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Abacus Annual Report 2014
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
Financial Highlights 4
Who is Abacus 6
Chairman & Managing Director’s Report 12
Our Performance 14
Sustainability 16
Members of the Board 22
Senior Executive Team 24
Directors Report 33
Auditor’s Independence Declaration 64
Consolidated Income Statement 66
Consolidated Statement of other Comprehensive Income 67
Consolidated Statement of Financial Position 68
Consolidated Statement of Changes in Equity 70
Consolidated Statement of Cash Flow 71
Notes to the Financial Statements 72
Directors’ Declaration 151
Independent Audit Report 152
Corporate Governance Report 154
ASX Additional Information 158
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OUR BUSINESS
MODEL IS
FOCUSED ON
UNDERSTANDING
THE NATURE
OF EACH ASSET
WE CONTROL
AND THE
OPPORTUNITIES
THEY PRESENT.
ABACUS
PROPERTY
GROUP
GLOSSARY
– Abacus Abacus Funds Management
Limited, the responsible entity
of the trusts
– AGHL Abacus Group Holdings Limited
– AGPL Abacus Group Projects Limited
– AIT Abacus Income Trust
– APG Abacus Property Group
– ASOL Abacus Storage
Operations Limited
– ASPT Abacus Storage Property Trust
– AT Abacus Trust
– Group Abacus Property Group
At 30 June 2014, 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.
AGHL has been identified as the
parent entity of the Group. The
financial reports of the Group for the
year ended 30 June 2014 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 Abacus Wodonga
Land Fund.
2 Abacus Property Group
RIGHT Birkenhead Point
Shopping Centre and Marina
Sydney NSW
FINANCIAL
HIGHLIGHTS
11%
GROWTH IN
UNDERLYING EPS
94.6%
OCCUPANCY
4.5%
LIKE-FOR -LIKE RENTAL GROWTH
$90.3M
CASH FLOW FROM OPERATIONS
GROWTH
IN UNDERLYING PROFIT
RETURN TO
SECURITY
HOLDERS
17.4% 21%
$1.9 BILLION
OF TOTAL ASSETS
4 Abacus Property Group
UNDERLYING PROFIT
FINANCIAL HIGHLIGHTS
2014
2013
2012
($ MILLION)
Consolidated statutory net profit1
$108.3m
$61.1m
$8.5m
Underlying profit2
$101.3m
$83.8m
$76.8m
Cashflow from operations
$90.3m
$105.7m
$79.6m
Underlying profit per security
20.8c
18.8c
23.7c
19.2c
19.9c
64.9
72.2
76.8
83.8
101.3
Cashflow from operations per security
18.6c
FY10
FY11
FY12
FY13
FY14
Distributions per security3
16.75c
16.50c
16.50c
Interest over ratio4
4.8x
3.3x
3.2x
UNDERLYING EARNINGS
PER SHARE (CENTS)
BALANCE SHEET METRICS
2014
2013
2012
Total assets
$1.9bn
$1.8bn
$1.7bn
Net tangible assests5
$1.2bn
$1.0bn
$1.0bn
19.5
19.4
19.2
18.8
20.8
Covernant gearing7
FY10
FY11
FY12
FY13
FY14
Total debt drawn
$500m
$565m
$567m
NTA per security
Gearing6
Debt term to maturity
Average cost of debt8
$2.38
23.4%
28.6%
4.6yrs
5.4%
$2.32
28.4%
36.6%
2.1yrs
6.1%
$2.34
28.6%
36.8%
3.0yrs
7.3%
DISTIBUTIONS PER SECURITY
(CENTS)
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 2014, 1 July 2013 and 2 July 2012).
4. Calculated as underlying EBITDA divided by interest expense.
5. Excludes external non-controlling interests of $36.8 million (2013: $43.8 million 2012: $51.0 million).
15.75
16.5
16.5
16.5
16.75
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).
FY10
FY11
FY12
FY13
FY14
8. Weighted average base rate plus margin on drawn amount plus facility line fees.
11%
GROWTH IN
UNDERLYING EPS
94.6%
OCCUPANCY
4.5%
LIKE-FOR -LIKE RENTAL GROWTH
GROWTH
IN UNDERLYING PROFIT
17.4% 21%
RETURN TO
SECURITY
HOLDERS
$90.3M
CASH FLOW FROM OPERATIONS
$1.9 BILLION
OF TOTAL ASSETS
UNDERLYING PROFIT
($ MILLION)
FINANCIAL HIGHLIGHTS
2014
2013
2012
Consolidated statutory net profit1
$108.3m
$61.1m
$8.5m
Underlying profit2
$101.3m
$83.8m
$76.8m
Cashflow from operations
$90.3m
$105.7m
$79.6m
64.9
72.2
76.8
83.8
101.3
Cashflow from operations per security
18.6c
Underlying profit per security
20.8c
18.8c
23.7c
19.2c
19.9c
FY10
FY11
FY12
FY13
FY14
Distributions per security3
16.75c
16.50c
16.50c
Interest cover ratio4
4.8x
3.3x
3.2x
UNDERLYING EARNINGS
PER SHARE (CENTS)
BALANCE SHEET METRICS
2014
2013
2012
Total assets
Net tangible assets5
NTA per security
Gearing6
19.5
19.4
19.2
18.8
20.8
Covenant gearing7
$1.9bn
$1.8bn
$1.7bn
$1.2bn
$1.0bn
$1.0bn
$2.38
23.4%
28.6%
$2.32
28.4%
36.6%
$2.34
28.6%
36.8%
FY10
FY11
FY12
FY13
FY14
Total debt drawn
$500m
$565m
$567m
Debt term to maturity
Average cost of debt8
4.6yrs
5.4%
2.1yrs
6.1%
3.0yrs
7.3%
DISTRIBUTIONS PER SECURITY
(CENTS)
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 2014, 1 July 2013 and 2 July 2012).
4. Calculated as underlying EBITDA divided by interest expense.
5. Excludes external non-controlling interests of $36.8 million (2013: $43.8 million 2012: $51.0 million).
15.75
16.5
16.5
16.5
16.75
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).
FY10
FY11
FY12
FY13
FY14
8. Weighted average base rate plus margin on drawn amount plus facility line fees.
Annual Report 2014 5
ABACUS
SINCE 1996
Our core plus presence and track
record has facilitated joint ventures
with a number of sophisticated global
third party capital providers across our
portfolio of investment opportunities.
We look for assets and projects
in major centres, typically on the
Eastern seaboard of Australia, that
are mispriced by the market that we
believe have the potential for income
and capital growth. Our philosophy
with self-storage properties is focused
on Australia and New Zealand and
includes regional locations.
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.
Currently Abacus has total assets of
$1.9 billion and a market capitalisation
of over $1.4 billion and is included in
the S&P/ASX 200 Index.
Abacus’ strategy is to invest our
capital into core plus properties.
We take advantage of value adding
opportunities to drive long term total
returns and maximise securityholder
value. We do this through the
acquisition, development and active
management of property assets by:
– taking advantage of our
specialised knowledge and market
position as the only listed core plus
investor;
– investing in core plus property
investments that are expected to
yield 12-15% per annum equity
total returns over time;
– driving value through active
management of the asset portfolio
and through the reinvestment of
sale proceeds.
6 Abacus Property Group
1996
Abacus was formed in 1996
as a boutique property
syndicator, providing
property based investment
opportunities for retail
clients of financial planners.
20012002
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.
2008
In 2008, Abacus Property
Group was included in the
S&P/ASX 200 Index.
2006
In 2006, Abacus merged
with the Abacus Diversified
Income Fund, increasing
Group assets to $835 million.
2012
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.
LEFT 33 Queen Street
Brisbane QLD
TOP RIGHT Birkenhead Point
Shopping Centre and Marina
Sydney NSW
Annual Report 2014 7
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.
THE PHILOSOPHY
Properties that have realistic
prospects for increased
capital growth through active
management
R O P E R T Y ACQUISITIO
N
P
N
O
I
T
A
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L
A
V
E
T
N
E
M
T
S
E
INV
M
E
N
T
A
S
S
E
T M
A
NAGE
Where appropriate
asset is returned to
market
Significant asset
management
experience is applied
to drive returns
INVESTMENT
PORTFOLIO
Abacus Property Group holds a
diversified investment portfolio of
office, 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.
PROPERTY VENTURES
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.
FUNDS MANAGEMENT
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.
Following the end of the
year, 484 St Kilda Road
was sold for $94 million.
The asset was acquired
for $68 million in 2011
in joint venture with
Heitman LLC as part of
our wholesale third party
strategy.
LEFT 180 Queen Street
Brisbane QLD
TOP RIGHT City view
from 33 Queen Street
Brisbane QLD
RIGHT 484 St Kilda Road
Melbourne VIC
Annual Report 2014 11
CHAIRMAN &
MANAGING
DIRECTOR’S
REPORT
DEAR
SECURITYHOLDERS
This year has been
pleasing for Abacus
Property Group.
We delivered another strong result
with impressive growth in underlying
earnings and underlying earnings per
security. The balance sheet remains
strong with significant acquisition
capacity (which we believe will be
utilised over the near term).
All business sectors have contributed
to a strong result in 2014 with
underlying earnings growth of
21%. Abacus delivered an
improved underlying profit result
of $101 million for the financial year
to 30 June 2014, growing from
$83.8 million from the prior year.
We also delivered 11% growth in
underlying earnings per security this
year. Underlying earnings per security
grew to 20.8 cents and was backed by
cashflow from operations per security
of 18.6 cents.
These strong results underwrote our
distributions to securityholders and
provided the opportunity to increase
distributions to 16.75 cents per
security and providing surplus capital
for re-investment.
Abacus has worked hard over the last
few years to ensure that securityholder
distributions are covered by earnings
from recurring sources. This ensures
that securityholder distributions are
provided from stable and secure
sources that underpin the delivery
of distributions to securityholders.
As a result, and by prudently
maintaining our distribution rate over
the last 3 years, we have successfully
driven recurring earnings to over
100% coverage while also increasing
distributions for the year.
Abacus securityholders had another
successful year with total returns of
17.4%, significantly outperforming
the benchmark index the S&P/ASX
200 A-REIT Accumulation index, which
includes all the major listed property
groups and takes account of their
price and distribution performance.
The index delivered an 11.1% total
return for the year.
The accompanying annual financial
report includes our operating and
financial review (OFR) on pages 33
to 44. 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.
We encourage you to read the OFR.
SUSTAINABILITY
In 2013 Abacus adopted a formal
sustainability protocol. The protocol
is in contained in the sustainability
report on page 16 of the Annual
Report. We have developed a number
of measures that enable us to monitor
and benchmark the sustainability
performance of our assets. This report
illustrates Abacus has systematically
measured the environmental footprint
from its operations and management
and we intend to compare our key
performance indicators over time
to help us manage and reduce our
consumption of natural resources.
As this is the first year we have no
comparable data. We encourage you
to read this report.
12 Abacus Property Group
Abacus is well positioned to improve
the environmental sustainability of our
buildings through efficient property
management and development and
upgrade of buildings to incorporate
more efficient plant and equipment.
The responsible management of our
buildings will also contribute to capital
appreciation of those buildings over
time.
OUTLOOK
Our focus in FY15 remains the
sourcing of assets and the delivery
of core plus activities across our asset
base and residential development
projects to maintain our current growth
trajectory. We have had a successful
start to the year so far with the sale
of part of our Jack Road residential
project and also the acquisition of
a 70% interest in The World Trade
Centre in Melbourne in a joint venture
with global investment firm KKR.
Our growth strategies will continue
to utilise our third party capital
relationships as opportunities arise.
The business is strong and we
will maintain our core plus active
strategy and adherence to property
fundamentals. We are committed to
delivering consistent and growing
total returns to securityholders. We are
confident we will continue to source
strong core plus assets and projects.
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 continue to
deliver strong long term total returns.
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
Annual Report 2014 13
OUR
PERFORMANCE
FY14 FINANCIAL
RESULTS
We have delivered a strong result
across all of the Group’s main financial
and capital metrics.
Abacus’ total assets increased over
the year to $1.9 billion, with net assets
growing to $1.2 billion. The Group’s
net tangible asset backing per security
improved to $2.38 from $2.32 and
reflected the strong improvement in
the Group’s retail portfolio in particular
Ashfield Mall and Birkenhead Point
Shopping Centre and Marina, both
located in Sydney, NSW.
The Abacus balance sheet continues
to maintain good levels of liquidity
and gearing, providing substantial
ability to add to our investment
portfolio and project pipeline through
acquisitions in the coming year.
Gearing remains low at 23.4%,
well within our target gearing limit
of 35%. At 30 June 2014, Abacus had
$178 million of available liquidity that
provides capacity for use for up to
$294 million of accretive acquisitions.
There are no debt expiries in 2015 and
our average debt term to maturity is
over 4.6 years. We anticipate Abacus’
weighted average interest rate will
remain relatively stable as current
capacity is utilised and anticipate
it should be no greater than 6.15%
over the next year.
14 Abacus Property Group
OVERVIEW OF
OUR OPERATING
DIVISIONS
Our investment portfolio delivered
a $111.1 million EBITDA1 result for
the financial year. This result was 27%
above 2013 and was attributable to a
strong increase in net rental income
over the year of over 17% following
the contribution from of FY13 and
FY14 acquisitions. Despite the
uncertain economic environment and
the pressure on retail and office rentals
the Group’s asset managers have
achieved improved metrics across the
commercial portfolio with occupancy
up to 94.6% and like for like rental
growth of 4.5%. The Abacus portfolio
offers embedded long term capital
and earnings growth. Abacus remains
focused on maintaining revenue and
cashflows to support securityholder
distributions.
While the office leasing environment
remains weak, we believe Abacus’
portfolio is well suited to these
challenging conditions. The office
portfolio has limited exposure to
full floor or multi-floor tenants,
and is configured more for multi-
tenanted floors. This allows us to work
proactively with our tenants to contract
or expand and adjust their space
requirements.
Our retail portfolio is largely based
around properties that are the
dominant trader in the respective
trade areas. They are heavily centred
on non-discretionary and convenience
based shopping and trade well in their
respective markets. They continue
to deliver strong like for like rental
growth supported by above market
moving annual turnover growth.
Our industrial portfolio is largely
focused on assets with strong yields
on sites that offer alternative strategic
value.
The commericial portfolio is diversified
across asset classes that are well
located, largely along the eastern
seaboard in major metropolitan areas.
We believe the geographic and sector
diversification provides a level of
security and stability to the portfolio’s
property income and cashflows.
The storage portfolio delivered
improved operating performance in
both the Australia and New Zealand
markets. The key driver was increased
revenue from improved portfolio
occupancy. This is evident with
average portfolio occupancy across
the financial year at 85.0%, up from
81.8%. This improvement in portfolio
utilisation was despite the inclusion
of additional area being developed
across the portfolio. The average
portfolio rental yield across the year
was largely consistent year on year
at $250 per m² average for FY14,
up from $248 per m².
Acquisition activity during the period
also increased portfolio revenue,
namely through the settlement of
two acquisitions with existing storage
operations or industrial tenants in
place (Kingston, QLD and Rouse Hill,
NSW). Other acquisitions during the
period were mostly assets with future
storage conversion potential.
These opportunities are currently
being advanced and at various stages
of development from the planning
approval stage to construction.
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 $309 million in property
venture projects which includes
$12 million of minority investments.
These projects, as we have illustrated,
provide strong potential for
outperformance as projects and
investments complete.
The Property Ventures division
generated a strong and consistent
underlying EBITDA of $26.8 million
for the year, a 0.4% increase to FY13
result of $26.6 million. The Bay Street
residential and retail development in
Brighton, VIC completed during the
year and generated a total profit to the
Group of over $10 million. Anticipating
the completion of our Bay Street
project, Abacus initiated a number of
new residential development projects,
investing a further $47 million.
FUNDS MANAGEMENT
The funds management business
generated an underlying EBITDA
result of $15.3 million for the year
providing a return of 9.0% on total
funds invested across the platform
of $169 million5. This result was
slightly below the FY13 result of
$16.6 million, which is consistent with
a reduction of fee and interest income
by virtue of 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. In line with
this strategy, Abacus sold six assets
from ADIF II marginally above carrying
value for $60.8 million in June 2014.
1. Earnings before interest, depreciation, tax and amortisation.
2. 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.
3. Cashflow from operations of Abacus excludes cost of inventory sales
of $47.9 million.
4. Like for like properties excluding those assets classified as development
5. Includes $11.2million relating to an associate’s equity accounted
holdings in ADIF II and AHF.
Annual Report 2014 15
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
REPORT
For Abacus, sustainability means considering environmental, social and
governance risks and opportunities in our business operations, from
our investment decision-making process to our asset management and
development activities and any asset realisations.
THE ENVIRONMENT
This is the first year that Abacus
has systematically measured the
environmental footprint from its
operations and management.
We intend to compare our key
performance indicators over time
to help us manage and reduce our
consumption of natural resources.
