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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
Abacus Property Group
ANNUAL REPORT 2015
THE CORE OF
WHAT WE DO
GLOSSARY
Abacus
Abacus Funds Management
Limited, the responsible entity
of the trusts
AGHL
Abacus Group Holdings
Limited
AGPL
AIT
APG
ASOL
Abacus Group Projects Limited
Abacus Income Trust
Abacus Property Group
Abacus Storage
Operations Limited
Abacus Storage Property Trust
ASPT
AT
Group Abacus Property Group
Abacus Trust
ABACUS PROPERTY GROUP
At 30 June 2015, 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
2015 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 and Abacus
Wodonga Land Fund.
CONTENTS
02 At the core of what we do
04 Our goal is clear
A YEAR IN REVIEW
08 Chairman and Managing Director’s report
10 Financial highlights
12 Case study: Birkenhead Point Shopping
Centre and Marina, Sydney NSW
14 Our performance
16 Sustainability report
22 Case study: 484 St Kilda Road,
Melbourne VIC
24 Board members
26 Senior executive team
FINANCIALS
28 Directors’ report
61 Auditor’s independence declaration
64 Consolidated income statement
65
66
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
68 Consolidated statement of cash flow
69
Consolidated statement of changes
in equity
71 Notes to the financial statements
144 Directors’ declaration
145 Independent audit report
147 Corporate governance report
152 ASX additional information
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Annual Report 2015 01
AT THE CORE
OF WHAT
WE DO
Abacus Property Group is a leading
diversified property group that
specialises in private equity style real
estate investment opportunities across
Australia and New Zealand. Abacus
was established in 1996. We listed on
the ASX in 2002 and are included in the
S&P/ASX 200 index.
Abacus’ overarching strategy is to
invest our capital in core plus
properties. We take advantage of
value adding opportunities to drive
long term total returns and maximise
securityholder value.
We have a successful track record
of acquiring property based assets
and actively managing those assets to
enhance income and capital growth.
We look for assets and projects
in major centres, typically on the
Eastern seaboard of Australia, that are
mispriced by the market and which we
believe have the potential for income
and capital growth. Where appropriate,
we realise mature assets and redeploy
capital into the next generation of
higher growth opportunities. Our core
plus presence and track record
has facilitated joint ventures with
a number of sophisticated global third
party capital providers.
Our experience has shown that
strict adherence to our fundamental
investment criteria enables us to buy
assets well and provide opportunities
for outperformance while minimising
downside risk to equity.
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.
PROPERTY INVESTMENT
Abacus Property Group owns 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.
Abacus seeks mispriced assets
with short term imperfections in
fundamentals, such as temporary
flaws in leasing, management or
capital structures. Abacus pursues
transformational events that will
drive an asset’s value.
As at 30 June 2015, Abacus Property
Group had a total of $1.3 billion in
property assets on the balance sheet.
This total comprises the commercial
portfolio ($848 million) and the storage
portfolio ($457 million). $260 million of
investment portfolio assets are held in
third party joint ventures with global
investment firms.
PROPERTY VENTURES
Abacus Property Group provides
a range of property development and
finance solutions. We actively engage
in commercial, retail, industrial and
residential development opportunities
in metropolitan eastern seaboard
locations.
Abacus participates in projects directly
or with experienced joint venture
partners through the combination of
our capital and property expertise
with the regional or sector-specific
expertise of our joint venture partners.
We provide finance solutions for real
estate development, typically with
participation in project upside.
As at 30 June 2015, Abacus Property
Group had a total of $419 million in
development and financing projects
on the balance sheet.
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.
Since 2009 the Group has redirected
its focus towards wholesale third party
capital and has acquired over $1 billion
of assets with global investors.
02 Abacus Property Group
Annual Report 2015 03
OUR GOAL
IS CLEAR
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.
We do this through the acquisition,
development and management of
property assets by:
– taking advantage of our specialised
knowledge and market position as
the only listed core plus investor in
the ASX 200 index;
– investing in core plus property
investments that are expected to
yield 12-15% per annum equity total
returns over time; and
– driving value through the Group’s
active management philosophy.
The Group’s philosophy centres around
three guiding principles that are at the
core of what we do:
PROPERTY ACQUISITION
Strong and consistent investment
strategy and analysis ensures that the
right properties are acquired at the
right price.
04 Abacus Property Group
IN TOTAL
ABACUS HAS
OVER $2.1 BILLION
OF ASSETS UNDER
MANAGEMENT
ASSET MANAGEMENT
Each asset we acquire has a very
specific core plus strategy that is
developed at the time of acquisition.
We have the track record and the
experience in asset management
to drive transformational events.
INVESTMENT REALISATION
Where appropriate, we return mature
assets to the market and redeploy
realised capital into
the next generation of higher
growth opportunities.
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Annual Report 2015 05
A YEAR IN REVIEW
John Thame
Chairman
Frank Wolf
Managing Director
08 Abacus Property Group
A Y E A R I N R E V I E W
CHAIRMAN
AND MANAGING
DIRECTOR’S
REPORT
DEAR SECURITYHOLDERS
It gives us great pleasure in presenting
to you another strong result after a
pleasing year for Abacus Property
Group. The financial results
demonstrated strong contributions
from all of Abacus’ business sectors
providing further increases to
underlying profit and earnings per
security. The success from recent sales
transactions across our investment and
development portfolios and another
strong contribution from our storage
portfolio have driven the improved
results compared to 2014.
Strong capital management remains
as important today as it has been over
the last 5 years. The Abacus balance
sheet continues to maintain good levels
of liquidity and gearing, primed for
opportunities to add to our investment
portfolio and project pipeline in the
2016 financial year. Gearing remains
low at only 18.2%, and provides
significant acquisition capacity of over
$350 million, which has already been
put to good use with a number of high
quality acquisitions so far in the new
financial year.
The Group produced strong underlying
profit growth of 27%, growing from
$108.3 million to $128.3 million for the
financial year to 30 June 2015, from
the prior year. We also delivered 17.5%
growth in underlying earnings per
security this year, to 24.5 cents and was
backed by cashflow from operations per
security of 23.3 cents.
These strong results underwrote
our distributions to securityholders
and provided the opportunity to
increase distributions to 17.0 cents per
security and provided surplus capital
for re-investment.
Abacus securities performed
well, delivering another year of
outperformance with a 24.1% total
return. This significantly outperformed
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 a 20.3% total
return for the year.
The accompanying annual financial
report includes our operating and
financial review (OFR) on pages 28
to 41. 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
We are very proud of our sustainability
protocol and strategies throughout
the year. This report illustrates the
environmental footprint from the
Group’s operations and management
and key performance indicators over
time to help us manage and reduce
our consumption of natural resources.
We encourage you to read this report.
Abacus is an active core plus manager.
We acquire assets that we believe are
mispriced by the market and fix that
mispricing through active management.
This strategy may result in mature
assets that have been transformed
being returned to the market. We
believe this strategy has a positive
impact on the environment as we
extend and rejuvenate the life cycle
of assets that may be on their way to
becoming obsolete and ultimately
end in demolition and rebuilding.
This causes a negative impact on the
environment and the use of additional
natural resources. Unfortunately, the
assets that have benefited from these
sustainability initiatives are not captured
in our metrics as the asset has been sold
at that time.
Nevertheless we continue to improve
the environmental sustainability
of our buildings. The responsible
management of our buildings
contribute to capital appreciation
of these buildings over time.
OUTLOOK
Abacus has delivered another pleasing
set of financial results which continues
a trend of strong results over the last
5 years. The year was again characterised
with robust transactional activity, taking
advantage of market conditions and
remixing the portfolio to provide new
opportunities. We expect these new
opportunities will crystallise good
capital returns. Recurring earnings are
anticipated to increase over the coming
year as our recent investments add to
returns and we utilise our current surplus
capital capacity for new opportunities.
Our focus in FY16 remains on the
sourcing of opportunities and the
delivery of core plus strategies
across our asset base and residential
development projects to maintain
our current growth trajectory. Our
growth strategies will continue to utilise
third party capital relationships as
opportunities arise.
The business is strong and the outlook
is sound. We have a suite of assets
and projects that can continue to deliver
strong results to securityholders.
We continue to remain active in the
market despite the strength in asset
pricing and challenges across leasing
markets and we are confident that our
residential development opportunities
should deliver strong risk adjusted
returns over the coming years.
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 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.
