borrowings Derivatives at fair value Deferred tax liabilities Other financial liabilities Other TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS TOTAL EQUITY NOTES 11 12(a) 16 15(a) 13(a) 13(b) 12(b) 16 15(b) 13(c) 13(d) 14 17 8(c) 18 19(a) 20 30 19(b) 20 8(c) 30 2013 $’000 2012 $’000 44,822 19,560 175,710 72,992 2,452 – 3,636 54,129 11,918 190,821 26,479 19,098 8,053 3,004 319,172 313,502 6,897 6,212 1,221,395 1,181,203 91,942 138,370 28,282 152,100 124,458 100,974 154,758 24,489 154,065 121,833 11,923 33,261 1,808,628 16,320 33,461 1,793,315 2,127,800 2,106,817 63,313 164,318 1,263 876 11,000 6,112 30,426 29,950 - 636 – 4,516 246,882 65,528 – 639,290 55,942 10,312 45,250 2,304 12,725 772,260 79,752 10,183 56,250 2,227 753,098 933,397 999,980 998,925 1,127,820 1,107,892 1,127,820 1,107,892 57 annual report 2013 NOTES 2013 $’000 2012 $’000 162,070 6,816 (43,984) 157,386 6,050 (47,337) 124,902 116,099 804,153 (152,236) 651,917 783,358 (137,593) 645,765 21,018 – (12,138) 8,880 20,415 (78) (17,529) 2,808 177,151 (18,894) 170,620 (566) 158,257 170,054 90,589 (1,021) (4,437) 85,131 13,400 82 41,466 54,948 78,007 52 (34,274) 43,785 87,461 (2,322) 8,790 93,929 12,754 13 15,501 28,268 67,295 5,424 (21,750) 50,969 1,127,820 1,107,892 23 1,268,381 1,231,994 5,877 (190,223) 1,084,035 43,785 3,663 (178,734) 1,056,923 50,969 1,127,820 1,107,892 Equity attributable to members of AGHL: Contributed equity Reserves Accumulated losses Total equity attributable to members of AGHL: Equity attributable to unitholders of AT: Contributed equity Accumulated losses Total equity attributable to unitholders of AT: Equity attributable to members of AGPL: Contributed equity Reserves Accumulated losses Total equity attributable to members of AGPL: Equity attributable to unitholders of AIT: Contributed equity Accumulated losses Total equity attributable to unitholders of AIT: Equity attributable to members of ASPT: Contributed equity Reserves (Accumulated losses)/retained earnings Total equity attributable to members of ASPT: Equity attributable to members of ASOL: Contributed equity Reserves Retained earnings Total equity attributable to members of ASOL: Equity attributable to external non-controlling interest: Contributed equity Reserves Accumulated losses Total equity attributable to external non-controlling interest: TOTAL EQUITY Contributed equity Reserves Accumulated losses Total stapled security holders' interest in equity Total external non-controlling interest TOTAL EQUITY abacus property group 58 CONSOLIDATED STATEMENT OF CHANGES IN EQuITY YEAR ENDED 30 JuNE 2013 ATTRIBuTABLE TO THE STAPLED SECuRITy HOLDER ISSuED CAPITAL $’000 ASSET REVALuATION RESERVE $’000 FOREIGN CuRRENCy TRANSLATION $’000 EMPLOyEE EquITy BENEFITS $’000 RETAINED EARNINGS $’000 EXTERNAL NON- CONTROLLING INTEREST $’000 TOTAL EquITy $’000 CONSOLIDATED At 1 July 2012 Other comprehensive income Net income for the year Total comprehensive income for the year Distribution reinvestment plan Security acquisition rights Distribution to security holders 1,231,994 – – – 36,387 – – At 30 June 2013 1,268,381 612 (573) – (573) – – – 39 (2,397) 1,619 – 1,619 – – – 5,448 (178,734) 50,969 1,107,892 – – – – 1,168 – 61,052 (5,371) 6,428 (4,325) 67,480 61,052 – – 1,057 – 63,155 36,387 – 1,168 – (72,541) (8,241) (80,782) (778) 6,616 (190,223) 43,785 1,127,820 CONSOLIDATED At 1 July 2011 Other comprehensive income Net income for the year Total comprehensive income for the year Equity raisings^ Return of capital^ Distribution reinvestment plan Issue costs Acq. of non-controlling interest Merger of ASOL / ASPT Distribution to security holders ISSuED CAPITAL $’000 ASSET REVALuATION RESERVE $’000 FOREIGN CuRRENCy TRANSLATION $’000 EMPLOyEE EquITy BENEFITS $’000 RETAINED EARNINGS $’000 NON- CONTROLLING INTEREST $’000 TOTAL EquITy $’000 1,139,824 – – – 56,528 (61,873) 36,189 (2,168) – 63,494 – 1,021 (409) – (4,142) 1,745 – (409) 1,745 – – – – – – – – – – – – – – 5,448 (148,411) 146,670 1,140,410 – – – – – – – – – – – 8,470 6,403 (444) 7,739 8,026 8,470 5,959 – – – – – – – – – (1,754) 24,387 (87,881) 15,765 56,528 (61,873) 36,189 (2,168) (1,754) – (63,180) (12,025) (75,205) At 30 June 2012 1,231,994 612 (2,397) 5,448 (178,734) 50,969 1,107,892 ^ Capital was returned to securityholders that was applied to the issue of securities as part of the merger between the ABP Group and ASF. CONSOLIDATED STATEMENT OF CASH FLOW YEAR ENDED 30 JuNE 2013 CASH FLOWS FROM OPERATING ACTIVITIES Income receipts Interest received Distributions received Income tax paid Finance costs paid Operating payments 59 annual report 2013 NOTES 2013 $’000 2012 $’000 302,100 258,618 4,051 259 3,657 1,015 (2,286) (1,353) (47,892) (60,735) (87,399) (114,952) NET CASH FLOWS FROM OPERATING ACTIVITIES 11 168,833 86,250 CASH FLOWS FROM INVESTING ACTIVITIES Payments for investments and funds advanced Proceeds from sale and settlement of investments and funds repaid Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Purchase of investment properties Disposal of investment properties Consolidation of AWLF Payment for other investments (76,436) (91,909) 25,503 27,208 (7,822) (1,230) – 15,512 (111,722) (24,382) 86,246 96,079 2,042 – (6,133) (5,138) NET CASH FLOWS (USED IN) / FROM INVESTING ACTIVITIES (88,322) 16,140 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of stapled securities Return of capital Payment of issue / finance costs Repayment of borrowings Proceeds from borrowings Distributions paid NET CASH FLOWS USED IN FINANCING ACTIVITIES NET DECREASE IN CASH AND CASH EQUIVALENTS Net foreign exchange differences Cash and cash equivalents at beginning of year – – 62,901 (61,873) (733) (6,223) (121,833) (242,345) 81,384 174,954 (49,057) (40,338) (90,239) (112,924) (9,728) (10,534) 420 15 54,129 64,648 CASH AND CASH EQUIVALENTS AT END OF YEAR 11 44,821 54,129 abacus property group 60 NOTES TO THE FINANCIAL STATEMENTS 30 JuNE 2013 1. CORPORATE INFORMATION Abacus Property Group (“APG” or the “Group”) is comprised of Abacus Group Holdings Limited (“AGHL”) (the nominated parent entity), Abacus Trust (“AT”), Abacus Group Projects Limited (“AGPL”), Abacus Income Trust (“AIT”), Abacus Storage Property Trust (“ASPT”) and Abacus Storage Operations Limited (“ASOL”). Shares in AGHL, AGPL and ASOL and units in AT, AIT and ASPT have been stapled together so that neither can be dealt with without the other. The securities trade as one security on the Australian Securities Exchange (the “ASX”) under the code ABP. The units in ASPT and the shares in ASOL were stapled to the Group in March 2012. The financial report of the Group for the year ended 30 June 2013 was authorised for issue in accordance with a resolution of the directors on 28 August 2013. The nature of the operations and principal activities of the Group are described in the Directors’ report. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation The 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 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 and associates which are accounted for using the equity method, and certain investments and financial assets measured at fair value. 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. (b) Statement of Compliance The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS), as issued by the AASB and IASB respectively. (c) New accounting standards and interpretations (i) Changes in accounting policy and disclosures The accounting policies adopted are consistent with those of the previous financial year except as follows: The Group has adopted the following new and amended Australian Accounting Standards and AASB interpretations as of 1 July 2012. Adoption of these standards and interpretations did not have any material effect on the financial position or performance of the Group. – AASB 2011-9 Presentation of Other Comprehensive Income – This standard requires entities to group items presented in other comprehensive income on the basis of whether they might be reclassified subsequently to profit or loss and those that will not. – AASB 2010-8 Deferred Tax: Recovery of Underlying Assets – The amendment addresses the determination of deferred tax on investment property measured at fair value and introduces a rebuttable presumption that deferred tax is measured on the basis that the carrying amount will be recoverable through sale rather than use. This amendment will have no impact on the Group as the majority of investment properties are held within the Group’s Trusts and where the investment property is held within a company, the Group already had a policy to assess recoverability and record deferred tax where appropriate based on the assessment of recoverability of the carrying value per property. 61 annual report 2013 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Group early adopted the following standards during the year ended 30 June 2012: – AASB 10 Consolidated Financial Statements – establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation – Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Adoption resulted in the consolidation of Abacus Hospitality Fund, Abacus Diversified Income Fund II and Abacus Miller Street Holding Trust. This is due to the combination of APG’s role as responsible entity, variable returns arising from its collective equity and loan investments in these funds and certain guarantees. – AASB 11 Joint Arrangements - replaces AASB 131 Interests in Joint Ventures and UIG-113 Jointly controlled Entities – Non-monetary Contributions by Ventures. AASB 11 uses the principle of control in AASB 10 to define joint control, and therefore the determination of whether joint control exists may change. In addition it removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the parties a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. Joint ventures that give the parties a right to the net assets is accounted for using the equity method. Adoption had no impact in the Group’s method of accounting for its joint arrangements. – AASB 12 Disclosure of Interests in Other Entities – includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structures entities. New disclosures have been introduced about the judgements made by management to determine whether control exists, and to require summarised information about certain joint arrangements, associates and structured entities and subsidiaries with non controlling interests. Adoption resulted in the Group disclosing the summarised financial information of material investments in joint arrangements. Prior to adoption of AASB12, the Group’s share of summarised financial information was disclosed. 62 abacus property group 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) New accounting standards and interpretations (continued) (i) Accounting standards and Interpretations issues but not yet effective 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 ended 30 June 2013. These are outlined in the following table. APPLICATION DATE FOR GROuP* 1 July 2015 APPLICATION DATE OF STANDARD* 1 January 2015 IMPACT ON GROuP FINANCIAL REPORT The Group will review the classification of its existing financial assets and liabilities in line with the standard, such as secured and related party loans, options and derivatives. The tests above with respect to any potential reclassification of financial assets with variable cash flows will depend on the facts applicable at transition date. REFERENCE SuMMARy AASB 9 AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. (a) Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. (b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. (c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. (d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: – The change attributable to changes in credit risk are presented in other comprehensive income (OCI) – The remaining change is presented in profit or loss. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED63 annual report 2013 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) New accounting standards and interpretations (continued) APPLICATION DATE OF STANDARD* 1 January 2013 IMPACT ON GROuP FINANCIAL REPORT The Group will review the assets and liabilities requiring measurement at fair value. The standard is unlikely to have a material financial impact on the Group however the Group may be required to increase its level of disclosure. APPLICATION DATE FOR GROuP* 1 July 2013 1 January 2013 This revision will have no impact on how the Group measures its employee benefits. 1 July 2013 1 July 2013 The Group will review any amendments to the standards when adopted by the AASB. 1 July 2013 REFERENCE SuMMARy AASB 13 AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB 2011-8. AASB 119 The main change introduced by this standard is to revise the accounting for defined benefit plans. The amendment removes the options for accounting for the liability, and requires that the liabilities arising from such plans is recognised in full with actuarial gains and losses being recognised in other comprehensive income. It also revised the method of calculating the return on plan assets. The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the reporting date. Consequential amendments were also made to other standards via AASB 2011-10. AASB 2012-5 AASB 2012-5 makes amendments resulting from the 2009-2011 Annual Improvements Cycle. The standard addresses a range of improvements, including the following: – Repeat application of AASB 1 is permitted – Clarification of the comparative information requirements when an entity provides a third balance sheet (AASB 101 Presentation of Financial Statements). 64 abacus property group 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) New accounting standards and interpretations (continued) REFERENCE SuMMARy APPLICATION DATE OF STANDARD* IMPACT ON GROuP FINANCIAL REPORT APPLICATION DATE FOR GROuP* AASB 2011-4 This amendment deletes from AASB124 1 July 2013 The amendment will have no impact on the 1 July 2013 disclosures for the Group. 1 July 2013 The Group is required to report under the Tier 1 requirement as a for-profit entity in the private sector that has public accountability. There will be no impact to the reporting requirements of the Group. 1 July 2013 individual key management personnel disclosure requirements for disclosing entities that are not companies. It also removes the individual KMP disclosure requirements for all disclosing entities in relation to equity holdings, loans and other related party transactions. AASB 1053 Application of Tiers of Australian Accounting Standards This Standard establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements: (a) Tier 1: Australian Accounting Standards (b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. The following entities apply Tier 1 requirements in preparing general purpose financial statements: (a) For-profit entities in the private sector that have public accountability (as defined in this Standard) (b) The Australian Government and State, Territory and Local Governments The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: (a) For-profit private sector entities that do not have public accountability (b) All not-for-profit private sector entities (c) Public sector entities other than the Australian Government and State, Territory and Local Governments. *designates the beginning of the applicable annual reporting period AASB 2012-2, AASB 2012-4, AASB 2012-9, AASB 2012-10, AASB 2012-2 and Interpretation 20 will have no application to the Group. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED65 annual report 2013 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Basis of consolidation The consolidated financial statements comprise the financial statements of AGHL and its subsidiaries, AT and its subsidiaries, AGPL and its subsidiaries, AIT and its subsidiaries, ASPT and its subsidiaries and ASOL and its subsidiaries collectively referred to as the Group. Subsidiaries are all those entities over which the Group has power over the investee such that the Group is able to direct the relevant activities, has exposure or rights to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect the amount of the investor’s returns. The adoption of AASB 10 in the year ended 30 June 2012 led to the consolidation of Abacus Hospitality Fund, Abacus Diversified Income Fund II and Abacus Miller Street Holding Trust. In the year ended 30 June 2013 the Group also consolidated Abacus Wodonga Land Fund. This is due to the combination of the Group’s role as responsible entity and its exposure to variable returns arising from its collective equity and loan investments in these funds and certain guarantees. 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 transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is a loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which the Group has control. 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. Non-controlling interests are allocated their share of net profit after tax in the consolidated income statement and are presented within equity in the consolidated statement of financial position, separately from the equity of the owners of the parent. Non-controlling interests represent those equity interests in Abacus Hospitality Fund, Abacus Miller Street Holding Trust, Abacus Jigsaw Trust and Abacus Independent Retail Property Trust that are not held by the Group and are presented separately in the income statement and within equity in the consolidated statement of financial position. (e) Foreign currency translation Functional and presentation currency Both the functional and presentation currency of the Group are in Australian dollars. Each entity in the Group determines its own functional currency and items are included in the financial statements of each entity are measured using that functional currency. Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All exchange differences in the consolidated financial report are taken to profit or loss with the exception of differences on foreign currency borrowings on translation of foreign operations that provide a hedge against a net investment in a foreign operation. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. On disposal of a foreign operation, the cumulative amount recognised in equity relating to that particular foreign operation is recognised in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. 66 abacus property group 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Foreign currency translation (continued) At reporting date the assets and liabilities of foreign operations are translated into the presentation currency of the Group at the rate of exchange prevailing at balance date and the financial performance is translated at the average exchange rate prevailing during the reporting period. The exchange differences arising on translation are taken directly to the foreign currency translation reserve in equity. (f) Revenue recognition Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Rental and Storage income Rental income from investment properties is accounted for on a straight-line basis over the lease term. Contingent rental income is recognised as income in the periods in which it is earned. Lease incentives granted are recognised as an integral part of the total rental income. Hotel Income Revenue from rooms is recognised and accrued on the provision of rooms or on the date of which rooms are to be provided in accordance with the terms and conditions of the bookings. Advance deposits from customers received are not recognised as revenue until such time when the rooms have been provided or when the customers forfeit the deposits due to failure of attendance. Finance Income Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Income from the sale of joint venture profit share rights is recognised when the Group enters into arrangements with other parties which result in the Group receiving consideration for the sale of its right to receive a profit share from the joint venture Dividends and distributions Revenue is recognised when the Group’s right to receive the payment is established. Net change in fair value of investments and financial instruments derecognised during the year Revenue from sale of investments is recognised on settlement when the significant risks and rewards of the ownership of the investments have been transferred to the buyer. Risks and rewards are generally considered to have passed to the buyer at the time of settlement of the sale. Financial instruments are derecognised when the right to receive or pay cash flows from the financial derivative has expired or when the entity transfers substantially all the risks and rewards of the financial derivative through termination. Gains or losses due to derecognition are recognised in the statement of comprehensive income. Net change in fair value of investments held at balance date Changes in market value of investments are recognised as revenue or expense in determining the net profit for the period. Property development sales Revenue from property development sales is recognised when the significant risks, rewards of ownership and effective control has been transferred to the purchaser which has been determined to occur upon settlement and after contractual duties are completed. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, the costs incurred or to be incurred cannot be measured reliably, there is a risk of return or there is continuing management involvement to the degree usually associated with ownership. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED67 annual report 2013 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Expenses Expenses including rates, taxes and other outgoings, are brought to account on an accrual basis and any related payables are carried at cost. (h) Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash which are subject to an insignificant risk of changes in value. For the purposes of the Statement of Cash Flow, cash and cash equivalents consist of cash and cash equivalents as defined above. (i) Trade and other receivables Trade receivables, which generally have 30 day terms, are recognised at amortised cost, which in the case of the Group, is the original invoice amount less an allowance for any uncollectible amounts. Collectibility of trade receivables is reviewed on an ongoing basis. An allowance for doubtful debts is raised when there is objective evidence that collection of the full amount is no longer probable. Bad debts are written off when identified. (j) Derivative financial instruments and hedging The Group utilises derivative financial instruments, both foreign exchange and interest rate swaps to manage the risk associated with foreign currency and interest rate fluctuations. Such derivative financial instruments are recognised at fair value. The Group has set defined policies and implemented hedging policies to manage interest and exchange rate risks. Derivative instruments are transacted in line with these policies to achieve the economic outcomes in line with the Group’s treasury and hedging policy. They are not transacted for speculative purposes. The Group does not employ hedge accounting and as such derivatives are recorded at fair value with gains or losses arising from the movement in fair values recorded in the income statement. (k) Investments and other financial assets All investments are initially recognised at cost, being the fair value of the consideration given. Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial assets at fair value through profit or loss, loans and receivables, held to maturity investments, or available-for-sale financial assets. The Group determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end. At 30 June 2013 the Group’s investments in listed and unlisted securities have been classified as financial assets at fair value through profit or loss and property loans are classified as loans and receivables. Recognition and derecognition Purchases and sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place are recognised on the trade date i.e. the date that the Group commits to purchase the assets. Financial assets are derecognised when the right to receive cash flows from the financial assets have expired or been transferred. After initial recognition, investments, which are classified as held for trading, are measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term with the intention of making a profit. Gains or losses on investments held for trading are recognised in the income statement. For investments that are actively traded in organised financial markets, fair value is determined by reference to the Australian Securities Exchange quoted market bid prices at the close of business on the balance sheet date. For investments where there is no quoted market or unit price, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment. 68 abacus property group 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (k) Investments and other financial assets (continued) Financial assets at fair value through profit or loss A financial asset or financial liability at fair value is designated by the entity at fair value through the profit and loss upon initial recognition. APG uses this designation where doing so results in more relevant information. This group of financial assets and liabilities are managed and their performance evaluated on a fair value basis, in accordance with APG’s documented risk management and investment strategy which outlines that these assets and liabilities are managed on a total rate of return basis, and information about the instruments is provided internally on that basis to the entity’s key management personnel and the Board. APG enters into loans and receivables with associated options that provide for a variety of outcomes including repayment of principal and interest, satisfaction through obtaining interests in equity or property or combinations thereof. The fair value of the maximum exposure to credit risk in relation to these instruments was $28.2 million (2012: $27.9 million). Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Subsidiaries Investment in subsidiaries are held at lower of cost or recoverable amount. (l) Investment in associates The Group’s investments in its associates are accounted for under the equity method of accounting in the consolidated financial statements. The associates are entities over which the Group has significant influence but not control and accordingly are neither subsidiaries nor joint ventures. The investment in the associates is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associates, less any impairment in value. The Group’s share of its associates’ post- acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivable and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The reporting dates of the associates and the Group are identical and the associates’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances. Investments in associates held by the parent are held at lower of cost and recoverable amount in the parent’s financial statements. (m) Interest in joint arrangements The Group’s interest in joint venture entities is accounted for under the equity method of accounting in the consolidated financial statements. The investment in the joint venture entities is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the joint ventures, less any impairment in value. The consolidated income statement reflects the Group’s share of the results of operations of the joint ventures. Investments in joint ventures are held at lower of cost or recoverable amount in the investing entities. The Group’s interest in joint operations that give the parties a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED69 annual report 2013 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (n) Property, plant and equipment Hotel property, plant and equipment Property (including land and buildings), plant and equipment represent owner-occupied properties and are initially measured at cost including transaction costs and acquisition costs. Subsequent to initial recognition, properties are measured at fair value less accumulated depreciation and any impairment in value after the date of revaluation. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows: Buildings – 50 years Plant and equipment – 3 to 20 years Revaluations of land and buildings Any revaluation increment is credited to the asset revaluation reserve included in the equity section of the balance sheet except to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss, in which case the increase is recognised in profit or loss. Any revaluation decrease is recognised in profit or loss except to the extent that it offsets a previous revaluation increase for the same asset in which case the decrease is debited directly to the asset revaluation reserve to the extent of the credit balance existing in the revaluation reserve for that asset. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement. Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amounts of the assets and the net amounts are restated to the revalued amounts of the assets. Other Land and buildings are measured at fair value, based on periodic valuations by external independent valuers, less accumulated depreciation on buildings and less any impairment losses recognised after the date of the revaluation. Plant and equipment is stated at historical cost less accumulated depreciation and any impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows: Buildings – 40 years Plant and equipment – over 5 to 15 years Impairment The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash- generating units are written down to their recoverable amount. The recoverable amount of property (including land and buildings), plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. Impairment losses are recognised in the income statement. Independent valuations are performed with sufficient regularity to ensure that the carrying amount does not differ materially from the asset’s fair value at the balance sheet date. Disposal An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. 70 abacus property group 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (n) Property, plant and equipment (continued) Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised. (o) Investment properties Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing parts of an existing investment property at the time that the cost is incurred if the recognition criteria are met, and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market and property specific conditions at the balance sheet date. Gains or losses arising from changes in the fair values of investment properties are recognised in the income statement in the year in which they arise. Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of retirement or disposal. Investment properties under construction are carried at fair value after allowing for the remaining expected costs of completion plus an appropriate risk adjusted development margin. Transfers are made to investment property when, and only when, there is a change in use, evidenced by commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of development with a view to sale. For a transfer from investment property to inventories, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. For a transfer from inventories to investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in profit or loss. When the Group completes the construction or development of a “self-constructed investment property”, any difference between the fair value of the property at that date and its previous carrying amount is recognised in profit or loss. Land and buildings are considered to have the function of an investment and are therefore regarded as a composite asset, the overall value of which is influenced by many factors, the most prominent being income yield, rather than diminution in value of the building content due to the passing of time. Accordingly, the buildings and all components thereof, including integral plant and equipment, are not depreciated. Investment properties are independently valued on a staggered basis every two years unless the underlying financing requires a more frequent independent valuation cycle. In determining fair value, the capitalisation of net income method and the discounting of future cashflows to their present value have been used. Lease incentives provided by the Group to lessees, and rental guarantees which may be received by the Group from third parties (arising from the acquisition of investment properties) are included in the measurement of fair value of investment property. Leasing costs are treated as separate assets and are amortised over the respective periods to which the lease incentives and rental guarantees apply, either using a straight-line basis, or a basis which is more representative of the pattern of benefits. under AASB 140, investment properties, including any plant and equipment, are not subject to depreciation. However, depreciation allowances in respect of certain buildings, plant and equipment are currently available to investors for taxation purposes. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED71 annual report 2013 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (p) Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Group as lessee Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Lease incentives are recognised in the income statement as an integral part of the total lease expense. Group as a lessor Leases in which the Group retains substantially all the risks and benefits of ownership of the lease assets are classified as operating leases. (q) Goodwill and Intangibles Goodwill Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses and is not amortised. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated: • Represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and • Is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with AASB 8 Operating Segments. Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. When the recoverable amount of the cash-generating unit (group of cash-generating units) is less that the carrying amount, an impairment loss is recognised. When goodwill forms part of a cash-generating unit (group of cash-generating units) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Impairment losses recognised for goodwill are not subsequently reversed. Intangible assets Intangible assets acquired separately or in a business combination are initially measured at cost. Following initial recognition, intangibles are carried at cost less accumulated amortisation and impairment losses. Intangible assets created within the business are not capitalised and expenditure is charged against profits in the period in which the expenditure is incurred. The useful lives of these intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset maybe impaired. The amortisation period and the amortisation method for an intangible asset with a finite life is reviewed at least each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefit embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in an accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in the income statement through the ‘depreciation and amortisation expense’ line item. 72 abacus property group 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (q) Goodwill and Intangibles (continued) Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. (r) Impairment of non-financial assets other than goodwill Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other that goodwill that suffered an impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed. (s) Trade and other payables Trade payables and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. (t) Provisions and employee leave benefits Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs. Employee leave benefits (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (ii) Long service leave The liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED73 annual report 2013 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (u) Distributions and dividends Trusts generally distribute their distributable assessable income to their unitholders. Such distributions are determined by reference to the taxable income of the respective trusts. Distributable income may include capital gains arising from the disposal of investments and tax-deferred income. Unrealised gains and losses on investments that are recognised as income are usually retained and are generally not assessable or distributable until realised. Capital losses are not distributed to security holders but are retained to be offset against any future realised capital gains. A liability for dividend or distribution is recognised in the Balance Sheet if the dividend or distribution has been declared, determined or publicly recommended prior to balance date. (v) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of transaction costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Fees paid in the establishment of loan facilities that are yield related are included as part of the carrying amount of loans and borrowings. Borrowings are classified as non-current liabilities where the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowing Costs Borrowing costs are recognised as an expense when incurred unless they relate to a qualifying asset or to upfront borrowing establishment and arrangement costs, which are deferred and amortised as an expense over the life of the facility. A qualifying asset is an asset that generally takes more than 12 months to get ready for its intended use or sale. In these circumstances, the financing costs are capitalised into the cost of the asset. Where funds are borrowed by the Group for the acquisition or construction of a qualifying asset, the amount of the borrowing costs capitalised are those incurred in relation to the borrowing. (w) Contributed equity Issued and paid up capital is recognised at the fair value of the consideration received by the Group. Stapled securities are classified as equity. Incremental costs directly attributable to the issue of new securities are shown in equity as a deduction, net of tax, from the proceeds. (x) Transfers to / (from) total equity In respect of the Group, revaluation increments or decrements arising from changes in the fair value of investment properties and derivative financial instruments, unrealised gains and losses in the net value of investments, accrued income not yet assessable and expenses provided for or accrued not yet deductible, net capital losses and tax free or tax deferred amounts maybe transferred to equity and may not be included in the determination of distributable income. (y) Non-current assets held for sale Before classification as held for sale the measurement of the assets is updated. Upon classification as held for sale, assets are recognised at the lower of carrying amount and fair value less costs to sell with the exception of investment properties which are valued in accordance with 2(o). Gains and losses from revaluations on initial classification and subsequent re-measurement are recognised in the income statement. 74 abacus property group 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (z) Inventories Property Development Inventories are stated at the lower of cost and net realisable value. Net realisable value is determined on the basis of sales in the ordinary course of business. Expenses of marketing, selling and distribution to customers are estimated and deducted to establish net realisable value. Where the net realisable value of inventory is less than cost, an impairment expense is recognised in the consolidated income statement. Reversals of previously recognised impairment charges are recognised in the consolidated income statement such that the inventory is always carried at the lower of cost and net realisable value. Cost includes the purchase consideration, development costs and holding costs such as borrowing costs, rates and taxes. Hotel Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale. (za) Taxation The Group comprises taxable and non-taxable entities. A liability for current and deferred tax and tax expense is only recognised in respect of taxable entities that are subject to income tax and potential capital gains tax as detailed below. Trust income tax under current Australian income tax legislation AT, AIT, ASPT, AHT, ADIFII and AMSHT are not liable to Australian income tax provided security holders are presently entitled to the taxable income of the trusts and the trusts generally distribute their taxable income. Company income tax AGHL and its Australian resident wholly-owned subsidiaries, ASOL and its Australian resident wholly-owned subsidiaries and AHL and its Australian resident wholly-owned subsidiaries have formed separate tax consolidation groups. AGHL, ASOL and AHL have entered into tax funding agreements with their Australian resident wholly-owned subsidiaries, so that each subsidiary agrees to pay or receive its share of the allocated tax at the current tax rate. The head tax entity and the controlled entities in each tax consolidated group continue to account for their own current and deferred tax amounts. In addition to its own current and deferred tax amounts, the head tax entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the group. Any difference between the amounts assumed and amounts receivable of payable under the tax funding agreements are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised, except: NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED75 annual report 2013 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (za) Taxation (continued) Company income tax (continued) • when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • when the deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences, except: • when the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • when the taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. New Zealand The trusts that operate in New Zealand (“NZ”) are treated as a company for NZ income tax purposes and are taxed at the corporate tax rate of 28% (2012: 28%). NZ income tax paid the Trusts can be claimed as foreign tax credits to offset against foreign income and distributable to security holders. NZ tax losses are carried forward provided the continuity test of ownership is satisfied. Interest expense from the Trusts are fully deductible subject to thin capitalisation considerations. Property revaluation gains or losses are to be excluded from taxable income, with no deferred tax implications as capital gains are not taxed in NZ. Income derived by companies which are incorporated in Australia and registered in NZ as overseas companies is exempt from tax in Australia where the income has been taxed in NZ. This income is regarded as non-assessable non-exempt income. As such, income tax is calculated on the companies’ NZ taxable income and taxed at the NZ corporate rate of 28% (2012: 28%). 76 abacus property group 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (za) Taxation (continued) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (zb) Earnings per stapled security (EPSS) Basic EPSS is calculated as net profit attributable to stapled security holders, adjusted to exclude costs of servicing equity (other than distributions) divided by the weighted average number of stapled securities on issue during the period under review. Diluted EPSS is calculated as net profit attributable to stapled security holders, adjusted for: • costs of servicing equity (other than distributions); • the after tax effect of dividends and interest associated with dilutive potential stapled securities that have been recognised as expenses; and • other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential stapled securities; divided by the weighted average number of stapled securities and dilutive potential stapled securities, adjusted for any bonus element. (zc) Security based payment plans Executives of the Group receive remuneration in the form of security based payments, whereby Executives render services as consideration for equity instruments (equity-settled transactions). The cost of equity-settled transactions is recognised, together with a corresponding increase in other capital reserves in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in employee benefits expense (note 29). No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional upon a market or non-vesting condition. These are treated as vesting irrespective of whether or not the market or non-vesting conditions are satisfied, provided that all other performance and / or service conditions are satisfied. When the terms of an equity-settled award are modified, the minimum expense recognised is the expense had the terms not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the security based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification. When an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED77 annual report 2013 3. FINANCIAL RISK MANAGEMENT The risks arising from the use of the Group’s financial instruments are credit risk, liquidity risk and market risk (interest rate risk, price risk and foreign currency risk). The Group’s financial risk management focuses on mitigating the unpredictability of the financial markets and its impact on the financial performance of the Group. The Board reviews and agrees policies for managing each of these risks, which are summarised below. Primary responsibility for identification and control of financial risks rests with the Treasury Management Committee under the authority of the Board. The Board reviews and agrees policies for managing each of the risks identified below, including the setting of limits for trading in derivatives, hedging cover of interest rate risks and cash flow forecast projections. The main purpose of the financial instruments used by the Group is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The Group also enters into derivative transactions principally interest rate swaps. The purpose is to manage the interest rate exposure arising from the Group’s operations and its sources of finance. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in notes 2 and 4 to the financial statements. (a) Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers, investment in securities and options, secured property loans and interest bearing loans and derivatives with banks. The Group manages its exposure to risk by: – derivative counterparties and cash transactions are limited to high credit quality financial institutions; – policy which limits the amount of credit exposure to any one financial institution; – providing loans as an investment into joint ventures, associates, related parties and third parties where it is satisfied with the underlying property exposure within that entity; – regularly monitoring loans and receivables balances on an ongoing basis; – regularly monitoring the performance of its associates, joint ventures, related parties and third parties on an ongoing basis; and – obtaining collateral as security (where required or appropriate). The Group’s credit risk is predominately driven by its Property Ventures business which provides loans to third parties, those using the funds for property development and / or investment. The Group mitigates the exposure to this risk by evaluation of the application before acceptance. The analysis will specifically focus on: – the Loan Valuation Ratio (LVR) at drawdown; – mortgage ranking; – background of the developer (borrower) including previous developments; – background of the owner (borrower) including previous investment track record; – that the terms and conditions of higher ranking mortgages are acceptable to the Group; – appropriate property insurances are in place with a copy provided to the Group; and – market analysis of the completed development being used to service drawdown. The Group also mitigates this risk by ensuring adequate security is obtained and timely monitoring of the financial instrument to identify any potential adverse changes in the credit quality. 78 abacus property group 3. FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate and diverse amount of committed credit facilities, the ability to close out market positions and the flexibility to raise funds through the issue of new stapled securities or the distribution reinvestment plan. The Group’s policy is to maintain an available loan facility with banks sufficient to meet expected operational expenses and to finance investment acquisitions for a period of 90 days, including the servicing of financial obligations. Current loan facilities are assessed and extended for a maximum period based on the Group’s expectations of future interest and market conditions. As at 30 June 2013, the Group had undrawn committed facilities of $262.7 million and cash of $44.8 million which are adequate to cover short term funding requirements. Further information regarding the Group’s debt profile is disclosed in Note 20. (c) Refinancing Risk Refinancing risk is the risk that unfavorable interest rate and credit market conditions result in an unacceptable increase in the Group’s credit margins and interest cost. Refinancing risk arises when the Group is required to obtain debt to fund existing and new debt positions. The Group is exposed to refinancing risks arising from the availability of finance as well as the interest rates and credit margins at which financing is available. The Group manages this risk by spreading maturities of borrowings and interest rate swaps, diversification of lenders and reviewing potential transactions to understand the impact on the Group’s credit worthiness. (d) Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Foreign currency risk The Group is exposed to currency risk on its investment in foreign operations, equity investments, investment in associates and property loans denominated in a currency other than the functional currency of Group entities. The currencies in which these transactions are conducted are primarily are denominated in NZD. As a result the Group’s balance sheet can be affected by movements in the A$/NZ$ exchange rates. Interest rate risk APG’s exposure to the risk of changes in market interest rates relates primarily to APG’s long-term bank debt obligations which are based on floating interest rates. APG’s policy is to maintain a mix of floating exposure and fixed interest rate hedging with fixed rate cover highest in years 1 to 5. Similar policies are employed for the funds consolidated by the Group (AHF, ADIF II and AMSHT). The Group hedges to minimise interest rate risk by entering variable to fixed interest rate swaps which also helps deliver interest covenant compliance and positive carry (net rental income in excess of interest expense) on the property portfolio. Interest rate swaps have the economic effect of converting borrowings from variable rates to fixed rates. Under the interest rate swaps, the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to the agreed notional principal amounts. At 30 June 2013, after taking into account the effect of interest rate swaps, approximately 83.0% of the Group’s drawn debt is subject to fixed rate hedges (2012: 97.0%). Hedge cover as a percentage of available facilities at 30 June 2013 is 59.5% (2012: 69.7%). NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED79 annual report 2013 3. FINANCIAL RISK MANAGEMENT (CONTINUED) (d) Market Risk (continued) Fair value interest rate risk As the Group holds interest rate swaps against its variable rate debt there is a risk that the economic value of a financial instrument will fluctuate because of changes in market interest rates. The level of swapped and fixed rate debt is disclosed in note 22. (e) Other market price risk The Group is exposed to equity securities price risk. The key risk variable is the quoted price of securities which is influenced by a range of factors, most of which are outside the control of the Group. Management of the Group monitors the securities in its investment portfolio based on market indices and published prices. Investments within the portfolio are managed on an individual basis and all buy / sell decisions are approved by the Managing Director and the Chief Financial Officer. 4. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS In applying the Group’s accounting policies management continually evaluates judgments, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. All judgments, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgments, estimates and assumptions. Significant judgments, estimates and assumptions made by management in the preparation of these financial statements are outlined below: (i) Significant accounting judgments Operating lease commitments – Group as lessor The Group has entered into commercial property leases on its investment property portfolio. The Group has determined that it retains all the significant risks and rewards of ownership of these properties and has thus classified the leases as operating leases. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences and tax losses on revenue account as management considers that it is probable that future taxable profits will be available to utilise those temporary differences and tax losses. Classification of and valuation of investments The Group has decided to classify investments in listed and unlisted securities as ‘held for trading’ investments and movements in fair value are recognised directly in profit or loss. The fair value of listed securities has been determined by reference to published price quotations in an active market. The fair value of unlisted securities has been determined by reference to the net assets of the entity and available redemption facilities. Impairment of property loans and financial assets The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists the recoverable amount of the asset is determined. For property loans and interim funding to related funds this involves value in use calculations, which incorporate a number of key estimates and assumptions around cashflows and fair value of underlying investment properties held by the borrower and expected timing of cashflows from equity raisings of related funds. Accounting policy – financial assets and liabilities at fair value through profit and loss A financial asset or financial liability is designated by the entity as being at fair value through profit or loss upon initial recognition. APG uses this designation where doing so results in more relevant information, because it is a group of financial assets and liabilities which is managed and its performance is evaluated on a fair value basis, in accordance with APG’s documented risk management and investment strategy, and information about the instruments is provided internally on that basis to the entity’s key management personnel and the Board. 80 abacus property group 4. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED) (i) Significant accounting judgments (continued) Control and significant influence In determining whether the Group has control over an entity, the Group assess its exposure or rights to variable returns from its involvement with the entity and whether it has the ability to affect those returns through its power over the investee. The Group may have significant influence over an entity when it has the power to participate in the financial and operating policies decisions of the entity but is not in control or joint control of those policies. (ii) Significant accounting estimates and assumptions Impairment of goodwill and intangibles with indefinite useful lives The Group determines whether goodwill and intangibles with indefinite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefinite useful lives are allocated. For goodwill this involves value in use calculations which incorporate a number of key estimates and assumptions around cash flows and fair value of investment properties upon which these determine the revenue / cash flows. The assumptions used in the estimations of the recoverable amount and the carrying amount of goodwill and intangibles with indefinite useful lives are discussed in note 18. Fair value of derivatives The fair value of derivatives is determined using closing quoted market prices (where there is an active market) or a suitable pricing model based on discounted cash flow analysis using assumptions supported by observable market rates. Where the derivatives are not quoted in an active market their fair value has been determined using (where available) quoted market inputs and other data relevant to assessing the value of the financial instrument, including financial guarantees granted by the Group, estimates of the probability of exercise. Valuation of investment properties and property, plant and equipment held at fair value The Group makes judgements in respect of the fair value of investment properties (note 2(o)). The fair value of these properties are reviewed regularly by management with reference to external independent property valuations and market conditions existing at reporting date, using generally accepted market practices. The assumptions underlying estimated fair values are those relating to the receipt of contractual rents, expected future market rentals, maintenance requirements, capitalisation rates and discount rates that reflect current market conditions and current or recent property investment prices. If there is any material change in these assumptions or regional, national or international economic conditions, the fair value of investment properties may differ and may need to be re-estimated. Net realisable value of inventory Inventories are carried at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. The estimates take into consideration fluctuations of price or cost directly relating to events occurring after the end of the period to the extent that such events confirm conditions existing at the end of the period. The key assumptions that require the use of management judgment are reviewed half-yearly. If the net realisable value is less than the carrying value of inventory, an impairment loss is recognised in the income statement. Fair value of financial assets APG enters into loans and receivables with associated options that provide for a variety of outcomes including repayment of principal and interest, satisfaction through obtaining interests in equity or property or combinations thereof. At the end of the year, the fair value of the maximum exposure to credit risk in relation to these instruments was $23.6 million (2012: $27.9 million). NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED81 annual report 2013 5. SEGMENT INFORMATION The Group predominately operates in Australia. Following are the Group’s operating segments, which are regularly reviewed by the Chief Operating Decision Maker (“CODM”) to make decisions about resources allocation and to assess performance: (a) Property: the segment is responsible for the investment in and ownership of commercial, retail and industrial properties. This segment also includes the equity accounting of material co-investments in property entities not engaged in development and construction projects; (b) Funds Management: the segment includes development, origination, co-investment and fund management revenues and expenses in addition to discharging the Group’s responsible entity obligations; (c) Property Ventures: provides secured lending and related property financing solutions and is also responsible for the Group’s investment in joint venture and associates’ development and construction projects, which includes revenue from debt and equity investments in joint ventures and associates. This segment also is responsible for the Group’s investment in property securities; and (d) Storage: the segment is responsible for the investment in and ownership of self-storage facilities. Segment result includes transactions between operating segments which are then eliminated. AASB 10 - in application of the standard the Group has consolidated the Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund. The performances of these entities which are operated as externally managed investment schemes are considered to be non-core segments and are reviewed separately to that of the performance of the Group’s business segments. 82 abacus property group 0 0 0 ’ $ 0 0 0 ’ $ 0 1 0 , 5 9 9 4 2 , 5 4 4 8 1 , 5 5 7 6 3 , 0 2 9 0 5 , 7 7 4 3 , 6 5 3 7 9 , 1 4 5 8 , 6 7 9 4 9 0 4 , 5 4 6 1 , 0 1 4 5 3 , 1 – – – ) 3 1 3 , 1 ( ) 9 4 5 , 9 ( – – – – – 5 1 2 ) 0 0 0 , 2 ( D E T A D I L O S N O C I S N O T A N M I L E I / D E T A C O L L A N U – – – – – – – 7 1 9 , 5 0 3 ) 7 4 6 , 2 1 ( 3 4 7 , 3 9 5 7 , 7 1 1 4 8 , 3 5 1 2 2 , 3 4 2 2 0 1 , 6 4 2 9 3 , 6 7 8 2 0 , 9 1 5 5 6 , 0 0 1 ) 6 0 8 , 7 1 ( ) 1 8 9 , 5 1 ( ) 8 2 9 , 8 3 ( ) 9 9 9 , 6 ( ) 6 7 1 , 8 4 ( ) 8 6 3 , 7 2 ( 4 9 7 ) 2 2 6 ( ) 5 0 6 , 1 ( ) 6 0 2 ( – – – – – – – ) 2 7 ( – – – ) 7 4 4 ( – – ) 8 0 1 , 7 3 ( ) 9 5 0 , 4 ( ) 4 4 8 , 2 ( ) 0 6 3 ( ) 4 3 5 ( ) 9 7 5 , 1 ( ) 7 6 1 , 6 1 ( ) 1 8 9 , 5 1 ( ) 0 2 8 , 1 ( ) 1 2 4 , 2 ( ) 6 7 1 , 8 4 ( ) 1 5 0 , 2 2 ( – ) 1 8 9 5 1 , ( – – ) 0 6 2 ( – – – – ) 5 2 6 1 4 , ( ) 4 5 4 , 5 ( ) 4 6 3 , 4 ( – – – – – ) 4 1 4 , 2 ( – ) 7 6 1 6 1 , ( ) 0 2 8 1 , ( ) 1 6 1 2 , ( ) 1 5 5 , 6 ( ) 9 1 8 9 , ( 9 5 6 , 0 5 1 ) 7 9 6 , 4 1 ( 9 8 6 , 2 3 7 1 , 5 1 9 8 8 , 0 1 5 0 6 , 6 3 1 7 0 4 , 4 2 3 0 4 , 0 3 4 1 6 , 6 1 7 3 1 , 4 6 ) 2 2 3 , 2 ( ) 5 4 4 , 3 ( ) 0 2 2 , 1 ( – – 0 2 – 4 3 – 6 5 2 0 9 4 , 2 7 6 1 , 1 4 8 4 , 7 2 5 7 , 3 9 4 9 , 9 4 4 0 , 1 4 6 8 ) 2 6 ( – – – – – 7 6 3 – 0 2 6 , 6 4 5 7 2 , 5 0 0 0 ’ $ T H S M A I I I F D A 0 0 0 ’ $ 5 4 0 , 6 2 4 8 , 7 1 L A T O T E R O C y T R E P O R P S D N u F F H A 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ S T N E M G E S E G A R O T S S E R u T N E V T N E M E G A N A M y T R E P O R P – – – – – – – – – 0 1 3 4 3 5 , 3 5 3 1 8 , 0 7 9 4 2 , 5 4 0 5 6 , 1 0 8 6 , 1 2 8 5 0 , 7 1 7 4 3 , 6 5 8 3 8 ) 6 0 2 ( 1 4 3 , 1 – – 4 5 8 , 6 0 5 – – – – 1 – 9 4 2 , 5 4 – – – – – – 8 5 0 7 1 , 3 1 8 , 0 7 – 0 5 6 1 , 3 2 3 1 , – 7 9 4 , 8 0 4 3 1 , – – – 7 5 3 , 0 2 – 0 5 8 7 4 , – 8 6 – – 0 1 8 , 3 7 0 3 , 4 l i a c n a n fi d n a s t n e m t s e v n i s e i t r e p o r p t n e m t s e v n i f o e u a v l f o e u a v l r i a f n i e g n a h c t e N d e s i n g o c e r e d r i a f n i e g n a h c t e N 3 1 0 2 E N U J 0 3 D E D N E R A E Y e m o c n i e g a r o t S e m o c n i l a t n e R e m o c n i e c n a n F i e m o c n i l e t o H e u n e v e R e m o c n i t n e m e g a n a m s d n u F y r o t n e v n i f o e a S l l e t a d e c n a a b t a d e h s t n e m t s e v n l i f o e u a v l r i a f n i e g n a h c t e N l e t a d e c n a a b t a d e h t n e m p u q e & i l t n a p l ^ s t n e m t s e v n i d e t n u o c c a y t i u q e m o r f t fi o r p f o e r a h S i s g n o g t u o d n a s e s n e p x e y t r e p o r P s e s n e p x e e g a r o t S s e s n e p x e l e t o H e u n e v e r d e t a c o l l a n u r e h t O e u n e v e r d e t a d i l o s n o c l a t o T e s n e p x e t n e m r i a p m i d n a n o i t a s i t r o m a , i n o i t a c e r p e D s e s n e p x e r e h t o d n a e v i t a r t s i n m d A i s e a s l y r o t n e v n i f o t s o C . n o i l l i . m 1 4 $ f o s s o l e u a v l r i a f s e d u c n l I ^ t l u s e r t n e m g e S S T N E M G E S E R O C N O N S T N E M G E S E R O C D E u N I T N O C 3 1 0 2 E N u J 0 3 S T N E M E T A T S L A I C N A N I F E H T O T S E T O N ) D E U N I T N O C ( N O I T A M R O F N I T N E M G E S . 5 3 0 6 1 , 3 3 1 5 , d e s i n g o c e r e d s t n e m u r t s n i , y t r e p o r p d n a s e i t r e p o r p t n e m t s e v n i n i e g n a h c t e N 2 5 0 , 1 6 ) 2 8 3 , 6 ( ) 2 9 1 ( 6 1 8 , 4 ) 1 4 5 , 5 ( 1 5 3 , 8 6 0 0 0 ’ $ 0 0 0 ’ $ ) 3 5 1 , 1 ( ) 3 4 9 , 8 1 ( ) 4 4 2 , 6 5 ( 9 1 3 , 4 7 ) 9 3 8 , 6 ( 0 8 4 , 7 6 ) 8 2 4 , 6 ( – – – 5 1 3 , 8 ) 2 8 3 , 6 ( – ) 2 8 3 , 6 ( D E T A D I L O S N O C I S N O T A N M I L E I / D E T A C O L L A N U – 6 4 7 0 0 0 ’ $ T H S M A I I I F D A – 0 0 0 ’ $ 4 0 7 , 1 – 9 F H A 0 0 0 ’ $ ) 2 7 0 , 4 ( ) 9 9 8 , 1 1 ( ) 0 7 2 , 0 1 ( – ) 7 3 6 ( ) 7 3 6 ( 5 4 4 – ) 2 6 1 ( 8 7 9 , 4 6 1 8 , 4 8 2 6 ) 1 9 8 ( ) 3 6 2 ( ) 8 7 2 , 5 ( ) 3 4 9 , 8 1 ( ) 2 1 6 , 3 ( ) 8 1 3 , 8 3 ( 2 3 7 , 5 7 ) 6 8 7 , 5 ( 6 4 9 , 9 6 ) 5 9 5 , 1 ( L A T O T E R O C y T R E P O R P S D N u F 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ S T N E M G E S E G A R O T S S E R u T N E V T N E M E G A N A M y T R E P O R P S T N E M G E S E R O C N O N S T N E M G E S E R O C D E u N I T N O C 3 1 0 2 E N u J 0 3 S T N E M E T A T S L A I C N A N I F E H T O T S E T O N ) D E U N I T N O C ( N O I T A M R O F N I T N E M G E S . 5 3 1 0 2 E N U J 0 3 D E D N E R A E Y * n o i t a d i l o s n o c n o s s o L s e v i t a v i r e d f o e u a v l r i a f n i e g n a h c t e N s t s o c e c n a n F i x a t e r o f e b ) s s o l ( / t fi o r P ) e s n e p x e ( / t fi e n e b x a t e m o c n I l s r e b m e m o t e b a t u b i r t t a r a e y e h t r o f ) s s o l ( / t fi o r p t e N p u o r G e h t f o r a e y e h t r o f ) s s o l ( / t fi o r p t e N t s e r e t n i g n i l l o r t n o c - n o n s s e l 83 annual report 2013 . 3 1 0 2 e n u J 0 3 d e d n e r a e y e h t r o f d n u F e h t f o s e s n e p x e d n a e m o c n i y n a d e d r o c e r t o n s a h p u o r G e h t i y l g n d r o c c A . 3 1 0 2 e n u J 0 3 n o p u o r G e h t y b d e t a d i l o s n o c s a w F L W A * 84 abacus property group 0 0 0 ’ $ 0 0 0 ’ $ 6 0 5 , 1 0 1 3 9 0 , 7 4 1 1 0 , 2 5 5 3 6 , 6 2 9 0 5 , 6 – – – ) 6 1 3 , 1 ( ) 4 9 9 , 2 1 ( 6 5 4 , 9 – ) 2 3 1 ( ) 2 4 6 ( ) 9 7 4 , 3 ( 6 8 6 9 7 3 , 7 2 6 3 , 2 2 2 4 ) 2 4 9 ( ) 7 0 7 , 2 1 ( D E T A D I L O S N O C I S N O T A N M I L E I / D E T A C O L L A N U – – – – – – 3 2 4 – – 4 5 0 0 0 ’ $ T H S M A I I I F D A 0 0 0 ’ $ F S A 0 0 0 ’ $ F H A 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ S T N E M G E S * E G A R O T S S E R u T N E V T N E M E G A N A M y T R E P O R P L A T O T E R O C y T R E P O R P S D N u F 3 7 5 , 5 1 1 1 , 8 1 – 7 3 3 1 , – – – – ) 3 1 4 ( – 6 1 2 , 8 2 – – – – – – – – – – 6 8 3 9 4 , 5 8 4 , 6 7 7 7 8 , 8 1 5 2 6 , 2 1 5 9 , 7 2 3 0 5 , 9 1 9 6 8 , 9 – – – – – 3 1 0 7 1 , 0 1 5 ) 0 5 ( – – – 5 3 6 , 6 2 – – – – 3 0 5 9 1 , 5 8 4 , 6 7 – 4 6 8 1 , 5 2 6 , 2 6 1 3 1 , – – 0 5 – 5 7 6 3 6 – – 1 4 3 3 5 9 7 5 9 , 6 4 5 8 , 1 – – 0 5 7 , 9 3 0 6 , 1 7 1 3 , 4 ) 5 6 8 , 6 ( 0 9 2 , 2 – 2 4 9 9 6 0 , 2 5 ) 5 2 2 9 ( , 6 0 8 , 4 – – – 0 7 2 8 6 6 2 0 , 0 5 2 ) 9 7 1 , 8 2 ( 0 5 0 , 6 8 9 4 , 7 2 7 5 5 , 0 3 1 8 3 , 5 5 9 1 7 , 8 5 1 3 5 2 , 9 1 3 9 7 , 6 2 4 7 0 , 3 2 5 4 7 , 7 8 – 9 6 8 9 , l i a c n a n fi d n a s t n e m t s e v n i s e i t r e p o r p t n e m t s e v n i f o e u a v l f o e u a v l r i a f n i e g n a h c t e N d e s i n g o c e r e d r i a f n i e g n a h c t e N 0 6 5 – d e s i n g o c e r e d s t n e m u r t s n i l i a c n a n fi d n a s t n e m t s e v n i f o e u a v l r i a f n i e g n a h c t e N s t n e m t s e v n i d e t n u o c c a y t i u q e m o r f t fi o r p f o e r a h S i s g n o g t u o d n a s e s n e p x e y t r e p o r P s e s n e p x e e g a r o t S s e s n e p x e l e t o H e u n e v e r d e t a c o l l a n u r e h t O e u n e v e r d e t a d i l o s n o c l a t o T e u n e v e r r e h t O l e t a d e c n a a b t a d e h s t n e m u r t s n l i e s n e p x e t n e m r i a p m i d n a n o i t a s i t r o m a , i n o i t a c e r p e D 2 1 0 2 E N U J 0 3 D E D N E R A E Y e m o c n i e g a r o t S e m o c n i l a t n e R e m o c n i e c n a n F i e m o c n i l e t o H e u n e v e R e m o c n i t n e m e g a n a m s d n u F ) 3 2 1 , 8 1 ( ) 0 1 4 , 6 1 ( ) 0 1 0 , 0 4 ( ) 0 0 8 , 7 ( ) 8 1 3 , 6 2 ( 5 6 3 , 1 4 1 – – – ) 2 5 6 , 1 ( ) 8 7 0 , 9 2 ( 3 5 7 ) 6 2 8 ( ) 5 8 4 , 1 ( 4 1 ) 2 4 3 ( ) 7 3 2 , 6 1 ( – – – ) 7 8 1 ( ) 2 6 3 ( – – ) 8 8 3 ( ) 0 6 3 ( ) 2 4 8 , 9 ( – – ) 0 4 1 ( ) 4 3 1 4 , ( ) 2 9 9 6 3 , ( ) 8 6 5 , 6 ( ) 8 1 0 , 3 ( ) 1 5 9 , 2 ( – ) 5 1 8 , 5 ( ) 6 1 1 ( – – – – – – – – ) 7 3 2 , 6 1 ( ) 3 5 7 ( ) 8 1 0 , 3 ( ) 5 3 8 , 2 ( 5 7 6 , 4 5 6 2 , 5 2 3 6 3 , 9 1 0 9 1 , 2 1 0 5 9 , 8 0 1 5 5 8 , 1 1 4 0 3 , 1 2 9 5 1 , 8 1 8 7 7 , 5 5 t l u s e r t n e m g e S . p u o r G y t r e p o r P s u c a b A h t i w d n u F e g a r o t S s u c a b A f o r e g r e m e h t g n w o i l l o f 2 1 0 2 h c r a M n i d e c n e m m o c * ) 6 2 2 , 1 ( ) 3 2 7 1 , ( ) 5 9 9 , 0 2 ( ) 7 6 4 1 , ( ) 9 8 4 , 5 ( ) 5 1 9 4 , ( ) 4 2 1 9 ( , s e s n e p x e r e h t o d n a e v i t a r t s i n m d A i S T N E M G E S E R O C N O N S T N E M G E S E R O C D E u N I T N O C 3 1 0 2 E N u J 0 3 S T N E M E T A T S L A I C N A N I F E H T O T S E T O N ) D E U N I T N O C ( N O I T A M R O F N I T N E M G E S . 