Abacus is well positioned to improve
the environmental sustainability of our
buildings through efficient property
KEY PERFORMANCE INDICATORS
management and development
and upgrade of buildings which
incorporate more efficient plant
and equipment. The responsible
management of our buildings will also
contribute to capital appreciation of
those buildings over time.
Our key performance indicators for
environmental sustainability are set out
in the table below. Total energy use is
a measure of electricity, gas and diesel
consumed in the management of our
properties. Energy intensity identifies
the energy use for each square
metre of gross lettable area. We have
similarly measured our water usage
and water intensity at our managed
properties. Carbon emissions combine
direct emissions from gas and diesel
consumed for base building services
(scope 1) and indirect emissions from
electricity consumed (scope 2).
ENVIRONMENTAL
MEASURE
Total Energy Use
Energy Intensity
Total Water Use
Water intensity
Carbon Emissions
KEY PERFORMANCE
INDICATOR
Energy use from electricity, gas and diesel (GJ)
Energy use per square metre of Gross lettable area (MJ/m2)
Water consumption (KL)
Water use per square metre of Gross Lettable Area (KL/m2)
Carbon emissions (scope 1 and scope 2) associated with energy
consumed (Tonnes CO2e)
YEAR ENDED
30 JUNE 2014
144,886 GJ
571 MJ/m2
254,685 KL
1.0 KL/m2
26,091 tCO2e
Annual Report 2014 17
SUSTAINABILITY REPORT
CONTINUED
Key performance indicators are
measured for properties under our
operational control as defined in the
National Greenhouse and Energy
Reporting Act 2007 where Abacus
has the authority to introduce and
implement any or all of operating
policies, health and safety policies
or environment al policies for the
property.
The NABERS rating is a tool that we
use that assists in the identification
of properties that could benefit
from energy efficiency capital
improvements which in turn may
improve the prospects for leasing
vacant space or renewing leases
with tenants who may otherwise
have vacated. This is an important
metric but it is not appropriate to
evaluate Abacus from a sustainability
perspective on the basis of NABERS
ratings. The core plus nature of our
business is to acquire and manage
properties that may present lower
than average ratings specifically to
exploit the opportunity to upgrade
and enhance assets and ultimately
enhance capital values.
NABERS ratings are not required
or appropriate for all the managed
properties in our portfolio.
The properties that we currently report
on under the NGERS legislation are:
PROPERTY
NABERS ENERGY
NABERS WATER
3.5
3.0
2.5
3.0
2.5
0.0
2.5
5.0
4.0
3.0
4.0
n/a
2.0
n/a
n/a
n/a
n/a
4.5
n/a
n/a
8 Station Street, Wollongong, NSW
32 Walker Street, North Sydney, NSW
14 Martin Place, Sydney, NSW
50 – 52 Pirrama Road Wharf 10, Pyrmont, NSW
169 Varsity Parade, Varsity Lakes, QLD
1 Bellvue Drive, Varsity Lakes, QLD
35 Boundary Street, Brisbane, QLD
51 Allara Street, Canberra, ACT
91 King William Street, Adelaide, SA
484 St Kilda Road, Melbourne, VIC
18 Abacus Property Group
THE WORKPLACE
Social issues of potential material
implication to Abacus’ business
encompass a wide range of areas
including health and safety, human
capital management and human
rights. For Abacus, the most material
social issues are workplace health
and safety.
Health and safety is important for
all businesses, and Abacus has a
Workplace Health and Safety Policy to
ensure we provide a safe environment
for all employees and others accessing
our owned and managed properties.
Our Board Charter, Code of Conduct,
Diversity Policy, Audit and Risk Policy,
Risk Management Framework and
Employee Handbook demonstrate
our commitment to human capital
management.
WORK HEALTH
AND SAFETY
MANAGEMENT
Abacus strives, through effective
consultation and a process of
continuous improvement, to integrate
safety and health into all aspects of our
activities. We:
– have adopted a health and
safety management system to
systematically manage health and
safety throughout all Abacus work
environments
– set objectives and targets aimed
at measuring our health and safety
performance
– provide our staff and contractors
with appropriate supervision and
training to make them aware of
and accept their responsibility to
achieve a safe work environment
– have implemented a system that
enables and encourages effective
communication and consultation
– maintain procedures and practices
that enable a systematic and
effective approach to identifying,
reporting, assessing and
controlling risk
– allocate financial, human and
physical resources to meet our
commitments.
WORK HEALTH
AND SAFETY
PERFORMANCE
We aim to achieve zero harm in the
workplace. Abacus recognises the
fundamental right of all workers and
those affected by our undertaking
to a safe and healthy environment.
Through the application of our
workplace health and safety principles,
we endeavour to provide a safe and
healthy working environment for all
our employees, contractors, customers
and visitors.
During FY14 we recorded zero
fatalities, disabling injuries,
occupational illnesses or other
reportable injuries. There were
however a number of incidents:
– 12 employee lost time incidents
resulting in 38 lost working days
– 4 medically treated injuries
– 5 high-potential near hits
– 1 contractor lost time injury
resulting in 2 lost working days.
Activities into FY15 will see the
further streamlining and integration
of the health and safety management
system with business and operational
processes that have already delivered
a number of significant outcomes and
should provide further improvement in
safety performance across the group.
Annual Report 2014 19
SUSTAINABILITY REPORT
CONTINUED
We recognise that as we expand the
business through acquisitions and
sales and the delivery of projects our
workforce will evolve. In FY13 our
total workforce turnover was 13%.
The nature of our active management
business can deliver a turnover in staff
as assets and projects are completed.
OUR PEOPLE
We have a strong commitment to
our people and focus on providing
an engaging work environment
that creates a foundation that
supports their personal and business
development. We encourage people
to exercise their entrepreneurial
spirit within the collaborative culture
of Abacus to deliver the groups
business goals. We actively encourage
and support a diverse workforce
where gender, age and ethnicity can
contribute positively in the workplace.
Gender diversity has been a key
focus and we continue to implement
initiatives to maximise opportunities
for women across the business and
in management, supporting flexible
working arrangements and preventing
harassment in the workplace.
Providing an encouraging
environment that empowers people
to grow and develop is critical to
the delivery of our business goals.
It is Abacus’ policy that all staff
receive appropriate training for
their responsibilities. This includes
introductory training for new staff,
internal training seminars and suitable
external training. The head of each
department in Abacus is directly
responsible for the training (initial
and continuing) of the staff in their
department.
On an annual basis, each responsible
manager must complete a training
plan for the next 12 months which
covers their responsibilities. A training
register is maintained and updated
monthly for all staff.
All staff are subject to an annual
appraisal process with the heads
of each department. For executive
staff this incorporates performance
reviews against the achievement of
defined key performance indicators.
This process delivers transparency and
facilitates discussion on an individual’s
goals and performance.
20 Abacus Property Group
WORKPLACE METRICS
GENDER COMPOSITION
FEMALE NO.
Board
Workforce
Executive
Management
1
25
1
4
%
20
45
13
36
MALE NO.
4
30
7
7
%
80
55
87
64
TOTAL NO.
5
55
8
11
FEMALE SALARIES AS A PERCENTAGE OF MALE SALARIES
FEMALE NO. MALE NO.
% OF MALE SALARY
Entry
Intermediate
Experienced
Specialist
Manager
Senior Manager
Executive
MD
FULL TIME / PART TIME
Full time
Part time
FEMALE NO.
20
5
PROPORTION OF FEMALES BY JOB LEVEL
FEMALE NO.
Entry
Intermediate
Experienced
Specialist
Manager
Senior Manager
Executive
MD
5
3
7
5
4
0
1
0
5
3
7
5
4
0
1
0
%
42
71
%
83
60
78
31
57
0
14
0
1
2
2
11
3
4
6
1
MALE NO.
28
2
MALE NO.
1
2
2
11
3
4
6
1
101
103
131
100
85
N/A
87
N/A
%
58
29
%
17
40
22
69
43
100
86
100
TOTAL NO.
48
7
TOTAL NO.
6
5
9
16
7
4
7
1
Annual Report 2014 21
MEMBERS OF
THE BOARD
22 Abacus Property Group
REAR (LEFT TO RIGHT)
Mr Malcolm Irving
Mr John Thame
Dr Frank Wolf
FRONT (LEFT TO RIGHT)
Mr William Bartlett
Mrs Myra Salkinder
JOHN THAME
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.
FRANK WOLF
Dr Wolf has over 25 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
$3 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
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.
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.
Annual Report 2014 23
SENIOR
EXECUTIVE
TEAM
CATE AARONS
Head of Strategy
Cate is responsible for strategy for the
Group and for its managed funds.
ROB BAULDERSTONE
Chief Financial Officer
Rob is responsible for the Group’s
and its managed funds financial
management, financial reporting and
treasury functions.
GAVIN LECHEM
Director Specialised Capital
Gavin is responsible for matching the
capital requirements of the Group’s
current and future opportunities with
those of the investment community.
JOHN L’ESTRANGE
Joint Director Property Ventures
John is jointly responsible for building
the Group’s property ventures
business by overseeing current
projects and fostering new property
and funding opportunities.
PETER STRAIN
Director Property
Peter is responsible for the asset
management activities
of the Group.
ELLIS VAREJES
Chief Operating Officer and
Company Secretary
Ellis is responsible for the Group’s
transactional and business functions.
CAMERON LAIRD
Joint Director Property Ventures
Cameron is jointly 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.
LEN LLOYD
Managing Director Abacus
Property Services
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.
24 Abacus Property Group
SENIOR
EXECUTIVE
TEAM
Centre
management
inspecting
progress on the
expansion of the
lower ground site
to accommodate
a new ALDI
tenancy at
Birkenhead
Point and the
development of
the Marina’s fuel
storage site.
Sydney, NSW
Centre
management
with retailers
following the
opening of
Birkenhead
Point Cafe at
Birkenhead Point
Shopping Centre.
Sydney, NSW
14 Martin Place
property and
engineering
managers
working alongside
electrical
specialists in the
buildings plant
room ensuring
the efficient
operation of the
buildings plant
and hardware.
Sydney, NSW
Birkenhead
Point Marina
management
inspecting the
newly constructed
arm that will now
cater for vessels up
to 45m in length.
Sydney, NSW
309 George Street
property and
WHS managers
overviewing a
new fit out for one
of the asset’s
new tenancies.
Sydney, NSW
directors’
report
30 JUNE 2014
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 2014.
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 $1.28 billion at
30 June 2014.
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
2014 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 Abacus Wodonga Land Fund.
The principal activities of Abacus that contributed to its earnings during the course of the year ended 30 June 2014
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.
Annual Report 2014 33
Annual Report 2014 33
dirEctors’ rEport
30 JUNE 2014
coNtiNUEd
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 included in 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 that 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 invest in 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 in this market to expand our capacity.
Abacus looks for assets in major centres, typically on the Eastern seaboard of Australia and New Zealand that are mispriced
by the market which we believe are capable of both cashflow and capital growth. Abacus generally invests in commercial
assets up to $100 million in value. These assets are usually B-Grade assets in good core locations in major trading or CBD
areas. They generally offer more attractive core plus and enhancement characteristics and therefore better opportunities
to deliver enhanced returns. Our philosophy with self-storage properties is focused on Australia and New Zealand and
includes regional locations.
GROuP RESuLTS SuMMARY
The Board monitors a range of financial information and operating performance indicators to measure performance over
time. We use several measures to monitor the financial success of our overall strategy. The key measure is underlying profit.
Revenue ($ 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
34 Abacus Property Group
34 Abacus Property Group
2014
370.4
424.7
108.3
101.3
20.83
120.6
24.81
16.75
4.8x
486.1
2013
281.0
305.9
61.1
83.8
18.76
123.2
25.35
16.50
3.3x
446.4
directors’ report 30 JUNe 2014coNtiNUed OPERATING AND FINANCIAL REVIEW (CONTINuED)
GROuP RESuLTS SuMMARY (CONTINuED)
The Group earned a statutory net profit excluding non-controlling interests of $108.3 million for the year ended 30 June
2014 (2013: $61.1 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 $101.3 million, a 20.9% increase on the 2013 underlying profit of $83.8 million.
The underlying profit reflects the statutory profit as adjusted in order to present a figure which 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, Abacus Miller Street Holdings Trust and Abacus Wodonga Land Fund 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
below. This reconciliation and the underlying profit has not been reviewed or audited by the Group’s auditor.
Consolidated statutory net profit after tax attributable to members of the Group
108,273
61,052
2014
$’000
2013
$’000
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 in fair value of investment properties held at balance date
Net change in property, plant and equipment remeasured at fair value
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
Consolidation of Abacus Wodonga Land Fund
Underlying profit attributable to Abacus securityholders
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
3,368
7,299
111,641
68,351
(22,131)
1,434
(2,548)
15,436
(7,484)
–
(3,752)
3,612
(2,554)
4,100
–
18,943
101,278
83,770
2014
22.27
20.83
16.75
486.1
2013
13.68
18.76
16.50
446.4
Annual Report 2014 35
Annual Report 2014 35
directors’ report 30 JUNe 2014coNtiNUed OPERATING AND FINANCIAL REVIEW (CONTINuED)
GROuP RESuLTS SuMMARY (CONTINuED)
The Australian property market continued throughout the period to be characterised by a dislocation between pricing and
underlying real estate fundamentals. The past year has again seen continued strong demand for product by domestic and
international buyers where large gaps remain between bond rates and property yields in institutional markets across the
developed world. This demand has remained despite the continued weak fundamentals attributable to uncertain economic
conditions while office and retail conditions remaining soft. As a result, Abacus has maintained its cautious property
acquisition strategy from last year as fundamental value remains difficult to find across traditional CBD markets.
The dislocation between pricing and fundamental value did provide an opportunity to sell a number of mature, low growth
assets during the year, with asset realisations of $113.9 million at prices above book value. This further highlights our total
return capability to crystallise enhanced capital returns that provide balance sheet capacity for the next generation of core
plus assets. Abacus acquired a total of $113.2 million of properties during the year. These were largely assets that were
announced to the market late in FY13 and settled early in FY14.
The market outlook in the short term remains subdued with a continuation of tough leasing conditions, high market
incentives and a low growth environment. This uncertain environment will drive low demand for office space and modest
retail sales growth. The medium term outlook is for a general improvement in economic conditions and white collar
employment growth. This will drive an improvement across the office sector and consumer sentiment, which will lead
to stronger retail sales growth. Despite the relatively weak environment, Abacus remains able to find sound, core plus
properties as demonstrated by the acquisition with a partner of the World Trade Centre in Melbourne, Victoria post year
end.
While the Group’s investment property acquisition activity was subdued the Group increased its participation in residential
developments during the year. A total of $47.3 million invested in 9 residential projects throughout markets in eastern
Australia. Abacus is confident that we will be able to achieve appropriately adjusted risk returns through these projects
to deliver on our total return investment requirements. The strength of the Group’s diversified business model perfectly
illustrates our ability to deliver returns throughout all cycles in all sectors.
The increase in the Group’s statutory net profit excluding non-controlling interests was principally due to a movement of
$9.6 million in the increase in net rental income and a movement of $24.5 million in the fair value of investment properties
held at balance date.
When considering the underlying profit attributable to Abacus securityholders, the increase in profits by 20.9% was largely
driven by the increase in net rental income and gains on the sale of investment properties.
The impact of both year-end fair value adjustments and the Group’s performance on its financial position were as follows:
Total assets ($ million)
Gearing^ (%)
Net assets* ($ million)
Net tangible assets*^ ($ million)
NTA per security^ ($)
NTA per security post distribution^ ($)
2014
2,079.3
23.4
1,253.4
1,225.0
2.38
2.30
2013
2,127.8
28.4
1,084.0
1,049.2
2.32
2.23
^ Abacus – gearing calculated as debt minus cash divided by total assets minus cash.
* Excluding external non-controlling interests of $36.8 million (2013: $43.8 million).
The increase in net assets of the Group by 15.6% reflects the improved performance compared to the previous year.
During the year, the Group’s total assets decreased slightly due to property disposals towards the end of the year, with a
corresponding decrease in liabilities from the repayment of bank loans.
36 Abacus Property Group
36 Abacus Property Group
directors’ report 30 JUNe 2014coNtiNUed OPERATING AND FINANCIAL REVIEW (CONTINuED)
GROuP RESuLTS SuMMARY (CONTINuED)
The Group has $16.7 million of vendor finance loans which will be repaid in the coming financial year.
Capital management
The Abacus balance sheet continues to be strong with gearing remaining low at 23.4%, well within our target gearing limit
of 35%. At 30 June 2014, Abacus had $178 million of available liquidity that provides capacity for use for up to $294 million
of accretive acquisitions.
The Group completed an institutional placement in November 2013 and followed that up with a security placement plan in
April 2014 and raised a total of circa $96 million providing important growth capital for acquisitions and projects.