Annual Report 2015 09
FINANCIAL
HIGHLIGHTS
$2.0 BILLION
OF TOTAL ASSETS
150
120
90
60
30
0
UNDERLYING PROFIT
($ MILLION)
$128.3
$101.3
$83.8
$76.8
$72.2
FY15
FY14
FY13
FY12
FY11
UNDERLYING EARNINGS PER SECURITY
(CENTS)
24.5c
20.8c
18.8c
19.2c
19.4c
FY15
FY14
FY13
FY12
FY11
FY15
FY14
FY13
FY12
FY11
DISTRIBUTIONS PER SECURITY
(CENTS)
17.00c
16.75c
16.50c 16.50c
16.50c
FY15
FY14
FY13
FY12
FY11
FY15
FY14
FY13
FY12
FY11
17.5%
GROWTH IN
UNDERLYING EPS
TO 24.5 CENTS
$1.3B
OF INVESTMENT
PROPERTIES
27%
GROWTH IN
UNDERLYING EARNINGS
TO $128.3 MILLION
24.1%
TOTAL RETURN TO
SECURITY HOLDERS
$122.2M
CASH FLOW FROM
OPERATIONS
18.2%
GEARING
25
20
15
10
5
0
17
16
15
91
PROPERTIES
93.4%
OCCUPANCY
86%
OCCUPANCY
ACROSS THE
STORAGE
PORTFOLIO
10 Abacus Property Group
150
120
90
60
30
0
25
20
15
10
5
0
17
16
15
UNDERLYING EARNINGS PER SECURITY
(CENTS)
24.5c
20.8c
18.8c
19.2c
19.4c
DISTRIBUTIONS PER SECURITY
(CENTS)
17.00c
16.75c
16.50c
16.50c
16.50c
A Y E A R I N R E V I E W
FINANCIAL HIGHLIGHTS
Consolidated statutory net profit1
Underlying profit2
Cashflow from operations
Underlying profit per security
Cashflow from operations per security
Distributions per security3
Interest cover ratio4
BALANCE SHEET METRICS
Total assets
Net tangible assets5
NTA per security
Gearing6
Covenant gearing7
Total debt drawn
Debt term to maturity
Average cost of debt8
2015
$133.5m
$128.3m
$122.2m
24.5c
23.3c
17.00c
5.7x
2015
$2.0bn
$1.4bn
$2.49
18.2%
22.8%
$388m
4.3yrs
6.1%
2014
$108.3m
$101.3m
$90.3m
20.8c
18.6c
16.75c
4.8x
2014
$1.9bn
$1.2bn
$2.38
23.4%
28.6%
$500m
4.6yrs
5.4%
2013
$61.1m
$83.8m
$105.7m
18.8c
23.7c
16.50c
3.3x
2013
$1.8bn
$1.0bn
$2.32
28.4%
36.6%
$565m
2.1yrs
6.1%
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 2015, 1 July 2014 and 1 July 2013).
4 Calculated as underlying EBITDA divided by interest expense.
5 Excludes external non-controlling interests of $31.0 million (2014: $36.8 million 2013: $43.8 million).
6 Bank debt minus cash divided by total assets minus cash.
7 Total liabilities (net of cash) divided by Total Tangible Assets (net of cash).
8 Weighted average base rate plus margin on drawn amount plus facility line fees.
Annual Report 2015 11
CASE
STUDY
01
B I R K E N H E A D P O I N T S H O P P I N G C E N T R E A N D M A R I N A , S Y D N E Y N S W
The centre’s marina was redeveloped
over this time with a complete
reconfiguration and extension of
the southernmost marina arms to
increase the number of berths from
187 to 201. The redevelopment also
provided extra capacity to cater for
larger more prestigious vessels up to
45m in length. A new 110,000 litre
split cell underground fuel tank
was placed on site providing a much
need alternative fuelling option for
the harbour. These services and the
upgraded convenience food offer
provided an attractive one stop shop
option for Sydney boat owners.
Over the time of ownership Abacus
re mixed the entire centre and
completed its vision to provide
Australia’s premium outlet
centre combined with a quality
convenience based shopping offer.
The centre’s moving annual turnover
was pushed from c.$125million to
over $200 million and occupancy
was virtually 100%. These activities
positioned the property as a highly
attractive institutional grade core
asset. The asset was sold in October
2014 for $310 million following
a number of unsolicited enquiries
dictated a wider marketing
campaign. The asset generated
an equity IRR of 24%.
Abacus complemented its
retail team with an experienced,
dedicated management team
for the centre with an initial
key focus on bringing the operations
of the centre into line with industry
benchmarks. They investigated
and captured additional earnings
opportunities and developed an
appropriate marketing, styling
and branding strategy to ensure
maximum visibility and targeting
of the centre.
A complete leasing strategy was
identified and delivered a premium
outlet offer, coupled with a high
quality food and convenience offer.
A near complete re-tenanting of
the centre occurred over the time
of ownership and redevelopment
with a comprehensive improvement
of premium fashion, fresh food
and service based retailers. The
redevelopment of the convenience
precinct allowed for an expanded
new format Coles and a creation of
a 1,500m2 ALDI supermarket that
enhanced the appeal of the ground
floor convenience based precinct.
In total, the team commenced
14 individual development projects
that completed the repositioning
of the centre over the 4 years of
ownership. These projects were
focused largely on improving the
connectivity and functional layout
of the centre, whilst unlocking new
retail space. The team delivered
more than 2,500m2 of additional GLA
from unproductive and unusable
space whilst repositioning a number
of ‘back of house’ areas into quality
retail space which maximised the
outlook onto the harbour and created
new café, restaurant and food court
precincts.
Birkenhead Point Shopping
Centre and Marina was acquired in
November 2010 for $174 million in a
50/50 partnership with Abacus’ major
securityholder the Kirsh Group.
The property was acquired on an
initial yield of 8.0%.
At the core of the acquisition
decision was Abacus’ ability to
see fundamental value in the asset
and a clear strategy to deliver
significant income and capital value
enhancements through opportunities
that perfectly suited Abacus’ core
skills.
The property consisted of a 32,483m2
partially refurbished mixed use
shopping centre including traditional
retail and factory outlet tenancies
and a 187 berth marina. The centre
was finalising a $50 million partial
refurbishment program, the effects
of which had not yet been fully
realised. The centre was located
in Drummoyne, an affluent area
in the Inner West suburbs, 5km
from the Sydney CBD. The centre
has a unique 155m frontage to
Sydney harbour.
Abacus had a vision to develop the
asset into Australia’s premium outlet
centre combined with a quality
convenience based shopping offer to
satisfy the strong and growing trade
area. Abacus identified a number of
key success factors that incorporated:
– Enhanced development works to
improve the functional layout and
connectivity with the harbour;
– Provide a full convenience retail
offer with contemporary fresh food
precinct;
– Ensure a strong representation of
premium branded fashion retailers;
– Expand and redevelop the Marina;
and
– Bring in an experienced and
competent management team.
12 Abacus Property Group
Annual Report 2015 13
OUR
PERFORMANCE
FY15 FINANCIAL RESULTS
We have delivered a strong result
across all of the Group’s main financial
and capital metrics. Abacus’ total
assets increased to almost $2.0 billion,
with net assets growing to $1.4 billion.
The Group’s net tangible asset backing
per security improved to $2.49 from
$2.38, a 4.9% increase and reflected
the improvement in the Group’s retail
portfolio in particular Ashfield Mall
and the Group’s storage facilities.
The Abacus balance sheet was in a
robust capital position at balance date
with gearing at low levels of 18% as a
result of recent sales and the March
2015 capital raising. At 30 June 2015,
Abacus had $207 million of available
liquidity that provides capacity for future
acquisitions and capital commitments.
Abacus has committed capital to
new acquisitions and projects in
FY16 totalling $112 million including
recently announced acquisitions of a
50% interest in 201 Pacific Highway,
St Leonards, NSW for $57.5 million
and 75% interest in Lutwyche City
Shopping Centre, Brisbane, QLD for
$48.75 million.
The Group completed a non-
renounceable entitlement offer
to securityholders in March 2015
raising a total of $107 million providing
important growth capital and helping
settle the acquisition of Oasis Shopping
Centre in Broadbeach QLD at that time.
There are no debt expiries in 2016 and
our average debt term to maturity is
over 4.3 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 6.1% over
the next year.
14 Abacus Property Group
OVERVIEW OF OUR OPERATING
DIVISIONS
Investment portfolio
Our investment portfolio delivered
$132.1 million EBITDA for the financial
year. This result, which includes our
commercial and storage portfolios,
was 19% above 2014. This was assisted
by the sale of a number of investment
portfolio assets including 484 St Kilda
Road in Victoria and Birkenhead Point
Shopping Centre and Marina, Wharf 10
and 309 George Street in NSW during
the year which realised gains of
c.$47.2 million. The sale of mature
investment assets throughout the year
and the difficult leasing environment
across the office sector impacted on the
portfolio’s metrics with occupancy of
the commercial portfolio down to 93.4%
from 94.6% 12 months ago. The Abacus
portfolio offers embedded long term
capital and earnings growth that Abacus
is committed on delivering through the
property cycle. Abacus remains focused
on maintaining revenue and cashflows to
support securityholder distributions.
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 have
challenging markets we nevertheless
believe this diversification provides
a level of security and stability to
the portfolio’s property income and
cashflows.
The office leasing environment had a
challenging start to the year as the drag
from FY14’s difficult market environment
continued. As the year progressed
it became apparent there was a
clear divergence in leasing markets
across capital city CBD’s. Positive net
absorption and a tightening in CBD
office vacancies started to show green
shoots of recovery in Sydney and to a
lesser extent Melbourne in Q115.
The outperformance of these two
markets is expected to continue from
robust tenant demand combined with
fragmented vacancy across the CBD.
Incentives are also expected to move
lower over FY16 as a result of these
factors. The Brisbane market continues
to be challenging as surplus supply
comes to market.
Abacus’ office portfolio is well suited
to the challenges facing the different
office markets throughout Australia.
The 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.
Abacus’ 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. The Group has recently
added assets to the portfolio that have
strong turn around prospects that can
take advantage of the positive outlook
for the sector.
Our industrial portfolio is largely
focused on assets with strong yields on
sites that offer strategic value through
alternative use or expansion strategies.