5 85 annual report 2013 0 7 4 , 8 ) 5 8 2 , 8 1 ( ) 7 5 1 ( 0 5 6 , 7 9 7 6 ) 0 2 9 , 5 ( 3 0 5 , 4 2 0 0 0 ’ $ 0 0 0 ’ $ ) 7 0 5 , 3 ( ) 5 1 3 , 4 5 ( ) 3 4 0 , 3 7 ( 0 0 5 , 0 1 ) 4 7 4 , 2 ( 6 2 0 , 8 4 4 4 – – – – 3 9 7 , 0 1 ) 5 8 2 , 8 1 ( ) 5 8 2 , 8 1 ( D E T A D I L O S N O C I S N O T A N M I L E I / D E T A C O L L A N U – ) 5 1 5 ( ) 5 1 5 ( 8 5 3 – ) 7 0 4 ( 7 5 0 , 8 0 5 6 , 7 ) 0 9 8 ( 7 6 6 , 4 7 7 7 , 3 ) 8 9 0 , 3 ( ) 2 0 8 , 9 ( 8 7 3 , 6 2 8 ) 4 9 7 , 9 ( 4 7 8 , 3 ) 5 8 1 , 1 ( 3 9 1 , 5 2 ) 0 9 6 ( S T N E M G E S E R O C N O N S T N E M G E S E R O C – ) 3 7 8 ( 0 0 0 ’ $ T H S M A I I I F D A – 0 0 0 ’ $ – F S A 0 0 0 ’ $ – F H A 0 0 0 ’ $ ) 5 5 5 , 4 ( ) 8 9 9 , 2 ( ) 4 8 6 , 0 1 ( ) 7 1 3 , 4 ( ) 3 5 6 , 2 1 ( ) 8 9 6 , 1 1 ( ) 8 0 3 1 1 , ( ) 7 0 5 , 3 ( ) 5 0 2 , 5 3 ( ) 0 6 8 , 3 4 ( L A T O T E R O C y T R E P O R P S D N u F 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ S T N E M G E S E G A R O T S S E R u T N E V T N E M E G A N A M y T R E P O R P D E u N I T N O C 3 1 0 2 E N u J 0 3 S T N E M E T A T S L A I C N A N I F E H T O T S E T O N ) D E U N I T N O C ( N O I T A M R O F N I T N E M G E S . 5 l y t r a p d e t a e r – e g r a h c t n e m r i a p m I 2 1 0 2 E N U J 0 3 D E D N E R A E Y s e v i t a v i r e d f o e u a v l r i a f n i e g n a h c t e N s t s o c e c n a n F i x a t e r o f e b ) s s o l ( / t fi o r P l e b a t u b i r t t a r a e y e h t r o f ) s s o l ( / t fi o r p t e N p u o r G e h t f o s r e b m e m o t r a e y e h t r o f ) s s o l ( / t fi o r p t e N t s e r e t n i g n i l l o r t n o c - n o n s s e l ) e s n e p x e ( / t fi e n e b x a t e m o c n I 86 abacus property group 0 0 0 ’ $ 2 7 1 , 9 1 3 D E T A D I L O S N O C 5 9 3 , 1 2 2 , 1 – 2 4 9 , 1 9 0 0 1 , 2 5 1 1 9 1 , 3 4 3 – ) 5 3 0 , 2 ( ) 9 5 0 , 8 5 1 ( 2 1 – – 2 7 0 , 1 2 – – – – 0 0 0 ’ $ ) 5 4 7 ( I S N O T A N M I L E I 0 0 0 ’ $ * F L W A 0 0 0 ’ $ T H S M A 8 7 9 , 0 1 4 1 2 , 2 6 F H A 0 0 0 ’ $ 0 0 0 ’ $ L A T O T 8 5 7 5 1 , 8 7 2 , 4 2 2 0 0 0 ’ $ 8 2 4 , 6 4 – 0 0 0 ’ $ 0 0 0 ’ $ 9 7 1 7 6 , D E T A C O L L A N u E G A R O T S S E R u T N E V T N E M E G A N A M y T R E P O R P y T R E P O R P S D N u F I I I F D A 0 0 0 ’ $ 9 8 6 , 6 0 4 5 , 0 8 1 – – 0 1 1 – – 2 6 0 , 3 0 2 6 , 5 4 1 5 0 9 , 2 7 8 6 4 , 6 5 5 8 , 0 4 0 , 1 – – – 8 5 5 1 7 3 , – 8 7 7 1 , – – 5 0 9 2 7 , 8 7 0 , 8 9 4 1 1 2 1 4 , – 2 1 5 , 4 8 1 2 9 8 , 5 3 1 3 6 4 , 6 3 1 – – – – 0 0 0 ’ $ 0 0 0 ’ $ 1 7 6 , 0 1 1 – 0 9 6 , 4 7 9 2 , 9 6 6 0 0 8 , 7 2 1 , 2 ) 9 3 8 , 0 6 1 ( 2 6 0 , 2 3 4 1 2 , 2 6 9 3 3 , 7 8 1 0 4 4 , 4 6 1 4 8 5 , 2 4 8 , 1 9 3 6 , 7 8 6 3 3 , 3 7 3 6 9 5 , 4 2 3 2 9 8 , 5 3 1 1 2 1 , 1 2 9 2 8 8 , 6 4 2 8 9 0 , 3 5 7 0 8 9 , 9 9 9 – 3 7 1 2 8 6 , 5 3 8 8 3 , 5 3 0 9 7 7 6 , ) 5 4 1 , 4 2 2 ( 3 5 0 , 8 4 8 4 3 , 0 2 8 5 7 , 0 5 1 8 9 7 7 1 1 , 9 4 8 , 7 0 1 6 8 2 , 0 4 6 2 8 6 , 0 4 , 3 7 7 3 0 6 6 1 3 6 1 0 , 8 3 5 2 6 2 8 1 3 , 8 6 9 3 1 , 6 7 3 , 5 3 ) 5 4 1 , 4 2 2 ( 6 2 2 , 8 4 0 3 0 , 6 5 6 4 1 , 6 8 1 8 8 5 , 5 8 1 5 3 1 , 8 4 7 5 5 4 , 4 4 6 2 3 3 , 8 9 7 0 , 2 3 4 4 3 , 9 4 0 2 8 , 7 2 1 , 1 6 0 3 , 3 6 ) 4 6 1 , 6 1 ( 4 8 1 , 6 3 9 1 , 1 ) 8 4 1 , 1 2 ( 9 4 4 , 4 9 0 , 1 ) 6 1 8 , 6 5 5 ( 4 0 0 , 5 6 3 7 1 5 , 2 9 2 8 4 5 , 6 8 8 6 5 7 5 3 , 3 1 5 2 9 , 3 1 6 9 1 , 7 0 9 t n e m p u q e & i t n a p l , y t r e p o r P 3 1 0 2 E N U J 0 3 D E D N E R A E Y s t e s s a t n e r r u c - n o N s t e s s a t n e r r u C s e i t r e p o r p t n e m t s e v n I y r o t n e v n I s t e s s a l a t o T r e h t O s e i t i l i b a i l t n e r r u c - n o N s e i t i l i b a i l l a t o T s t e s s a t e N s e i t i l i b a i l t n e r r u C . M D O C e h t o t g n i t r o p e r e h t h t i w t n e t s i s n o c s i d n a 0 1 B S A A f o n o i t p o d a e h t m o r f g n i s i r a s t n e m t s u d a e h t j s t c e fl e r s t n e m g e s e r o c e h t f o n o i t a t n e s e r p e h T . 3 1 0 2 e n u J 0 3 n o p u o r G e h t y b d e t a d i l o s n o c s a w F L W A * S T N E M G E S E R O C N O N S T N E M G E S E R O C D E u N I T N O C 3 1 0 2 E N u J 0 3 S T N E M E T A T S L A I C N A N I F E H T O T S E T O N ) D E U N I T N O C ( N O I T A M R O F N I T N E M G E S . 5 87 annual report 2013 r a e y t n e r r u c h t i w y t i l i b a r a p m o c r o f d e t a t s e r n e e b s a h r a e y r o i r p e h T 8 2 5 , 5 6 7 9 3 , 3 3 9 5 2 9 , 8 9 9 – 8 2 8 5 6 8 , 3 1 6 4 , 7 ) 8 3 2 , 8 7 1 ( 9 5 8 , 4 5 9 2 8 , 2 8 1 5 2 9 , 4 8 1 4 7 3 , 3 5 2 2 0 , 9 8 6 4 5 5 , 0 3 8 3 8 , 8 1 6 2 4 2 1 1 4 , 5 2 6 9 4 , 2 2 7 3 , 7 6 3 , 0 1 1 3 4 , 6 5 ) 8 3 2 , 8 7 1 ( 7 8 6 , 5 5 4 9 6 , 6 8 1 6 8 3 , 2 9 1 6 9 3 , 2 4 7 2 9 3 , 9 4 6 3 5 6 , 5 9 2 3 , 5 1 3 5 1 , 0 6 2 9 8 , 7 0 1 , 1 1 3 6 , 1 4 8 7 6 , 7 5 7 9 ) 0 7 8 , 2 1 ( 8 7 4 , 0 7 0 , 1 ) 3 2 0 , 1 5 5 ( 8 2 8 , 2 5 3 0 2 8 , 9 3 2 7 8 1 , 8 9 5 2 7 , 8 4 4 1 , 3 9 6 8 , 1 1 6 6 6 , 0 3 9 s e i t i l i b a i l t n e r r u c - n o N s e i t i l i b a i l l a t o T s t e s s a t e N s e i t i l i b a i l t n e r r u C 7 1 8 , 6 0 1 , 2 ) 7 0 6 , 6 3 1 ( 5 6 3 , 3 6 9 6 6 , 7 8 1 6 1 5 , 9 7 1 4 7 8 , 2 1 8 , 1 9 6 3 , 8 9 1 8 4 , 8 5 3 9 4 1 , 5 5 2 0 4 3 , 8 5 1 5 3 5 , 2 4 9 s t e s s a l a t o T 0 0 0 ’ $ 0 0 0 ’ $ 2 0 5 , 3 1 3 4 7 9 , 0 0 1 5 6 0 , 4 5 1 3 7 0 , 7 5 3 3 0 2 , 1 8 1 , 1 – – – – ) 7 0 6 , 6 3 1 ( D E T A D I L O S N O C I S N O T A N M I L E I S T N E M G E S E R O C N O N S T N E M G E S E R O C 5 6 3 , 3 6 7 0 2 , 7 1 6 2 3 , 7 2 4 0 6 , 5 0 2 1 4 3 , 3 5 – 7 6 2 9 1 , 0 0 0 ’ $ T H S M A 0 0 0 ’ $ I I I F D A F H A 0 0 0 ’ $ 0 0 0 ’ $ L A T O T 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ D E T A C O L L A N u E G A R O T S S E R u T N E V T N E M E G A N A M y T R E P O R P y T R E P O R P S D N u F – – – – – – 7 1 5 4 4 , 0 7 1 6 5 4 , 8 4 1 9 0 6 , 5 – – 4 7 9 , 0 0 1 8 5 7 , 0 1 0 , 1 – – – 4 3 7 , 3 9 2 9 , 9 8 4 8 2 0 , 5 4 , 1 6 7 7 5 3 – – – 0 2 7 – 4 6 6 , 5 7 8 1 2 , 0 6 1 0 4 3 , 8 5 1 3 4 3 , 6 2 1 – – – – 0 0 0 ’ $ 6 9 9 , 2 3 1 7 9 9 , 2 5 6 0 1 3 , 5 2 9 8 8 , 4 D E u N I T N O C 3 1 0 2 E N u J 0 3 S T N E M E T A T S L A I C N A N I F E H T O T S E T O N ) D E U N I T N O C ( N O I T A M R O F N I T N E M G E S . 5 2 1 0 2 E N U J 0 3 D E D N E R A E Y s t e s s a t n e r r u c - n o N s t e s s a t n e r r u C s e i t r e p o r p t n e m t s e v n I i t n e m p u q e d n a t n a p l y r o t n e v n I , y t r e p o r P r e h t O 88 abacus property group 6. REVENUE (a) Finance income Interest and fee income on secured loans Sale of joint venture profit share rights Bank interest Total finance income (b) Funds management income Asset / property management fees Interest on loans Total funds management income (c) Net change in fair value of investments held at balance date Net change in fair value of property securities held at balance date Net change in fair value of options held at balance date Net change in fair value of other investments held at balance date Total change in fair value of investments held at balance date 2013 $’000 2012 $’000 20,367 – 1,354 15,635 11,000 2,362 21,721 28,997 3,977 3,532 7,509 (73) 4,130 1,352 5,409 3,002 3,507 6,509 (280) 503 (1,467) (1,244) NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED89 annual report 2013 2013 $’000 2012 $’000 4,559 (24) – 2,464 6,999 35,800 12,376 48,176 4,728 688 12 2,372 7,800 – – – 51,631 4,613 – 66,229 4,756 2,058 56,244 73,043 13,976 776 11,363 753 12,616 14,202 27,368 26,318 7. ExPENSES (a) Depreciation, amortisation and impairment expense Depreciation and amortisation of property, plant and equipment and software Net loss on property, plant and equipment remeasured at fair value Impairment of intangible assets Amortisation – leasing costs Total depreciation, amortisation and impairment expense (b) Cost of inventory sales Acquisition and holdings costs Additional development costs* Total cost of inventory sales * co-owner contribution to the Lewisham residential development (c) Finance costs Interest on loans Amortisation of finance costs Finance costs incurred in the merger with Abacus Storage Fund Total finance costs (d) Administrative and other expenses Wages and salaries Contributions to defined contribution plans Other expenses Total administrative and other expenses 90 abacus property group 8. INCOME TAx (a) Income tax expense The major components of income tax expense are: Income Statement Current income tax Current income tax charge Adjustments in respect of current income tax of previous years Deferred income tax Movement in depreciable assets tax depreciation Relating to origination and reversal of temporary differences Income tax expense reported in the income statement (b) Numerical reconciliation between aggregate tax expense recognised in the income statement and tax expense calculated per the statutory income tax rate A reconciliation between tax expense and the product of the accounting profit before income tax multiplied by the Group's applicable income tax rate is as follows: 2013 $’000 2012 $’000 5,861 2,076 – (1,098) 6,839 1,831 (123) 201 565 2,474 Profit before income tax expense 74,319 10,500 Prima facie income tax expense calculated at 30% (Au) Prima facie income tax expense calculated at 28% (NZ) Less prima facie income tax expense on profit from Trusts Prima Facie income tax of entities subject to income tax Adjustment of prior year tax applied Derecognition of deferred tax assets Entertainment Foreign exchange translation adjustments Franked dividends Other items (net) Income tax expense 22,153 143 (18,124) 4,171 2,076 1,000 19 34 (175) (286) 2,743 380 (1,541) 1,582 (123) 857 21 (51) – 188 6,839 2,474 Income tax expense reported in the consolidated income statement 6,839 2,474 The Group has capital tax losses for which no deferred tax asset is recognised on the balance sheet of gross $7.21 million (2012: $6.82 million), which are available indefinitely for offset against future gains subject to continuing to meet relevant statutory tests. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED91 annual report 2013 2013 $’000 2012 $’000 9,356 1,092 – 1,048 1,185 7,317 2,123 229 1,048 871 12,681 11,588 (2,369) (1,405) 10,312 10,183 2,408 8,343 1,060 (1,000) 2,958 523 5,355 5,387 1,028 – 5,791 164 14,292 17,725 (2,369) (1,405) 11,923 16,320 8. INCOME TAx (CONTINUED) (c) Recognised deferred tax assets and liabilities Deferred income tax at 30 June 2013 relates to the following: Deferred tax liabilities Revaluation of investment properties at fair value Revaluation of financial instruments at fair value Revaluation of property, plant and equipment Reset of tax cost bases Other Gross deferred income tax liabilities Set off of deferred tax assets Net deferred income tax liabilities Deferred tax assets Revaluation of financial instruments at fair value Provisions – other Provisions – employee entitlements Derecognition of deferred tax asset Losses available for offset against future taxable income Other Gross deferred income tax assets Set off of deferred tax assets Net deferred income tax assets Unrecognised temporary differences At 30 June 2013, the Group has unrecognised deferred tax assets on capital account in relation to the fair value of investments ($1.1 million gross) (2012: $1.2 million) and fair value of investment properties ($3.6 million gross) (2012: $3.8 million). Tax consolidation AGHL and its 100% owned Australian resident subsidiaries, ASOL and its 100% owned Australian resident subsidiaries and AHL and its 100% owned Australian resident subsidiaries have formed separate tax consolidated groups. AGHL, ASOL and AHL are the head entity of their respective tax consolidated groups. The head entity and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The current and deferred tax amounts are measured in a manner that is consistent with the broad principles in AASB 112 Income Taxes. The nature of the tax funding agreement is discussed further below. Nature of the tax funding agreement Members of the respective tax consolidated groups have entered into tax funding agreements. The tax funding agreements require payments to/from the head entity to be recognised via an inter-entity receivable (payable) which is at call. To the extent that there is a difference between the amount allocated under the tax funding agreement and the allocation under uIG 1052, the head entity accounts for these as equity transactions. The amounts receivable or payable under the tax funding agreements are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. 92 abacus property group 9. DISTRIBUTIONS PAID AND PROPOSED Abacus Property Group* (a) Distributions paid during the year June 2012 half: 8.25 cents per stapled security (2011: 8.25 cents) December 2012 half: 8.25 cents per stapled security (2011: 8.25 cents) (b) Distributions proposed and not recognised as a liability^ June 2013 half: 8.25 cents per stapled security (2012: 8.25 cents) 2013 $’000 2012 $’000 35,886 36,702 31,217 31,963 72,588 63,180 37,376 35,886 Distributions were paid from 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. * Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund. ^ The final distribution of 8.25 cents per stapled security was declared on 1 July 2013. The distribution being paid on or about 15 August 2013 will be approximately $37.4 million. No provision for the distribution has been recognised in the balance sheet at 30 June 2013 as the distribution had not been declared by the end of the year. Abacus Hospitality Fund (a) Distributions paid during the year June 2012 quarter: 1.125 cents per security (2011: 1.125 cents) September 2012 quarter: 1.125 cents per security (2011: 1.125 cents) December 2012 quarter: 1.125 cents per security (2011: 1.125 cents) March 2013 quarter: 0.500 cents per security (2012: 1.125 cents) (b) Distributions proposed and recognised as a liability June 2013 quarter: 0.500 cents per stapled security (2012: 1.125 cents) Abacus Miller Street Holding Trust (a) Distributions paid during the year June 2012 quarter: 1.125 cents per unit (2011: Nil cents) September 2012 quarter: 1.125 cents per unit (2011: 1.125 cents) December 2012 quarter: 1.125 cents per unit (2011: 1.125 cents) March 2013 quarter: 1.125 cents per unit (2012: 1.125 cents) (b) Distributions proposed and recognised as a liability June 2013 quarter: 1.125 cents per unit (2012: 1.125 cents) 2013 $’000 552 556 552 248 2012 $’000 551 551 551 551 1,908 2,204 248 551 2013 $’000 214 214 214 214 856 2012 $’000 – 214 214 214 642 214 214 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED93 annual report 2013 2013 $’000 2012 $’000 80 590 469 233 562 268 1,139 1,063 80 597 474 80 597 474 79 596 473 80 590 374 80 590 434 80 590 469 3,450 3,287 80 597 474 80 590 469 1,151 1,139 2013 $’000 2012 $’000 12,089 1,106 13,195 10,396 1,693 12,089 9. DISTRIBUTIONS PAID AND PROPOSED (CONTINUED) Abacus Diversified Income Fund II (a) Distributions paid during the year Final distribution for financial year 30 June 2012: rate as per unit class Class A units 0.75 cents per unit (2011: 2.125 cents) Class B units 2.331 cents per unit (2011: 2.250 cents) Class C units 1.748 cents per unit (2011: 1.668 cents) September 2012: rate as per unit class Class A units 0.75 cents per unit (2011: 0.75 cents) Class B units 2.3585 cents per unit (2011: 2.331 cents) Class C units 1.7689 cents per unit (2011: 1.748 cents) December 2012: rate as per unit class Class A units 0.75 cents per unit (2011: 0.75 cents) Class B units 2.3585 cents per unit (2011: 2.331 cents) Class C units 1.7689 cents per unit (2011: 1.748 cents) March 2013: rate as per unit class Class A units 0.75 cents per unit (2012: 0.75 cents) Class B units 2.3585 cents per unit (2012: 2.331 cents) Class C units 1.7689 cents per unit (2012: 1.748 cents) (b) Distributions proposed and recognised as a liability Final distribution payable for the June 2013 quarter: rate as per unit class Class A units 0.75 cents per unit (2012: 0.75 cents) Class B units 2.3585 cents per unit (2012: 2.331 cents) Class C units 1.7689 cents per unit (2012: 1.748 cents) Abacus Property Group* (c) Franking credit balance The amount of franking credits available for the subsequent financial year are: Franking account balance as at the beginning of the financial year at 30% (2012: 30%) Franking credits that will arise from the payment of income payable at the end of the financial year Franking account balance at the end of the financial year 30% (2012 30%) * Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund. 94 abacus property group 10. EARNINGS PER STAPLED SECURITY Basic and diluted earnings per stapled security (cents) Reconciliation of earnings used in calculating earnings per stapled security Basic and diluted earnings per stapled security 2013 $’000 13.68 2012 $’000 2.11 Net profit 61,052 8,470 Weighted average number of stapled securities: Weighted average number of stapled securities for basic earning per security 446,427 400,921 11. CASH AND CASH EQUIVALENTS Reconciliation to Cash Flow Statement For the purposes of the Cash Flow Statement, cash and cash equivalents comprise the following at 30 June 2013: Cash at bank and in hand(i) (i) Cash at bank earns interest at floating rates. The carrying amounts of cash and cash equivalents represent fair value. (a) Reconciliation of net profit after tax to net cash flows from operations Net profit Adjustments for: Depreciation and amortisation of non-current assets Provision for doubtful debts Diminution of inventory Restructuring charge – related parties Loss on consolidation Net change in fair value of derivatives Net change in fair value of investment properties held at balance date Net change in fair value of investments held at balance date Net change in fair value of investment properties derecognised Net change in fair value of investments and financial instruments derecognised Increase/(decrease) in payables Increase/(decrease) in unearned revenue (Increase)/decrease in inventories (Increase)/decrease in receivables and other assets Net cash from operating activities (b) Disclosure of financing facilities Refer to note 20d. 2013 $’000 2012 $’000 44,822 54,129 67,480 8,026 6,999 1,060 – – 18,943 1,153 (497) (5,409) (1,973) (6,854) 17,768 14,750 48,176 7,234 7,800 348 1,500 3,507 – 54,315 2,235 1,244 (9,456) (132) (2,518) – – 19,381 168,830 86,250 (c) Disclosure of non-cash financing activities Non-cash financing activities include capital raised pursuant to APG’s distribution reinvestment plan. During the year 18.6 million stapled securities were issued with a cash equivalent of $36.6 million. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED95 annual report 2013 2013 $’000 2012 $’000 645 20,913 21,558 (1,998) 19,560 935 13,549 14,484 (2,566) 11,918 6,897 6,897 6,212 6,212 2013 $’000 2012 $’000 2,047 405 17,713 1,385 2,452 19,098 – – – 168 7,885 8,053 116,404 21,966 137,938 16,820 138,370 154,758 4,642 23,640 4,489 20,000 28,282 24,489 12. TRADE AND OTHER RECEIVABLES (a) Current Trade debtors Other debtors Gross receivables Less provision for doubtful debts Net current receivables (b) Non-current Other debtors Non-current receivables 13. PROPERTY LOANS AND OTHER FINANCIAL ASSETS (a) Current property loans Secured loans – amortised cost(i) Interest receivable on secured loans – amortised cost (b) Current other financial assets Investments in securities – listed – fair value Other financial assets – fair value(ii) (c) Non-current property loans Secured loans – amortised cost(i) Interest receivable on secured loans – amortised cost (d) Non-current other financial assets Investments in securities – unlisted – fair value Other financial assets – fair value(ii) (i) Mortgages are secured by real property assets. The current facilities are scheduled to mature and are expected to be realised on or before 30 June 2014 and the non-current facilities will mature between 1 July 2014 and 24 December 2018. For 30 June 2012, an amount of $33.1 million relates to a loan to Abacus Wodonga Land Fund, a related party, which consolidated into the Group on 30 June 2013. (ii) Abacus enters into loans and receivables with associated options that provide for a variety of outcomes including repayment of principal and interest, satisfaction through obtaining interests in equity or property or combinations thereof. At the end of the period, the maximum exposure to credit risk in relation to these instruments was $23.6 million (2012: $27.9 million). 96 abacus property group 14. PROPERTY, PLANT AND EQUIPMENT Land and buildings At 1 July, net of accumulated depreciation Additions Disposals Revaluations Effect of movements in foreign exchange Depreciation charge for the year At 30 June, net of accumulated depreciation Gross value Accumulated depreciation Net carrying amount at end of year Plant and equipment At 1 July, net of accumulated depreciation Additions Disposals Effect of movements in foreign exchange Depreciation charge for the year At 30 June, net of accumulated depreciation Gross value Accumulated depreciation Net carrying amount at end of year Total Property, plant and equipment Hotel properties(1) Storage properties Office Equipment / furniture and fittings Total property, plant and equipment 2013 $’000 2012 $’000 138,412 144,999 5,976 205 – (13,663) (7,260) 2,068 (1,547) 7,452 444 (1,025) 137,649 138,412 151,436 150,653 (13,787) (12,241) 137,649 138,412 15,653 1,792 (39) 35 (2,990) 18,239 1,371 (298) 47 (3,706) 14,451 15,653 38,769 (24,318) 14,451 36,689 (21,036) 15,653 152,100 154,065 2013 $’000 2012 $’000 149,820 152,155 1,778 502 1,823 87 152,100 154,065 (1) Includes a pub property but excludes the value of licence that is accounted for separately as an intangible. The property, plant and equipment are carried at the directors’ determination of fair value. 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, latest independent update or directors’ valuation. Total acquisition costs include incidental costs of acquisition such as property taxes on acquisition, legal and professional fees and other acquisition related costs. The independent and directors’ valuations are based on common valuation methodologies including capitalisation and discounted cash flow approaches, which have regard to recent market sales evidence. Accordingly, the directors’ valuations at 30 June 2013 have regard to market sales evidence in adopting a market valuation for each property including the key assumptions outlined. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED97 annual report 2013 14. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) The key underlying assumptions, on a portfolio basis, contained within the independent and directors’ valuations above for the Hotel properties are as follows: • A weighted average capitalisation rate for the hotel properties is 9.39% (2012: 9.33%) • The current weighted average occupancy rate for the hotel properties is 72% (2012: 72%) The independent and directors’ valuations are based on common valuation methodologies including capitalisation and discounted cash flow approaches, which have regard to recent market sales evidence. Accordingly, the directors’ valuations at 30 June 2013 have regards to market sales evidence in adopting a market valuation for each property including the key assumptions outlined. 