During the year, Abacus renewed all of its bank loan facilities including refinancing its existing $480 million syndicated and
working capital facilities with a single $480 million syndicated facility, securing more flexible terms, improved duration and
lower cost. The loan facility has been spread over four tranches of varying size and maturities, with the Group accessing its
first 6 year loan facility. The facility provides a better spread and diversification of tranche maturities, reduced concentration
risk and makes the loan facility easier to manage over time. The average all in cost saving across the new facility is
approximately 42bp pa. Abacus also renewed its $200 million storage loan facility to October 2018 and a $40 million
bilateral loan facility to July 2019. Abacus has no debt expiring in FY2015.
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 6.15% 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
Abacus’ property segment delivered a result of $100.1 million for the year ended 30 June 2014. This represented an
increase of 56.1% largely attributable to the income from new asset acquisitions at the beginning of the period and the
increase in gains on investment properties. The 43 assets (2013: 47 assets) that make up the commercial portfolio had a
total value of $909 million at year end (2013: $888 million).
Pursuant to the 2014 portfolio valuation process, 7 out of 35 of the commercial properties (excluding equity accounted
properties) or 19.3% by value were independently valued during the year to 30 June 2014. 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 $17.3 million (2013: $6.6 million gain) or 2.2% of investment properties. A significant contributor to
this increase was the Group’s retail assets, in particular Ashfield Mall and Birkenhead Point Shopping Centre both located
in 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 the following investment properties:
Retail
– Bacchus Marsh Village Shopping Centre, Bacchus Marsh VIC for $31.6 million
– Aspley Village Shopping Centre, Brisbane QLD (remaining 66% for 100% direct ownership) for $18.8 million
Industrial and Storage
– Australis Drive, Derrimut VIC for $20.95 million
– Four storage sites in Thornleigh, St Peters, Rouse Hill and Kingston, in NSW and QLD for $23.5 million
Annual Report 2014 37
Annual Report 2014 37
directors’ report 30 JUNe 2014coNtiNUed OPERATING AND FINANCIAL REVIEW (CONTINuED)
CORE SEGMENT RESuLTS SuMMARY (CONTINuED)
Abacus sold a number of properties during the year, taking advantage of the strong pricing for assets. These properties
included four assets as part of a portfolio of industrial assets, largely from NSW and Victoria, a Sydney CBD office asset at
171 Clarence Street and a bulky goods centre at Moorabbin in Victoria. Net sales proceeds totalled $112.8 million which
realised gains of $11.4 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.
Office
41%
Commercial
Portfolio
$909 million
Industrial
and Other
15%
Retail
44%
NSW
50%
Commercial
Portfolio
$909 million
VIC
18%
SA
8%
ACT
8%
QLD
16%
Commercial portfolio (office, retail, industrial and other)
– $909 million of commercial properties across 43 assets (including equity accounted properties)
– Portfolio capitalisation rate: 8.17%
– Portfolio occupancy: 94.6%
– Like for like rental growth of 4.5%
– Weighted average lease expiry (“WALE”) profile of 3.9 years
Despite the uncertain economic environment and the pressure on retail and office rentals the Group’s asset managers have
achieved improved metrics across the commercial portfolio with occupancy up to 94.6% from 92.8% and like for like rental
growth of 4.5% up from 3.4% 12 months ago. The Abacus portfolio offers embedded long term capital and earnings growth
that Abacus is focused on delivering through the property cycle.
The portfolio has approximately 21% of leases up for renewal over the next year to 30 June 2015. This is consistent with
prior periods where up to 20% of leases are 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, and following this year’s results, 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
FY11
94.6%
21%
FY12
92.8%
13%
FY13
94.3%
19%
FY14
92.8%
16%
FY15
94.6%
21%
44,982m²
82,565m²
63,014m²
51,679m²
92.8%
94.3%
92.8%
94.6%
The office leasing environment nevertheless continues to be challenging. Fiscal tightening is likely to remain an economic
impediment which will have a lead on effect towards low consumer confidence, retail sales and the ability of business
owners to withstand rental increases.
38 Abacus Property Group
38 Abacus Property Group
directors’ report 30 JUNe 2014coNtiNUed OPERATING AND FINANCIAL REVIEW (CONTINuED)
CORE SEGMENT RESuLTS SuMMARY (CONTINuED)
This will dampen rental growth especially in poorer, non-discretionary specialty based centres outside of major trade areas.
Market expectation of incentives for new leases remains elevated with office sector maintaining incentives at circa 30% in
Sydney and higher in other markets with high levels of vacancy.
We believe Abacus’ portfolio is well suited to these challenging conditions. The office 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.
Our retail portfolio is largely based around properties that are the dominant trader in their respective trade areas. They are
heavily centred on non-discretionary and convenience based shopping and trade well in their respective markets. They
continue to deliver strong like for like rental growth on the back of above market MAT growth.
Abacus remains focused on maintaining revenue and cashflows to support securityholder distributions but nevertheless
being conscious of the market’s leasing requirements and competitive offerings.
Contribution from Third Party Capital
Abacus third party capital joint ventures remain an integral strategic investment platform for the Group. We continue to look
for opportunities where we can access strong core plus assets with international and domestic investors. Abacus typically
acquires 25% to 50% of the assets with our capital partners owning 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 capital partners since 2009.
Storage
Abacus’ storage portfolio delivered a result of $31.3 million for the year ended 30 June 2014. This represents an increase
on the FY13’s result of $24.4 million and can be attributed to an increase in net rental income and increase in the fair value
of investment properties held at balance date. Portfolio assets totalled $415 million across a total portfolio of 51 assets, an
overall increase of four assets during the period.
Pursuant to the 2014 valuation process 28 storage assets out of 51 or 53% by value were independently valued during the
year to 30 June 2014. 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 $4.9 million (2013: $0.9 million) or 1.2% of
investment properties.
The storage portfolio is well diversified in Australia and New Zealand.
VIC
24%
ACT
18%
NSW
19%
QLD
18%
NZ
21%
Annual Report 2014 39
Annual Report 2014 39
directors’ report 30 JUNe 2014coNtiNUed OPERATING AND FINANCIAL REVIEW (CONTINuED)
CORE SEGMENT RESuLTS SuMMARY (CONTINuED)
– $415 million of storage assets
– Portfolio capitalisation rate: 8.84%
– Occupancy: Australian portfolio 84.0% and NZ portfolio 87.9%
– Gross rental: Australian portfolio $254 and NZ portfolio NZD256 per m²
Despite subdued economic and retail activity generally, the portfolio delivered improved operating performance in both
Australia and New Zealand total markets. The key driver was increased revenue from improved portfolio occupancy.
This is evident with average portfolio occupancy across the financial year at 85.0%, up from 81.8% (FY13 average). The
improvement in portfolio utilisation occurred despite the inclusion of additional area being developed at Riccarton (NZ) and
completion of stage one of the new store developed at Castle Hill in May, and both in let up phase post project completion.
The average portfolio rental yield across the year was largely consistent year on year at $250 per m² average for FY14, up
from $248 per m² (FY13 average).
Acquisition activity during the period also increased portfolio revenue, namely through the settlement of two acquisitions
with existing storage operations or industrial tenants in place (Kingston, QLD and Rouse Hill, NSW). Other acquisitions
during the period were mostly additions to the portfolio with future storage conversion potential. These opportunities are
currently being advanced and are at various stages of development from the planning approval stage to construction.
Growth of the storage portfolio through expansion opportunities also continues, with the Riccarton (NZ) store expansion
now completed and other opportunities being assessed for implementation.
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 $309 million in
property venture projects, a decrease of $15 million from the previous year due to the sale of Bay Street, Brighton. Abacus
initiated a number of new projects during the year including:
– 25 Bouquet Street, Brisbane, QLD. A two tower, 274 residential unit development on the Brisbane River
– Settlers Estate, Werrington, NSW. A 4.7 ha site with residential rezoning potential for up to 200 lots
– 111 Quay Street, Brisbane, QLD. 78 residential unit development in Milton
The Property Ventures division generated a result of $29.3 million for the year, a decrease of 4% to FY13 result of $30.4
million which included the sale of Lewisham in FY13. The Bay Street residential and retail development in Brighton, VIC
completed during the year and generated a total profit to the Group of over $10 million.
Funds Management
The funds management business generated a result of $15.3 million for the year providing a return of 9.0% on total funds
invested across the platform. This result before fair value adjustments was slightly below the FY13 result of $16.6 million,
which is consistent with a reduction of fee and interest income by virtue of 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. In line with this strategy, Abacus sold six assets from ADIF II for $60.8 million during the year.
The progress of the management for each of the funds is set out in the non-core segment results summary over the page.
40 Abacus Property Group
40 Abacus Property Group
directors’ report 30 JUNe 2014coNtiNUed 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 2014 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 because of the strong Australian dollar and reduced domestic and inbound
international tourism demand. The conference market also remains subdued. The Fund is proposing to undertake a
refurbishment of the guest rooms at the Rydges Esplanade during the course of the next financial year.
The major repairs to fix the damage caused by the 2011 earthquake the Chateau on the Park hotel in Christchurch have
been completed. It has been difficult to re-establish the inbound tourism market which remains weak following the
earthquake.
AHF’s bank facility has been refinanced until June 2017.
The strategy of the Fund is unchanged, with the aim of selling the hotel assets over the medium term as value opportunities
arise. Distributions to unitholders are being paid quarterly.
Abacus Diversified Income Fund II (ADIF II)
At 30 June 2014 ADIF II owned 15 investment properties diversified by sector and state. Six properties were sold in the year:
– The property at 2-6 George Young Street, Regents Park was sold in December 2013 for $12.4m; and
– A portfolio of five industrial properties was sold in June 2014 for $49m.
All net proceeds from the sale of properties were used to repay bank debt. The Fund has capacity to acquire up to $65m
of new properties using its existing bank facilities if suitable opportunities arise.
The property portfolio was approximately 82% occupied and had a weighted average lease term of 2.8 years. In August
2013 the Fund extended a bank loan facility of $22.9m by a further three years until 30 September 2016. In December 2013
its other bank loan facility of $54.0m was extended to 30 June 2017. At 30 June 2014 the Fund had drawn bank loans of
$27.8m.
Distributions are being paid to all unit classes in the Fund at guaranteed rates between 7.25% and 9.66%.
The Fund is expected to be wound up between June 2016 and June 2017 in accordance with the retail offer document.
Abacus Miller Street Holdings Trust (AMSHT)
AMSHT sold its only property situated at 50 Miller Street North Sydney in June 2014. The net equity has been returned to
securityholders.
Abacus Wodonga Land Fund (AWLF)
AWLF owns the estate known as White Box Rise located in Wodonga, Victoria. During the year 83 residential lots were
sold for combined gross proceeds of $10.9 million. This takes the total number of lots sold to 459. Construction of new
residential stages is ongoing to maintain inventory for a range of markets including first home buyers, families, investors and
retirees. White Box Rise has approximately 640 residential lots left to sell plus two commercial lots.
Annual Report 2014 41
Annual Report 2014 41
directors’ report 30 JUNe 2014coNtiNUed OPERATING AND FINANCIAL REVIEW (CONTINuED)
NON-CORE SEGMENT RESuLTS SuMMARY (CONTINuED)
During the year AWLF invested in the public open space in accordance with the agreed masterplan. The estate is seeking
to differentiate itself from its competitors through the high quality of its landscaping, children’s play parks and walking/
exercise tracks. This will complement the estate’s primary school, Woolworths shopping centre and Wodonga aquatic
centre.
No distributions were paid to unitholders during the year.
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 2014 Abacus held sufficient acquisition capacity to acquire a further $249 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;
– supply of new property and other investment assets;
– cost of property outgoings and recoverability from tenants; and
– investor demand/liquidity in investment markets.
42 Abacus Property Group
42 Abacus Property Group
directors’ report 30 JUNe 2014coNtiNUed OPERATING AND FINANCIAL REVIEW (CONTINuED)
FuTuRE PROSPECTS AND RISKS (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, its 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 entering into 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 and projects, or increase refinancing risk 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 carries 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.
Annual Report 2014 43
Annual Report 2014 43
directors’ report 30 JUNe 2014coNtiNUed OPERATING AND FINANCIAL REVIEW (CONTINuED)
FuTuRE PROSPECTS AND RISKS (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 $135.4 million to $1,403.8 million compared to $1,268.4 million as at
30 June 2013 due to equity raisings and securityholder participation in the security purchase plan and distribution
reinvestment plan.
Total equity increased by $162.4 million to $1,290.9 million at 30 June 2014 compared to $1,127.8 million at 30 June 2013
principally as a result of the performance of the Group.
DISTRIBuTIONS
Abacus’ distributions in respect of the year ended 30 June 2014 were $84.5 million (2013: $74.1 million), which is
equivalent to 16.75 cents per stapled security (2013: 16.5 cents). This distribution includes 8.5 cents ($43.7 million) that was
paid on 15 August 2014. 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.
44 Abacus Property Group
44 Abacus Property Group
directors’ report 30 JUNe 2014coNtiNUed 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
Malcolm Irving
Myra Salkinder
Chairman (Non-executive)
Managing Director
Non-executive Director
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 25 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 $3 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 Committee.
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.
Annual Report 2014 45
Annual Report 2014 45
directors’ report 30 JUNe 2014coNtiNUed 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
75,276
2,914,341
29,444
40,472
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
M Irving
M Salkinder
12
12
12
12
12
12
12
11
11
12
4
4
4
4
4
4
3
3
3
3
3
3
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.
Indemnification of Auditors
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its
audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount) – except for
any loss in respect of any matters which are finally determined to have resulted from Ernst & Young’s negligent, wrongful or
wilful acts or omissions. No payment has been made to indemnify Ernst & Young during or since the financial year.
46 Abacus Property Group
46 Abacus Property Group
directors’ report 30 JUNe 2014coNtiNUed 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.
AuDITORS INDEPENDENCE DECLARATION
We have obtained an independence declaration from our auditor, Ernst & Young, and such declaration is shown on
page 64.
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.
Annual Report 2014 47
Annual Report 2014 47
directors’ report 30 JUNe 2014coNtiNUed REMuNERATION REPORT (AuDITED)
The following chart sets the context for the Remuneration Report:
1YR TOTAL SECURITYHOLDER RETURN TO 30 JUNE 2014
(%)
17.4
ABP
XPJAI1
XPJAI2
EX ALZ2
11.1
10.8
1. XPJAI: S&P/ASX 200 A-REIT Accumulation Index.
2. Source: JP Morgan research and excludes ALZ as a result of its takeover activity.
This Remuneration Report describes 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
M. Irving
M. Salkinder
(ii) Executive Director
F. Wolf
(iii) Executives
E. Varejes
C. Aarons
R. Baulderstone
C. Laird
J. L’Estrange
L. Lloyd
P. Strain
48 Abacus Property Group
48 Abacus Property Group
Chairman
Director
Director
Director
Managing Director
Chief Operating Officer
Head of Strategy
Chief Financial Officer
Director Property Ventures
Director Property Ventures
Managing Director – Abacus Property Services
Director Property
directors’ report 30 JUNe 2014coNtiNUed
REMuNERATION REPORT (AuDITED) (CONTINuED)
Remuneration at a glance
Executive total remuneration comprises fixed and variable components. The variable component has both current and
deferred elements.
Fixed remuneration reflects market rates, adjusted to reflect the experience and skills of the executive occupying the
position. Base salaries paid to executives increased by an average of 1.1% in the year ended 30 June 2014.
Variable pay reflects a combination of individual and Group performance. Should performance improve, and this
improvement be sustained, variable remuneration will increase. Should performance deteriorate, and not be sustained,
variable remuneration will decrease. Variable remuneration that is deferred is received as security acquisition rights with
value dependent on the Abacus security price. This portion of remuneration vests over four years and is subject to forfeiture
if results are not sustained to an acceptable level, or in the event of misconduct, financial misstatement, or termination with
cause.
Variable remuneration is payable only if the underlying profit target is met. The group target was exceeded in the current
year.
The Board retains discretion to vary remuneration from policy if required. No discretion was exercised in this regard in this
reporting period.
Non-executive director fees are set with reference to market standards, with the objective of attracting and retaining Board
members with an appropriate combination of industry and specialist functional knowledge and experience.
Board oversight of remuneration
Remuneration & Nomination Committee
The Remuneration & Nomination Committee 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)
– M. Salkinder – (non-independent non-executive)
– J. Thame – (independent non-executive)
Under its charter the Committee must meet at least two times during a year. The Committee met three 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.
To assist the Committee in 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. Where necessary, consultation with Guerdon
Associates is sought.
Tax advice on the deferred variable remuneration plan was provided by Minter Ellison.
Remuneration structure in detail
Non-executive director remuneration
Objective
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 market remuneration with the overall objective of attracting and
retaining Board members with an appropriate combination of industry and specialist functional knowledge and experience.
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Structure
Abacus’ constituent documents and the ASX Listing Rules specify that the maximum aggregate remuneration of non-
executive directors must be approved 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 6.