Abacus’ third party capital joint ventures
remain an integral strategic investment
platform for the Group. Abacus
expanded the platform further during
the year with a number of new joint
ventures with new investment partners.
These acquisitions took the total of high
quality assets that Abacus has acquired
with capital partners since 2009 to over
$1 billion.
Storage trading across the portfolio
improved, delivering EBITDA growth of
6.2% for the 12 months to 30 June 2015
over the prior corresponding period.
This increase was largely driven by
stabilised asset acquisitions and strong
trading across the core portfolio.
A YEAR IN REVIEW
The increase of 23% in the
Group’s consolidated AIFRS
statutory profit to $133.5 million,
up from $108.3 million in the
2014 financial year
Abacus’ underlying profit1 of
$128.3 million, up 27%
An increase of 17% in Abacus’
underlying earnings per security
to 24.5 cents, up from 20.8 cents
in FY14
Abacus’ cashflow from
operations was $122.2 million, or
23.3 cents per security
Sold assets totalling $750 million
in value
Sourced aquisitions totalling
$633 million in value
91 investment properties valued
at $1.3 billion
Storage portfolio occupancy
increased to 86%
Storage facility revenue per
available meter (RevPAM) was
$216 per m2, up 2.9%
Added $456 million of assets to
our third party capital platform
to over $1 billion of total assets
purchased
1. Underlying profit and earnings per security
are a non-AIFRS measure that the Group uses
to assess performance and distribution levels.
They are calculated in accordance with the
AICD/Finsia principles.
Annual Report 2015 15
substantial pricing growth, as a result of
a lack of fundamental value in traditional
commercial CBD markets. The low
interest rate environment suggests the
positive environment will continue into
FY16/17.
The division generated an EBITDA
result of $25.7 million for the year,
a decrease of 12.1% to the FY14 result
of $29.3 million due to a reduction in
transactional profits in FY15 post the
realisation of Bay Street development in
FY14. Abacus has estimated potential
to generate end sales revenue of
c.$1.0 billion between FY16 and FY19
underpinned by over 7,500 unit or land
sites held at an average cost of $55,000
per unit/land site.
Funds management
In line with a reduction in assets under
management, the funds management
business generated an underlying
EBITDA result of $8.5 million for the
period. Abacus has $153 million of
funds invested across the platform.
Abacus continues to manage these
unlisted funds to optimise the returns
with selective sales and acquisitions
of assets where opportunities and
market conditions allow. In line with
this strategy, ADIF II acquired a 50%
interest in an Adelaide CBD office asset
for $74 million while AHF successfully
exited the Christchurch market selling
the Chateau on the Park Hotel for
NZ$35 million during the year.
The addition of recently acquired
industrial sites for conversion to storage
facilities has impacted growth in the
portfolio’s operating metrics while they
undergo let up. Despite the addition of
the new facilities, the portfolio’s metrics
were maintained in portfolio occupancy
across the financial year at 84.9%, down
slightly from 85.0% (FY14 average) and
average portfolio rental yield at $250
per m² average, matching the $250 per
m² in FY14.
The storage portfolio’s stabilised assets
continue to deliver improved operating
performances across Australian and
New Zealand markets and continue to
be the key contributor to underlying
growth across the portfolio. Adjusting
the portfolio to remove the four
conversion facilities currently in let up
mode (Castle Hill, Wodonga, Thornleigh
and St Peters), portfolio occupancy grew
to 86.0% from 85.0% and average rental
rate increased to $258m² from $250m².
This improved portfolio RevPAM
(revenue per available square metre)
across the portfolio to $216m², a 2.9%
increase from last year of $210m².
The fall in the New Zealand dollar during
the year also negatively impacted the
improvement in the NZ assets.
Property ventures
The Property Ventures business invests
in and provides finance solutions
that focus on select residential
and commercial development
opportunities in core locations
directly and with experienced local
joint venture partners. Abacus has
total assets of $419 million in property
venture projects, an increase of
$110 million during the year due to
investment in a number of residential
opportunities in inner city markets
across the eastern seaboard of Australia
and incremental costs associated with
procuring development approvals on
existing projects. Abacus has made
a strategic investment decision to
invest heavily into Sydney residential
development opportunities, where
residential markets have enjoyed
SUSTAINABILITY
REPORT
FOR ABACUS,
SUSTAINABILITY
MEANS
CONSIDERING
ENVIRONMENTAL,
SOCIAL AND
GOVERNANCE
RISKS AND
OPPORTUNITIES
IN OUR BUSINESS
OPERATIONS.
THIS COVERS
OUR INVESTMENT
DECISION-
MAKING PROCESS
TO OUR ASSET
MANAGEMENT AND
DEVELOPMENT
ACTIVITIES AND
ANY ASSET
REALISATIONS.
sustainability initiatives are not captured
in our metrics as the asset has been sold
at that time.
Typically when a new property is
acquired a full assessment of the
property would be completed which
may entail both functional upgrades
and cosmetic changes. We will often
upgrade mechanical services before
lifecycle replacement (including control
systems Cbus systems, air conditioning
chillers, boilers, pumps, cooling towers
etc) in order to improve environmental
and financial outcomes. These
strategies help enhance the properties’
NABERS ratings and evidence of this
can be seen below.
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).
THE ENVIRONMENT
This is Abacus’ second year of providing
data on the Group’s environmental
footprint from its operations and
management and the first year where
we have some comparable data. The
data comparing our key performance
indicators over time has and will help
us manage and hopefully reduce our
consumption of natural resources.
Abacus is well positioned to improve
the environmental sustainability of
our buildings through efficient property
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.
When reading and utilising the
information contained in this report,
it is important to remember Abacus’s
investment philosophy that is the
cornerstone for every investment
decision. Abacus is an active core plus
manager. We acquire assets that we
believe are mispriced by the market
and fix that mispricing through active
management. This strategy may
result in mature assets that have been
transformed being returned to the
market. We believe this strategy has
a positive impact on the environment
as we extend and rejuvenate the life
cycle of assets that may be on their way
to becoming obsolete and ultimately
end in demolition and rebuilding.
This causes a negative impact on the
environment and the use of additional
natural resources. Unfortunately, the
assets that have benefited from these
Key Performance Indicators – Whole Portfolio
ENVIRONMENTAL
MEASURE
KEY PERFORMANCE
INDICATOR
Total Energy Use
Energy Intensity
Total Water Use
Water intensity
Carbon Emissions
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)
16 Abacus Property Group
YEAR ENDED
30 JUNE 2015
YEAR ENDED
30 JUNE 2014
132,292 GJ
390 MJ/m2
245,868 KL
0.7 KL/m2
144,886 GJ
571 MJ/m2
254,685 KL
1.0 KL/m2
31,768 tCO2e
26,091 tCO2e
M
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L
B
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1
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C
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L
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S
S
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R
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T
Annual Report 2015 17
SUSTAINABILITY REPORT
CONTINUED
Key Performance Indicators – Like for like properties (properties owned for the 12 months of FY14 and FY15)
ENVIRONMENTAL
MEASURE
KEY PERFORMANCE
INDICATOR
Total Energy Use
Energy Intensity
Total Water Use
Water intensity
Carbon Emissions
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 2015
YEAR ENDED
30 JUNE 2014
77,263 GJ
412 MJ/m2
133,440 KL
0.7 KL/m2
95,394 GJ
524 MJ/m2
131,010 KL
0.7 KL/m2
15,969 tCO2e
15,210 tCO2e
These new acquisitions have been
assessed under the Group’s energy
performance initiatives and we will look
to enhance the buildings sustainability
characteristics and aim to reduce their
carbon emission footprint.
We were able to split the analysis to
see the key performance indicators
on a like for like basis, capturing data
on assets we have owned for a full two
year period. The results correlate with
the whole portfolio illustrating similar
reductions across the same metrics
when you exclude water consumption.
The increase in water consumption
can largely be allocated to two water
leaks that were experienced within the
portfolio during the year. Unfortunately
the leaks were only picked up once an
increase in consumption was noticed
at the next billing time but were found
and fixed immediately. The quantum
of increase in carbon emissions has
reduced when compared to the
emissions of the whole portfolio.
The increase was likely due to lower
occupancy across a number of
properties and a colder winter this year,
particularly in Melbourne, all
of which contributed to an increased
loading to power systems.
Our processes for capturing
information are constantly being
developed and expanded. We are
looking into increasing the key
performance indicators to include
waste management once we are
able to.
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 environmental 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 as we have already indicated 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.
Pleasingly our key performance
indicators highlight a reduction across
the portfolio in the amount of energy
and water consumed in total and also
per square metre of gross lettable
area. This followed a number of energy
performance enhancing initiatives at
properties undergoing refurbishment
that included:
– Optimisation strategies of the start/
stop of the air conditioning systems;
– Optimisation of the domestic water
temperature when possible;
– Replacement of fire stairs and carpark
lighting with Chameleon LED lighting
system;
– Replacement of lighting for all
refurbished floors from T8 to T5 or
LED when possible; and
– Replacement of obsolete air condition
chillers with state of the art powerpax
chillers.
We are also very proud that for the
past four years Abacus has joined the
global movement to combat climate
change by taking part in Earth Hour.
We joined millions around the world by
turning off the lights in our properties
for an hour and taking collective action
against global warming.