15. INVENTORY (a) Current Hotel supplies Projects1 – purchase consideration – development costs – finance costs2 – other costs3 (b) Non-current Projects1 – purchase consideration – development costs – finance costs2 – other costs3 – diminution Total inventories 1. Inventories are held at the lower of cost and net realisable value. 2. Finance costs were capitalised at interest rates within the range of 8.1% to 12.7% during the financial year (2012: 9.3% to 9.8%) 3. Other costs are described in note 2(z). 2013 $’000 2012 $’000 501 479 10,833 53,148 7,354 1,156 26,000 – – – 72,992 26,479 57,245 26,749 6,792 2,656 (1,500) 81,246 12,163 6,579 2,486 (1,500) 91,942 100,974 164,934 127,453 98 abacus property group 16. INVESTMENT PROPERTIES Investment properties held for sale Retail Commercial Industrial Other Total investment properties held for sale Investment properties Retail Commercial Industrial Storage Other Total investment properties 2013 $’000 2012 $’000 69,710 93,000 13,000 – 23,801 144,550 9,220 13,250 175,710 190,821 2013 $’000 2012 $’000 266,249 362,279 198,083 371,558 23,226 296,507 310,395 198,740 357,761 17,800 1,221,395 1,181,203 Total investment properties including held for sale 1,397,105 1,372,024 The current investment properties represent 12 properties which are either subject to a sales contract or an active sales campaign and are expected to be sold by 30 June 2014. Reconciliation A reconciliation of the carrying amount of investment properties excluding properties held for sale at the beginning and end of the year is as follows: Carrying amount at beginning of the financial year Straight lining rental assets Additions and capital expenditure Fair value adjustments for properties held at balance date Disposals Effect of movements in foreign exchange Properties transferred to held for sale Transfers Carrying amount at end of the financial year 2013 $’000 2012 $’000 1,181,203 1,338,130 – 113,133 3,914 (15,404) 5,115 (167) 35,152 (2,263) (61,636) 368 (92,950) (158,621) 26,384 30,240 1,221,395 1,181,203 Investment properties are carried at the Directors’ determination of fair value. 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, latest independent update or directors’ valuation. Total acquisition costs include incidental costs of acquisition such as property taxes on acquisition, legal and professional fees and other acquisition related costs. Investment properties are independently valued on a staggered basis every two years unless the underlying financing requires a more frequent independent valuation cycle. The key underlying assumptions, on a portfolio basis, contained within the independent and director valuations above are as follows: NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED99 annual report 2013 16. INVESTMENT PROPERTIES (CONTINUED) Abacus Property Group* • A weighted average capitalisation rate for each category is as follows: • Group – 8.67% (2012: 8.69%) • Retail – 7.89% (2012: 8.18%) • Commercial – 8.51% (2012: 8.38%) • Industrial – 9.81% (2012: 9.78%) • Storage – 9.20% (2012: 9.18%) • Other – 7.49% (2012: 8.75%) • The current occupancy rate for the principal portfolio excluding development and self-storage assets is 92.8% (2012: 94.3%). The current occupancy rate for self-storage assets is 81.8% (2012: 82.8%). • A weighted average rent review for the 12 months to 30 June 2013 of 4.0% (2012: 3.7%). During the year ended 30 June 2013, 56% (2012: 62%) of the number of investment properties in the portfolio was subject to external valuations, the remaining 44% (2012: 38%) was subject to internal valuation. Abacus Diversified Income Fund II • A weighted average capitalisation rate for each category is as follows: • Commercial – 10.41% (2012: 9.34%) • Industrial – 8.85% (2012: 8.86%) • The current occupancy rate for the portfolio is 95% (2012: 97%). • The weighted average lease expiry term is 3.48 years (30 June 2012: 4.08 years). During the year ended 30 June 2013, 100% of the number of properties in the portfolio was subject to external valuations. Abacus Miller Street Holding Trust • A capitalisation rate of 8.75% (2012: 8.75%). • The current occupancy rate of the property is 100% (2012: 98%). • A weighted average rent review for the 12 months to 30 June 2013 of 4.0% (2012: 4.0%). The property was externally valued as at 30 June 2013. The independent and director valuations are based on common valuation methodologies including capitalisation and discounted cash flow approaches, which have regard to recent market sales evidence. Accordingly, the directors’ valuations at 30 June 2013 have regard to market sales evidence in adopting a market valuation for each property including the key assumptions outlined. The majority of the investment properties are used as security for secured bank debt. * Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund. 100 abacus property group 17. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Investment in joint ventures (a) Details of Joint Ventures 309 George St JV Trust Abacus Aspley Village Trust PRINCIPAL ACTIVITy Property investment Property investment Abacus Rosebery Property Trust Property development Abwill 350 George St Trust Property development Australian Aggregation Head Trust Property investment Birkenhead Point Marina Pty Ltd(1) Marina operator Fordtrans Pty Ltd (Virginia Park) Property investment Hampton Residential Retirement Trust Property development Jack Road Investments Unit Trust Property development Jigsaw Trust Pakenham Valley unit Trust Childcare operator Land subdivision queensberry Street Carlton unit Trust Property development The Abacus Colemans Road Trust Property development The Mount Druitt unit Trust Property investment The Tulip unit Trust Property development NOTE 17 2013 $’000 124,458 124,458 2012 $’000 121,833 121,833 OWNERSHIP INTEREST CARRyING VALuE 30 JUNE 2013 % 30 JUNE 2012 % 25 33 50 50 25 50 50 50 50 50 50 50 50 50 50 25 33 50 50 25 50 50 50 – 50 50 – 50 50 50 30 JUNE 2013 % 10,245 7,476 1,697 6,371 27,925 80 61,399 4,255 4,350 – 21 – – 639 – 30 JUNE 2012 % 11,478 10,459 1,284 6,842 14,241 583 60,412 4,519 – 9,784 21 – 1,672 538 – 124,458 121,833 (1) Operates the marina adjacent to the Birkenhead Point Shopping Centre in Drummoyne NSW. There were no impairment losses or contingent liabilities relating to the investment in the associates and joint ventures. (b) Extract from associates and joint ventures’ profit & loss statements Revenue Expenses Net profit Share of net profit 2013 $’000 154,408 (127,862) 2012 $’000 73,781 (56,880) 26,546 16,901 10,164 7,379 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED101 annual report 2013 2013 $’000 41,413 572,535 613,948 (18,098) 2012 $’000 48,492 524,846 573,338 (18,485) (239,813) (239,282) (257,911) (257,767) 356,037 315,571 124,458 121,833 17. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED) (c) Extract from associates and joint ventures’ balance sheets Current assets Non-current assets Current liabilities Non-current liabilities Net assets Share of net assets Material investments in joint ventures follows. Fordtrans Pty Ltd (Virginia Park) (“VP”) The Group has a 50% interest in the ownership and voting rights of Fordtrans Pty Ltd. VP’s principal place of business is in Bentleigh East, Victoria. VP owns a sizeable Business Park providing a mixture of industrial and office buildings as well as supporting facilities including gymnasium, swim centre, child care centre, children’s play centre, cafe, yoga centre and martial arts centre. The site has recently been enhanced following the purchase of a neighbouring site by the Group that offers expansion potential and residential opportunity. The Group jointly controls the venture with the other partner under the terms of unitholders Agreement and requires unanimous consent for all major decisions over the relevant activities. The Group’s share of income (including distributions) for the year ended 30 June 2013 was $4.79 million (2012: $4.54 million). Summarised Financial Information Summarised financial information in respect of VP is as follows: Cash & cash equivalents Other current assets Total current assets Total non-current assets Total assets Other current liabilities Total current liabilities Non-current financial liabilities Total non-current liabilities Total liabilities Net assets 2013 $’000 843 15,745 2012 $’000 1,134 11,233 16,588 12,367 176,783 176,286 193,371 188,653 6,188 6,188 3,377 3,377 64,732 64,389 64,732 64,389 70,920 67,766 122,451 120,887 102 abacus property group 17. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED) Fordtrans Pty Ltd (Virginia Park) (“VP”) (continued) Summarised Statement of Comprehensive Income Revenue Interest income Interest expense Profit before tax Income tax expense Total comprehensive income 18. INTANGIBLE ASSETS AND GOODWILL Goodwill Balance at 1 July Balance at 30 June Licences and entitlements At 1 July, net of accumulated amortisation Disposal Impairment At 30 June, net of accumulated amortisation Total goodwill and intangibles 2013 $’000 16,578 3,416 (4,558) 8,929 – 2012 $’000 15,559 2,416 (4,026) 8,853 – 8,929 8,853 2013 $’000 2012 $’000 32,461 32,461 32,461 32,461 1,000 (200) – 800 2,712 (1,700) (12) 1,000 33,261 33,461 Description of the Group’s intangible assets and goodwill Goodwill After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of impairment. Licences and entitlements Licences and entitlements represent intangible assets acquired through the acquisition of certain hotel assets. Licences and entitlements essentially relate to gaming and liquor licence rights attaching to the hotel assets. These intangible assets have been determined to have indefinite useful lives and the cost model is utilised for their measurement. These licences and entitlements have been granted for an indefinite period by the relevant government department. This supports the Group’s assertion that these assets have an indefinite useful life. As these licences and entitlements are an integral part of owning a hotel asset, they are subjected to impairment testing on an annual basis or whenever there is an indication of impairment as part of the annual property valuation and review process of the hotels as a going concern. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED 103 annual report 2013 18. INTANGIBLE ASSETS AND GOODWILL (CONTINUED) Impairment tests for goodwill and intangibles with indefinite useful lives (i) Description of the cash generating units and the other relevant information Goodwill acquired through business combinations and licences and entitlements have been allocated to two individual cash generating units, each of which is a reportable segment, for impairment testing as follows: • Funds Management – property / asset management business • Property – or specifically the hotel assets Funds Management The recoverable amount of the Funds Management unit has been determined based on a value in use calculation using cash flow projections as at 30 June 2013 covering a five-year period. A pre tax discount rate of 9.49% (2012: 9.49%) and a terminal growth rate of 3% (2012: 3%) have been applied to the cash flow projections. Property The recoverable amount of the indefinite life intangible assets has been determined based on the independent and directors’ valuations of the hotels on a going concern basis. Common valuation methodologies including capitalisation and discounted cash flow approaches are used, with assumptions reference to recent market sales evidence. Accordingly, the directors’ valuations at 30 June 2013 have regards to market sales evidence in adopting a market valuation for each property including the key assumptions outlined. (ii) Carrying amounts of goodwill, management rights, licences and entitlements allocated to each of the cash generating units The carrying amounts of goodwill, management rights, licences and entitlements are allocated to Funds Management and Property as follows: Goodwill Management rights, licences and entitlements (iii) Key assumptions used in valuation calculations FuNDS MANAGEMENT PROPERTy TOTAL 2013 $’000 2012 $’000 32,394 32,394 – – 2013 $’000 67 800 2012 $’000 2013 $’000 2012 $’000 67 32,461 32,461 1,000 800 1,000 Funds Management Goodwill The calculation of value in use is most sensitive to the following assumptions: a. Fee income b. Discount rates c. Property values of the funds/properties under management Fee income – fee income is based on actual income in the year preceding the start of the budget period and actual funds under management. Discount rates – discount rates reflect management’s estimate of the time value of money and the risks specific to each unit that are not reflected in the cash flows. Property values – property values are based on the fair value of properties which are valued on a staggered two year basis by independent valuers. 104 abacus property group 18. INTANGIBLE ASSETS AND GOODWILL (CONTINUED) (iii) Key assumptions used in valuation calculations (continued) Hotel Intangible Assets The calculation of the hotel valuations is most sensitive to the following assumptions: a. Hotel income b. Discount rates and capitalisation rates with reference to market sales evidence c. Other value adding or potential attributes of the hotel asset Hotel income – hotel income is based on actual income in the year preceding the start of the budget period, adjusted based on industry norms for valuation purposes. Discount rates and capitalisation rates – these rates reflect the independent valuers’ and management’s estimate of the time value of money and the risks specific to each unit that are not reflected in the cash flows, with reference to recent market sales evidence. The weighted average capitalisation rate used for the hotel valuation at June 2013 was 11.5% (2012: 12.5%). Other value adding or potential attributes – unique features of individual hotel assets that will add or have the potential to add value to the property in determining the total fair value of the hotel. (iv) Sensitivity to changes in assumptions Significant and prolonged property value falls and market influences which could increase discount rates could cause goodwill to be impaired in the future, however, the goodwill valuation as at 30 June 2013 has significant head room thus reasonable changes in the assumptions such as a 1% change in the discount rate or a 10% fall in revenue assumptions would not cause any impairment. Intangibles have been impaired on the basis that they now represent recoverable amount. A decrease in hotel income or increase in discount rate have already been taken into consideration in the sensitivity of market factors as part of the external valuation. 19. TRADE AND OTHER PAYABLES (a) Current Trade creditors Other creditors unearned revenue Rental guarantee Goods and services tax Accrued expenses (b) Non-current unearned revenue Rental guarantee 2013 $’000 2012 $’000 503 24,325 25,889 2,785 1,146 8,665 962 13,028 – 900 6,907 8,629 63,313 30,426 – – – 10,125 2,600 12,725 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED105 annual report 2013 2013 $’000 2012 $’000 8,600 31,367 29,950 – 39,967 29,950 36,740 21,538 58,278 32,189 (106) 32,083 34,000 (10) 33,990 – – – – – – – – – 20. INTEREST BEARING LOANS AND BORROWINGS Abacus Property Group* Current Bank loans – A$ Other loans – A$ Abacus Hospitality Fund Current Bank loans – A$ Bank loans – A$ value of NZ$ denominated loan Abacus Diversified Income Fund II Current Bank loans – A$ Less: Unamortised borrowing costs Abacus Miller Street Holding Trust Current Bank loans – A$ Less: Unamortised borrowing costs (a) Total current 164,318 29,950 * Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund. 106 abacus property group 20. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED) Abacus Property Group* Non-current Bank loans – A$ Other loans – A$ Bank loans – A$ value of NZ$ denominated loan Less: Unamortised borrowing costs Abacus Hospitality Fund Non-current Bank loans – A$ Bank loans – A$ value of NZ$ denominated loan Loans from other parties Less: Unamortised borrowing costs Abacus Diversified Income Fund II Non-current Bank loans – A$ Less: Unamortised borrowing costs Abacus Miller Street Holding Trust Non-current Bank loans – A$ Less: Unamortised borrowing costs Abacus Wodonga Land Fund Non-current Bank loans – A$ (b) Total non-current 2013 $’000 2012 $’000 500,548 484,484 – 55,374 (2,719) 29,354 53,038 (6,546) 553,203 560,330 – – 27,350 (235) 49,240 20,020 25,267 (469) 27,115 94,058 52,349 (34) 84,319 (427) 52,315 83,892 – – – 34,000 (20) 33,980 6,657 6,657 – – 639,290 772,260 * Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED 107 annual report 2013 2013 $’000 2012 $’000 164,434 642,278 – 29,950 779,722 – 806,712 809,672 20. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED) (c) Maturity profile of current and non-current interest bearing loans Due within one year Due between one and five years Due after five years Abacus Property Group* The Group maintains a range of interest-bearing loans and borrowings. The sources of funding are spread over a number of counterparties and the terms of the instruments are negotiated to achieve a balance between capital availability and cost of debt. Bank loans are $A and $NZ denominated and are provided by several banks at interest rates which are set periodically on a floating basis. The term to maturity for the loans varies from May 2014 to April 2016. The bank loans are secured by charges over the investment properties, certain inventory and certain property, plant and equipment. Approximately 83% (2012: 97%) of bank debt drawn was subject to fixed rate hedges. The bank debt drawn at 30 June 2013 has a weighted average term to maturity of 2.1 years (2012: 3 years). Hedge cover as a percentage of available facilities at 30 June 2013 is 59.5% (2012: 69.7%). APG’s weighted average interest rate as at 30 June 2013 was 6.05% (2012: 7.27%). Line fees on undrawn facilities contributed to 0.47% of the weighted average interest rate at 30 June 2013 (2012: 0.40%). APG’s weighted average interest rate excluding the undrawn facilities line fees as at 30 June 2013 was 5.58% (2012: 6.87%). * Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund. Abacus Hospitality Fund AHF’s $A and $NZ bank facility matures in June 2014. The facility is secured by a charge over AHF’s hotel assets and at 30 June 2013 approximately 73.7% (2012: 62.0%) of drawn bank debt facilities were subject to current fixed rate hedges. The bank debt drawn at 30 June 2013 has a weighted average term to maturity of 1.0 year (2012: 2.0 years). AHF’s weighted average interest rate as at 30 June 2013 was 8.0% (2012: 8.1%). Line fees on undrawn facilities contributed to 0.41% of the weighted average interest rate at 30 June 2013 (2012: 0.18%). AHF’s weighted average interest rate excluding the undrawn facilities line fees as at 30 June 2013 was 7.59% (2012: 7.92%). Abacus Diversified Income Fund II ADIF II has financed its Australian investment property portfolio via two $A facilities provided by two major Australian banks which mature in September 2013 and November 2014 respectively. The facilities are secured by charges over ADIF II’s investment properties and at 30 June 2013 approximately 92.9% (2012: 93.1%) of drawn bank debt facilities were subject to fixed rate hedges. The bank debt drawn at 30 June 2013 has a weighted average term to maturity of 0.9 years (2012: 1.9 years). ADIF II’s weighted average interest rate as at 30 June 2013 was 8.86% (2012: 8.85%). Line fees on undrawn facilities contributed to 0.29% of the weighted average interest rate at 30 June 2013 (2012: 0.20%). ADIF II’s weighted average interest rate excluding the undrawn facilities line fees as at 30 June 2013 was 8.57% (2012: 8.65%). 108 abacus property group 20. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED) Abacus Wodonga Land Fund AWLF maintains a range of interest-bearing loans and borrowings. The sources of funding are spread over a number of counterparties and the terms of the instruments are negotiated to achieve a balance between capital availability and cost of debt. The loan is secured by a charge over the Fund’s development property and AGHL has provided a guarantee. The bank loan is provided by an Australian bank at interest rates that include both fixed and floating arrangements. The loan is denominated in Australian dollars and the term to maturity date is 30 April 2015. The weighted average interest rate of the bank borrowing which is covered by fixed rate hedges was 12.66% at 30 June 2013 (2012: 10.95%). Abacus Miller Street Holding Trust The Miller Street investment property is financed by a major Australian bank via a secured charge. The bank loan is a $34.0 million facility which expires in March 2014. AMSHT has hedged 97.1% of its drawn debt (2012: 97.1%) and at reporting date AMSHT’s weighted average interest rate was 8.09%. (2012: 8.38%). Line Fees on undrawn facilities contributed to 0.03% of the weighted average interest rate as at 30 June 2013 (2012: 0.02%). AMSHT’s weighted average interest rate excluding the undrawn facilities line fees as at 30 June 2013 was 8.06% (2012: 8.36%). (d) Financing facilities available At reporting date, the following financing facilities had been negotiated and were available: Abacus Property Group Total facilities – bank loans Facilities used at reporting date – bank loans Facilities unused at reporting date – bank loans Abacus Hospitality Fund Total facilities – bank loans Facilities used at reporting date – bank loans Facilities unused at reporting date – bank loans Abacus Diversified Income Fund Total facilities – bank loans Facilities used at reporting date – bank loans Facilities unused at reporting date – bank loans Abacus Miller Street Holding Trust Total facilities – bank loans Facilities used at reporting date – bank loans Facilities unused at reporting date – bank loans Abacus Wodonga Land Fund Total facilities – bank loans Facilities used at reporting date – bank loans Facilities unused at reporting date – bank loans 2013 $’000 2012 $’000 786,500 789,950 (564,522) (567,472) 221,978 222,478 80,724 (58,278) 22,446 78,646 (69,260) 9,386 96,500 104,577 (84,538) (84,319) 11,962 20,258 35,000 (34,000) 35,000 (34,000) 1,000 1,000 12,000 (6,657) 5,343 – – – NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED109 annual report 2013 20. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED) (e) Assets pledged as security The carrying amounts of assets pledged as security for current and non-current interest bearing liabilities are: Current First mortgage Inventory Investment properties held for sale Total current assets pledged as security Non-current First mortgage Freehold land and buildings Property, plant and equipment Inventory Investment properties Total non-current assets pledged as security 2013 $’000 2012 $’000 72,489 175,710 248,199 – 190,821 190,821 6,216 5,609 145,620 148,456 58,422 54,663 1,194,931 1,173,163 1,405,189 1,381,891 Total assets pledged as security 1,653,388 1,572,712 (f) Defaults and breaches During the current and prior years, there were no defaults or breaches on any of the loans. 110 abacus property group 21. PARENT ENTITY FINANCIAL INFORMATION Results of the parent entity Profit / (loss) for the year* Total comprehensive income / (expense) for the year Financial position of the parent entity at year end Current assets Total assets Current liabilities Total liabilities Net assets Total equity of the parent entity comprising of: Issued capital Retained earnings Employee options reserve Total equity 2013 $’000 2012 $’000 4,978 4,978 (72,912) (72,912) 9,951 21,808 183,904 155,723 118 11,884 52,638 35,539 131,266 120,184 165,611 (40,960) 6,615 160,673 (45,937) 5,448 131,266 120,184 * Includes diminution of subsidiary of $98 million in 2012 which is eliminated in the consolidation of the Group’s results. Parent entity contingencies The parent entity has entered into the following agreement in the year ended 30 June 2011 which is current as at 30 June 2013: • Provide a corporate guarantee to a bank to increase the amount of drawn funds available and to guarantee the payment of interest on a tranche. The maximum liability is approximately $5.1 million (2012: $6.8 million). No property security has been provided by the parent. Parent entity capital commitments There are no capital commitments of the parent entity as at 30 June 2013 (2012: Nil). NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED111 annual report 2013 CARRyING AMOuNT 2013 $’000 2012 $’000 26,457 18,130 140,822 173,856 28,281 44,822 32,542 54,129 240,382 278,657 22. FINANCIAL INSTRUMENTS (i) Credit Risk Credit Risk Exposures The Group’s maximum exposure to credit risk at the reporting date was: Receivables Secured property loans Other financial assets Cash and cash equivalents As at 30 June 2013, the Group had the following concentrations of credit risk: • Secured property loans: a loan which represents 43% of the portfolio covers two large projects at Riverlands and Camelia; • Other financial assets (fair value) is represented by 2 issuers (2012: 2 issuers) Secured property loans The following table illustrates grouping of the Group’s investment in secured loans. As noted in disclosure note 3, the Group mitigates the exposure to this risk by evaluation of the credit submission before acceptance, ensuring security is obtained and consistent and timely monitoring of the financial instrument to identify any potential adverse changes in the credit quality. 30 JUNE 2013 Loans less: provisioning Total 30 JUNE 2012 Loans less: provisioning Total TOTAL $’000 ORIGINAL TERM $’000 RENEWED/ EXTENDED TERM(1) $’000 140,822 56,321 84,501 – – – 140,822 56,321 84,501 PAST DuE TERM(2) $’000 IMPAIRED(3) $’000 – – – – – – TOTAL $’000 ORIGINAL TERM $’000 RENEWED/ EXTENDED TERM(1) $’000 173,856 150,121 23,735 – – – 173,856 150,121 23,735 PAST DuE TERM(2) $’000 IMPAIRED(3) $’000 – – – – – – 112 abacus property group 22. FINANCIAL INSTRUMENTS (CONTINUED) (i) Credit Risk (continued) Secured property loans (continued) 1) Loans are generally renewed / extended on comparable terms. 2) For loans with past due terms all are less than two years old and are expected to be recovered. 3) In considering the impairment of loans, the Group will undertake a market analysis of the secured property development which is used to service the loan and identify if a deficiency of security exists and the extent of that deficiency, if any. If there is an indicator of impairment, fair value calculations of expected future cashflows are determined and if there are any differences to the carrying value of the loan, an impairment is recognised. Other financial assets of $28.3 million (2012: $32.5 million) include options totalling $23.6 million (2012: $27.9 million) which are both on original or renewed terms. The movement in the allowance for impairment in respect of secured property loans and receivables during the year was as follows: Balance at 1 July 2012 movement during the year Balance at 30 June 2013 2013 $’000 – – – 2012 $’000 – – – (ii) Liquidity Risk The table below shows an analysis of the contractual maturities of key liabilities which forms part of the Group’s assessment of liquidity risk. Abacus Property Group* 30 JUNE 2013 Liabilities CARRyING AMOuNT $’000 CONTRACTuAL CASH FLOWS $’000 1 yEAR OR LESS $’000 OVER 1 yEAR TO 5 yEARS $’000 OVER 5 yEARS $’000 Trade and other payables 51,787 51,787 Interest bearing loans and borrowings incl derivatives# 628,862 715,475 51,787 79,834 – – 624,742 10,899 Total liabilities 680,649 767,262 131,621 624,742 10,899 30 JUNE 2012 Liabilities CARRyING AMOuNT $’000 CONTRACTuAL CASH FLOWS $’000 1 yEAR OR LESS $’000 OVER 1 yEAR TO 5 yEARS $’000 OVER 5 yEARS $’000 Trade and other payables 32,735 32,735 Interest bearing loans and borrowings incl derivatives# 643,566 724,007 20,010 82,846 12,725 635,311 Total liabilities 676,301 756,742 102,856 648,036 – 5,850 5,850 # Carrying amount includes fair value of derivative liabilities. Contractual cash flows includes contracted debt and net swap payments using prevailing forward rates. * Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED113 annual report 2013 22. FINANCIAL INSTRUMENTS (CONTINUED) (ii) Liquidity Risk (continued) Abacus Hospitality Fund 30 JUNE 2013 Liabilities Trade and other payables Interest bearing loans and borrowings incl derivatives# Total liabilities CARRyING AMOuNT $’000 CONTRACTuAL CASH FLOWS $’000 1 yEAR OR LESS $’000 OVER 1 yEAR TO 5 yEARS $’000 OVER 5 yEARS $’000 8,645 96,645 8,645 105,957 8,645 64,796 105,290 114,602 73,441 – 19,960 19,960 – 21,201 21,201 30 JUNE 2012 Liabilities Trade and other payables Interest bearing loans and borrowings incl derivatives# Total liabilities CARRyING AMOuNT $’000 CONTRACTuAL CASH FLOWS $’000 1 yEAR OR LESS $’000 OVER 1 yEAR TO 5 yEARS $’000 OVER 5 yEARS $’000 6,895 85,969 6,895 96,700 6,895 8,117 – 88,584 92,864 103,595 15,012 88,584 – – – # Carrying amount includes fair value of derivative liabilities. Contractual cash flows includes contracted debt and net swap payments using prevailing forward rates. Abacus Diversified Income Fund II 30 JUNE 2013 Liabilities Trade and other payables Interest bearing loans and borrowings incl derivatives# Total liabilities CARRyING AMOuNT $’000 CONTRACTuAL CASH FLOWS $’000 1 yEAR OR LESS $’000 OVER 1 yEAR TO 5 yEARS $’000 OVER 5 yEARS $’000 1,919 90,750 1,919 96,241 1,919 37,321 – 58,920 92,669 98,160 39,240 58,920 – – – 30 JUNE 2012 Liabilities CARRyING AMOuNT $’000 CONTRACTuAL CASH FLOWS $’000 1 yEAR OR LESS $’000 OVER 1 yEAR TO 5 yEARS $’000 OVER 5 yEARS $’000 Trade and other payables 2,724 2,724 Interest bearing loans and borrowings incl derivatives# 92,233 100,615 2,724 7,380 – 93,235 Total liabilities 94,957 103,339 10,104 93,235 # Carrying amount includes fair value of derivative liabilities. Contractual cash flows includes contracted debt and net swap payments using prevailing forward rates. – – – 114 abacus property group 22. FINANCIAL INSTRUMENTS (CONTINUED) (ii) Liquidity Risk (continued) Abacus Miller Street Holding Trust 30 JUNE 2013 Liabilities Trade and other payables Interest bearing loans and borrowings incl derivatives# Total liabilities 30 JUNE 2012 Liabilities Trade and other payables Interest bearing loans and borrowings incl derivatives# Total liabilities CARRyING AMOuNT $’000 CONTRACTuAL CASH FLOWS $’000 1 yEAR OR LESS $’000 OVER 1 yEAR TO 5 yEARS $’000 OVER 5 yEARS $’000 715 35,086 35,801 715 36,244 36,959 715 36,244 36,959 – – – – – – CARRyING AMOuNT $’000 CONTRACTuAL CASH FLOWS $’000 1 yEAR OR LESS $’000 OVER 1 yEAR TO 5 yEARS $’000 OVER 5 yEARS $’000 828 35,843 36,671 828 38,073 38,901 828 2,749 – 35,324 3,577 35,324 – – – # Carrying amount includes fair value of derivative liabilities. Contractual cash flows includes contracted debt and net swap payments using prevailing forward rates. Abacus Wodonga Land Fund 30 JUNE 2013 Liabilities Trade and other payables Interest bearing loans and borrowings# Total liabilities CARRyING AMOuNT $’000 CONTRACTuAL CASH FLOWS $’000 1 yEAR OR LESS $’000 OVER 1 yEAR TO 5 yEARS $’000 OVER 5 yEARS $’000 140 9,614 9,754 140 11,754 11,894 140 1,226 – 10,466 1,366 10,466 – 23 23 # Carrying amount includes fair value of derivative liabilities. Contractual cash flows includes contracted debt and net swap payments using prevailing forward rates. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED115 annual report 2013 22. FINANCIAL INSTRUMENTS (CONTINUED) (iii) Currency Risk The following table shows the Group’s investments denominated in a foreign currency. AuD NZD GBP Assets Cash at bank Investment in securities Total assets Liabilities 2013 $’000 2012 $’000 2013 £’000 2012 £’000 2013 $’000 3,982 4,270 2012 $’000 8,028 4,026 8,252 12,054 4,727 10,253 4,727 10,253 – – – 2,593 2,593 – 2,629 2,629 Interest bearing loans and borrowings 76,911 73,058 91,302 93,303 Total liabilities 76,911 73,058 91,302 93,303 – – – – The Abacus Property Group and Abacus Hospitality Fund borrow funds in New Zealand dollars to substantially match the foreign currency property asset value exposure with a corresponding foreign currency liability and therefore expects to substantially mitigate the foreign currency risk on their New Zealand denominated asset values. The following sensitivity is based on the foreign risk exposures in existence at the balance sheet date. At 30 June 2013, had the Australian Dollar moved, as illustrated in the table below, with all other variables held consistent, post tax profit and equity would have been affected as follows: JUDGEMENTS OF REASONABLY POSSIBLE MOVEMENTS: AUD/GBP + 10% AUD/GBP - 10% AUD/NZD + 10% AUD/NZD - 10% POST TAX PROFIT HIGHER/(LOWER) EquITy HIGHER/(LOWER) 2013 $’000 (388) 474 (5,381) 6,577 2012 $’000 (366) 447 (5,537) 6,767 2013 $’000 2012 $’000 – – – – – – – – 116 abacus property group 22. FINANCIAL INSTRUMENTS (CONTINUED) (iv) Interest rate risk The Group’s exposure to interest rate risk and the effective weighted average interest rates for each class of financial asset and financial liability are: Abacus Property Group^ 30 JUNE 2013 Financial Assets Cash and cash equivalents Receivables Secured loans Total financial assets FLOATING INTEREST RATE $’000 FIXED INTEREST LESS THAN 1 yEAR $’000 FIXED INTEREST 1 TO 5 yEARS $’000 FIXED INTEREST OVER 5 yEARS $’000 NON INTEREST BEARING $’000 29,686 – – 29,686 – – 2,452 – 6,897 138,370 2,452 145,267 Weighted average interest rate* 1.30% 7.00% 11.07% Financial liabilities Interest bearing liabilities – bank Interest bearing liabilities – other Derivatives Payables 561,802 – – – – 27,075 – – Total financial liabilities 561,802 27,075 – – – – – Notional principal swap balance maturities* – – 288,066 180,000 – 468,066 Weighted average interest rate on drawn bank debt* 6.05% FLOATING INTEREST RATE $’000 FIXED INTEREST LESS THAN 1 yEAR $’000 FIXED INTEREST 1 TO 5 yEARS $’000 FIXED INTEREST OVER 5 yEARS $’000 NON INTEREST BEARING $’000 TOTAL $’000 29,686 20,736 140,822 – 13,839 – 13,839 191,244 – 4,292 35,691 51,787 561,802 31,367 35,691 51,787 91,770 680,647 TOTAL $’000 43,114 14,170 173,857 – 14,170 30 14,200 231,141 – 4,292 53,286 32,735 560,926 29,354 53,286 32,735 90,313 676,301 – – – – – – – – – – – – – – – – – – Weighted average interest rate* 3.30% 13.11% 10.70% 30 JUNE 2012 Financial Assets Cash and cash equivalents Receivables Secured loans Total financial assets Financial liabilities Interest bearing liabilities – bank Interest bearing liabilities – other Derivatives Payables Total financial liabilities Notional principal swap balance maturities* 43,114 – – – – 19,068 – – 154,759 43,114 19,068 154,759 560,926 – – – 560,926 – – – – – – 25,062 – – 25,062 – 98,703 306,999 225,000 – 630,702 Weighted average interest rate on drawn bank debt* 7.27% * rate calculated at 30 June excluding forward starts. ^ Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED117 annual report 2013 FLOATING INTEREST RATE $’000 FIXED INTEREST LESS THAN 1 yEAR $’000 FIXED INTEREST 1 TO 5 yEARS $’000 FIXED INTEREST OVER 5 yEARS $’000 NON INTEREST BEARING $’000 – – – – – – – – – – – 27,350 – – 27,350 42,942 – – – – – – – – 10,972 10,972 2.00% 58,043 – – 58,043 – 8.03% TOTAL $’000 10,972 4,025 14,997 58,043 27,350 11,251 8,645 – 4,025 4,025 – 11,251 8,645 19,896 105,289 – 42,942 FLOATING INTEREST RATE $’000 FIXED INTEREST LESS THAN 1 yEAR $’000 FIXED INTEREST 1 TO 5 yEARS $’000 FIXED INTEREST OVER 5 yEARS $’000 NON INTEREST BEARING $’000 9,990 – 9,990 2.19% 68,790 – – – – – – – – – – 5,635 – – – 19,632 – – TOTAL $’000 9,990 3,238 13,228 – 3,238 3,238 – – 16,709 6,895 68,790 25,267 16,709 6,895 23,604 117,661 – 42,942 – – – – – – – – – 22. FINANCIAL INSTRUMENTS (CONTINUED) (iv) Interest rate risk (continued) Abacus Hospitality Fund 30 JUNE 2013 Financial Assets Cash and cash equivalents Receivables Total financial assets Weighted average interest rate* Financial liabilities Interest bearing liabilities – bank Related party loans Derivatives Payables Total financial liabilities Notional principal swap balance maturities*# Weighted average interest rate on drawn bank debt* 30 JUNE 2012 Financial Assets Cash and cash equivalents Receivables Total financial assets Weighted average interest rate* Financial liabilities Interest bearing liabilities – bank Related party loans Derivatives Payables Total financial liabilities 68,790 5,635 19,632 Notional principal swap balance maturities* – – 42,942 Weighted average interest rate on drawn bank debt* 8.10% * rate calculated at 30 June excluding forward starts. # The Fund has an additional $83.4 million interest rate swap position which in notional terms exceeds the amount of debt borrowed, as a result of repaying bank debt from hotel sales, including Diplomat in October 2012 and Swissotel in June 2010. This means that after June 2014 more than 100% of the Fund’s debt will be hedged. 118 abacus property group 22. FINANCIAL INSTRUMENTS (CONTINUED) (iv) Interest rate risk (continued) Abacus Diversified Income Fund II 30 JUNE 2013 Financial Assets Cash and cash equivalents Receivables Total financial assets Financial liabilities Interest bearing liabilities – bank Derivatives Payables Total financial liabilities Notional principal swap balance maturities* Weighted average interest rate* 1.30% 30 JUNE 2012 Financial Assets Cash and cash equivalents Receivables Total financial assets Weighted average interest rate* 2.30% Financial liabilities Interest bearing liabilities – bank Derivatives Payables Total financial liabilities Notional principal swap balance maturities* Weighted average interest rate on drawn bank debt* * rate calculated at 30 June. 83,932 – – 83,932 – 8.85% 468 – 468 84,505 – – 84,505 226 – 226 Weighted average interest rate on drawn bank debt* 8.86% – 25,000 53,500 FLOATING INTEREST RATE $’000 FIXED INTEREST LESS THAN 1 yEAR $’000 FIXED INTEREST 1 TO 5 yEARS $’000 FIXED INTEREST OVER 5 yEARS $’000 NON INTEREST BEARING $’000 FLOATING INTEREST RATE $’000 FIXED INTEREST LESS THAN 1 yEAR $’000 FIXED INTEREST 1 TO 5 yEARS $’000 FIXED INTEREST OVER 5 yEARS $’000 NON INTEREST BEARING $’000 – – – – – – – – – – – – – – TOTAL $’000 468 1,218 1,686 – 1,218 1,218 – 6,210 1,919 8,129 84,505 6,210 1,919 92,634 – 78,500 – – – – – – – – – – – – – – – – – – – – – – – 78,500 – – – – – – – – TOTAL $’000 226 1,058 1,284 – 1,058 1,058 – 7,914 2,724 83,932 7,914 2,724 10,638 94,570 – 78,500 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED119 annual report 2013 TOTAL $’000 1,653 50 1,703 – 50 50 – 1,096 715 1,811 34,000 1,096 715 35,811 – 33,000 TOTAL $’000 799 9 808 – 9 9 – 1,843 828 2,671 34,000 1,843 828 36,671 – 33,000 22. FINANCIAL INSTRUMENTS (CONTINUED) (iv) Interest rate risk (continued) Abacus Miller Street Holding Trust 30 JUNE 2013 Financial Assets Cash and cash equivalents Receivables Total financial assets Weighted average interest rate* Financial liabilities Interest bearing liabilities – bank Derivatives Payables Total financial liabilities Notional principal swap balance maturities* Weighted average interest rate on drawn bank debt* 8.09% 30 JUNE 2012 Financial Assets Cash and cash equivalents Receivables Total financial assets 799 – 799 Weighted average interest rate* 2.30% Financial liabilities Interest bearing liabilities – bank Derivatives Payables Total financial liabilities Notional principal swap balance maturities* Weighted average interest rate on drawn bank debt* * rate calculated at 30 June. 34,000 – – 34,000 – 8.38% FLOATING INTEREST RATE $’000 FIXED INTEREST LESS THAN 1 yEAR $’000 FIXED INTEREST 1 TO 5 yEARS $’000 FIXED INTEREST OVER 5 yEARS $’000 NON INTEREST BEARING $’000 1,653 – 1,653 1.30% 34,000 – – 34,000 – – – – – – – – 33,000 – – – – – – – – – – – – – – – – FLOATING INTEREST RATE $’000 FIXED INTEREST LESS THAN 1 yEAR $’000 FIXED INTEREST 1 TO 5 yEARS $’000 FIXED INTEREST OVER 5 yEARS $’000 NON INTEREST BEARING $’000 – – – – – – – – – – – – – – – 33,000 – – – – – – – – 120 abacus property group 22. FINANCIAL INSTRUMENTS (CONTINUED) (iv) Interest rate risk (continued) Abacus Wodonga Land Fund 30 JUNE 2013 Financial Assets Cash and cash equivalents Receivables Total financial assets Weighted average interest rate* Financial liabilities Interest bearing liabilities – bank Derivatives Payables Total financial liabilities Notional principal swap balance maturities* Weighted average interest rate on drawn bank debt* FLOATING INTEREST RATE $’000 FIXED INTEREST LESS THAN 1 yEAR $’000 FIXED INTEREST 1 TO 5 yEARS $’000 FIXED INTEREST OVER 5 yEARS $’000 NON INTEREST BEARING $’000 TOTAL $’000 2,042 427 2,469 – 427 427 – 2,957 174 3,131 6,657 2,957 174 9,788 – – – – – – – 10,000 – 10,000 – – – – – – – – – – – – – – – – 2,042 – 2,042 2.74% 6,657 – – 6,657 – 12.66% Summarised interest rate sensitivity analysis The table below illustrates the potential impact a change in $A interest rates by +/- 1% would have had on the Group’s profit and equity on a pre-tax basis: 30 JUNE 2013 Financial assets Financial liabilities 30 JUNE 2012 Financial assets Financial liabilities AuD -1% +1% CARRyING AMOuNT FLOATING $’000 44,822 176,036 PROFIT $’000 (448) (26,330) 54,129 123,113 (541) (29,555) EquITy $’000 – – – – PROFIT $’000 448 26,619 541 25,101 EquITy $’000 – – – – The analysis for the interest rate sensitivity of financial liabilities includes derivatives. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED121 annual report 2013 22. FINANCIAL INSTRUMENTS (CONTINUED) (v) Price risk The Group is exposed to equity securities risk. Equity securities price risk arises from investments in listed and unlisted securities. The key risk variable is the quoted price of the securities, which is influenced by a range of factors, most of which are outside the control of the Group. As a result, the Group does not use financial instruments to manage the price risk exposure on property securities but instead regularly monitors levels of exposure and conducts sensitivity analysis for fluctuations in the quoted securities prices. A fluctuation of 15% in the price of the equity securities would impact the net profit after income tax expense of the Group, with all other variables held constant, by an increase/(decrease) of $0.49 million (2012: $0.51 million). (vi) Fair values The fair value of the Group’s financial assets and liabilities are approximately equal to that of their carrying values. In accordance with AASB 7 Financial Instruments: Disclosures the Group’s financial instruments are classified into the following fair value measurement hierarchy: (a) Level 1 Quoted prices (unadjusted) in active market for identical assets or liabilities; (b) Level 2 Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and (c) Level 3 Inputs for the asset or liability that are not based on observable market data. 122 abacus property group 22. FINANCIAL INSTRUMENTS (CONTINUED) (vi) Fair values (continued) The following table presents the Group’s assets and liabilities measured and recognised at fair value at 30 June 2013. 30 JUNE 2013 Current Derivative liabilities Total current Non-current Investment in securities – unlisted Investment in options Derivative liabilities Total non-current 30 JUNE 2012 Current Investment in securities – listed Investment in options Total current Non-current Investment in securities – unlisted Investment in options Derivative liabilities Total non-current There were no transfers between Levels 1, 2 and 3 during the year. LEVEL 1 2013 $’000 – – 371 – – 371 LEVEL 2 2013 $’000 (1,263) (1,263) – – (55,942) (55,942) LEVEL 1 2013 $’000 LEVEL 2 2013 $’000 – – – – – (79,752) 168 – 168 – – – – LEVEL 3 2013 $’000 – – 4,270 23,640 – 27,910 LEVEL 3 2013 $’000 – 7,885 7,885 LEVEL 4 2013 $’000 (1,263) (1,263) 4,641 23,640 (55,942) (27,661) LEVEL 4 2013 $’000 168 7,885 8,053 4,490 20,000 – 4,490 20,000 (79,752) (79,752) 24,490 (55,262) NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED123 annual report 2013 22. FINANCIAL INSTRUMENTS (CONTINUED) (vi) Fair values (continued) The following table is a reconciliation of the movements in unlisted securities and options classified as Level 3 for the year ended 30 June 2013. opening balance as at 30 June 2012 fair value movement through the income statement transfers to investment properties redemptions / conversions closing balance as at 30 June 2013 opening balance as at 30 June 2011 fair value movement through the income statement redemptions / conversions closing balance as at 30 June 2012 uNLISTED SECuRITIES $000 OPTIONS $’000 TOTAL $’000 4,490 27,885 32,375 170 – (19) 3,640 (7,885) – 3,810 (7,885) (19) 4,641 23,640 28,281 uNLISTED SECuRITIES $000 OPTIONS $’000 4,795 27,382 (50) (255) 503 – TOTAL $’000 32,177 453 (255) 4,490 27,885 32,375 Determination of fair value The fair value of listed securities is determined by reference to the quoted bid price of the entity at balance date. The fair value of unlisted securities is determined by reference to the net assets of the underlying entities. The fair value of interest rate swaps is determined using a generally accepted pricing model on a discounted cash flow analysis using assumptions supported by observable market rates. The fair value of the options is determined using generally accepted pricing models including Black-Scholes and adjusted for specific features of the options including share price, underlying net assets and property valuations and prevailing exchange rates. Sensitivity of Level 3 The potential effect of using reasonable possible alternative assumptions based on a change in the property valuations by 5%, a change in the property capitalisation rate by 0.5% and a change in the unit price of securities of 10% would have the effect of reducing the fair value by up to $0.4 million (2012: $0.4 million) or increase the fair value by $12.1 million (2012: $8.2 million). 