The aggregate remuneration limit and the fee structure are reviewed annually and fees were last increased in August 2013.
The average annual increase over the last year was 8%. 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
Compliance Committee
Due Diligence Committee
Due Diligence Committee
Remuneration & Nomination Committee
Remuneration & Nomination Committee
ROLE
Chairman*
Member
Chairman
Member
Chairman
Member
Chairman
Member
Chairman
Member
FEE
$211,000
$85,000
$26,000
$10,000
$14,000
$10,000
$15,000
$5,000
$15,000
$10,000
* The Chairman is an ex-officio member of all Board committees but does not receive any committee membership fees.
The non-executive directors do not receive retirement benefits. Nor do they participate in any incentive programs.
Executive remuneration in detail
Objective
The remuneration policy for executives supports the achievement of the Group’s overall objective of producing sustainable
earnings and continuing growth in security value. Total remuneration levels are positioned at market median, with higher
rewards possible if justified by performance. The policy framework is designed to align the interests of the executives to
those other stakeholders through the use of variable remuneration linked to an underlying profit gateway and to the Abacus
security price over the vesting period for deferred remuneration. If underlying profit hurdles are achieved there is scope
to vary reward with individual performance. 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’ overall performance in the medium term;
– establish performance hurdles for the variable components for each executive so that executives are focussed on
achieving sustainable earnings performance over time; and
– encouraging entrepreneurship without taking excessive risk or otherwise jeopardising the security of distributions to
securityholders.
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Structure
In determining the level and make-up of executive remuneration, the Remuneration & Nomination Committee received
advice from its external consultants, Guerdon Associates. (No remuneration recommendations as defined under Division 1,
Part 1.2.98 (1) of the Corporations Act were made by Guerdon Associates.)
Executive remuneration consists of the following key elements:
– fixed remuneration
– variable remuneration
– current variable remuneration; and
– deferred variable remuneration with a claw back feature.
The fixed remuneration component includes base salary, statutory superannuation and non-monetary benefits (car parking
and associated 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 distributions
to securityholders. Volatile outcomes are not valued by long-term investors, 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. The deferred variable remuneration
element recognises that long-term value is the outcome of a string of sustained short-term outcomes and seeks to
discourage volatile earnings and distributions. For this reason, reward is contingent on both 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, in the Board’s view, better reflects the group’s positioning in the A-REIT industry.
In the context of providing median levels of total remuneration to Abacus executives, the Board considers it appropriate that:
(a) executives have a reasonable and motivating portion of their total remuneration that is variable linking it to the
performance of the business and their own contributions to that performance; and
(b) the proportion of fixed to potential maximum variable pay (the remuneration ratio) 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.
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 designed to drive sustainable
and growing underlying profit. It follows that a current variable remuneration award for a financial year will generally be
matched 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 vary 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.
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Structure (continued)
The table below sets out the structure of the Abacus executive remuneration arrangements:
REMUNERATION COMPONENT
METHOD
PURPOSE
LINK TO PERFORMANCE
Fixed remuneration
Paid mainly as cash salary
- 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 as
set by the Board.
Deferred variable component Awards are made in the form
of security acquisition rights.
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
incumbent experience.
Underlying profit is a
key financial gateway 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. Claw back of
prior grants is considered if
performance is not sustained.
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 and capacity to pay, 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. In determining fixed
remuneration the Company considers 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.
Base salaries paid to executives increased by an average of 1.1% in the year ended 30 June 2014.
The fixed remuneration component of the Managing Director and other key management personnel is detailed in Table 6.
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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, and
contingent on, the achievement of an underlying profit target for the assessment year
– 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
Measure Abacus financial performance
– Is underlying profit target gateway met
or exceeded?
– If no, a payment may not be made
(subject to Board discretion)
– If yes, gateway is passed
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
after year end
Distribute current variable remuneration
– Assess individual performance against
KPIs and other measures
– Pay current variable remuneration
entitlements
* 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.
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. This discretion has not been exercised in
the current or past periods.
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. No discretion in this regard has been applied in the current or past periods.
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Structure (continued)
An 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 executives become eligible to receive a current variable remuneration award.
However, it is necessary to determine the extent to which KPIs for the financial year are met to quantify each individual’s
reward. Account is also taken of qualitative indicators of effectiveness, performance and behaviour. KPIs and the extent that
they are applied to determine the variable reward are tabulated below.
PERFORMANCE MEASURES
Financial measure
– Contribution to Abacus underlying profit
– Contribution to sustainability of distribution
– Contributions to projects expected to grow security value
PROPORTION OF CURRENT VARIABLE
REMUNERATION AWARD MEASURE APPLIES TO
MANAGING DIRECTOR OTHER EXECUTIVES
60%
20-40%
(dependent on role)
Non-financial measure
40%
60-80%
– Quality of analysis and recommendations
– Transaction and project management
– Key growth activities
– Risk management
– Other performance measures focuses on achieving business imperatives
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 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 a high level of consistent 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 2014 financial year current variable remuneration awards of $1,775,000 have been accrued and will be paid in
September 2014.
For the 2013 financial year, current variable remuneration awards of $1,560,000 accrued and were paid to executives in
the 2014 financial year. (Unlike deferred variable remuneration awards, this is not subject to forfeiture.) Some executives
received more and some less than their current variable remuneration award opportunity for the reporting period.
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Performance and its link to variable remuneration for 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 measure
– Underlying profit
– Sustainable distribution
Non-financial measure
– Strategic planning
– Key growth activities
– Risk management
– Leadership, team building
FY14 PERFORMANCE
AGAINST TARGETS
Above target
At target
Above target
Above target
At target
Above target
Variable Remuneration – deferred variable remuneration
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 and which rewards sustainability of distributions each year over a
four year period.
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 (SARs) may be awarded in accordance with the
remuneration ratio. Key executives may be allocated a deferred variable remuneration award value in any financial year that
matches the current variable remuneration award paid. The matching allocations may be 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. Adjustments were made in some
instances to reflect exceptional individual performances.
The Board has the discretion to award SARs in excess of the cap in the case of exceptional performance. No discretion was
applied in this financial period.
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.
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Deferred Security Acquisition Rights Plan (continued)
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 bad leavers for the purposes of the SARs Plan.
As well the Board has 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 forfeit 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 17 cents per security then the Board may decide that if that rate falls by more than a specified
percentage 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
set a higher distribution rate and negative variance buffer, and so on for succeeding years. No forfeitures of SARs for
unsustainable performance occurred in the reporting period.
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 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 date1. This
entitlement will be satisfied in ABP securities2. 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 tranche 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.
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Deferred Security Acquisition Rights Plan (continued)
The table below discloses SARs granted to key management personnel during the 2014 financial year as well as the number
of SARs that vested or lapsed during the year. The SAR’s will vest in the periods indicated subject to performance and
potential claw back.
TABLE 1
Director
F Wolf
Executives
E Varejes
C Aarons
R Baulderstone
J L'Estrange
C Laird
L Lloyd
P Strain
TABLE 2
F Wolf
E Varejes
C Aarons
R Baulderstone
J L'Estrange
C Laird
L Loyd
P Strain
YEAR
GRANT
DATE
SARS
GRANTED
FAIR VALUE
PER RIGHT AT
GRANT DATE
VESTING
DATE
NO. VESTED
DURING THE
YEAR
NO. LAPSED
DURING THE
YEAR
2014
29/11/2013
277,408
$1.978
13/09/2014 to 2017
–
2013
15/05/2013
09/13/2013
53,105
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2013
2014
29/11/2013
66,576
$1.978
13/09/2014 to 2017
–
15/05/2013
09/13/2013
21,242
29/11/2013
44,384
$1.978
13/09/2014 to 2017
–
15/05/2013
09/13/2013
16,340
29/11/2013
66,576
$1.978
13/09/2014 to 2017
–
15/05/2013
09/13/2013
16,340
29/11/2013
48,824
$1.978
13/09/2014 to 2017
–
15/05/2013
09/13/2013
18,730
29/11/2013
66,576
$1.978
13/09/2014 to 2017
15/05/2013
15/05/2013
09/13/2013
09/13/2013
29/11/2013
66,576
$1.978
13/09/2014 to 2017
–
17,913
15,319
–
2013
15/05/2013
09/13/2013
16,340
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
VALUE OF SARS GRANTED
DURING THE YEAR
$
VALUE OF SARS EXERCISED
DURING THE YEAR
$
VALUE OF SARS LAPSED
DURING THE YEAR
$
548,713
131,687
87,792
131,687
96,574
131,687
–
131,687
129,894
51,967
39,975
39,975
45,820
43,822
37,475
39,975
–
–
–
–
–
–
–
–
Refer to note 28 for details on the valuation the SARs, including models and assumptions used.
There were no alterations to the terms and conditions of the SARs since their grant date.
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Deferred Security Acquisition Rights Plan (continued)
Securities acquired on exercise of options:
TABLE 3
F Wolf
E Varejes
C Aarons
R Baulderstone
J L'Estrange
C Laird
L Loyd
P Strain
SECURITIES
ACQUIRED
NO.
PAID PER
SECURITY
$
56,965
22,786
17,528
17,528
20,091
19,215
16,432
17,528
2.27
2.27
2.27
2.27
2.27
2.27
2.27
2.27
The number of securities acquired is based on the SARs that vested in the year and the distributions that would have been
paid on that number of securities from the grant date to the allocation date.
SARs holdings of key management personnel:
BALANCE
1 JULY 2013
GRANTED AS
REMUNERATION
SARS
EXERCISED
BALANCE
30 JUNE 2014
VESTED
30 JUNE 2014
212,420
277,408
(53,105)
436,723
84,968
65,360
65,360
74,920
71,652
61,276
65,360
66,576
44,384
66,576
48,824
66,576
–
(21,242)
130,302
(16,340)
(16,340)
(18,730)
(17,913)
(15,319)
93,404
115,596
105,014
120,315
45,957
66,576
(16,340)
115,596
701,316
636,920
(175,329)
1,162,907
–
–
–
–
–
–
–
–
–
TABLE 4
Director
F Wolf
Executives
E Varejes
C Aarons
R Baulderstone
J L'Estrange
C Laird
L Loyd
P Strain
Total
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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 management expertise. 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:
ABP AND S&P/ASX 300 A-REIT ACCUMULATION INDEX TOTAL RETURN (%)
Since 1 July 2010
70
60
50
40
30
20
10
0
-10
-20
01/01/2011
01/07/2011
01/01/2012
01/07/2012
01/01/2013
01/07/2013
01/01/2014
30/06/2014
ABP
S&P/ASX 300 A-REIT Accumulation Index
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***
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
2014
20.83
16.75
$2.50
$2.38
Weighted average securities on issue
1662.5m
372.3m
400.9m
446.4m
486.1m
* Abacus securities were consolidated on a 5:1 basis on 29 November 2010.
** Underlying earnings are unaudited.
*** Net tangible assets per security include the impact of the fair value movements.
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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.
Securityholdings of key management personnel
TABLE 5
Directors
J Thame
F Wolf
W Bartlett
M Irving
Executives
E Varejes
C Aarons
R Baulderstone
J L'Estrange
C Laird
L Loyd
P Strain
Total
BALANCE
1 JULY 2013
VESTING OF
SARS
PURCHASES/
(SALES)
BALANCE
30 JUNE 2014
55,365
–
19,911
75,276
2,837,465
56,965
19,911
2,914,341
22,807
31,471
75,414
26,889
5,378
–
–
–
38,387
–
–
6,637
9,001
29,444
40,472
22,786
17,528
17,528
20,091
19,215
16,432
17,528
–
13,274
3,318
740
–
33,274
10,166
98,200
57,691
26,224
20,831
19,215
49,706
66,081
3,093,176
188,073
116,232
3,397,481
All equity transactions with key management personnel other than those arising from the vesting of the security
appreciation rights have been entered into under terms and conditions no more favourable than those the Group would
have adopted if dealing at arm’s length.
Loans to key management personnel
There were no loans to key management personnel and their related parties at any time in 2014 or in the prior year.
Other transactions with key management personnel
During the year, transactions occurred between the Group and key management personnel on terms and conditions no
more favourable than those entered into by unrelated customers.
60 Abacus Property Group
60 Abacus Property Group
directors’ report 30 JUNe 2014coNtiNUed I
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62 Abacus Property Group
62 Abacus Property Group
3
1
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2
i
Signed in accordance with a resolution of the directors. Abacus Group Holdings Limited (ABN 31 080 604 619)
John Thame
Chairman
Sydney, 28 August 2014
Frank Wolf
Managing Director
Annual Report 2014 63
Annual Report 2014 63
directors’ report 30 JUNe 2014coNtiNUed 64 Abacus Property Group
64 Abacus Property Group
directors’ report 30 JUNe 2014coNtiNUed FINANCIAL
StAtemeNtS
30 June 2014
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 2014. 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.
Annual Report 2014 65
CONSOLIDATED
INCOME
STATEMENT
YeAR enDeD 30 June 2014
REVENUE
Rental income
Storage income
Hotel income
Finance income
Funds management income
Sale of inventory
Total Revenue
OTHER INCOME
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 from equity accounted investments
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
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 attributable to external non-controlling interests
NET PROFIT
NOTES
2014
$’000
2013
$’000
6(a)
6(b)
6(c)
17(b)
7(a)
7(b)
27
7(c)
7(d)
8(a)
107,336
49,658
52,633
19,606
2,607
138,584
95,010
45,249
55,184
21,721
7,509
56,347
370,424
281,020
12,335
2,814
24,528
2,068
12,525
1,973
6,854
497
5,409
10,164
424,694
305,917
(20,158)
(18,208)
(41,098)
(8,912)
(124,252)
(14,533)
–
(50,930)
(24,526)
122,077
(17,806)
(15,981)
(38,928)
(6,999)
(48,176)
(1,153)
(18,943)
(56,244)
(27,368)
74,319
(14,710)
107,367
(6,839)
67,480
21,457
3,691
56,007
10,078
4,307
(11,385)
27,809
108,273
(906)
107,367
32,074
5,391
6,751
(12,820)
25,965
61,052
6,428
67,480
Basic and diluted earnings per stapled security (cents)
10
22.27
13.68
66 Abacus Property Group
CONSOLIDATED
STATEMENT
OF OTHER
COMPREHENSIVE
INCOME
YeAR enDeD 30 June 2014
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
2014
$’000
2013
$’000
107,367
67,480
(63)
(6,062)
3,944
1,737
111,248
63,155
111,532
62,099
(284)
1,056
111,248
63,155
22,403
56,007
10,078
4,307
(9,155)
27,892
3,288
32,074
5,469
6,751
(11,517)
26,034
111,532
62,099
Annual Report 2014 67
CONSOLIDATED
STATEMENT
OF FINANCIAL
POSITION
AS AT 30 June 2014
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Property, plant and equipment
Investment properties held for sale
Inventory
Property loans
Derivatives at fair value
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
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
68 Abacus Property Group
NOTES
11
12(a)
14
16
15(a)
13(a)
12(b)
16
15(b)
13(b)
13(c)
14
17
8(c)
18
19
20
30
20
8(c)
30
2014
$’000
2013
$’000
61,653
21,165
2,700
44,822
19,560
–
186,543
175,710
14,182
4,939
247
3,407
294,836
72,992
2,452
–
3,636
319,172
7,085
6,897
1,158,951
1,221,395
85,020
184,415
30,473
154,383
125,432
91,942
138,370
28,282
152,100
124,458
5,480
33,261
1,784,500
11,923
33,261
1,808,628
2,079,336
2,127,800
21,527
16,667
–
6,357
1,136
7,335
53,022
63,313
164,318
1,263
876
11,000
6,112
246,882
620,247
639,290
57,602
10,323
45,983
1,969
736,124
55,942
10,312
45,250
2,304
753,098
789,146
999,980
1,290,190
1,127,820
1,290,190
1,127,820
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
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
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
NOTES
2014
$’000
2013
$’000
304,410
8,433
(22,528)
290,315
162,070
6,816
(43,984)
124,902
840,236
(139,036)
701,200
804,153
(152,236)
651,917
23,431
(2,060)
21,371
21,018
(12,138)
8,880
116,575
(49,992)
66,583
177,151
(18,894)
158,257
103,092
1,209
(15,822)
88,479
16,012
164
69,275
85,451
73,668
674
(37,551)
36,791
90,589
(1,021)
(4,437)
85,131
13,400
82
41,466
54,948
78,007
52
(34,274)
43,785
1,290,190
1,127,820
23
1,403,756
1,268,381
9,806
(160,163)
5,877
(190,223)
1,253,399
36,791
1,084,035
43,785
1,290,190
1,127,820
Annual Report 2014 69
CONSOLIDATED
STATEMENT
OF CHANGES
IN EQUITY
YeAR enDeD 30 June 2014
CONSOLIDATED
At 1 July 2013
Other comprehensive income
Net income for the year
Total comprehensive income for
the year
Equity raisings
Return of capital
Issue costs
Distribution reinvestment plan
40,227
Security acquisition rights
Distribution to security holders
–
–
At 30 June 2014
1,403,756
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
1,268,381
–
–
–
95,968
–
(820)
39
(39)
–
(39)
–
–
–
–
–
–
–
(778)
3,295
–
3,295
–
–
–
–
–
–
6,616
(190,223)
43,785
1,127,820
–
–
–
–
–
–
–
673
–
108,273
625
(906)
3,881
107,367
108,273
–
(281)
–
111,248
95,968
–
–
–
–
(4,339)
(4,339)
–
–
–
(820)
40,227
673
–
(78,213)
(2,374)
(80,587)
2,517
7,289
(160,163)
36,791
1,290,190
ATTRIBuTABLE TO THE STAPLED SECuRITy HOLDER
EXTERNAL
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
CONSOLIDATED
At 1 July 2012
Other comprehensive income
Net income for the year
Total comprehensive income for
the year
1,231,994
–
–
–
612
(573)
–
(2,397)
1,619
–
(573)
1,619
Distribution reinvestment plan
36,387
Security acquisition rights
Distribution to security holders
–
–
–
–
–
–
–
–
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)
At 30 June 2013
1,268,381
39
(778)
6,616
(190,223)
43,785
1,127,820
70 Abacus Property Group
CONSOLIDATED
STATEMENT OF
CASH FLOW
YeAR enDeD 30 June 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Income receipts
Interest received
Distributions received
Income tax paid
Finance costs paid
Operating payments
Payments for land acquisitions
NOTES
2014
$’000
2013
$’000
353,192
302,100
3,009
1,207
(2,754)
(50,214)
(124,831)
4,051
259
(2,286)
(47,892)
(87,399)
(59,022)
(45,625)
NET CASH FLOWS FROM OPERATING ACTIVITIES
11
120,587
123,208
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
Purchase of investment properties
Disposal of investment properties
Consolidation of AWLF
Payment for other investments
NET CASH FLOWS FROM / (USED IN) INVESTING ACTIVITIES
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 INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
Net foreign exchange differences
Cash and cash equivalents at beginning of year
CASH AND CASH EQUIVALENTS AT END OF YEAR
11
(96,906)
3,955
(6,764)
(30,811)
25,503
(7,822)
(110,173)
(111,722)
232,035
86,246
–
(417)
2,042
(6,133)
21,730
(42,697)
95,968
(4,339)
(4,065)
–
–
(733)
(305,595)
(121,833)
138,005
(45,923)
81,384
(49,057)
(125,949)
(90,239)
16,368
(9,728)
463
44,822
61,653
421
54,129
44,822
Annual Report 2014 71
NOTES TO THE
FINANCIAL
STATEMENTS
30 June 2014
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 financial report of the Group for the year ended 30 June 2014 was authorised for issue in accordance with a
resolution of the directors on 28 August 2014.