Our results do show an increase in
carbon emissions compared to the
prior year. This was due to a larger
number of assets in the Victorian
state following a number of significant
acquisitions during the year which
included The World Trade Centre
building and 710 Collins Street, both in
Melbourne’s Docklands area. Victorian
electricity has the highest emission
factor in Australia when calculating
carbon emissions from energy usage.
18 Abacus Property Group
A Y E A R I N R E V I E W
Our properties that currently have a NABERS energy or NABERS water rating are:
PROPERTY
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
World Trade Centre, Melbourne, VIC
710 Collins Street, Melbourne, VIC
2015
NABERS ENERGY
2014
NABERS ENERGY
2015
NABERS WATER
2014
NABERS WATER
3.5
3.5
3.0
Sold
1.0
3.5
3.0
2.5
3.0
2.5
Exempt
Exempt
3.5
5.0
4.0
Sold
2.5
3.5
2.5
5.0
4.0
3.0
–
–
4.0
3.0
2.0
Sold
4.0
–
6.0
4.5
3.0
Sold
n/a
n/a
4.0
n/a
2.0
n/a
n/a
n/a
n/a
4.5
n/a
n/a
–
–
The performance metrics indicate
that we have been able to successfully
increase a number of our properties
energy and water ratings during the
year. Pleasingly a number of these
improvements were as a direct result
of sustainability initiatives that were
put in place during the year. This
included the replacement of a low
load chiller with a new state of the
art energy efficient powerpax chiller
at 14 Martin Place in Sydney NSW.
We also reconfigured the main air
conditioning system at 35 Boundary
Street in Brisbane, QLD which
provided a more efficient use of the
building’s air conditioning system.
We did record a fall in the NABERS
rating of 169 Varsity Lakes as a result
of an increase in vacancy.
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 principals, we endeavour
to provide a safe and healthy working
environment for all our employees,
contractors, customers and visitors.
During FY15 we recorded zero fatalities,
disabling injuries, occupational illnesses
or other reportable injuries. There were
however a number of incidents:
– 13 employee lost time incidents
resulting in 30 lost working days.
This was a reduction of 21% on FY14.
– 10 medically treated injuries
– 16 high-potential near hits
– 123% increase in reporting of
incidents requiring first aid or
no treatment
– 320% increase in early
intervention activities
The above data illustrates the
improvements the Group has achieved
with a significant increase in reporting
of incidents as a result of the training
and frameworks implemented across
the Group.
Annual Report 2015 19
SUSTAINABILITY REPORT
CONTINUED
M
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Metrics illustrating women’s pay as a
percentage of male salaries showed
slight movements across a number of
levels. This was largely due to a higher
turnover of staff in 2014. Importantly
the changes at manager and senior
manager levels were due to the
promotion of a female employee into a
more senior pay bracket. Each bracket
has a number of pay scales that relate
to different levels of experience and
responsibilities.
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. 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.
We recognise that as we expand the
business through acquisitions and
sales and the delivery of projects our
workforce will evolve. In FY14 our total
workforce turnover was 24%. This
was largely as a result of the sale of
Birkenhead Point Shopping Centre and
Marina in Sydney and the acquisition
of Oasis Shopping Centre on the
Gold Coast where centre staff were
transferred or employed along with
the asset. This is typical of our active
management business that can deliver
a higher turnover in staff as assets and
projects are transferred.
Activities into FY16 will see the
further streamlining and integration
of the health and safety management
system with business and operational
processes that should provide further
improvements in health and safety
performance across the Group. In all
the Board have committed to 20 key
objectives to ensure that the Group’s
work, health and safety practices are
integrated into all processes conducted
by the business and improve our
performance.
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 Group’s business goals.
We actively encourage and support a
diverse workforce where gender, age,
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 prevent
harassment in the workplace.
20 Abacus Property Group
A Y E A R I N R E V I E W
WORKPLACE METRICS
2015 FEMALE
2014 FEMALE
2015 MALE
2014 MALE
GENDER COMPOSITION
Board
Workforce
Executive
Management
NO.
1
25
1
4
%
17
44
14
36
NO.
1
25
1
4
%
20
45
13
36
NO.
5
32
6
7
%
83
56
85
64
NO.
5
30
7
7
FEMALE SALARIES AS A PERCENTAGE OF MALE SALARIES
2015
%
80
55
87
64
2014
2015
TOTAL
NO.
2014
TOTAL
NO.
6
57
7
11
5
55
8
11
FEMALE NO.
MALE NO.
% OF MALE
SALARY
FEMALE NO.
MALE NO.
% OF MALE
SALARY
6
5
7
3
2
1
1
0
2
2
4
10
3
3
7
1
101
93
108
117
79
84
88
N/A
5
3
7
5
4
0
1
0
1
2
2
11
3
4
6
1
101
103
131
100
85
N/A
87
N/A
Entry
Intermediate
Experienced
Specialist
Manager
Senior Manager
Executive
MD
FULL TIME / PART TIME
Full time
Part time
2015 FEMALE
2014 FEMALE
2015 MALE
2014 MALE
NO.
21
4
%
41
67
NO.
20
5
%
42
71
NO.
30
2
%
59
33
NO.
28
2
%
58
29
PROPORTION OF FEMALES BY JOB LEVEL
Entry
Intermediate
Experienced
Specialist
Manager
Senior Manager
Executive
MD
2015 FEMALE
2014 FEMALE
2015 MALE
2014 MALE
NO.
6
5
7
3
2
1
1
0
%
75
71
64
23
40
25
13
0
NO.
5
3
7
5
4
0
1
0
%
83
60
78
31
57
0
14
0
NO.
2
2
4
10
3
3
7
1
%
25
29
36
77
60
75
87
100
NO.
1
2
2
11
3
4
6
1
%
17
40
22
69
43
100
86
100
2015
TOTAL
2014
TOTAL
NO.
51
6
NO.
48
7
2015
TOTAL
NO.
2014
TOTAL
NO.
8
7
11
13
5
4
8
1
6
5
9
16
7
4
7
1
Annual Report 2015 21
CASE
STUDY
02
4 8 4 S T K I L D A R O A D , M E L B O U R N E V I C
Abacus acquired 484 St Kilda Road
in November 2011 in joint venture
with global real estate investment
management firm Heitman LLC
(Heitman) for $68 million. The
property was acquired on an initial
yield of c.8.7%.
The property provided 20,366m2
of high quality accommodation as
one of the best office assets in its
Melbourne city fringe precinct of
St Kilda Road, only 5km south of
the Melbourne CBD. The building
was an A grade commercial office
building located on a prominent
corner site with unobstructed
views across Albert Park Lake
and to Port Phillip Bay.
Abacus’ core skills were able to
quickly recognise the building
offered outstanding core plus
opportunities. We recognised
that the St Kilda submarket was
experiencing tightening vacancy
levels, significant tenant relocation
and an opportunity to grow rents
off a low base. Our ability to move
quickly enabled the Group to
acquire the property on a low
rate per square metre.
The property underwent a
refurbishment program updating the
internal fit out on some floors and we
secured SAP as an anchor tenant on
the top 3 floors. The team expanded
and refurbished the ground floor
retail and introduced a successful
café that became a destination of
choice not only for tenants but also
workers in the local area.
The joint venture maintained high
occupancy across the property
with significant tenant retention,
achieving substantial improvements
in rental rates across new and
retained leases as the sub market
attracted strong tenant covenants.
At the time of sale in August
2014, the property set submarket
records for capital rate per square
metre prices with a sales price of
$94 million. A 34% improvement
on its original acquisition price
together with the strong yield during
ownership delivered the joint venture
an equity IRR of c.24%.
22 Abacus Property Group
Annual Report 2015 23
REAR (LEFT TO RIGHT)
Mr Malcolm Irving
Mr John Thame
Dr Frank Wolf
Mr Peter Spira
FRONT (LEFT TO RIGHT)
Mr William Bartlett
Mrs Myra Salkinder
24 Abacus Property Group
THE BOARD
MEMBERS
A Y E A R I N R E V I E W
JOHN THAME
Mr Thame joined the Board upon
listing in 2002. John 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. John was Chairman
(2004 to 2008) and a director (1997 to
2008) of St. George Bank Limited and
St. George Life Limited.
WILLIAM BARTLETT
Mr Bartlett joined the Board in 2007.
As a partner at Ernst & Young for
23 years, Bill held the roles of Chairman
of Worldwide Insurance Practice,
National Director of Australian Financial
Services Practice and Chairman of the
Client Service Board. Bill is a director of
Suncorp Group Limited, GWA Limited,
Reinsurance Group of America Inc. and
RGA Reinsurance Company of Australia
Limited. He is also Chairman of the
Cerebral Palsy Foundation of Australia.
FRANK WOLF
Dr Wolf has been a member of the
Abacus team from its inception in
1996. Frank was Deputy Chairman
upon listing in 2002 and took over
as Managing Director in 2006. Frank
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.
He has been instrumental in over
$5 billion worth of property related
transactions, corporate acquisitions
and divestments and has financed
specialist property-based assets in the
retirement and hospitality sectors. He is
also a director of HGL Limited.
MYRA SALKINDER
Mrs Salkinder joined the Board in 2011.
Myra 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, Australia and
internationally. Myra is a director of
various companies associated with the
Kirsh Group worldwide.