124 abacus property group 23. CONTRIBUTED EQUITY (a) Issued stapled securities Stapled securities Issue costs Total contributed equity (b) Movement in stapled securities on issue At 30 June 2012 – distribution reinvestment plan – less transaction costs Securities on issue at 30 June 2013 2013 $’000 2012 $’000 1,308,406 1,271,794 (40,025) (39,800) 1,268,381 1,231,994 STAPLED SECuRITIES NuMBER ‘000 VALuE $’000 434,983 1,231,994 18,057 – 36,612 (225) 453,040 1,268,381 24. CAPITAL MANAGEMENT Abacus Property Group* The Group seeks to manage its capital requirements through a mix of debt and equity funding. It also ensures that Group entities comply with capital and distribution requirements of their constitutions and/or trust deeds, the capital requirements of relevant regulatory authorities and continue to operate as going concerns. The Group also protects its equity in assets by taking out insurance. The Group assesses the adequacy of its capital requirements, cost of capital and gearing (i.e. debt/equity mix) as part of its broader strategic plan. In addition to tracking actual against budgeted performance, the Group reviews its capital structure to ensure sufficient funds and financing facilities (on a cost effective basis) are available to implement the Group’s strategy that adequate financing facilities are maintained and distributions to members are made within the stated distribution guidance (i.e. paid out of underlying profits). The following strategies are available to the Group to manage its capital: issuing new stapled securities, activating its distribution reinvestment plan, electing to have the distribution reinvestment plan underwritten, adjusting the amount of distributions paid to members, activating a security buyback program, divesting assets, active management of the Group’s fixed rate swaps, directly purchasing assets in managed funds and joint ventures, or (where practical) recalibrating the timing of transactions and capital expenditure so as to avoid a concentration of net cash outflows. The Group manages the cash flow effect of interest rate risk by entering into interest rate swap agreements that are used to convert floating interest rate borrowings to fixed interest rates. Such interest rate swaps are entered into with the objective of hedging the risk of interest rate fluctuations in respect of underlying borrowings. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly monthly), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. Interest rate swap contracts have been recorded on the Statement of Financial Position at their fair value in accordance with AASB 139 Financial Instruments: Recognition and Measurement. The AIFRS documentation, designation and effectiveness requirements cannot be met in all circumstances, as a result derivatives do not qualify for hedge accounting and are recorded at fair value through the Statement of Income. * Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED125 annual report 2013 24. CAPITAL MANAGEMENT (CONTINUED) A summary of the Group’s key banking covenants and its compliance is set out below: METRICS Nature of facilities Group ICR Total gearing Debt covenants COVENANT REQUIREMENT / MEASuRE KEy DETAILS Secured, non recourse1 The Group has no unsecured facilities ≥ 2.02 ≤ 50%2 Compliant Group EBITDA (ex fair value P&L and impairment to goodwill and intangibles) / total interest expense Total liabilities (net of cash) / total tangible assets (net of cash) Key covenants include Bank LVR, Property ICR and Look Through Gearing 1. There are no market capitalisation covenants. 2. Condition of the current $400m Syndicated facility, $100m Working Capital facility and the $70m Bilateral facility. Consolidated Funds The Capital Management approach and strategies employed by the Group are also deployed for the funds ABP manages and which are consolidated in these accounts – AHF, ADIF II, AMSHT and AWLF (or the Consolidated Funds). Points unique to the capital management of these respective funds are: • The Consolidated Funds via their responsible entities comply with capital and distribution requirements of their constitutions and/or deeds, the capital requirements of relevant regulatory authorities and continue to operate as going concerns; and • There is currently no DRP for any of the Funds. A summary of compliance of banking covenants – by fund – is set out below: METRICS Nature of facilities AHF ADIF II AMSHT AWLF Secured, non recourse Secured, non recourse Secured, non recourse Secured, non recourse Debt covenants Compliant Compliant Compliant Compliant 126 abacus property group 25. INTEREST IN SUBSIDIARIES (a) Interest in subsidiaries with material non-controlling interest (“NCI”) The Group has the following subsidiaries with material non-controlling interest: NAME OF ENTITy 30 June 2013 Abacus Hospitality Fund* Abacus Miller Street Holding Trust Abacus Wodonga Land Fund^ 30 June 2012 Abacus Hospitality Fund Abacus Storage Fund** Abacus Miller Street Holding Trust PRINCIPAL PLACE OF BuSINESS Australia Australia Australia Australia Australia Australia (PROFIT)/LOSS ALLOCATED TO NCI $’000 ACCuMuLATED NCI $’000 % HELD By NCI 90 70 85 90 80 70 (5,278) 445 – 30,041 4,329 – (4,833) 34,370 3,874 (3,098) 358 1,134 32,039 – 5,375 37,414 The country of incorporation is the same as the principal place of business, unless stated otherwise. * The Abacus working capital facility ranks pari passu for downside but not on upside at fund wind up. ^ Abacus Wodonga Land Fund consolidated into the Group on 30 June 2013, therefore, there is no profit and loss. ** The Abacus Storage Fund merged with the Abacus Property Group in March 2012. Therefore, the only profit and loss had material non-controlling interest for the period 1 July 2011 to 6 March 2012 with the statement of financial position being Nil. Significant Restrictions There are no significant restrictions. (b) Summarised financial information about subsidiary with material NCI Summarised statement of financial position ABACuS HOSPITALITy FuND Current assets Current liabilities Net current assets Non-current assets Non-current liabilities Net non-current assets Net deficiency 2013 $’000 15,758 (67,790) 2012 $’000 27,326 (7,461) (52,032) 19,865 148,682 152,190 (117,798) (184,925) 30,884 (32,735) (21,148) (12,870) NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED127 annual report 2013 2013 $’000 62,214 (35,682) 2012 $’000 63,365 (828) 26,532 62,537 – – (20,348) (54,859) (20,348) (54,859) 6,184 7,678 2013 $’000 10,978 (173) 10,805 21,084 (48,053) (26,969) (16,164) 2013 $’000 53,841 628 (891) (263) (5,372) (5,635) 2013 $’000 3,743 (637) – (637) – (637) 2012 $’000 – – – – – – – 2012 $’000 51,064 (9,802) 8 (9,794) 4,789 (5,005) 2012 $’000 5,627 (515) – (515) – (515) 25. INTEREST IN SUBSIDIARIES (CONTINUED) (b) Summarised financial information about subsidiary with material NCI (continued) ABACuS MILLER STREET HOLDING TRuST Current assets Current liabilities Net current assets Non-current assets Non-current liabilities Net non-current assets Net assets ABACuS WODONGA LAND FuND Current assets Current liabilities Net current assets Non-current assets Non-current liabilities Net non-current assets Net deficiency Summarised statement of comprehensive income ABACuS HOSPITALITy FuND Revenue Profit / (loss) before income tax Income tax expense Profit / (loss) after tax Other comprehensive income Total comprehensive income / (expense) ABACuS MILLER STREET HOLDING TRuST Revenue Loss before income tax Income tax expense Loss after tax Other comprehensive income Total comprehensive income / (expense) 128 abacus property group 26. RELATED PARTY DISCLOSURES (a) Subsidiaries The consolidated financial statements include the financial statements of the following entities: ENTITy Abacus Group Holdings Limited and its subsidiaries Abacus (343 George St Sydney) Pty Ltd Abacus AAVT Pty Ltd Abacus Airways NZ Trust Abacus Castle Hill Trust Abacus CIH Pty Ltd Abacus Finance Pty Limited Abacus Forest Lodge Trust Abacus Funds Management Limited Abacus Griffith Avenue Trust Abacus HP Operating Co Pty Ltd Abacus HP Trust Abacus Investment Pty Ltd Abacus Wasjig Investments Pty Ltd Abacus Mariners Lodge Trust Abacus Mortgage Fund Abacus Mount Druitt Trust Abacus Musswellbrook Pty Ltd Abacus Nominee Services Pty Limited Abacus Nominees (No 5) Pty Limited Abacus Nominees (No 7) Pty Limited Abacus Nominees (No 9) Pty Limited Abacus Note Facilities Pty Ltd Abacus Pitt Street Property Trust Abacus Property Income Fund Abacus Property Services Pty Ltd Abacus SP Note Facility Pty Ltd Abacus Storage Funds Management Limited Abacus unitel Pty Ltd Abacus unitel Trust Abacus Wodonga Land Commercial Trust Amiga Pty Limited Bay Street Brighton unit Trust Childcare Trust 2 Clarendon Property Investments Pty Ltd Corporate Helpers Pty Ltd Main Street Pakenham unit Trust Abacus Group Projects Limited and its subsidiaries Abacus Property Pty Ltd Abacus Allara Street Trust Abacus Wasjig Holdings Pty Limited Abacus Repository Trust Abacus Ventures Trust EquITy INTEREST 2013 % 2012 % – 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 – 100 100 100 100 50 50 50 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 100 100 100 100 100 100 50 50 50 51 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED129 annual report 2013 EquITy INTEREST 2013 % 2012 % 100 100 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 25 25 100 100 25 100 100 100 100 100 100 100 100 100 100 100 – 100 75 100 – 100 – – 100 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 100 100 25 25 100 100 25 100 100 100 100 100 100 100 100 100 – 100 100 100 75 100 100 100 100 100 100 26. RELATED PARTY DISCLOSURES (CONTINUED) (a) Subsidiaries (continued) ENTITy Abacus Trust and its subsidiaries: Abacus 1769 Hume Highway Trust Abacus Alderley Trust Abacus Alexandria Trust Abacus Ashfield Mall Property Trust Abacus Birkenhead Point Trust Abacus Browns Road Trust Abacus Campbell Property Trust Abacus Epping Park Property Trust Abacus Greenacre Trust Abacus Australian Aggregation Holding Trust Abacus Hurstville Trust Abacus Industrial Property Trust Abacus Lisarow Trust Abacus Liverpool Plaza Trust Abacus Macquarie Street Trust Abacus Moorabbin Trust Abacus Moore Street Trust Abacus Northshore Trust 1* Abacus Northshore Trust 2* Abacus North Sydney Car park Trust Abacus Premier Parking Trust Abacus Sanctuary Holdings Pty Limited* Abacus Shopping Centre Trust Abacus Smeaton Grange Trust Abacus SP Fund Abacus Varsity Lakes Trust Abacus Virginia Trust Abacus Westpac House Trust Abacus 14 Martin Place Trust Abacus 171 Clarence Street Trust Abacus 309 George Street Trust Abacus 33 queen Street Trust Abacus Income Trust and its subsidiaries: Abacus Campbellfield Trust Abacus Chermside Trust Abacus Eagle Farm Trust Abacus Independent Retail Property Trust Abacus Lennons Plaza Trust Abacus Mertz Apartments Abacus Retail Property Trust Abacus Stafford Trust Abacus Tamworth Retail Trust Abacus Wollongong Property Trust * These entities are wholly owned by Abacus 130 abacus property group 26. RELATED PARTY DISCLOSURES (CONTINUED) (a) Subsidiaries (continued) ENTITy Abacus Storage Operations Limited and its subsidiaries: Balmain Storage Pty Limited Abacus Storage (Bulleen and Greensborough) Pty Limited Abacus Storage NZ Operations Pty Limited Abacus Storage Solutions Pty Limited Abacus Storage Solutions NZ Pty Limited Abacus uSI C Trust Abacus u Stow It A1 Trust Abacus u Stow It B1 Trust Abacus u Stow It A2 Trust Abacus u Stow It B2 Trust u Stow It Holdings Limited u Stow It Pty Limited Abacus Storage Property Trust and its subsidiary: Abacus Storage NZ Property Trust Abacus Diversified Income Fund II Abacus Hospitality Fund Abacus Miller Street Holding Trust Abacus Wodonga Land Fund EquITy INTEREST 2013 % 2012 % 100 100 100 100 100 100 100 100 100 100 100 100 100 – 10 30 15 100 100 100 100 100 100 100 100 100 100 100 100 100 – 10 30 15 Subsidiaries controlled by the Group with material non-controlling interest Abacus Hospitality Fund: The Group is deemed under AASB10 Consolidated Financial Statements to have control of AHF based upon the aggregate impact of (a) the Group’s role as responsible entity of AHF and (b) the size and variable nature of returns arising from the Group’s loans to AHF (as the loans provided by the Group to AHF rank pari passu for downside but not on upside at fund wind up). Abacus Diversified Income Fund II: The Group is deemed under AASB10 Consolidated Financial Statements to have control of ADIFII based upon the aggregate impact of (a) the Group’s role as responsible entity of ADIFII (b) the size and variable nature of returns arising from the Group’s loans to ADIFII (as the Abacus Working Capital Facility provided by the Group to ADIFII ranks pari passu on downside, but not the upside, at wind up) and (c) the capital and income guarantees made by the Group to unitholders of ADIFII under the ADIFII offer documents. Abacus Miller Street Holding Trust: The Group is deemed under AASB10 Consolidated Financial Statements to have control of AMSHT a) the Group’s role as responsible entity of AMSHT and (b) the Group’s 30% direct interest in the fund and the relative dispersion of the remaining interests not held by the Group. Abacus Wodonga Land Fund: The Group is deemed under AASB10 Consolidated Financial Statements to have control of AWLF a) the Group’s role as responsible entity of AWLF (waiving of fees) and (b) the Group’s 15% direct interest in the fund and the relative dispersion of the remaining interests not held by the Group. (b) Ultimate parent AGHL has been designated as the parent entity of the Group. (c) Key Management Personnel Details of key management personnel are disclosed in Note 28. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED131 annual report 2013 26. RELATED PARTY DISCLOSURES (CONTINUED) (d) Transactions with related parties Transactions with related parties other than associates and joint ventures Revenues Property management fees received / receivable 169 153 2013 $’000 2012 $’000 Transactions with associates and joint ventures Revenues Management fees received / receivable from joint ventures Management fees received / receivable from associates Distributions received / receivable from joint ventures Interest revenue from associates Interest revenue from joint ventures Other transactions Loan advanced to associates Loan repayments from associates Loan advanced to joint ventures Loan repayments from joint ventures Loan advanced from joint ventures Impairment charge Purchase of property from associates 2,163 279 6,466 – 1,352 – – (3,461) – 2,083 – 6,345 1,394 557 5,818 3,507 1,122 (8,186) 4,527 (134) 2,860 1,929 (3,507) – Terms and conditions of transactions Sales and fees to and purchases and fees charged from related parties are made in arm’s length transactions both at normal market prices and on normal commercial terms. Outstanding balances at year-end are unsecured and settlement occurs in cash. No provision for doubtful debts has been recognised or bad debts incurred with respect to amounts payable or receivable from related parties during the year. 132 abacus property group 26. RELATED PARTY DISCLOSURES (CONTINUED) (d) Transactions with related parties (continued) Entity with significant influence Calculator Australia Pty Ltd (“Kirsh”) is a significant securityholder in the Group with a holding of approximately 47% of the ordinary securities of the Group (2012: 41%). During the year, Abacus Property Services Pty Ltd was engaged to manage the following properties: PROPERTy RELATIONSHIP WITH KIRSH CHARGE PER ANNuM Birkenhead Point Shopping Centre Tenants in common 14 Martin Place 4 Martin Place Tenants in common 100% owned by Kirsh Birkenhead Point Marina Pty Ltd Joint Venture 3% of gross rental 3% of gross rental 3% of gross rental 3% of gross rental During the year, Abacus Funds Management Limited charged an asset management fee to the following entities: PROPERTy RELATIONSHIP WITH KIRSH CHARGE PER ANNuM Birkenhead Point Shopping Centre Tenants in common 0.2% of gross assets Mrs Myra Salkinder is a non-executive director of the Group and is a senior executive of Kirsh. AMT $ 548,955 286,991 169,499 55,414 AMT $ 396,075 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED133 annual report 2013 27. CONSOLIDATION OF ABACUS WODONGA LAND FUND On 30 June 2013, the Group consolidated Abacus Wodonga Land Fund in application of AASB 10 Consolidated Financial Statements. This is due to the combination of APG’s role as responsible entity and variable returns arising from its equity and loan investments in this fund. A loss on consolidation was incurred of $18.9 million. The fair value of the net assets of Abacus Wodonga Land Fund at the date of consolidation are set out below: CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventory TOTAL CURRENT ASSETS NON-CURRENT ASSETS Inventory Property, plant and equipment TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing loans and borrowings Related party loans Derivatives at fair value TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS $’000 2,042 428 7,763 10,233 19,037 13 19,050 29,283 174 174 6,657 19,495 2,957 29,109 29,283 – 134 abacus property group 28. KEY MANAGEMENT PERSONNEL (a) Compensation for Key Management Personnel Short-term employee benefits Post-employment benefits Other long-term benefits Security-based payments (b) Security holdings of Key Management Personnel Securities held in Abacus Property Group (number) 30 JUNE 2013 Directors J Thame F Wolf W Bartlett D Bastian M Irving Executives C Aarons R de Aboitiz R Baulderstone P Strain E Varejes Total 30 JUNE 2012 Directors J Thame F Wolf W Bartlett D Bastian M Irving Executives R de Aboitiz L Lloyd P Strain E Varejes Total 2013 $’000 2012 $’000 6,319,507 5,879,867 262,650 148,886 880,297 337,730 94,306 – 7,611,340 6,311,903 BALANCE 1 JULY 2012 APPOINTED/ (RETIRED) PURCHASES/ (SALES) BALANCE 30 JUNE 13 55,364 2,837,464 22,806 – – – 545,000 (545,000) – – – – 55,364 2,837,464 22,806 – 29,063 – 2,408 31,471 – 33,425 – 57,577 75,414 26,889 (33,425) 5,378 – – – – – (19,190) – 26,889 – 5,378 38,387 75,414 3,656,113 (546,158) (16,782) 3,093,173 BALANCE 1 JULY 2011 APPOINTED/ (RETIRED) PURCHASES/ (SALES) BALANCE 30 JUNE 12 55,364 2,837,464 22,806 900,000 26,718 3,939 11,185 32,590 61,975 3,952,041 – – – – – – – – – – – – – 55,364 2,837,464 22,806 (355,000) 545,000 2,345 29,063 29,486 (11,185) 24,987 13,439 33,425 – 57,577 75,414 (295,928) 3,656,113 All equity transactions with key management personnel other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the Group would have adopted if dealing at arm’s length. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED135 annual report 2013 28. KEY MANAGEMENT PERSONNEL (CONTINUED) (c) Loans to Key Management Personnel There were no loans to individuals that exceeded $100,000 at any time in 2013 or in the prior year. (d) Other transactions and balances with Key Management Personnel and their related parties During the financial year, transactions occur between the Group and Key Management Personnel which are within normal employee, customer or supplier relationship on terms and conditions no more favourable to than those with which it is reasonable to expect the entity would have adopted if dealing with Key Management Personnel or director-related entity at arm’s length in similar circumstances including, for example, performance of contracts of employment, the reimbursement of expenses and the payment of distributions on their stapled securities in the Group and on their investment in various Trusts managed by Abacus Funds Management Limited as Responsible Entity. 29. SECURITY BASED PAYMENTS (a) Recognised security payment expenses The expense recognised for employee services received during the year is as follows: Expense arising from equity-settled payment transactions The security-based payment are described below. 2013 $’000 1,168 2012 $’000 – (b) Type of security-based payment plan Security Acquisition Rights (SARs) The deferred variable incentive plan has been designed to align the interests of executives with those of securityholders by providing for a significant portion of the remuneration of participating executives to be linked to the delivery of sustainable underlying profit that covers the distribution level implicit in the Group’s security price. Key executives have been allocated SARs in the current financial year generally equal to the last current variable incentive paid. Allocations were based on the performance assessment completed in determining current variable incentive awards for the prior financial year, adjusted to take into account other factors that the Board considers specifically relevant to the purpose of providing deferred variable incentives. The SARs granted during the year vest as follows: VESTING DATE AMOuNT VESTED* September 2013 One quarter of the initial issue September 2014 One quarter of the initial issue September 2015 One quarter of the initial issue September 2016 One quarter of the initial issue POTENTIAL NuMBER TO VEST 232,313 232,313 232,313 232,313 * The Board is able to claw back unvested SARs if the distribution level fails by more than 10% below the sustainable annual distribution rate. For valuation purposes the SARs are equivalent to European call options (in that they may be “exercised” only at their maturity (i.e. vesting date)). The fair value of the SARs granted is estimated at the date of the grant using a trinomial tree model (using 500 steps) cross checked by a modified Black-Scholes model. The trinomial tree model and the Black-Scholes model generally produce the same values for an option over a non-dividend paying share, or where the option is entitled to the same distributions as are paid on the underlying security, as is assumed in this case, and if the time to exercise is the same, (i.e. at the end of the term). When SARs vest they will convert into ABP securities on a one for one basis or at the Board’s discretion a cash equivalent amount will be paid. 136 abacus property group 29. SECURITY BASED PAYMENTS (CONTINUED) (c) Summary of SARs granted The following table illustrates movements in SARs during the year: Opening balance Granted during the year Cancelled during the year Outstanding at the end of the year Exercisable at the end of the year 2013 NO. 2012 NO. – 2,976,923 929,252 12,785,714 – (15,762,637) 929,252 – – – 2012 n/a n/a n/a n/a The weighted average remaining life of the instrument at 30 June 2013 was 1.8 years (2012 N/A). The weighted average fair value of the SARs granted during the year was $2.41 (2012 N/A). The following table lists the inputs to the model used for the SARs plan for the year ended 30 June 2013: Expected volatility (%) Risk-free interest rate (%) Life of instrument (years) Model used 2013 20-25 2.55-2.67 0.3-3.3 Trinomial The expected life of the SARs is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the SARs is indicative of future trends, which may not necessarily be the actual outcome. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED137 annual report 2013 30. OTHER FINANCIAL LIABILITIES Abacus Property Group* The Group has provided the following guarantees to the ADIFII unitholders: uNIT TyPE Class A $1.00 Class B $1.00 Class C $0.75 CASH DISTRIBuTION yIELD GuARANTEE CAPITAL RETuRN GuARANTEE $1.00 per unit on 30 September 2013. 9% pa plus indexation (indexed in line with inflation in each year after 1 July 2011). $1.00 per unit at Fund termination (no later than 30 June 2017). 9% pa plus indexation (indexed in line with inflation in each year after 1 July 2011). $0.75 per unit at Fund termination (no later than 30 June 2017). The underwritten Distributions will be achieved by deferring the interest on the Working Capital Facility or by deferring any of the fees payable to the Group under the constitution of ADIFII (or a combination of these things) or in any other way the Group considers appropriate. Any interest or fee deferral or other funding support may be recovered if the actual cash distribution exceeds the cash required to meet the underwritten distribution at the expiration of the Fund term or on a winding up of the Fund. The Underwritten Capital Return will apply to all ADIFII units on issue as at 1 July 2013 (Class A) or on or after 1 July 2016 (Class B and C). At the time the Group will make an offer to acquire each Class A unit for $1.00, or ensure that each holder of Class B units receives back their $1.00 initial capital and each holder of Class C units receives back their $0.75 initial capital. The Underwritten Capital returns can be satisfied at the Group’s discretion (Class A) through either a payment in cash or by the Group issuing stapled securities in APG to an equivalent value based on the 10 day volume weighted average price of APG’s stapled securities over the period ending on 30 June 2013 or prior to issuing stapled securities as applicable. After 30 June 2016 the Group will, if required, set off all or part of the principal of the second secured Working Capital Facility loan provided to ADIFII in satisfaction of the Group’s obligations in respect of the underwritten Capital Return in respect of the Class B and Class C units. As a result of the consolidation of ADIFII under AASB10 the underwritten capital guarantee results in ADIFII’s units on issue being classified as a liability and at the end of the period the value was $56.3 million (2012: $56.3 million). The offer document for ADIFII was closed in December 2011 and no further equity will be raised. The actual guarantee exposure (if any) will be determined at the maturity date of the first capital guarantee in September 2013 ($11 million or 20% of the total guarantee exposure) and the balance of the guarantee exposure will be determined at Fund termination no later than 30 June 2017. * Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund. 138 abacus property group 31. COMMITMENTS AND CONTINGENCIES Abacus Property Group* Operating lease commitments – Group as lessee The Group has entered into a commercial lease on its offices. The lease has a term of three years with an option to renew for another three years. Future minimum rentals payable under non-cancellable operating lease as at 30 June 2013 are as follows: Within one year After one year but not more than five years More than five years 2013 $’000 930 2,813 471 4,214 2012 $’000 374 – – 374 Operating lease commitments – Group as lessor Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2013 are as follows: Within one year After one year but not more than five years More than five years 2013 $’000 91,579 210,783 74,248 2012 $’000 88,768 245,854 108,106 376,610 442,728 These amounts do not include percentage rentals which may become receivable under certain leases on the basis of retail sales in excess of stipulated minimums and, in addition, do not include recovery of outgoings. Capital and Other commitments At 30 June 2013 the Group had numerous commitments and contingent liabilities which principally related to property acquisition settlements, loan facility guarantees for the Group’s interest in the jointly controlled projects and funds management vehicles, commitments relating to property refurbishing costs and unused mortgage loan facilities to third parties. Commitments planned and/or contracted at reporting date but not recognised as liabilities are as follows: Within one year – gross settlement of property acquisitions – property refurbishment costs – property development costs – unused portion of loan facilities to outside parties 2013 $’000 2012 $’000 44,294 2,630 9,352 3,807 7,375 12,605 13,417 4,996 60,083 38,393 * Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust and Abacus Wodonga Land Fund. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED139 annual report 2013 31. COMMITMENTS AND CONTINGENCIES (CONTINUED) Capital and Other commitments (continued) In accordance with Group policy, the fair value of all guarantees are estimated each period and form part of the Group’s reported AIFRS results. There has been no other material change to any contingent liabilities or contingent assets. Contingent liabilities: Within one year – corporate guarantee 2013 $’000 2012 $’000 5,060 5,060 6,750 6,750 Abacus Diversified Income Fund II Operating lease commitments – as lessor Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2013 are as follows: Within one year After one year but not more than five years More than five years 2013 $’000 13,025 32,579 8,744 2012 $’000 14,168 40,714 16,143 54,348 71,025 These amounts do not include percentage rentals which may become receivable under certain leases on the basis of retail sales in excess of stipulated minimums and, in addition, do not include recovery of outgoings. Capital and Other commitments Within one year – property refurbishment costs Abacus Miller Street Holding Trust 2013 $’000 2,161 2,161 Operating lease commitments – as lessor Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2013 are as follows: Within one year After one year but not more than five years More than five years 2013 $’000 4,702 17,768 171 2012 $’000 1,745 1,745 2012 $’000 5,047 18,211 3,818 These amounts do not include percentage rentals which may become receivable under certain leases on the basis of retail sales in excess of stipulated minimums and, in addition, do not include recovery of outgoings. 22,641 27,076 140 abacus property group 31. COMMITMENTS AND CONTINGENCIES (CONTINUED) Abacus Wodonga Land Fund Capital and Other commitments Within one year – property development costs 32. AUDITOR’S REMUNERATION 2013 $’000 2012 $’000 1,130 1,130 – – 2013 $’000 2012 $’000 Amounts received or due and receivable by Ernst & Young Australia for: – an audit of the financial report of the entity and any other entity in the consolidated entity 977,390 958,000 – transactional advisory services – other assurance services – 262,300 40,800 – 1,018,190 1,220,300 33. EVENTS AFTER BALANCE SHEET DATE Other than as disclosed in this report, there has been no other matter or circumstance that has arisen since the end of the financial year that has significantly affected, 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. NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED DIRECTOR’S DECLARATION 141 annual report 2013 In accordance with a resolution of the Directors of Abacus Group Holdings Limited, we state that: In the opinion of the directors: a. the 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 2013 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including Australian Accounting Interpretations) and the Corporations Regulations 2001; b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2(b); and c. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 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 ended 30 June 2013. On behalf of the Board John Thame Chairman Sydney, 28 August 2013 Frank Wolf Managing Director 142 abacus property group NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2013CONTINUED143 annual report 2013 abacus property group 144 CORPORATE GOVERNANCE REPORT 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 About Abacus tab on the Abacus website at www.abacusproperty.com.au. Principle 1: Lay solid foundations for management and oversight Recommendation 1.1 The Board has adopted a charter that sets out the functions and responsibilities reserved by the Board, those delegated to the Managing Director and those specific to the Chairman. The conduct of the Board is also governed by the Constitution. The roles of Chairman and Managing Director are not exercised by the same individual. The primary responsibilities of the Board and the Managing Director are set out in the Board Charter. Senior executives reporting to the Managing Director have their roles and responsibilities defined in position descriptions and are given a letter of appointment on commencement. The Board Charter and Constitution are available on the Abacus website. Recommendation 1.2 Induction procedures are in place for all staff (including senior executives) that include a briefing on relevant aspects of Abacus’ financial position, strategies, operations and risk management policies as well as the respective rights, duties and responsibilities of the Board and senior executives. Each year the Board, with the assistance of the Managing Director, and the Remuneration and Nomination Committee undertakes a formal process of reviewing the performance of senior executives. The measures generally relate to the performance of Abacus and the performance of the executive individually. The Managing Director is not present at the Board or Remuneration and Nomination Committee meetings when his own remuneration and performance is being considered. An annual review has taken place in the reporting period in accordance with the process outlined above. Principle 2: Structure the board to add value Recommendation 2.1 The board comprises one executive director and four non-executive directors. The majority of the Board (Messrs Thame, Irving and Bartlett) are independent members. The board has determined that an independent director is one who: • is not a substantial security holder or an officer of, or is not otherwise associated directly with, a substantial security holder of the Group; • has not within the previous three years been employed in any executive capacity; • has not within the last three years been a principal of a material professional adviser or a material consultant to the Group; or an employee materially associated with the service provided; 145 annual report 2013 • is not a material supplier or customer of the Group, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; or • does not have a material contractual relationship with the Group other than as a director. No independent non-executive director has a relationship significant enough to compromise their independence on the Board. Non-executive directors confer regularly without management present. Any change in the independence of a non-executive director would be disclosed and explained to the market in a timely manner. 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 page 34. Directors’ independent advice Directors may seek independent professional advice with the Chairman’s consent, which will not be unreasonably withheld or delayed, on any matter connected with the performance of their duties, and which advice will be at the Group’s expense. Recommendation 2.2 The Chairman of the Board (Mr John Thame) is an independent, non-executive director. Recommendation 2.3 The roles of Chairman and Chief Executive Officer/Managing Director are not exercised by the same individual. The division of responsibility between the Chairman and Managing Director has been agreed by the Board and is set out in the Board Charter. Recommendation 2.4 The Board has established a Remuneration and Nomination 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 35. The Chairman of the committee is independent. The Selection and Appointment of Non-Executive Directors Policy sets out the procedures followed when considering the appointment of new directors. The Remuneration and Nomination Committee Charter and the Selection and Appointment of Non-Executive Directors Policy are available on the Abacus website. The Board is committed to workplace diversity, with a particular focus on supporting the representation of women at a senior level of the Group and on the Board. The Diversity Policy is available on the Abacus website. Over 48% of Abacus’ employees are women. Abacus has female representation at both the Board (20%) and senior management (14%) level. In 2011, the Board set female representation at Board level as a priority and this was met in April 2011 with the appointment of a female director. In the current period, Abacus has recruited from a diverse pool of candidates for all positions filled during the year and has a number of employees with flexible employment arrangements to take account of domestic responsibilities. 146 abacus property group CORPORATE GOVERNANCE REPORT 30 JuNE 2013 CONTINuED Recommendation 2.5 The Board has a documented Performance Evaluation Policy which outlines the process for evaluating the performance of the Board, its committees and individual directors. An annual review has taken place in the reporting period in accordance with the policy. Principle 3: Promote ethical and responsible decision-making Recommendation 3.1 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. The Code of Conduct is available on the Abacus website. Recommendation 3.2 The Diversity Policy is available on the Abacus website. The Board is committed to workplace diversity, with a particular focus on supporting the representation of women at a senior level of the Group and on the Board. Over 48% of Abacus’ employees are women. In 2011, the Board set female representation at Board level and senior management as a priority. Abacus currently has female representation at both the Board (20%) and senior management (14%) level. Abacus has recruited from a diverse pool of candidates for all positions filled during the year and has a number of employees with flexible employment arrangements to take account of domestic responsibilities. Principle 4: Safeguard integrity in financial reporting Recommendation 4.1, 4.2 and 4.3 The Board has established an Audit and Risk Committee. The Audit and Risk Committee comprises three independent non-executive directors and one non-independent non- executive director 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 35. Other directors that are not members of the committee, the external auditor and other senior executives attend meetings by invitation. The Audit and Risk 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 and Risk Committee Charter. The Audit and Risk Committee Charter is available on the Abacus website. Principle 5: Make timely and balanced disclosure Recommendation 5.1 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. The Continuous Disclosure and Securityholder Communications Policy is available on the Abacus website. 147 annual report 2013 Principle 6: Respect the rights of securityholders Recommendation 6.1 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. The Abacus website also includes webcasts of the results briefings. The Group keeps a summary record for internal use of the issues discussed at group and one-on-one briefings with investors and analysts, including a record of those present where appropriate. The Continuous Disclosure and Securityholder Communications Policy is available on the Abacus website. 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 Recommendation 7.1 and 7.2 The Business Risk Management Policy dealing with oversight and management of material business risks is set out in the corporate governance information section on the Abacus website. The Group’s Risk Management Framework was developed in consultation with an external consultant. under the compliance plan, the responsible managers report regularly on the risks they manage and any emerging risks. Independent consultants are engaged on an ad hoc basis who review business processes and undertake formal assessments throughout the year. These assessments are provided to the Audit and Risk Committee for review. The Audit and Risk Committee has responsibility for reviewing the Group’s risk management framework. The risk management framework is formally reviewed annually. This review is initially carried out by the Compliance and Risk Manager and then reviewed by the Audit and Risk Committee and the Board to assess any necessary changes. Recommendation 7.3 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 risk management and internal compliance. The statement also confirms that the statement is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. 148 abacus property group CORPORATE GOVERNANCE REPORT 30 JuNE 2013 CONTINuED Principle 8: Remunerate fairly and responsibly Recommendation 8.1 The Board has established a Remuneration and Nomination Committee. The Remuneration and Nomination Committee is responsible for assessing the processes for evaluating the performance of the Board and key executives. A copy of the committee charter is available on the Abacus website. The Chairman of the Remuneration and Nomination Committee is independent. The Group’s remuneration policies including security-based payment plans and the remuneration of key management personnel are discussed in the Remuneration Report. The Remuneration and Nomination Committee may seek input from individuals on remuneration policies but no individual employee is directly involved in deciding their own remuneration. The members of the committee and their attendance at meetings are provided on page 35. Non-executive directors are paid fees for their service and do not participate in other benefits (with the exception of Group travel insurance cover) which may be offered other than those which are statutory requirements. ASX ADDITIONAL INFORMATION 149 annual report 2013 Abacus Property Group is made up of the Abacus Trust, Abacus Income Trust, Abacus Storage Property Trust, Abacus Group Holdings Limited, Abacus Group Projects Limited and Abacus Storage Operations Limited. The responsible entity of the Abacus Trust and Abacus Income Trust is Abacus Funds Management Limited. The responsible entity of the Abacus Storage Property Trust is Abacus Storage Funds Management Limited. Unless specified otherwise, the following information is current as at 27 August 2013. Number of holders of ordinary fully paid stapled securities 9,293 Voting rights attached to ordinary fully paid stapled securities one vote per stapled security Number of holders holding less than a marketable parcel of ordinary fully paid stapled securities Secretary, Abacus Funds Management Limited Secretary, Abacus Storage Funds Management Limited Secretary, Abacus Group Holdings Limited Secretary, Abacus Group Projects Limited Secretary, Abacus Storage Operations Limited Registered office Abacus Funds Management Limited Abacus Storage Funds Management Limited Abacus Group Holdings Limited Abacus Group Projects Limited Abacus Storage Operations Limited Registry 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 SECURITYHOLDERS Calculator Australia Pty Limited 685 Ellis Varejes Level 34, Australia Square 264-278 George Street Sydney NSW 2000 +61 2 9253 8600 Boardroom Pty Limited Level 7, 207 Kent Street Sydney NSW 2000 +61 2 9290 9600 none none NUMBER OF SECURITIES 213,046,573 150 abacus property group ASX ADDITIONAL INFORMATION 30 JuNE 2013 CONTINuED SECURITIES REGISTER NuMBER OF SECuRITIES 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001-over Totals TOP 20 LARGEST SECURITYHOLDINGS HOLDER NAME CITICORP NOMINEES PTy LIMITED CALCULATOR AUSTRALIA PTY LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED HSBC CuSTODy NOMINEES (AuSTRALIA) LIMITED CALCULATOR AUSTRALIA PTY LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMS PTY LTD JP MORGAN NOMINEES AUSTRALIA LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED CITICORP NOMINEES PTY LIMITED EQUITY TRUSTEES LIMITED AUSTRALIAN EXECUTOR TRUSTEES LIMITED BuTTONWOOD NOMINEES PTy LTD PLuTEuS (NO 164) PyT LIMITED F M WOLF PTy LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED NULIS NOMINEES (AUSTRALIA) LIMITED NAVIGATOR AUSTRALIA LTD NuMBER OF SECuRITIES 171,356,914 42,747,587 38,053,188 29,440,277 20,389,165 19,925,132 9,101,391 7,240,348 7,112,691 6,136,142 4,866,468 4,496,801 3,119,063 2,810,916 2,103,863 1,484,742 1,272,723 1,254,673 1,214,209 1,213,264 NuMBER OF SECuRITyHOLDERS 1,480 3,403 2,184 2,142 84 9,293 % ISSuED SECuRITIES 37.131 9.263 8.246 6.379 4.418 4.317 1.972 1.569 1.541 1.330 1.054 0.974 0.676 0.609 0.456 0.322 0.276 0.272 0.263 0.263 151 annual report 2013 NOTES 152 abacus property group NOTES AbAcus ProPerty GrouP GLossAry At 30 June 2012, Abacus Property Group comprised Abacus Trust, Abacus Income Trust, Abacus Storage Property Trust, Abacus Group Holdings Limited, Abacus Group Projects Limited and Abacus Storage Operations Limited. The Group structure is illustrated below. Abacus Abacus Funds Management Limited, the responsible entity of the trusts AGHL Abacus Group Holdings Limited AGPL Abacus Group Projects Limited AGHL has been identified as the parent entity of the Group. The financial reports of the Group for the year ended 30 June 2013 comprise the consolidated financial reports of AGHL and its controlled entities, AT and its controlled entities, AGPL and its controlled entities, AIT and its controlled entities, ASOL and its controlled entities, ASPT and its controlled entities, Abacus Hospitality Fund and its controlled entities, Abacus Diversified Income Fund II and its controlled entities, Abacus Miller Street Holding Trust and its controlled entity and Abacus Wodonga Land Fund. AIT Abacus Income Trust APG Abacus Property Group ASOL Abacus Storage Operations Limited ASPT Abacus Storage Property Trust AT Abacus Trust Group Abacus Property Group AbAcus ProPerty GrouP Listed Entities: AGHL/AGPL/ ASOL/AT/AIT/ASPT Abacus Property Group has significant influence over these managed funds and the adoption of AASB 10 results in the consolidation of these funds. Investment Portfolio Office Storage Retail Industrial Other Property Ventures Funds Management Abacus Hospitatlity Funds Abacus Miller Street Fund ADIF II Abacus Wodonga Land Fund u a . m o c . e p o c s m a e t y b d e c u d o r p d n a d e n g i s e D abacus property Group level 34 australia Square 264-278 George Street Sydney nSW 2000 t +61 2 9253 8600 F +61 2 9253 8616 e enquiries@abacusproperty.com.au www.abacusproperty.com.au 2013 abacus property group annual report a b a c u S p r o p e r t y G r o u p 2 0 1 3 a n n u a l r e p o r t

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