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 following amending Standards have been adopted from 1 July 2013 along with the required changes arising from
improvements to AASBs 2009-2011 cycle. Adoption of these standards and interpretations did not have any material
effect on the financial position or performance of the Group.
– AASB 119 – Employee Benefits: 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.
– AASB 2011-4 – Related Party Disclosures: This amendment deletes from AASB124 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 where this information has been disclosed in the Directors Report.
– 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
72 Abacus Property Group
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) New accounting standards and interpretations (continued)
The following Standards have been adopted from 1 July 2013 and have not had a material financial impact on the Group:
AASB 13 – Fair Value Measurement: 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. Adoption of AASB13 has expanded the disclosure
requirements for all assets or liabilities carried ad fair value by the Group which includes information about the
assumptions made and the qualitative impact of those assumptions on the fair value determined.
AASB 2013-3 – Amendments to AASB136 Impairment of Assets: the Group has early adopted this Standard, effective
1 January 2014, which amends the disclosure requirements. The amendments in AASB 136 include the requirement to
disclose additional information about the fair value measurement when the recoverable amount of impaired assets is
based on fair value less costs of disposal. AASB 2013-3 removes this requirement.
(ii) Accounting Standards and Interpretation issued 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 2014. These are outlined below:
– Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities (effective
1 January 2014 / applicable for Group 1 July 2014)
AASB 2012-3 adds application guidance to AASB 132 Financial Instruments: Presentation to address inconsistencies
identifies in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of “currently has
a legally enforceable right of set-off” and that some gross settlement systems may be considered equivalent to net
settlement.
This amendment will have no impact on the disclosure for the Group.
– AASB 9 Financial Instruments (effective 1 January 2018 / applicable for Group 1 July 2018)
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
AASB9 also removes the volatility in profit and loss that was caused by changes in the credit risk of liabilities elected to
be measured at fair value. This change in accounting means that gains caused by the deterioration of an entity’s own
credit risk on such liabilities are no longer recognised in profit or loss.
Consequential amendments were also made to other standards as a result of AASB 9, introduced by 2009-11 and
superseded by AASB 2010-7, AASB 2010-10 and AASB 2014-1 – Part E.
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.
Annual Report 2014 73
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) New accounting standards and interpretations (continued)
(ii) Accounting Standards and Interpretation issued but not yet effective (continued)
– Annual improvements 2010 – 2012 Cycle: (effective 1 July 2014 / applicable for Group 1 July 2014).
This standard sets out amendments to International Financial Reporting Standards (IFRS) and the related bases for
conclusions and guidance made during the International Accounting Standards Board’s Annual Improvements process.
These amendments have not yet been adopted by the AASB.
The following items are addressed by this standard:
– IFRS 2 – Clarifies the definition of ‘vesting conditions’ and ‘market condition’ and introduces the definition of
‘performance condition’ and ‘service condition’.
– IFRS 3 – Clarifies the classification requirements for contingent consideration in a business combination by removing all
references to IAS 37.
– IFRS 8 – Requires entities to disclose factors used to identify the entity’s reportable segments when operating segments
have been aggregated. An entity is also required to provide a reconciliation of total reportable segments’ asset to the
entity’s total assets.
– IAS 16 and IAS 38 – Clarifies that the determination of accumulated depreciation does not depend on the selection of
the valuation technique and that it is calculated as the difference between the gross and net carrying amounts.
– IAS 24 – Defines a management entity providing Key Management Personal (“KMP”) services as a related party of the
reporting entity. The amendments added an exemption from the detailed disclosure requirements in paragraph 17 of
IAS 24 for KMP services provided by a management entity. Payments made to a management entity in respect of KMP
services should be separately disclosed.
The Group will review any amendment to the standards when adopted by the AASB.
– Annual improvements 2011 – 2013 Cycle: (effective 1 July 2014 / applicable for Group 1 July 2014).
This standard sets out amendments to International Financial Reporting Standards (IFRS) and the related bases for
conclusions and guidance made during the International Accounting Standards Board’s Annual Improvements process.
These amendments have not yet been adopted by the AASB.
– IFRS 13 – Clarifies that the portfolio exception in paragraph 52 of IFRS 13 applies to all contracts within the scope of
IAS 39 or IFRS 9, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in
IAS 32.
74 Abacus Property Group
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) New accounting standards and interpretations (continued)
(ii) Accounting Standards and Interpretation issued but not yet effective (continued)
– IAS 40 – Clarifies that judgement is needed to determine whether an acquisition of investment property is solely the
acquisition of an investment property or whether it is the acquisition of a group of assets or a business combination in
the scope of IFRS 3 that includes investment property. That judgement is based on guidance in IFRS 3.
The Group will review any amendment to the standards when adopted by the AASB.
– Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets : (effective 1 January 2016 /
applicable for Group 1 July 2016).
IAS 16 and IAS 38 both establish the principle for the basis of depreciation and amortisation as being the expected
pattern of consumption of the future economic benefits of an asset. The IASB has clarified that the use of revenue-based
methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that
includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodies in
an intangible asset. This presumption, however, can be rebutted in certain limited circumstances.
This revision will have no impact on how the Group measures its depreciation.
– IFRS 15 Revenue from Contracts with Customers: (effective 1 January 2017 / applicable for Group 1 July 2017)
IFRS 15 establishes principles for reporting useful information to users of financial statements about the nature, amount,
timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.
IFRS 15 supersedes:
(a) IAS 11 Construction Contracts
(b) IAS 18 Revenue
(c) IFRIC 13 Customer Loyalty Programmes
(d) IFRIC 15 Agreements for the Construction of Real Estate
(e) IFRIC 18 Transfers of Assets from Customers
(f) SIC – 31 Revenue – Barter Transactions Involving Advertising Services
The Core principal of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitles in exchange for those
goods or services. An entity recognises revenue in accordance with that core principal by applying the following steps:
(a) Step 1: Identify the contract(s) with a customer
(b) Step 2: Identify the performance obligations in the contract
(c) Step 3: Determine the transaction price
(d) Step 4: Allocate the transaction price to the performance obligations in the contract
(e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
The Group will review any contracts it has with customers and assess the disclosure requirements, if any, of these
contracts.
AASB 1055, AASB 2013-4, AASB 2013-5, AASB 2013-7, AASB 1031, AASB 2013-9, IFRS 14 and Interpretation 21 will have
no application to the Group.
Annual Report 2014 75
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 Wodonga Land Fund, 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.
76 Abacus Property Group
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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 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.
Sale of inventory
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.
Annual Report 2014 77
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 shot-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.
Collectability 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 2014 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 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.
78 Abacus Property Group
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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 holds investments in unlisted securities and 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 $30.5 million (2013: $28.2 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 the 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 Group’s share of those assets and obligations.
Annual Report 2014 79
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.
Hotel property, plant and equipment are independently valued on an annual basis unless the underlying financing
requires a more frequent independent valuation cycle.
Other property, plant and equipment
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.
80 Abacus Property Group
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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.
Other property, plant and equipment are independently valued on a staggered basis every two years unless the
underlying financing requires a more frequent independent valuation cycle.
(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. Fair value is calculated based on estimated fair
value on completion 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.
Land and buildings that meet the definition of investment property 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 and incentives are included in the carrying value of investment property and are amortised over
the respective lease period, 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.
(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.
Annual Report 2014 81
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p) Leases (continued)
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 may be 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.
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.
82 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED nOTeS TO THe
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COnTInueD
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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. Expenses 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.
(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.
Annual Report 2014 83
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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) 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 Note 2(o).
Gains and losses from revaluations on initial classification and subsequent re-measurement are recognised in the income
statement.
(y) 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.
84 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED nOTeS TO THe
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30 June 2014
COnTInueD
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(z) 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, ADIF II 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 or 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:
– 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.
Annual Report 2014 85
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(z) Taxation (continued)
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% (2013: 28%). NZ income tax paid by 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% (2013: 28%).
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.
86 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED nOTeS TO THe
FInAnCIAL STATeMenTS
30 June 2014
COnTInueD
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(za) 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.
(zb) 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 determined by the fair value at the date when the grant is made, using an
appropriate valuation model and 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.
Annual Report 2014 87
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 instruments 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.
(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.
88 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED nOTeS TO THe
FInAnCIAL STATeMenTS
30 June 2014
COnTInueD
3. FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Liquidity risk (continued)
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 2014, the Group had undrawn committed facilities of $319.5 million and cash of $59.0 million which are
adequate to cover short term funding requirements. Further information regarding the Group’s debt profile is disclosed
in Note 20.
(c) Refinancing risk
Refinancing risk is the risk that unfavourable interest rate and credit market conditions result in an unacceptable increase
in the Group’s credit margins and interest cost. Refinancing risk arises when the Group is required to obtain debt to fund
existing and new debt positions.
The Group is exposed to refinancing risks arising from the availability of finance as well as the interest rates and credit
margins at which financing is available. The Group manages this risk by spreading maturities of borrowings and interest
rate swaps, diversification of lenders and reviewing potential transactions to understand the impact on the Group’s
creditworthiness.
(d) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will
affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management
is to manage and control market risk exposures within acceptable parameters, while optimising the return.
Foreign currency risk
The Group is exposed to currency risk on its investment in foreign operations, equity investments, investment in
associates and property loans denominated in a currency other than the functional currency of Group entities. The
currencies in which these transactions are conducted are primarily denominated in NZD. As a result the Group’s balance
sheet can be affected by movements in the A$/NZ$ exchange rates.
Interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to its long-term bank debt
obligations which are based on floating interest rates. The Group has a policy 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, AMSHT and AWLF).
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 2014, after taking into
account the effect of interest rate swaps, approximately 83.6% of the Group’s drawn debt is subject to fixed rate hedges
(2013: 83.0%). Hedge cover as a percentage of available facilities at 30 June 2014 is 54.4% (2013: 59.5%).
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 variable rate debt subject to interest
rate swaps 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.
Annual Report 2014 89
4. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
In applying the Group’s accounting policies management continually evaluates judgements, estimates and assumptions
based on experience and other factors, including expectations of future events that may have an impact on the Group.
All judgements, 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 judgements, estimates and assumptions.
Significant judgements, estimates and assumptions made by management in the preparation of these financial
statements are outlined below:
(a) Significant accounting judgements
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 and loss. The fair value of unlisted securities has been
determined by reference to the net assets of the entity and available redemption facilities.
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. The Group 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
the Group’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.
Control and significant influence
In determining whether the Group has control over an entity, the Group assesses 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 policy decisions of the entity but is not in control or joint control of those policies.
(b) 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.
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.
90 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED nOTeS TO THe
FInAnCIAL STATeMenTS
30 June 2014
COnTInueD
4. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED)
(c) Significant accounting estimates and assumptions (continued)
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 and these assumptions include the number of lots sold per year and the
average selling price per lot. 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
The Group holds investments in unlisted securities and 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 $28.4 million (2013: $28.2 million).
Annual Report 2014 91
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 obligation;
(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 is also 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.
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.
92 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 0
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5
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6. REVENUE
(a) Finance income
Interest and fee income on secured loans
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
7. EXPENSES
(a) Depreciation, amortisation and impairment expense
Depreciation and amortisation of property, plant and equipment and software
Net loss / (gain) on property, plant and equipment remeasured at fair value
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
Total finance costs
(d) Administrative and other expenses
Wages and salaries
Contributions to defined contribution plans
Other expenses
Total administrative and other expenses
2014
$’000
2013
$’000
18,764
842
20,367
1,354
19,606
21,721
2,607
–
2,607
(1)
2,100
(31)
2,068
3,977
3,532
7,509
(73)
4,130
1,352
5,409
2014
$’000
2013
$’000
4,442
1,434
3,036
8,912
4,559
(24)
2,464
6,999
124,252
–
124,252
35,800
12,376
48,176
47,747
3,183
51,631
4,613
50,930
56,244
12,040
13,976
845
776
11,641
12,616
24,526
27,368
Annual Report 2014 99
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 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
Relating to origination and reversal of temporary differences
Income tax expense reported in the income statement
2014
$’000
2013
$’000
9,194
2,100
3,416
14,710
5,861
2,076
(1,098)
6,839
(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:
Profit before income tax expense
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
122,077
74,319
36,239
22,153
258
143
(26,087)
(18,124)
10,410
4,172
2,100
–
21
2
–
2,177
2,076
1,000
19
34
(175)
(287)
14,710
6,839
Income tax expense reported in the consolidated income statement
14,710
6,839
100 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 8. INCOME TAX (CONTINUED)
(c) Recognised deferred tax assets and liabilities
Deferred income tax at 30 June 2014 relates to the following:
Deferred tax liabilities
Revaluation of investment properties at fair value
Revaluation of financial instruments at fair value
Capital allowances
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
2014
$’000
2013
$’000
9,416
1,722
2,040
598
561
9,356
1,092
634
1,048
551
14,337
12,681
(4,014)
(2,369)
10,323
10,312
1,992
2,961
1,215
(1,000)
3,247
1,079
9,494
(4,014)
5,480
2,408
8,343
1,060
(1,000)
2,958
523
14,292
(2,369)
11,923
Unrecognised temporary differences
At 30 June 2014, the Group has unrecognised deferred tax assets on capital account in relation to the fair value of investments
of $1.1 million gross (2013: $1.1 million) and fair value of investment properties of $3.6 million gross (2013: $3.6 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 agreements are 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.
Annual Report 2014 101
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 9. DISTRIBUTIONS PAID AND PROPOSED
Abacus
(a) Distributions paid during the year
June 2013 half: 8.25 cents per stapled security (2012: 8.25 cents)
December 2013 half: 8.25 cents per stapled security (2012: 8.25 cents)
(b) Distributions proposed and not recognised as a liability^
June 2014 half: 8.50 cents per stapled security (2013: 8.25 cents)
Non-core funds
(a) Distributions paid during the year
Abacus Hospitality Fund
Abacus Diversified Income Fund II
Abacus Miller Street Holding Trust
(b) Distributions proposed and recognised as a liability
Abacus Hospitality Fund
Abacus Diversified Income Fund II
Abacus Miller Street Holding Trust
2014
$’000
2013
$’000
37,377
40,836
35,886
36,702
78,213
72,588
43,671
37,376
2014
$’000
2013
$’000
981
4,860
642
6,483
245
1,215
–
1,460
1,908
4,589
856
7,353
248
1,151
214
1,613
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.