MALCOLM IRVING
Mr Irving joined the Board upon listing
in 2002. Malcolm 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 and Macquarie University
Hospital.
PETER SPIRA
Mr Spira joined the Board in 2015.
Peter had significant experience in
the Australian real estate sector with
Meriton Group, Australia’s largest
residential apartment developer.
Peter was responsible for Meriton
Group’s development projects.
He also led the Meriton team in
researching and developing new
construction and remediation systems.
Peter was a director of Meriton Group
from 2005 until he retired in 2015.
In 2006 Peter received the Order
of Australia (AM) for services to the
development industry. Peter is a
director of Retire Australia.
Annual Report 2015 25
SENIOR
EXECUTIVE
TEAM
ELLIS VAREJES
Chief Operating Officer and Company
Secretary
Ellis is responsible for the Group’s
transactional, business and legal
functions.
CATE AARONS
Head of Strategy
GAVIN LECHEM
Director Specialised Capital
Cate is responsible for strategy for the
Group and for its managed funds.
Gavin is responsible for driving the
Group’s third party capital initiatives.
ROB BAULDERSTONE
Chief Financial Officer
Rob is responsible for the Group’s
financial management, financial
reporting and treasury 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.
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 focuses on the leasing and
administration of the Group’s
investment portfolio. Peter continues
to be responsible for the asset
management activities across the
Group.
26 Abacus Property Group
ANNUAL
FINANCIAL
REPORT
30 JUNE 2015
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
Peter Spira
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 12, 225 George St
SYDNEY NSW 2000
Tel: 1300 737 760
Fax: 1300 653 459
CONTENTS
28 Directors’ report
61 Auditor’s independence declaration
64 Consolidated income statement
65 Consolidated statement of comprehensive income
66 Consolidated statement of financial position
68 Consolidated statement of cash flow
69 Consolidated statement of changes in equity
71 Notes to the financial statements
144 Directors’ declaration
145 Independent audit report
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 2015. 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 2015 27
DIRECTORS’
REPORT
30 JUNE 2015
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 2015.
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. Its market capitalisation was over $1.62 billion at 30 June 2015.
Shares in AGHL, AGPL and ASOL and units in AT, AIT and ASPT are stapled so 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 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 2015 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
and Abacus Wodonga Land Fund.
The principal activities of Abacus that contributed to its earnings during the course of the year ended 30 June 2015 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.
28 Abacus Property Group
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’ overarching strategy is to invest our capital in core plus property assets. Abacus takes advantage of value adding
opportunities to drive long term total returns and maximise securityholder value. Our investment objective is to provide our
investors with reliable and increasing returns. We look for property assets that are capable of providing strong and stable cash-
backed distributions from a diversified portfolio that provides genuine potential for enhanced capital and income growth as a
result of our active management. 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 in the XPJ index.
– We invest in core plus property investments that are expected to yield 12-15% per annum equity total returns over time.
– We drive value through active management of the asset portfolio and through the reinvestment of sales proceeds.
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 $100 million in value. These assets are usually B-Grade assets in good core locations in major trading or CBD
areas. They generally offer more attractive core plus and enhancement characteristics and therefore better opportunities to
deliver enhanced returns. Our philosophy with self-storage properties is focused on Australia and New Zealand and includes
regional locations.
We have a successful track record of acquiring property based assets and actively managing those assets to enhance income
and capital growth. Our core plus presence and track record has facilitated joint ventures with a number of sophisticated global
third party capital providers. Our experience has shown that strict adherence to our fundamental investment criteria enables us
to buy assets well and provide opportunities for outperformance while minimising downside risk to equity.
GROUP RESULTS SUMMARY
The Board monitors a range of financial information and operating performance indicators to measure performance over time.
We use several measures to monitor the financial success of our overall strategy. The key measure is underlying profit.
Revenue ($ 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
2015
287.8
375.9
133.5
128.3
24.47
119.3
22.75
17.00
5.7x
524.4
2014
370.4
424.7
108.3
101.3
20.83
120.6
24.81
16.75
4.8x
486.1
Annual Report 2015 29
DIRECTORS’ REPORT30 JUNE 2015CONTINUED OPERATING AND FINANCIAL REVIEW (CONTINUED)
GROUP RESULTS SUMMARY (CONTINUED)
The Group earned a statutory net profit excluding non-controlling interests of $133.5 million for the year ended 30 June 2015
(2014: $108.3 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
$128.3 million, a 26.7% increase on the 2014 underlying profit of $101.3 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 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
add back: Consolidated losses relating to the managed funds (these losses are excluded as
the profits/losses of the managed funds cannot and do not form part of the assessable and
distributable income of Abacus)
Net profit attributable to Abacus securityholders
Certain significant items:
Net (gain) / loss in fair value of investment properties held at balance date
Net change in 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
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
2015
$’000
2014
$’000
133,498
108,273
14,135
3,368
147,633
111,641
(29,430)
(22,131)
(435)
(1,323)
10,949
1,434
(2,548)
15,436
940
(2,554)
128,334
101,278
2015
25.46
24.47
17.00
524.4
2014
22.27
20.83
16.75
486.1
30 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED OPERATING AND FINANCIAL REVIEW (CONTINUED)
GROUP RESULTS SUMMARY (CONTINUED)
FY15 was another year of conflicting metrics across property markets. The low interest rate environment and outlook
combined with the higher yields offered from Australian real estate relative to overseas markets drove strong demand for real
estate assets across all sectors despite the mixed economic fundamentals and consumer sentiment remaining very cautious
throughout the year.
The dislocation was more evident across office and industrial assets. Strong demand for assets created capitalisation rate
compression while the leasing markets continued to be sluggish and increasingly divergent across states. Sydney and
Melbourne office markets are expected to outperform other major Australian capital cities with superior supply/demand
fundamentals. Other cities will have difficult conditions for a while further. This should represent an opportunity for strong
acquisition opportunities at the appropriate time when pricing reflects fundamentals. Retail trade conditions improved slightly
due to the low interest rate environment, strong house price growth and a falling Australian dollar which drove a softening in
overseas internet sales.
As a result, fundamental value remains difficult to find across traditional CBD markets. Abacus remained a cautious acquirer
while taking advantage of the demand for real estate and sold a number of mature assets. Abacus completed sales totalling over
$272 million during the year. These sales helped deliver strong returns for Abacus. The sale proceeds were re-invested in the
Abacus’ growth strategy and helped acquire $165 million of new assets. Abacus has continued to expand the third party capital
platform with the development of new relationships with global investment firms KKR and The Goldman Sachs Group, Inc.
The limited ability to find fundamental value in the commercial real estate markets and the low interest rate environment driving
strength in pricing across completed residential products drove an increased focus in development projects throughout
the year. As a result, Abacus significantly increased its exposure by over $110 million across a number of new residential
development projects in major cities on Australia’s eastern seaboard. All market metrics point to sustained strength in
residential markets, in particular NSW where the majority of the Group’s exposure resides.
The increase in the Group’s statutory net profit excluding non-controlling interests was principally due to profits on sale
of investment portfolio assets including 484 St Kilda Road in VIC and Birkenhead Point Shopping Centre and Marina,
Wharf 10 and 309 George Street in NSW. These contributed to an increase of 26.7% to the underlying profit attributable
to Abacus securityholders.
The impact of both year-end fair value adjustments and the Group’s performance on its financial position were as follows:
Total assets ($ million)
Gearing^ (%)
Net assets* ($ million)
Net tangible assets*^ ($ million)
NTA per security^ ($)
NTA per security post distribution^ ($)
2015
2014
2,137.2
2,079.3
18.2
1,407.1
1,377.7
2.49
2.41
23.4
1,253.4
1,225.0
2.38
2.30
^ Abacus only – Gearing metric calculated as debt minus cash divided by total assets minus cash
* Excluding external non-controlling interests of $31.0 million (2014: $36.8 million)
The increase in net assets of the Group by 12.3% reflects the improved performance compared to the previous year.
During the year, the Group’s total assets increased despite property disposals throughout the year.
Annual Report 2015 31
DIRECTORS’ REPORT30 JUNE 2015CONTINUED OPERATING AND FINANCIAL REVIEW (CONTINUED)
GROUP RESULTS SUMMARY (CONTINUED)
Capital management
The Abacus balance sheet continues to be strong with gearing remaining low at 18.2%, well within our target gearing limit
of 35%. At 30 June 2015, Abacus had $207 million of available liquidity that provides capacity for use for up to $350 million
of accretive acquisitions.
The Group completed a number of capital management initiatives during the year which included a rights issue to all existing
securityholders in April 2015. The accelerated non renounceable entitlement offer raised a total of $107 million and provided
important growth capital for acquisitions and projects.
During the year, Abacus extended its bank loan facilities including its $480 million syndicated facility by a further year to
maintain it as a 6 year loan facility. Abacus also increased its storage loan facility to $250 million and extended it to 2020.
Abacus has no debt expiring in FY2016.
We continue to improve and reweight the balance sheet to larger, higher quality core plus 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 6.0% 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 $112.1 million for the year ended 30 June 2015. This represented an increase of
12.0% compared to the previous year largely attributable to the sales of investment portfolio assets including 484 St Kilda Road
VIC and Birkenhead Point Shopping Centre and Marina, Wharf 10 and 309 George Street in NSW. The 37 assets (2014: 43 assets)
that make up the commercial portfolio had a total value of $848 million at year end (2014: $909 million).
Pursuant to the 2015 portfolio valuation process, 17 out of 28 of the commercial properties (excluding equity accounted
properties) or 83.0% by value were independently valued during the year to 30 June 2015. 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 $10.2 million (2014: $17.3 million gain) or 1.4% of investment properties. A significant contributor to this
increase was the Group’s retail assets, in particular Ashfield Mall located in Sydney, NSW as a result of a combined improvement
in capitalisation rate and rental income following encouraging repositioning and re-leasing work.
During the year Abacus acquired the following commercial properties:
Retail
– Oasis Shopping Centre, Broadbeach QLD (40% indirect ownership) for $41.4 million
Office
– World Trade Centre, Melbourne VIC (17.5% indirect ownership) for $30.1 million
– 710 Collins Street, Melbourne VIC (100% ownership) for $76.5 million
32 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED 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 three assets held in joint ventures being the Victorian asset 484 St Kilda Road, St Kilda and the NSW assets of
Wharf 10, Pyrmont, and 309 George St, Sydney. Abacus also sold two large retail assets being Birkenhead Point Shopping
Centre and Marina in Drummoyne NSW and Aspley Village Shopping Centre in Aspley QLD. Abacus completed sales
totalling over $272 million during the year which realised gains of $47.2 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 spread provides
a level of security and stability to the portfolio’s property income and cash flows.
Office
52%
Commercial
Portfolio
$848 million
Industrial
and Other
16%
VIC
30%
SA
9%
Retail
32%
ACT
9%
Commercial
Portfolio
$848 million
NSW
37%
QLD
15%
Commercial portfolio (office, retail, industrial and other)
– $848 million of commercial properties across 37 assets (including equity accounted properties)
– Portfolio capitalisation rate: 7.73%
– Portfolio occupancy: 93.4%
– Like for like rental growth of 2.2%
– Weighted average lease expiry (“WALE”) profile of 4.1 years.
The sale of strong investment assets throughout the year and the difficult leasing environment across the office sector impacted
on the portfolio’s metrics across the commercial portfolio with occupancy down to 93.4% from 94.6% and like for like rental
growth of 2.2% down from 4.5% 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 18% of leases up for renewal over the next year to 30 June 2016. 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
FY12
92.8%
13%
FY13
94.3%
19%
FY14
92.8%
16%
FY15
94.6%
21%
FY16
93.4%
18%
82,565m²
63,014m²
51,679m²
59,396m²
94.3%
92.8%
94.6%
93.4%
The office leasing environment had a challenging start to the year as the drag from FY14’s insipid market environment
continued. As the year progressed it became apparent there was a clear divergence in leasing markets across capital city CBD’s.
Positive net absorption and a tightening in CBD office vacancies started to show green shoots of recovery in Sydney and to
a lesser extent Melbourne in Q12015. The outperformance of these two markets is expected to continue from robust tenant
demand combined with fragmented vacancy across the CBD. Incentives are also expected to move lower over FY16 as a result
of these factors. The Brisbane market continues to be challenging as surplus supply comes to market.
Annual Report 2015 33
DIRECTORS’ REPORT30 JUNE 2015CONTINUED
OPERATING AND FINANCIAL REVIEW (CONTINUED)
CORE SEGMENT RESULTS SUMMARY (CONTINUED)
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.
While retail sales growth slowed towards the end of calendar year 2014, the 2015 calendar year started positively and it
is anticipated to return to long term averages driven by lower energy prices, lower interest rates and solid gains in wealth
from house and equity price increases during the year. The rental cycle is in an upswing in response to tenant demand and
the improved sales environment but a lower Australian dollar will work against large increases given a squeeze in margins.
Improving sales will lift rental growth expectations and should support further yield compression across most retail asset types.
Abacus’ 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. The Group
has recently added to the portfolio assets with strong turnaround prospects and it can take advantage of the positive outlook
for the sector.
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. Abacus expanded
the platform further during the year with a number of joint ventures with new investment partners. Abacus entered into an
investment relationship with global investment firm KKR that acquired two properties during the year, World Trade Centre in
Melbourne and Oasis Shopping Centre on the Gold Coast for a combined total of almost $225 million. Abacus also developed
a relationship with The Goldman Sachs Group, Inc. to acquire 201 Pacific Hwy in Sydney for $115 million. These acquisitions took
the total of high quality core plus assets that Abacus has acquired with capital partners since 2009 to almost $1 billion.
A number of assets held in the Heitman joint venture reached maturity during the year and were successfully sold for a total of
$136 million, delivering an aggregate equity IRR of 33.9% for Abacus securityholders. Abacus also sold another joint venture
asset, 309 George Street for $112 million delivering an equity IRR of 19%. These results illustrate the strength of Abacus
investment analysis and asset management skills.
Abacus typically invests 25% to 50% of the required equity, with our capital partners investing 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 continue to focus on driving our third party
strategy to expand our acquisition capacity.
Storage
Abacus’ storage portfolio delivered a result of $47.6 million for the year ended 30 June 2015. This represents an increase on
the FY14’s result of $31.3 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 $457 million across a total portfolio of 54 assets, an overall
increase of three assets during the period.
Pursuant to the 2015 valuation process 24 storage assets out of 54 or 49% by value were independently valued during the
year to 30 June 2015. 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 $19.2 million (2014: $4.9 million gain) or 4.4%
of investment properties.
The storage portfolio is well diversified in Australia and New Zealand.
34 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED OPERATING AND FINANCIAL REVIEW (CONTINUED)
CORE SEGMENT RESULTS SUMMARY (CONTINUED)
VIC
26%
ACT
15%
Storage
Portfolio
$457 million
NSW
21%
QLD
18%
NZ
20%
– $457 million of storage assets
– Portfolio capitalisation rate: 8.62%
– Occupancy: Australian portfolio 83.8% and NZ portfolio 88.5%
– Gross rental: Australian portfolio $256 and NZ portfolio NZ$261 per m².
The addition of recently acquired industrial sites for conversion to storage facilities has prevented further growth in the
portfolio’s metrics while they undergo let up from conversion completion. Despite the addition of the new facilities, the
portfolio’s metrics were maintained in portfolio occupancy across the financial year at 84.9%, down slightly from 85.0%
(FY14 average) and average portfolio rental yield at $250 per m² average, matching the $250 per m² in FY14. The addition
of the new facilities to the portfolio delivered improved revenue for the year.
The storage portfolio’s stabilised assets are the key contributor to underlying growth across the portfolio. They continue to
deliver improved operating performances across Australian and New Zealand markets. Adjusting the portfolio to remove the
four converted facilities currently in let up mode (Castle Hill, Wodonga, Thornleigh and St Peters), portfolio occupancy grew to
86.0% from 85.0% and average rental rate increased to $258m² from $250m². This improved portfolio RevPAM (revenue per
available square metre) across the stabilised portfolio to $216m², a 1.4% increase from last year of $213m². The fall in the New
Zealand dollar during the year negatively impacted the improvement in the NZ assets. If FY14’s RevPAM is adjusted to current
rates the increase across the portfolio would be 2.9%. RevPAM measures the profitability and efficiency of your portfolio.
The portfolio remains focused on improving metrics across the whole portfolio, especially the new stores opened during the
year. Let up in these stores are tracking well, especially stores in Wodonga and Castle Hill which have been opened for longer,
with every improvement in occupancy enhancing the portfolio’s performance. We continue to grow through acquisition of
stabilised assets including two assets in Rozelle, NSW ($8.25 million) and West Heidelberg, VIC ($5.5 million) which met our
investment criteria.
We continue to seek assets with strong conversion potential with the acquisition of an industrial asset in South Oakleigh, VIC
($3.45 million) which is currently tenanted but has redevelopment potential and is currently in its design and planning phase.
The outlook for the sector remains buoyant despite the mixed economic environment generally across the country.
Mature self-storage facilities continued to experience consecutive quarters of monthly revenue growth and storage fee rate
growth. The Auckland and Melbourne markets both traded and performed strongly over the last 12 months. The Abacus
portfolio is heavily weighted to the 7 core zones and well placed to take advantage of this outperformance in the market.
Annual Report 2015 35
DIRECTORS’ REPORT30 JUNE 2015CONTINUED
OPERATING AND FINANCIAL REVIEW (CONTINUED)
CORE SEGMENT RESULTS SUMMARY (CONTINUED)
Property Ventures
The Property Ventures business invests in projects and provides finance solutions that focus on select residential and
commercial development opportunities in core locations directly and with experienced local joint venture partners. Abacus has
total assets of $419 million in property venture projects, an increase of $110 million due to investment in a number of residential
opportunities in inner city markets across the eastern seaboard of Australia. The lack of fundamental value in traditional
commercial CBD markets drove a decision to increase investments into residential markets, particularly the Sydney market,
where residential markets have enjoyed substantial pricing growth. The low interest rate environment suggests the positive
environment will continue into FY16/17.
During the year the Group added to its pipeline with a number of new projects which included:
– Erskineville, NSW (current investment $15.6 million) – Proposal to redevelop an existing industrial site to accommodate
approximately 172 residential apartments in an exciting inner city urban renewal precinct 5km South-West from the Sydney
CBD. The project is a 50/50 joint venture. The development application was lodged in June 2015 and the intention is to start
the sales campaign in September 2015. Completion is anticipated by end of FY17.