^ The final distribution of 8.50 cents per stapled security was declared on 1 July 2014. The distribution paid on 15 August 2014 was $43.7 million.
No provision for the distribution has been recognised in the balance sheet at 30 June 2014 as the distribution had not been declared by the end
of the year.
Abacus*
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% (2013: 30%)
Prior year adjustment for franking credits that have arisen from the receipt of dividends
Franking credits that will arise from the payment of income tax payable at the end of
the financial year
2014
$’000
2013
$’000
13,195
12,089
249
–
6,314
1,106
Franking account balance at the end of the financial year 30% (2013: 30%)
19,758
13,195
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust, Abacus Wodonga Land Fund.
102 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 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
Net profit
Weighted average number of stapled securities:
2014
$’000
22.27
2013
$’000
13.68
108,273
61,052
Weighted average number of stapled securities for basic earning per security
486,109
446,427
11. CASH AND CASH EQUIVALENTS
Reconciliation to Statement of Cash Flow
2014
$’000
2013
$’000
For the purposes of the Statement of Cash Flow, cash and cash equivalents comprise the following at 30 June 2014:
Cash at bank and in hand1
61,653
44,822
1. Cash at bank earns interest at floating rates. The carrying amounts of cash and cash equivalents represent fair value.
Net profit
Adjustments for:
Depreciation and amortisation of non-current assets
Provision for doubtful debts
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 investment 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
(a) Disclosure of financing facilities
Refer to Note 20.
107,367
67,480
8,912
120
6,999
1,060
–
18,943
14,533
(24,528)
(2,068)
(12,335)
(2,814)
6,448
(24,618)
60,497
(10,927)
1,153
(497)
(5,409)
(1,973)
(6,854)
17,768
14,750
2,554
7,234
120,587
123,208
(b) Disclosure of non-cash financing facilities
Non-cash financing activities include capital raised pursuant to the Abacus distribution reinvestment plan. During the
year 18.0 million stapled securities were issued with a cash equivalent of $40.2 million.
Annual Report 2014 103
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 12. TRADE AND OTHER RECEIVABLES
(a) Current
Trade debtors
Project 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 cost1
Interest receivable on secured loans – amortised cost
(b) Non-current property loans
Secured loans – amortised cost1
Interest receivable on secured loans – amortised cost
(c) Non-current other financial assets
Investments in securities – unlisted – fair value
Other financial assets – fair value2
2014
$’000
2013
$’000
1,201
12,181
9,901
23,283
645
403
20,510
21,558
(2,118)
(1,998)
21,165
19,560
7,085
7,085
6,897
6,897
2014
$’000
2013
$’000
4,703
236
4,939
2,047
405
2,452
152,334
116,404
32,081
21,966
184,415
138,370
4,733
25,740
4,642
23,640
30,473
28,282
1. 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
2015 and the non-current facilities will mature between 1 July 2015 and 14 March 2017.
2. 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 $25.7 million (2013: $23.6 million).
104 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 14. PROPERTY, PLANT AND EQUIPMENT
The following table is a reconciliation of the movements of property, plant and equipment classified as Level 3 in
accordance with the fair value hierarchy outlined in Note 22 for the year ended 30 June 2014.
Land and buildings
At 1 July, net of accumulated depreciation
Additions
Fair value movement through the income statement
Fair value movement through comprehensive income
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
Current
Hotel properties1
Total current property, plant and equipment
Non–current
Hotel properties
Storage properties
Office equipment / furniture and fittings
Total current property, plant and equipment
Total property, plant and equipment
2014
$’000
2013
$’000
137,649
138,412
3,084
(123)
(64)
2,861
(1,148)
5,976
(1,196)
(6,064)
2,068
(1,547)
142,259
137,649
157,194
151,436
(14,935)
(13,787)
142,259
137,649
14,451
3,591
–
5
(3,223)
14,824
42,853
15,653
1,792
(39)
35
(2,990)
14,451
38,769
(28,029)
(24,318)
14,824
14,451
157,083
152,100
2,700
2,700
–
–
150,307
149,820
3,455
621
1,778
502
154,383
152,100
157,083
152,100
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.
Annual Report 2014 105
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 14. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
The independent and directors’ valuations are based on common valuation methodologies and in determining fair value,
the capitalisation of net income method and the discounting of future cash flows to their present values have been used
which are based upon assumptions and judgment in relation to future rental income, property capitalisation rate or
estimated yield. The directors’ valuations at 30 June 2014 make reference to market evidence of transaction prices for
similar properties and include the key assumptions outlined below on a portfolio basis. Significant movement in each of
these assumptions in isolation would result in a higher / (lower) fair value of the property, plant and equipment.
Hotel Properties
– A weighted average capitalisation rate is 9.57% (2013: 9.39%)
– The current weighted average occupancy rate is 72% (2013: 72%)
Storage Properties
– A weighted average capitalisation rate is 8.84% (2013: 9.20%)
– The current weighted average occupancy rate is 84.9% (2013: 81.8%)
External valuations are conducted by qualified independent valuers who are appointed by the Managing Director of
Abacus Property Services Pty Ltd who is also responsible for the Group’s internal valuation process. The Managing
Director is assisted by two employees both of whom hold relevant recognised professional qualifications and are
experienced in valuing the types of properties in the applicable locations.
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
2014
$’000
2013
$’000
565
501
2,237
9,335
2,045
–
10,833
53,148
7,354
1,156
14,182
72,992
48,900
27,512
8,580
1,528
(1,500)
57,245
26,749
6,792
2,656
(1,500)
85,020
91,942
Total inventory
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 5.0% to 10.5% during the financial year (2013: 8.1% to 10.5%).
3. Other costs are described in Note 2(z).
99,202
164,934
106 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 16. INVESTMENT PROPERTIES
Investment properties held for sale
Retail
Office
Industrial
Total investment properties held for sale
Investment properties
Retail
Office
Industrial
Storage
Other
Total investment properties
2014
$’000
2013
$’000
157,856
10,484
18,203
69,710
93,000
13,000
186,543
175,710
243,751
266,249
355,950
362,279
123,890
198,083
411,760
371,558
23,600
23,226
1,158,951
1,221,395
Total investment properties including held for sale
1,345,494
1,397,105
The current investment properties represent 10 properties which are either subject to a sales contract or an active sales
campaign and are expected to be sold by 30 June 2015.
Reconciliation
A reconciliation of the carrying amount of investment properties at the beginning and end of the year is as follows.
All investment properties are classified as Level 3 in accordance with the fair value hierarchy outlined in Note 22:
HELD FOR SALE
NON-CURRENT
2014
$’000
2013
$’000
2014
$’000
2013
$’000
Carrying amount at beginning of the financial year
175,710
190,821
1,221,395
1,181,203
Additions and capital expenditure
Fair value adjustments for properties held at balance date
Disposals
983
(682)
(131,410)
711
131,761
121,017
(2,853)
(87,419)
23,420
3,914
(88,936)
(15,404)
Effect of movements in foreign exchange
–
–
7,943
5,115
Properties transferred (to) / from held for sale
141,942
74,450
(141,942)
(74,450)
Transfers
–
–
5,310
–
Carrying amount at end of the financial year
186,543
175,710
1,158,951
1,221,395
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.
The independent and directors’ valuations are based on common valuation methodologies and, in determining fair
value, the capitalisation of net income method and the discounting of future cash flows to their present values have been
used which are based upon assumptions and judgment in relation to future rental income, property capitalisation rate
or estimated yield. The directors’ valuations at 30 June 2014 make reference to market evidence of transaction prices for
similar properties and include the key assumptions outlined below on a portfolio basis. Significant increase / (decrease) in
each of these assumptions in isolation would result in a higher / (lower) fair value of the investment property.
Annual Report 2014 107
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 16. INVESTMENT PROPERTIES (CONTINUED)
Abacus*
The weighted average capitalisation rate for Abacus is 8.36% (2013: 8.67%) and for each category is as follows:
– Retail – 7.83% (2013: 7.89%)
– Office – 8.35% (2013: 8.51%)
– Industrial – 10.00% (2013: 9.81%)
– Storage – 8.84% (2013: 9.20%)
– Other – 7.01% (2013: 7.49%)
The current occupancy rate for the principal portfolio excluding development and self-storage assets is 94.6% (2013:
92.8%). The current occupancy rate for self-storage assets is 84.9% (2013: 81.8%).
A weighted average rent review for the 12 months to 30 June 2014 of 3.6% (2013: 4.0%).
During the year ended 30 June 2014, 39% (2013: 56%) of the number of investment properties in the portfolio was subject
to external valuations, the remaining 61% (2013: 44%) was subject to internal valuation.
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust, Abacus Wodonga Land Fund.
Abacus Diversified Income Fund II
A weighted average capitalisation rate for each category is as follows:
– Office – 9.95% (2013: 10.41%)
– Industrial – 9.00% (2013: 8.85%)
The current occupancy rate for the portfolio is 82% (2013: 95%).
The weighted average lease expiry term is 2.76 years (2013: 3.48 years).
During the year ended 30 June 2014, 100% of the number of investment properties in the portfolio was subject to
external valuations.
External valuations are conducted by qualified independent valuers who are appointed by the Managing Director of
Abacus Property Services Pty Ltd who is also responsible for the Group’s internal valuation process. The Managing
Director is assisted by two employees both of whom hold relevant recognised professional qualifications and are
experienced in valuing the types of properties in the applicable locations.
Investment properties are independently valued on a staggered basis every two years unless the underlying financing
requires a different valuation cycle.
The majority of the investment properties are used as security for secured bank debt.
108 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 17. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Investment in joint ventures
(a) Details of joint ventures
111 quay St unit Trust
309 George St JV Trust
Abacus Aspley Village Trust1
Abacus Crafted 1 unit Trust
PRINCIPAL ACTIVITy
Property development
Property investment
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 Ltd2
Marina operator
Fordtrans Pty Ltd (Virginia Park)
Property investment
Hampton Residential Retirement Trust
Property investment
Jack Road Investments Unit Trust
Property development
Pakenham Valley Unit Trust
Land subdivision
queensberry Street Carlton unit Trust
Property development
The Mount Druitt unit Trust
Property investment
2014
$’000
2013
$’000
125,432
124,458
125,432
124,458
OWNERSHIP INTEREST
CARRyING VALuE
2014
%
2013
%
50
25
–
50
50
50
25
50
50
50
50
50
50
50
–
25
33
–
50
50
25
50
50
50
50
50
50
50
2014
$’000
1
2013
$’000
–
11,788
10,245
–
332
–
4,263
29,776
101
7,476
–
1,697
6,371
27,925
80
62,445
61,399
6,279
4,313
21
5,437
676
4,255
4,350
21
–
639
125,432
124,458
1. The remaining interest in the joint venture was acquired by Abacus during the year end. The property is now classified as an investment property.
2. 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 joint ventures’ profit and loss statements
Revenue
Expenses
Net profit
Share of net profit
2014
$’000
2013
$’000
74,805
154,408
(39,544)
(127,862)
35,261
26,546
12,525
10,164
Annual Report 2014 109
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 17. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED)
(c) Extract from joint ventures’ balance sheets
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Share of net assets
2014
$’000
2013
$’000
24,842
41,413
596,082
572,535
620,924
613,948
(13,516)
(18,098)
(258,441)
(239,813)
(271,957)
(257,911)
348,967
356,037
125,432
124,458
(d) Material investments in joint ventures
Fordtrans Pty Ltd (Virginia Park) (“VP”)
Abacus 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 Abacus that offers expansion
potential and residential opportunity. Abacus 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.
Abacus’ share of income (including distributions) for the year ended 30 June 2014 was $3.77 million (2013: $4.79 million).
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
Share of net assets
110 Abacus Property Group
2014
$’000
373
2013
$’000
843
13,903
15,745
14,276
16,588
177,078
176,783
191,354
193,371
1,538
1,538
6,188
6,188
65,274
64,732
65,274
64,732
66,812
70,920
124,542
122,451
62,445
61,399
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 17. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED)
(d) Material investments in joint ventures (continued)
Fordtrans Pty Ltd (Virginia Park) (“VP”) (continued)
Revenue
Interest income
Interest expense
Profit before tax
Income tax expense
Total comprehensive income
Share of net profit
2014
$’000
16,992
3,427
(4,436)
8,416
–
2013
$’000
16,578
3,416
(4,558)
8,929
–
8,416
8,929
3,768
4,787
Australian Aggregation Head Trust (“AAHT”)
Abacus has a 25% interest in the ownership and voting rights of Australian Aggregation Head Trust.
AAHT invests in core-plus office, retail and industrial properties in major Australian gateway cities. Abacus’ share of
income (including distributions) for the year ended 30 June 2014 was $4.34 million (2013: $3.47 million).
Summarised financial information in respect of AAHT 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
Share of net assets
Revenue
Interest income
Interest expense
Profit before tax
Income tax expense
Total comprehensive income
Share of net profit
2014
$’000
3,501
1,389
4,890
2013
$’000
4,633
1,319
5,952
233,750
223,850
238,640
229,802
5,519
5,519
3,712
3,712
113,167
113,542
113,167
113,542
118,686
117,254
119,954
112,548
29,776
27,925
26,449
22,849
61
(6,470)
16,905
–
122
(6,128)
13,941
–
16,905
13,941
4,339
3,469
Annual Report 2014 111
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 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
At 30 June, net of accumulated amortisation
Total goodwill and intangibles
2014
$’000
2013
$’000
32,461
32,461
32,461
32,461
800
–
800
1,000
(200)
800
33,261
33,261
Description of the Group’s intangible assets
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.
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:
a. Funds Management – property / asset management business: the recoverable amount of the unit has been determined
based on a value in use calculation using cash flow projections as at 30 June 2014 covering a five-year period.
A pre-tax discount rate of 10.80% (2013: 9.49%) and a terminal growth rate of 3% (2013: 3%) have been applied to the cash
flow projections.
b. Property – or specifically the hotel assets: 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
referenced to recent market sales evidence. Accordingly, the directors’ valuations at 30 June 2014 have regards to
market sales evidence in adopting a market valuation for each property including the key assumptions outlined.
112 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED
18. INTANGIBLE ASSETS AND GOODWILL (CONTINUED)
Impairment tests for goodwill and intangibles with indefinite useful lives (continued)
(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
FuNDS MANAGEMENT
PROPERTy
TOTAL
2014
$’000
2013
$’000
32,394
32,394
–
–
2014
$’000
67
800
2013
$’000
2014
$’000
2013
$’000
67
32,461
32,461
800
800
800
(iii) Key assumptions used in valuation calculations
Funds Management Goodwill – the calculation of value in use is most sensitive to the following assumptions:
a. Fee income: based on actual income in the year preceding the start of the budget period and actual funds under
management.
b. Discount rates: reflects management’s estimate of the time value of money and the risks specific to each unit that are
not reflected in the cash flows.
c. Property values of the funds/properties under management: based on the fair value of properties.
Hotel Intangible Assets – the calculation of the hotel valuations is most sensitive to the following assumptions:
a. Hotel income: based on actual income in the year preceding the start of the budget period, adjusted based on industry
norms for valuation purposes.
b. Discount rates and capitalisation rates with reference to market sales evidence: 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 2014 was 14.0% (2013: 11.5%).
c. Other value adding or potential attributes of the hotel assets – 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 2014 has significant head room thus
reasonable changes in the assumptions such as a 0.5% change in the discount rate or a 5% fall in revenue assumptions
would not cause any impairment.
Licences have been impaired so 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.
Annual Report 2014 113
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 19. TRADE AND OTHER PAYABLES
Trade creditors
Other creditors
unearned revenue
Rental guarantee
Goods and services tax
Accrued expenses
20. INTEREST BEARING LOANS AND BORROWINGS
Abacus*
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
2014
$’000
790
8,291
2,923
–
2,783
6,740
2013
$’000
503
24,325
25,889
2,785
1,146
8,665
21,527
63,313
2014
$’000
2013
$’000
–
16,667
16,667
8,600
31,367
39,967
–
–
–
–
–
–
–
–
–
36,740
21,538
58,278
32,189
(106)
32,083
34,000
(10)
33,990
(a) Total current
16,667
164,318
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust, Abacus Wodonga Land Fund.
114 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 20. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED)
Abacus*
Non-current
Bank loans – A$
Bank loans – A$ value of NZ$ denominated loan
Other loans – A$
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 Wodonga Land Fund
Non-current
Bank loans – A$
(b) Total non-current
2014
$’000
2013
$’000
439,297
500,548
61,086
4,292
(3,235)
55,374
–
(2,719)
501,440
553,203
42,500
23,759
25,552
(374)
–
–
27,350
(235)
91,437
27,115
27,760
52,349
(390)
(34)
27,370
52,315
–
–
6,657
6,657
620,247
639,290
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust, Abacus Wodonga Land Fund.