– Campsie, NSW ($21.8 million) – The Campsie project incorporates two adjacent development sites on Canterbury Road
in Campsie NSW. A private local developer has the two sites under separate development applications for a total of up to
400 residential units and 16 retail shops. Abacus will receive 50% of the project’s profits. The sites can be sold separately
or in one line and will be sold once development approval is received in FY16.
– Doncaster, VIC ($13.6 million) – Proposal to develop approximately 296 residential apartments and five retail shops in a strong
location close to Westfield Doncaster and on a major arterial route 19km from the Melbourne CBD. The project is a 50/50 joint
venture. The development application was approved in June 2015 and is currently being marketed for sale.
– The Prince, ACT ($2.9 million) – Development to build 152 residential apartments in the affluent mixed use Kingston Foreshore
precinct, overlooking Lake Burley Griffin. The project is a 50/50 joint venture. The development application was approved
in February 2015 and a marketing and sales campaign commenced in October 2014 and is progressing well with 125
apartments sold. Construction is anticipated to be completed in October 2016.
– Merivale, QLD ($26.6 million) – Proposal to develop approximately 481 residential units in two stages across two high rise
30 storey towers in Brisbane’s cultural precinct, Southbank, a short 750m walk to the CBD. The project is a 50/50 joint venture.
A development application has been submitted and we anticipate approval in September 2015. Pre sales have commenced.
The Property Ventures division generated a result of $26.7 million for the year, a decrease of 8.9% to FY14 result of $29.3 million
due to a reduction in transactional profits in FY15 post the realisation of the Bay Street development in FY14. The following
transaction contributed to the result.
– Jack Road, VIC ($6 million gain) – Part sale of an industrial site rezoned for mixed use for $34 million in August 2014. A
12,500m² part of the sale was retained and is being considered for future commercial development.
Funds Management
The funds management business generated a result of $8.5 million for the year. This result before fair value adjustments was
below the FY14 result of $15.3 million, which reflects the reduction in assets under management. Abacus continues to manage
its unlisted funds to try to optimise the returns with selective sales and acquisitions of assets where opportunities and market
conditions allow. In line with this strategy, ADIF II acquired a 50% interest in a solid Adelaide CBD office asset for $74.0 million
while AHF successfully exited the Christchurch market selling Chateau on the Park for NZ$35 million during the year.
The progress of the management for each of the funds is set out in the non-core segment results summary on the following page.
36 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED 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 2015 is as follows:
Abacus Hospitality Fund (AHF)
AHF owns three hotels: Rydges Tradewinds in Cairns, North Queensland with 246 rooms; Rydges Esplanade in Cairns,
North Queensland with 242 rooms and Novotel Twin Waters Resort on the Sunshine Coast, Queensland with 374 rooms.
The fund sold Chateau on the Park, Christchurch, New Zealand in January 2015 for NZ$35million. The net sales proceeds
were applied to debt and fixed interest rate swap obligations.
The two hotels in Cairns generated slightly higher profits in the current year compared to the prior corresponding period, aided
by the depreciation of the Australian dollar and increased tourism demand. Novotel Twin Waters resort has reported a weaker
performance compared to last year as a result of lower than expected conference and events business. The outlook for the hotel
is expected to improve following reduced competition in the area.
AHF has a bank facility until April 2017 with a loan to value ratio of c45%.
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, at the rate of 2c per security per annum.
Abacus Diversified Income Fund II (ADIF II)
At 30 June 2015 ADIF II owned 13 investment properties diversified by sector and state. The fund acquired 50% of Westpac
House in Adelaide SA for $74 million utilising sales proceeds from a number of sales late in FY14 and available bank debt.
During the year three properties were sold.
– The Fund settled 1-5 Lake Drive, Dingley for $14.1 million; and
– 75 and 81 Railway Street, Rockdale sold for total proceeds of $15.5m
The property portfolio was approximately 79% occupied and had a weighted average lease term of 2.9 years. The Fund
has a bank facility until June 2017. The loan is drawn to $80m with a loan to value ratio of c46%.
Distributions are being paid to all unit classes in the Fund at guaranteed rates between 7.5% and 9.95%.
The Fund is expected to be wound up between June 2016 and June 2017 in accordance with the retail offer document.
Abacus Wodonga Land Fund (AWLF)
AWLF owns the estate known as White Box Rise located in Wodonga, Victoria. During the year 150 residential lots were
settled for a combined gross proceeds of $17.0 million. This is a considerable improvement on the prior year of 83
settlements. This takes the total number of lots settled to 609 since the start of the project. Construction of new residential
stages is ongoing to maintain inventory for a range of markets including first home buyers, families, investors and retirees.
These lots under construction are being pre-sold off the plan with settlements expected when titles are registered. White Box
Rise has approximately 461 residential lots left to sell. During the year Council approved the Fund’s amended development
plan and planning permit.
No distributions were paid to unitholders during the year.
Annual Report 2015 37
DIRECTORS’ REPORT30 JUNE 2015CONTINUED OPERATING AND FINANCIAL REVIEW (CONTINUED)
FUTURE PROSPECTS AND RISKS
Abacus remains committed to growing its core segments and will achieve this through the acquisition and ownership of core
plus investment properties and development projects 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 the 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 2015 Abacus held sufficient acquisition capacity to acquire a further $350 million of properties directly on the
balance sheet or invest a further $207 million in development projects. This capacity can be further leveraged to invest in a larger
number of projects through joint venture arrangements. Recurring earnings are anticipated to increase over the coming year as
a result of increased interest income for development loans transacted during the year and also an increased level of rental and
interest income as the current surplus capacity on the balance sheet is utilised in new investments. Growth in revenue through
further acquisitions will be driven by our ability to access new opportunities for that deliver our required equity returns in current
markets that are showing signs of strong pricing. 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. Any sales of investment properties or
the completion and repayment of any development projects will also have a negative influence on revenue growth.
Abacus remains committed to delivering transactional returns to securityholders in addition to returns from recurring income.
The Abacus balance sheet is exposed to transactional returns from both investment properties and also development projects.
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 list is not exhaustive, and performance may be affected
adversely by any of these risk and other factors.
– Returns from investment – Returns from investment in real property and other related property exposures depend largely
on the amount of rental income that can be generated from the property, the expenses incurred in operations, including the
management and maintenance of the property, as well as changes in the market value of the property. Factors which may
adversely impact these returns include:
– the overall conditions in the national and local economy, such as changes in gross domestic product, employment trends,
inflation and interest rates;
– local real estate conditions, such as the level of demand for and supply of retail, commercial and industrial space;
– the perception of prospective tenants of the attractiveness, practicality and convenience of the rental space;
– changes in tenancy laws and planning approval requirements;
– external factors including major world events such as war, terrorist attacks or force majeure events;
– unforeseen capital expenditures;
– supply of new property and other investment assets;
– cost of property outgoings and recoverability from tenants; and
– investor demand/liquidity in investment markets.
38 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED OPERATING AND FINANCIAL REVIEW (CONTINUED)
FUTURE PROSPECTS AND RISKS (CONTINUED)
– Development – Abacus is involved in the development of real estate. Generally, property development projects have a
number of risks including:
– the risk that planning consents and regulatory approvals are not obtained or, if obtained, are received later than expected,
or are adverse to Abacus’ interests, or are not properly adhered to;
– the escalation of development costs beyond those originally expected;
– project delays;
– anticipated sales prices or timing on sales not being achieved;
– defaults on pre-sales contracts;
– non-performance/breach of contract by a contractor, sub-contractor or joint venture partner; and
– competing development projects adversely affecting the overall return achieved by Abacus developments.
A sustained downturn in property markets caused by any deterioration in the economic climate could result in reduced
development profits through reduced selling prices or delays in achieving sales.
Increases in supply or falls in demand in any of the sectors of the property market in which Abacus operates or invests could
influence the acquisition of sites, the timing and value of sales and carrying value of projects. The residential property market
in particular may be adversely affected by declining consumer sentiment and increasing interest rates. In the short term
this may affect, for example, project enquiry levels or rates of sale. In the medium-term factors such as the oversupply or
undersupply in various markets may materially impact Abacus’ development operations.
A number of factors affect the earnings, cashflows and valuations of Abacus’ commercial property development, including
construction costs, scheduled completion dates, estimated rental income and occupancy levels and the ability of tenants to
meet rental and other contractual obligations.
– 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 fill hotel space) that is vacant or becomes vacant on economically
favourable terms. In addition, our 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.
Annual Report 2015 39
DIRECTORS’ REPORT30 JUNE 2015CONTINUED
OPERATING AND FINANCIAL REVIEW (CONTINUED)
FUTURE PROSPECTS AND RISKS (CONTINUED)
– 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 ensures
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.
– 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
40 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED
OPERATING AND FINANCIAL REVIEW (CONTINUED)
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
The contributed equity of the Group increased $110.2 million to $1,514.0 million compared to $1,403.8 million
as at 30 June 2014 due to equity raisings and securityholder participation in the distribution reinvestment plan.
Total equity increased by $147.9 million to $1,438.1 million at 30 June 2015 compared to $1,290.2 million
at 30 June 2014 principally as a result of the performance of the Group.