(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
2014
$’000
2013
$’000
16,667
164,434
494,246
642,278
130,000
–
640,913
806,712
Annual Report 2014 115
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED
20. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED)
Abacus*
Abacus 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 loans term to maturity varies from July 2015 to July 2020. The bank loans are secured by charges over
the investment properties, certain inventory and certain property, plant and equipment.
Approximately 76% (2013: 83%) of bank debt drawn was subject to fixed rate hedges with a weighted average term
to maturity of 4.6 years (2013: 2.1 years). Hedge cover as a percentage of available facilities at 30 June 2014 is 50.4%
(2013: 59.5%).
Abacus’ weighted average interest rate as at 30 June 2014 was 5.41% (2013: 6.05%). Line fees on undrawn facilities
contributed to 0.34% of the weighted average interest rate at 30 June 2014 (2013: 0.47%). Abacus’ weighted average
interest rate excluding the undrawn facilities line fees as at 30 June 2014 was 5.07% (2013: 5.58%).
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust, Abacus Wodonga Land Fund.
Abacus Hospitality Fund
AHF’s $A and $NZ bank facility matures in April 2017. The facility is secured by a charge over AHF’s hotel assets and at
30 June 2014 approximately 64.8% (2013: 73.7%) of drawn bank debt facilities were subject to current fixed rate hedges
with a weighted average term to maturity of 2.8 years (2013: 1.0 year).
AHF’s weighted average interest rate as at 30 June 2014 was 7.7% (2013: 8.0%).
Abacus Diversified Income Fund II
ADIF II has financed its investment property portfolio via two $A facilities provided by two major Australian banks which
mature in September 2016 and June 2017 respectively.
The facilities are secured by charges over ADIF II’s investment properties and at 30 June 2014 approximately 100.0%
(2013: 92.9%) of drawn bank debt facilities were subject to fixed rate hedges. The bank debt drawn at 30 June 2014 has
a weighted average term to maturity of 2.6 years (2013: 0.9 years).
ADIF II’s weighted average interest rate as at 30 June 2014 was 8.05% (2013: 8.86%).
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 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 interest rate on the
borrowings is 10.50% per annum (2013: 10.50%).
116 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 20. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED)
(d) Financial facilities available
At reporting date, the following financing facilities had been negotiated and were available:
Abacus*
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 II
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
2014
$’000
2013
$’000
755,000
786,500
(500,383)
(564,522)
254,617
221,978
70,000
80,724
(66,259)
(58,278)
3,741
22,446
76,911
96,500
(27,760)
(84,538)
49,151
11,962
12,000
12,000
–
12,000
(6,657)
5,343
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust, Abacus Wodonga Land Fund.
(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
Property, plant and equipment
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
Total assets pledged as security
2014
$’000
2013
$’000
2,700
–
–
51,590
186,543
186,655
189,243
238,245
3,589
4,897
150,307
148,000
31,008
58,101
1,102,281
1,198,042
1,287,185
1,409,040
1,476,428
1,647,285
(f) Defaults and breaches
During the current and prior years, there were no defaults or breaches of any of the Group’s loans.
Annual Report 2014 117
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 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
2014
$’000
2013
$’000
(26,913)
(26,913)
4,978
4,978
7,801
9,951
307,169
183,904
4,946
118
59,801
52,638
247,368
131,266
307,952
165,611
(67,873)
(40,960)
7,289
6,615
247,368
131,266
(a) 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 2014:
– 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 $3.0 million (2013: 5.1 million). No property
security has been provided by the parent.
(b) Parent entity capital commitments
There are no capital commitments of the parent entity as at 30 June 2014 (2013: Nil).
118 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS
(a) 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
CARRyING AMOuNT
2014
$’000
2013
$’000
30,922
26,547
189,354
140,822
30,473
61,653
28,281
44,822
312,402
240,472
As at 30 June 2014, the Group had the following concentrations of credit risk:
– Secured property loans: a loan which represents 37% of the portfolio covers two large projects at Riverlands and
Camelia; and
– Other financial assets (fair value) include an option of $25.7m which is represented by one issuer and is on original
terms (2013: one issuer).
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 credit risk by evaluation of the credit submission before acceptance; ensuring security
is obtained and consistent; and timely monitoring of the financial instrument occurs to identify any potential adverse
changes in the credit quality.
30 JUNE 2014
Loans
less: provisioning
Total
30 JUNE 2013
Loans
less: provisioning
Total
TOTAL
$’000
ORIGINAL
TERM
$’000
RENEWED/
EXTENDED
TERM1
$’000
189,354
93,027
96,327
–
–
–
189,354
93,027
96,327
PAST DuE
TERM
$’000
IMPAIRED2
$’000
–
–
–
–
–
–
TOTAL
$’000
ORIGINAL
TERM
$’000
RENEWED/
EXTENDED
TERM1
$’000
PAST DuE
TERM
$’000
IMPAIRED2
$’000
140,822
56,321
84,501
–
–
–
140,822
56,321
84,501
–
–
–
–
–
–
1. Loans are generally renewed / extended on commercial terms.
2. 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.
Annual Report 2014 119
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(a) Credit risk (continued)
Secured property loans (continued)
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 2013
movement during the year
Balance at 30 June 2014
2014
$’000
–
–
–
2013
$’000
–
–
–
(b) 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*
30 JUNE 2014
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
13,549
13,549
13,549
–
–
Interest bearing loans and borrowings incl
derivatives#
Other financial liabilities
Total liabilities
557,683
689,560
52,148
492,490
144,922
47,119
47,119
1,136
45,983
–
618,351
750,228
66,833
538,473
144,922
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
51,787
–
–
Interest bearing loans and borrowings incl
derivatives#
Other financial liabilities
Total liabilities
628,862
715,475
79,834
624,742
10,899
56,250
56,250
11,000
45,250
–
736,899
823,512
142,621
669,992
10,899
# 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, Abacus Wodonga Land Fund.
120 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(b) Liquidity Risk (continued)
Abacus Hospitality Fund
30 JUNE 2014
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
6,044
6,044
6,044
–
Interest bearing loans and borrowings incl
derivatives#
180,175
232,334
13,424
218,910
Total liabilities
186,219
238,378
19,468
218,910
–
–
–
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
8,645
8,645
8,645
–
–
Interest bearing loans and borrowings incl
derivatives#
96,645
105,957
64,796
19,960
21,201
Total liabilities
105,290
114,602
73,441
19,960
21,201
# 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 2014
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
1,377
1,377
1,377
–
Interest bearing loans and borrowings incl
derivatives#
83,436
107,347
8,337
99,010
Total liabilities
84,813
108,724
9,714
99,010
–
–
–
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
1,826
1,826
1,826
–
Interest bearing loans and borrowings incl
derivatives#
90,750
96,241
37,321
58,920
Total liabilities
92,576
98,067
39,147
58,920
# Carrying amount includes fair value of derivative liabilities. Contractual cash flows includes contracted debt and net swap payments using prevailing
forward rates.
–
–
–
Annual Report 2014 121
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(b) Liquidity Risk (continued)
Abacus Miller Street Holding Trust
30 JUNE 2014
Liabilities
Trade and other payables
Interest bearing loans and borrowings incl
derivatives#
Total liabilities
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
715
715
715
Interest bearing loans and borrowings incl
derivatives#
35,086
36,244
36,244
Total liabilities
35,801
36,959
36,959
–
–
–
–
–
–
# 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 2014
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
557
557
557
–
Interest bearing loans and borrowings incl
derivatives#
41,864
50,269
4,928
45,341
Total liabilities
42,421
50,826
5,485
45,341
–
–
–
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
173
173
173
–
Interest bearing loans and borrowings incl
derivatives#
48,053
53,714
4,786
48,905
Total liabilities
48,226
53,887
4,959
48,905
–
23
23
# Carrying amount includes fair value of derivative liabilities. Contractual cash flows includes contracted debt and net swap payments using prevailing
forward rates.
122 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Currency Risk
The following table shows the Group’s investments denominated in a foreign currency.
AuD
NZD
GBP
2014
$’000
2013
$’000
2014
$’000
2013
$’000
2014
£’000
2013
£’000
2,094
4,687
6,781
3,982
4,270
8,252
2,198
4,727
–
–
2,198
4,727
–
2,590
2,590
–
2,593
2,593
Assets
Cash at bank
Investment in securities
Total assets
Liabilities
Interest bearing loans and borrowings
Total liabilities
84,845
84,845
76,911
76,911
91,302
91,302
91,302
91,302
–
–
–
–
Abacus 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 2014, 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)
2014
$’000
(426)
521
(5,735)
7,009
2013
$’000
(388)
474
(5,381)
6,577
2014
$’000
2013
$’000
–
–
–
–
–
–
–
–
Annual Report 2014 123
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(d) 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^
30 JUNE 2014
Financial Assets
Cash and cash equivalents
Receivables
Derivatives
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
53,734
–
–
–
53,734
–
–
–
4,895
–
7,085
–
184,459
4,895
191,544
Weighted average interest rate*
1.45%
12.20%
10.91%
Financial liabilities
Interest bearing liabilities – bank
Interest bearing liabilities – other
Derivatives
Payables
500,383
–
–
–
–
20,959
–
–
Total financial liabilities
500,383
20,959
–
–
–
–
–
TOTAL
$’000
53,734
24,847
247
189,354
–
17,762
247
–
18,009
268,182
–
–
39,329
13,549
500,383
20,959
39,329
13,549
52,878
574,220
–
–
–
–
–
–
–
–
–
–
–
59,900
250,555
70,000
–
380,455
5.41%
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
–
–
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13,839
–
29,686
20,736
140,822
13,839
191,244
–
4,292
35,691
51,787
561,802
31,367
35,691
51,787
91,770
680,647
Notional principal swap balance
maturities*
Weighted average interest rate on
drawn bank debt*
–
–
288,066
180,000
–
468,066
6.05%
* rate calculated at 30 June excluding forward starts.
^ Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust, Abacus Wodonga Land Fund.
124 Abacus Property Group
Notional principal swap balance
maturities*
Weighted average interest rate on
drawn bank debt*
30 JUNE 2013
Financial Assets
Cash and cash equivalents
Receivables
Secured loans
Total financial assets
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(d) Interest rate risk (continued)
Abacus Hospitality Fund
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
30 JUNE 2014
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 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*
6,467
–
6,467
1.90%
65,885
–
–
65,885
–
7.70%
–
–
–
–
–
–
–
–
–
–
–
–
–
25,551
–
–
25,551
42,942
–
–
–
–
–
–
–
–
–
10,972
10,972
2.00%
58,043
–
–
58,043
–
8.03%
–
–
–
–
–
–
–
–
–
–
–
27,350
–
–
27,350
42,942
–
–
–
–
–
–
–
–
15,719
107,155
–
42,942
TOTAL
$’000
6,467
1,907
8,374
65,885
25,551
9,675
6,044
TOTAL
$’000
10,972
4,025
14,997
58,043
27,350
11,251
8,645
–
1,907
1,907
–
–
9,675
6,044
–
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
* 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 2015 more than 100%
of the Fund’s debt will be hedged.
Annual Report 2014 125
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(d) Interest rate risk (continued)
Abacus Diversified Income Fund II
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
30 JUNE 2014
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*
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*
1,276
–
1,276
1.05%
27,371
–
–
27,371
–
8.05%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
53,500
–
–
–
–
–
–
–
–
468
–
468
1.30%
84,505
–
–
84,505
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,000
53,500
–
–
–
–
–
–
–
–
TOTAL
$’000
1,276
808
2,084
–
808
808
–
5,391
1,377
6,768
27,371
5,391
1,377
34,139
–
53,500
TOTAL
$’000
468
1,218
1,686
–
1,218
1,218
–
6,210
1,826
84,505
6,210
1,826
8,036
92,541
–
78,500
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
Weighted average interest rate on
drawn bank debt*
8.86%
* rate calculated at 30 June.
126 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(d) Interest rate risk (continued)
Abacus Miller Street Holding Trust
30 JUNE 2014
Financial Assets
Total financial assets
Weighted average interest rate*
Financial liabilities
Total financial liabilities
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*
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
–
–
–
–
–
–
–
–
–
–
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Weighted average interest rate on
drawn bank debt*
8.09%
* rate calculated at 30 June.
–
–
TOTAL
$’000
1,653
50
1,703
–
50
50
–
1,096
715
1,811
34,000
1,096
715
35,811
–
33,000
Annual Report 2014 127
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(d) Interest rate risk (continued)
Abacus Wodonga Land Fund
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
176
–
176
2.06%
–
–
–
–
10.50%
–
–
–
–
–
–
–
–
–
–
–
–
–
20,000
–
–
–
–
–
–
–
TOTAL
$’000
176
793
969
–
793
793
2,961
557
3,518
2,961
557
3,518
–
20,000
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
2,042
427
2,469
6,657
2,957
173
9,787
–
–
–
–
–
–
–
–
427
427
–
2,957
173
3,130
10,000
–
10,000
2,042
–
2,042
2.74%
6,657
–
–
6,657
–
10.50%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30 JUNE 2014
Financial Assets
Cash and cash equivalents
Receivables
Total financial assets
Weighted average interest rate*
Financial liabilities
Derivatives
Payables
Total financial liabilities
Notional principal swap balance
maturities*
Weighted average interest rate on
drawn bank debt*
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*
* rate calculated at 30 June.
128 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(d) Interest rate risk (continued)
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 2014
Financial assets
Financial liabilities
30 JUNE 2013
Financial assets
Financial liabilities
AuD
-1%
+1%
CARRyING
AMOuNT
FLOATING
$’000
61,654
PROFIT
$’000
(617)
200,601
(20,349)
44,822
(448)
176,036
(26,330)
EquITy
$’000
–
–
–
–
PROFIT
$’000
617
18,991
448
26,619
EquITy
$’000
–
–
–
–
The analysis for the interest rate sensitivity of financial liabilities includes derivatives.
(e) Price risk
The Group is exposed to price risk arising from investments in unlisted securities. The key risk variable is the movement
in the net assets which approximates fair value of the underlying entities. The Group manages their exposure through
regularly monitoring the performance of these investments and conducts sensitivity analysis for fluctuations in the
underlying asset values.
A fluctuation of 15% in the net asset value in the securities would impact the net profit after income tax expense of the
Group, with all other variables held constant, by an increase/(decrease) of $0.50 million (2013: $0.49 million).
Annual Report 2014 129
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(f) Fair values
Set out below, is a comparison by category of the carrying amounts and fair values of all the Group’s financial instruments:
CONSOLIDATED
Financial assets
Cash and cash equivalents1
Trade and other receivables (current)1
Trade and other receivables (non-current)1
Property loans (current)2
Property loans (non-current)2
Investment in securities – unlisted3
Derivatives (current)3
Investment in other financial assets3
Total financial assets
CARRyING
AMOuNT
2014
$’000
FAIR
VALuE
2014
$’000
CARRyING
AMOuNT
2013
$’000
61,653
21,165
7,085
4,939
61,653
21,165
7,085
4,939
44,822
19,560
6,897
2,452
FAIR
VALuE
2013
$’000
44,822
19,560
6,897
2,452
184,415
184,415
138,370
138,370
4,733
247
4,733
247
4,642
4,642
–
–
25,740
25,740
23,640
23,640
309,977
309,977
240,383
240,383
Financial Liabilities
Trade and other payables1
Interest bearing loans and borrowings (current)4
21,527
16,667
21,527
16,667
63,313
63,313
164,318
164,318
Interest bearing loans and borrowings (non-current)4
620,247
620,247
639,290
639,290
Derivatives (current)3
Derivatives (non-current)3
Other financial liabilities (current)5
Other financial liabilities (non-current)5
Total financial liabilities
Net financial assets / (liabilities)
–
57,602
1,136
45,983
–
57,602
1,136
45,983
1,263
55,942
11,000
45,250
1,263
55,942
11,000
45,250
763,162
763,162
980,376
980,376
(453,185)
(453,185)
(739,993)
(739,993)
1. These financial assets and liabilities are not subject to interest rate risk and the fair value approximates carrying value.
2. These receivables are evaluated by the Group based on parameters such as interest rates, individual creditworthiness of the customer and the risk
characteristics of the project. Based on this evaluation, allowances are taken into account for the expected losses of these receivables. As at 30 June
2014, the carrying amounts of receivables, net of allowances, were not materially different from their carrying values.
3. These financial assets and liabilities are subject to interest rate and market risks, the basis of determining the fair value is set out below in the fair value
hierarchy.
4. The fair value of these financial liabilities (excluding derivative instruments) are determined at each reporting date in accordance with generally
accepted valuation techniques; these include the use of recent arm’s length transactions, reference to other assets that are substantially the same; or
discounted cash flow analysis.
5. The fair value of these financial liabilities recognisees their associated risks and discounts any amounts payable in the future by an appropriate discount
rate. Refer to disclosure Note 30 for more details relating to this liability.
130 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(f) Fair values (continued)
In accordance with AASB 7 Financial Instruments: Disclosures and AASB13 Fair Value Measurement the Group’s financial
instruments are classified into the following fair value measurement hierarchy:
Level 1 Quoted prices (unadjusted) in active market for identical assets or liabilities;
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
Level 3 Inputs for the asset or liability that are not based on observable market data.
30 JUNE 2014
Current
Property Loans
Derivative asset
Interest bearing loans and borrowings
Total current
Non-current
Property Loans
Investment in securities – unlisted
Investment in options
Derivative liabilities
Interest bearing loans and borrowings
Total non-current
30 JUNE 2013
Current
Property Loans
Derivative asset
Interest bearing loans and borrowings
Total current
Non-current
Property Loans
Investment in securities – unlisted
Investment in options
Derivative liabilities
Interest bearing loans and borrowings
Total non-current
There were no transfers between Levels 1, 2 and 3 during the year.
LEVEL 1
$’000
LEVEL 2
$’000
LEVEL 3
$’000
TOTAL
$’000
–
–
–
–
–
–
–
–
–
–
–
247
–
4,939
–
4,939
247
(16,667)
(16,667)
247
(11,728)
(11,481)
–
–
–
(57,602)
184,415
184,415
4,733
25,740
–
4,733
25,740
(57,602)
–
(620,247)
(620,247)
(57,602)
(405,359)
(462,961)
LEVEL 1
$’000
LEVEL 2
$’000
LEVEL 3
$’000
TOTAL
$’000
–
–
–
–
–
–
–
–
–
–
–
2,452
–
(1,263)
–
(1,263)
–
(164,318)
(164,318)
(1,263)
(161,866)
(165,581)
–
–
–
(55,942)
138,370
138,370
4,642
23,640
–
4,642
23,640
(55,942)
–
(639,290)
(639,290)
(55,942)
(472,638)
(528,580)
Annual Report 2014 131
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 22. FINANCIAL INSTRUMENTS (CONTINUED)
(f) 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 2014.
Opening balance as at 30 June 2013
fair value movement through the income statement
redemptions / conversions
Closing balance as at 30 June 2014
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
uNLISTED
SECuRITIES
$000
OPTIONS
$’000
TOTAL
$’000
4,642
23,640
28,282
416
(325)
2,100
–
2,516
(325)
4,733
25,740
30,473
uNLISTED
SECuRITIES
$000
4,490
170
–
(18)
OPTIONS
$’000
27,885
3,640
(7,885)
–
TOTAL
$’000
32,375
3,810
(7,885)
(18)
4,642
23,640
28,282
Determination of fair value
The fair value of unlisted securities is determined by reference to the net assets which approximates fair value 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 $8.4 million (2013: $6.5 million) or increase the fair value by $8.4 million
(2013: $6.5 million).
132 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 23. CONTRIBUTED EQUITY
(a) Issued stapled securities
Stapled securities
Issue costs
Total contributed equity
(b) Movement in stapled securities on issue
At 30 June 2013
– equity raisings
– distribution reinvestment plan
– less transaction costs
Securities on issue at 30 June 2014
2014
$’000
2013
$’000
1,444,602
1,308,406
(40,846)
(40,025)
1,403,756
1,268,381
STAPLED SECuRITIES
NuMBER
‘000
VALuE
$’000
453,040
1,268,381
42,759
17,980
–
95,968
40,227
(820)
513,779
1,403,756
Annual Report 2014 133
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 24. CAPITAL MANAGEMENT
Abacus*
Abacus 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. Abacus also protects its
equity in assets by taking out insurance.
Abacus 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, Abacus reviews its capital structure
to ensure sufficient funds and financing facilities (on a cost effective basis) are available to implement its 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 its 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.
During the financial year, Abacus has renewed all of its banking facilities including the $200 million storage facility to
October 2018 and a $40 million bilateral facility to July 2019. Abacus has also arranged a new syndicated bank facility
totalling $480 million replacing its existing syndicate facility and working capital facility.
Abacus 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, Abacus 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 have not 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, Abacus Wodonga Land Fund.
A summary of Abacus’ key banking covenants and its compliance is set out below:
METRICS
COVENANT REquIREMENT /
MEASuRE
KEy DETAILS
Nature of facilities
Secured, non recourse1
Abacus has no unsecured facilities
Group ICR
≥ 2.02
Total gearing
Debt covenants
≤ 50%2
Compliant
Abacus 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 $480m Syndicated facility and the $40m Bilateral facility.
134 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 24. CAPITAL MANAGEMENT (CONTINUED)
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 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
Debt covenants
AHF
ADIF II
AWLF
Secured, non
recourse
Secured, non
recourse
Secured, non
recourse
Compliant
Compliant
Compliant
Annual Report 2014 135
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 25. INTEREST IN SUBSIDIARIES
(a) Interest in subsidiaries with material non-controlling interest (“NCI”)
The Group has the following subsidiaries with material non-controlling interests:
NAME OF ENTITy
30 June 2014
Abacus Hospitality Fund*
Abacus Miller Street Holding Trust
Abacus Wodonga Land Fund
30 June 2013
Abacus Hospitality Fund*
Abacus Miller Street Holding Trust
Abacus Wodonga Land Fund^
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
70
85
1,743
(458)
–
27,939
–
–
1,285
27,939
(5,278)
445
–
30,041
4,329
–
(4,833)
34,370
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.
Significant Restrictions
There are no significant restrictions.
(b) Summarised financial information about subsidiaries 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
136 Abacus Property Group
2014
$’000
9,424
(7,101)
2013
$’000
15,758
(67,790)
2,323
(52,032)
153,454
148,682
(181,130)
(117,798)
(27,676)
30,884
(25,353)
(21,148)
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 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
ABACuS MILLER STREET HOLDING TRuST
Revenue
Profit / (loss) before income tax
Income tax expense
Profit / (loss) after tax
Other comprehensive income
Total comprehensive income / (expense)
2014
$’000
–
–
–
–
–
–
–
2014
$’000
11,513
(550)
2013
$’000
62,214
(35,682)
26,532
–
(20,348)
(20,348)
6,184
2013
$’000
10,978
(173)
10,963
10,805
24,623
21,084
(41,864)
(48,053)
(17,241)
(26,969)
(6,278)
(16,164)
2014
$’000
52,004
(4,580)
(209)
(4,789)
622
(4,167)
2014
$’000
4,436
654
–
654
–
654
2013
$’000
52,674
628
(891)
(263)
(5,372)
(5,635)
2013
$’000
3,743
(637)
–
(637)
–
(637)
Annual Report 2014 137
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 25. INTEREST IN SUBSIDIARIES (CONTINUED)
(b) Summarised financial information about subsidiaries with material NCI (continued)
Summarised statement of comprehensive income (continued)
ABACuS WODONGA LAND FuND
Revenue
Profit before income tax
Income tax expense
Profit after tax
Other comprehensive income
Total comprehensive income
2014
$’000
20,982
9,885
–
9,885
–
9,885
2013
$’000
–
–
–
–
–
–
138 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 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 AAVT Pty Ltd
Abacus Airways NZ Trust
Abacus Castle Hill Trust
Abacus CIH Pty Ltd
Abacus Cobar Trust
Abacus Finance Pty Limited
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 Property Income Fund
Abacus Property Services Pty Ltd
Abacus SP Note Facility Pty Ltd
Abacus Storage Funds Management Limited
Abacus Summit Trust
Abacus unitel Pty Ltd
Abacus unitel Trust
Abacus Wodonga Land Commercial Trust
Amiga Pty Limited
Bay Street Brighton unit Trust
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*
* These entities are wholly owned by Abacus.
EquITy INTEREST
2014
%
2013
%
–
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
50
50
50
51
Annual Report 2014 139
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 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 Aspley Village Trust
Abacus Australian Aggregation Holding Trust
Abacus Australis Drive Trust
Abacus Bacchus Marsh Trust
Abacus Birkenhead Point Trust
Abacus Browns Road Trust
Abacus Campbell Property Trust
Abacus Greenacre Trust
Abacus Hurstville Trust
Abacus Industrial Property Trust
Abacus Lisarow Trust
Abacus Liverpool Plaza Trust
Abacus Macquarie Street Trust
Abacus Miller 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 Eagle Farm Trust
Abacus Independent Retail Property Trust
Abacus Lennons Plaza Trust
Abacus Retail Property Trust
Abacus Wollongong Property Trust
* These entities are wholly owned by Abacus.
140 Abacus Property Group
EquITy INTEREST
2014
%
2013
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
25
25
100
100
24
100
100
100
100
100
100
100
100
100
100
–
100
75
–
100
100
100
100
100
100
33
100
–
–
100
100
100
100
100
100
100
100
100
–
100
100
25
25
100
100
24
100
100
100
100
100
100
100
100
100
100
100
100
75
100
100
100
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 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
2014
%
2013
%
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 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 to have control of ADIF II due to (a) the Group’s role as
responsible entity of ADIF II (b) the size and variable nature of returns arising from the Group’s loans to ADIF II (as the
Abacus Working Capital Facility provided by the Group to ADIF II 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 ADIF II under the ADIF II
offer documents.
Abacus Miller Street Holding Trust: The Group is deemed 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 to have control of AWLF due to 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 KMP are disclosed in Note 28.
Annual Report 2014 141
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 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
162
169
2014
$’000
2013
$’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 joint ventures
Other transactions
Loan advanced to joint ventures
Loan repayments from joint ventures
Loan advanced from joint ventures
Loan repayments to joint ventures
Purchase of property from associates
2,040
88
1,769
1,110
2,019
279
6,466
1,352
(21,838)
(3,461)
6,224
2,201
(4,000)
–
2,083
–
–
6,345
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.
Entity with significant influence
Calculator Australia Pty Ltd (“Kirsh”) is a significant securityholder in the Group with a holding of approximately 49%
of the ordinary securities of the Group (2013: 47%).
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 $
662,249
294,969
162,281
52,826
AMT $
427,858
142 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 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
2013
$’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
–
Annual Report 2014 143
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 28. KEY MANAGEMENT PERSONNEL
(a) Compensation for key management personnel
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Security-based payments
2014
$’000
2013
$’000
6,481,824
6,319,507
275,208
262,650
82,540
148,886
907,735
880,297
7,747,307
7,611,340
b) Loans to key management personnel
There were no loans to key management personnel and their related parties at any time in 2014 or in the prior year.
(c) Other transactions and balances with key management personnel and their related parties
During the financial year, transactions occurred 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.
144 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 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
2014
$’000
1,242
2013
$’000
1,168
(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 2014
One quarter of the initial issue
September 2015
One quarter of the initial issue
September 2016
One quarter of the initial issue
September 2017
One quarter of the initial issue
POTENTIAL
NuMBER TO VEST
224,966
224,966
224,966
224,966
* 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.
Annual Report 2014 145
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 29. SECURITY BASED PAYMENTS (CONTINUED)
(c) Summary of SARs granted
The following table illustrates movements in SARs during this 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
2014
NO.
929,252
2013
NO.
–
899,864
929,252
(232,313)
–
1,596,803
929,252
–
–
The weighted average remaining life of the instrument at 30 June 2014 was 1.5 years (2013: 1.8 years) and the weighted
average fair value of the SARs granted during the year was $1.98 (2013: $2.41).
The following table lists the inputs to the model used for the SARs plan for the years ended 30 June 2014 and 30 June
2013:
Expected volatility (%)
Risk-free interest rate (%)
Life of instrument (years)
Model used
2014
20
2013
20 – 25
2.47 – 3.20
2.55 – 2.67
0.8 – 3.8
0.3 – 3.3
Trinomial
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.
146 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 30. OTHER FINANCIAL LIABILITIES
Abacus*
The Group has provided the following guarantees to the ADIF II unitholders:
uNIT TyPE
CASH DISTRIBuTION yIELD GuARANTEE
CAPITAL RETuRN GuARANTEE
Class A $1.00 – Term 1
7.25% pa
Class A $1.00 – Term 2
7.50% pa
Class A $1.00 – Term 3
7.75% pa
$1.00 per unit on 30 September 2014.
$1.00 per unit on 30 September 2015.
$1.00 per unit on 30 September 2016.
Class B $1.00
Class C $0.75
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 Abacus under the constitution of ADIF II (or a combination of these things) or in any other way
Abacus 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 ADIF II units on issue on or after 1 July 2016 (Class B and C) and on
the dates stated above for Term 1, 2 and 3 of Class A. At the relevant time Abacus will ensure that each holder of Class
A and 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 will be satisfied by a payment in cash or by Abacus issuing ABP stapled
securities.
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 ADIF II 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 ADIF II under AASB10 the underwritten capital guarantee results in ADIF II’s units on
issue being classified as a liability and at the end of the period the value was $47.1 million (30 June 2013: $56.3 million).
The original Class A guarantee was satisfied on 30 September 2013 by the payment of $9.1 million.
The offer document for ADIF II was closed in December 2011 and no further equity will be raised. The guarantee
exposure on Class A units in Term 1 of $1.1 million will be paid on 30 September 2014 and the balance of the guarantee
exposure will be determined at the termination dates of Terms 2 and 3 for Class A units and 30 June 2017 for Class B
and Class C units.
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust, Abacus Wodonga Land Fund.
Annual Report 2014 147
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 31. COMMITMENTS AND CONTINGENCIES
Abacus*
(a) 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 leases as at 30 June 2014 are as follows:
Within one year
After one year but not more than five years
More than five years
2014
$’000
967
2,052
–
3,019
2013
$’000
930
2,813
471
4,214
(b) Operating lease commitments – Group as lessor
Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2014 are as follows:
Within one year
After one year but not more than five years
More than five years
2014
$’000
2013
$’000
92,576
91,579
206,546
210,783
88,309
74,248
387,431
376,610
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.
(c) Capital and Other commitments
At 30 June 2014 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
2014
$’000
2013
$’000
17,486
4,700
14,271
7,139
44,294
2,630
9,352
3,807
43,596
60,083
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Miller Street Holding Trust, Abacus Wodonga Land Fund.
148 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 31. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(d) 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
2014
$’000
2013
$’000
3,035
3,035
5,060
5,060
Abacus Diversified Income Fund II
(a) Operating lease commitments – Group as lessor
Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2014 are as follows:
Within one year
After one year but not more than five years
More than five years
2014
$’000
9,643
21,788
8,875
2013
$’000
13,025
32,579
8,744
40,306
54,348
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.
(b) Capital and Other commitments
Within one year
– property refurbishment costs
Abacus Miller Street Holding Trust
2014
$’000
2013
$’000
3,056
3,056
2,161
2,161
(a) Operating lease commitments – Group as lessor
Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2014 are as follows:
Within one year
After one year but not more than five years
More than five years
2014
$’000
–
–
–
–
2013
$’000
4,702
17,768
171
22,641
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.
Annual Report 2014 149
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED
31. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Abacus Wodonga Land Fund
(a) Capital and other commitments
Within one year
– property development costs
32. AUDITOR’S REMUNERATION
2014
$’000
2013
$’000
2,440
2,440
1,130
1,130
2014
$’000
2013
$’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 group
1,030,607
977,390
– Other services in relation to the entity and any other entity in the consolidated group
– other assurance services
79,300
76,600
1,109,907
1,053,990
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.
150 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED
DIRECTOR’S
DECLARATION
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 2014 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 2014.
On behalf of the Board
John Thame
Chairman
Sydney, 28 August 2014
Frank Wolf
Managing Director
Annual Report 2014 151
152 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED Annual Report 2014 153
NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2014CONTINUED 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 Nomination and Remuneration 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 Nomination and Remuneration 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;
– 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.
154 Abacus Property Group
CORpORATe
gOveRnAnCe RepORT
30 June 2014
COnTInueD
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 45 and 46.
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 46.
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 40% of Abacus’ employees are women. Abacus has female representation at both the Board (20%) and senior
management (26%) 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.
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.
Annual Report 2014 155
CORpORATe
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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 40% 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
(26%) 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 46. 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.
156 Abacus Property Group
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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.
Principle 8: Remunerate fairly and responsibly
Recommendation 8.1
The board has established a Nomination and Remuneration 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 46.
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.
Annual Report 2014 157
ASX ADDITIONAL
INFORMATION
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 2014.
Number of holders of ordinary fully paid stapled securities
8,728
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
962
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
SUBSTANTIAL SECURITYHOLDER NOTIFICATIONS
SeCuRITYHOLDeRS
Calculator Australia Pty Limited
nuMbeR OF SeCuRITIeS
252,981,605
158 Abacus Property Group
ASX ADDITIOnAL
InFORMATIOn
30 June 2014
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
J P MORGAN NOMINEES AUSTRALIA LIMITED
CALCuLATOR AuSTRALIA PTy LIMITED
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