DISTRIBUTIONS
Abacus’ distributions in respect of the year ended 30 June 2015 were $91.1 million (2014: $84.5 million), which
is equivalent to 17.00 cents per stapled security (2014: 16.75 cents). This distribution includes 8.5 cents ($47.0 million)
that was paid on 14 August 2015. Further details on the distributions, including distributions by the managed funds,
are set out in Note 14 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.
NON – AUDIT SERVICES
For amounts relating to non-audit services provided refer to Note 26 to the Financial Statements. The Directors are satisfied
that the provision of non-audit services during the year by the auditor, is compatible with the general standard of independence
for auditors imposed by the Corporations Act.
Annual Report 2015 41
DIRECTORS’ REPORT30 JUNE 2015CONTINUED DIRECTORS AND SECRETARY
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.
Mr Thame is Chairman of the Due Diligence Committee and a member of the Audit & Risk and Remuneration &
Nomination Committees.
Tenure: 12 years (All as Chairman)
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 $5 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.
Tenure: 12 years (8 years as Managing Director)
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 and Macquarie
University Hospital.
Mr Irving is Chairman of the Audit & Risk and Compliance Committees and a member of the Due Diligence Committee.
Tenure: 11 years
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.
Tenure: 8 years
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, Australia
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.
Tenure: 4 years
42 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED DIRECTORS AND SECRETARY (CONTINUED)
Peter Spira AM, B Arch
Mr Spira is a Non-Executive Director. He has over 36 years’ experience in the Australian real estate sector with Meriton Group,
Australia’s largest residential apartment developer. He was responsible for Meriton Group’s development projects while also
leading the Meriton team in researching and developing new construction and remediation systems. Mr Spira was a director of
Meriton Group from 2005 until 2015. In 2006 he received the Order of Australia (AM) for services to the development industry.
He is a director of Retire Australia.
Mr Spira is a member of the Due Diligence Committee.
Tenure: Director since May 2015
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
84,590
3,138,144
33,125
46,629
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
COMPLIANCE
COMMITTEE
HELD
ATTENDED
HELD
ATTENDED
HELD
ATTENDED
HELD
ATTENDED
J Thame
F Wolf
W Bartlett
M Irving
M Salkinder
P Spira
13
13
13
13
13
2
13
13
12
13
13
2
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
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.
Annual Report 2015 43
DIRECTORS’ REPORT30 JUNE 2015CONTINUED 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 61.
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.
44 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED REMUNERATION REPORT (AUDITED)
The following chart sets the context for the Remuneration Report:
3YR TOTAL SECURITYHOLDER RETURN TO 30 JUNE 2015
(%)
80
70
60
50
40
30
20
10
0
68.2% 65.9%
43.9%
33.6%
24.1%
20.3%
1yr
2yr
3yr
ABP
XPJAI1
1. XPJAI: S&P/ASX 200 A-REIT Accumulation Index
This Remuneration Report describes Abacus’ remuneration arrangements for directors and executives in accordance with
the requirements of the Corporations Act and Regulations.
In this report:
– Key Management Personnel are those persons (including the directors) who have authority and responsibility for planning,
directing and controlling the major activities of Abacus, including the executives receiving the highest remuneration.
– Executives are the Managing Director and the other senior executives of Abacus.
DETAILS OF KEY MANAGEMENT PERSONNEL (KMPs)
(i) Non-executive Directors
J. Thame
W. Bartlett
M. Irving
M. Salkinder
P. Spira
Chairman
Director
Director
Director
Director – appointed 27 May 2015
(ii) Executive Director
F. Wolf
Managing Director
(iii) Executives
E. Varejes
C. Aarons
R. Baulderstone
C. Laird
J. L’Estrange
P. Strain
Chief Operating Officer
Head of Strategy
Chief Financial Officer
Director Property Ventures
Director Property Ventures
Director Property
Annual Report 2015 45
DIRECTORS’ REPORT30 JUNE 2015CONTINUED
REMUNERATION REPORT (AUDITED) (CONTINUED)
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 3.4 % in the year ended 30 June 2015.
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
at 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 target was exceeded in the current year.
The Board retains discretion to vary remuneration from policy if appropriate.
Non-executive director fees are set with reference to market standards, to attract and retain 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-executive)
J. Thame – (independent non-executive)
Under its charter the Committee must meet at least twice during a year. The Committee met four 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. Abacus also reviews 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.
46 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED REMUNERATION REPORT (AUDITED) (CONTINUED)
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 market rates with the overall objective of attracting and retaining Board members
with an appropriate combination of industry and specialist functional knowledge and experience.
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 is a limit on non-executive
directors’ total fees. The actual fees paid to non-executive directors are in Table 6.)
The aggregate remuneration limit and the fee structure are reviewed annually and fees were last increased in August 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.
Annual Report 2015 47
DIRECTORS’ REPORT30 JUNE 2015CONTINUED REMUNERATION REPORT (AUDITED) (CONTINUED)
Executive remuneration in detail
Objective
The remuneration policy for executives supports 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 securityholders 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. Abacus consequently 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
– encourage entrepreneurship without taking excessive risk or otherwise jeopardising the sustainability of distributions to
securityholders.
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, established 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 product of a string of sustained short-term outcomes and seeks to discourage
volatile earnings and distributions. Reward is accordingly contingent on both current performance and the maintenance of that
performance in succeeding years. The two are not considered independent, and the reward structure intentionally does not
allow for separate short term and long term measures. This strategy better reflects the Board’s view of the group’s positioning
in the A-REIT industry.
The Board considers it appropriate that:
(a)
(b)
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
the proportion of fixed to potential maximum variable pay (the remuneration ratio) is 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. There are exceptions for outstanding personal achievement.
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.
48 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED REMUNERATION REPORT (AUDITED) (CONTINUED)
STRUCTURE (CONTINUED)
Abacus has an overarching investment strategy ensuring that at least 70% of its balance sheet exposure is to directly held core
plus property to provide a sustainable recurring income stream. The balance is focused on active real estate positions. This is
intended 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.
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.
Consequently 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 (reflecting the same short and medium term goals). 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 give the best performers an incentive to stay with the group, to encourage them to extend
and sustain their performance and to reduce risk taking associated with short-term performance payments.
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 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 executive 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 each 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 3.4% in the year ended 30 June 2015.
The fixed remuneration component of the Managing Director and other key management personnel is detailed in Table 6.
Annual Report 2015 49
DIRECTORS’ REPORT30 JUNE 2015CONTINUED REMUNERATION REPORT (AUDITED) (CONTINUED)
Variable Remuneration – current variable remuneration
Objective
The objective of the current variable remuneration plan is to link the achievement of Abacus’ operational targets to the
remuneration received by the executives charged with meeting those targets.
Structure
The current variable remuneration plan is designed to link financial rewards to 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 the Board to consider the financial performance of the business when deciding whether or not to pay a
current variable remuneration award, and, if an award is to be paid, 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 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.
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.
50 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED REMUNERATION REPORT (AUDITED) (CONTINUED)
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.
KEY PERFORMANCE MEASURES
Financial measure:
– Contribution to Abacus underlying profit
– Contribution to sustainability of distribution
– Contributions to projects expected to grow security value
Non-financial measures:
– Quality of analysis and recommendations
– Transaction and project management
– Key growth activities
– Risk management
– Other performance measures focuses on achieving business imperatives
PROPORTION OF CURRENT VARIABLE
REMUNERATION AWARD MEASURE APPLIES TO
MANAGING DIRECTOR
OTHER EXECUTIVES
60%
20-40%
(dependent on role)
40%
60-80%
These measures were chosen as they represent the key drivers for the short-term success of the business and provide a
framework for long term securityholder value.
The Board 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 executives against their
KPIs and other applicable measures and approves the amount, if any, of the current variable remuneration to be paid. For the
2015 financial year current variable remuneration awards of $1,955,000 have been accrued and will be paid in September 2015.
For the 2014 financial year, current variable remuneration awards of $1,775,000 accrued and were paid to executives in the
2015 financial year. (Unlike deferred variable remuneration awards, current variable remuneration awards are not subject to
forfeiture.) Some executives received more and some less than their current variable remuneration award opportunity for the
reporting period.
Annual Report 2015 51
DIRECTORS’ REPORT30 JUNE 2015CONTINUED REMUNERATION REPORT (AUDITED) (CONTINUED)
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
Underlying profit
Sustainable distribution
Non-financial
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 for the sustainability of distributions 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.
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.
52 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED REMUNERATION REPORT (AUDITED) (CONTINUED)
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, termination without cause, 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 SAR’s 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 the the Board’s discretion to satisfy in cash.
Annual Report 2015 53
DIRECTORS’ REPORT30 JUNE 2015CONTINUED REMUNERATION REPORT (AUDITED) (CONTINUED)
Deferred Security Acquisition Rights Plan (continued)
The table below discloses SARs granted to key management personnel during the 2015 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
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
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
21/11/2014
29/11/2013
15/05/2013
21/11/2014
29/11/2013
15/05/2013
21/11/2014
29/11/2013
15/05/2013
21/11/2014
29/11/2013
15/05/2013
21/11/2014
29/11/2013
15/05/2013
21/11/2014
29/11/2013
15/05/2013
21/11/2014
29/11/2013
15/05/2013
218,260
$2.476 13/09/2015 to 2018
13/09/14
13/09/13
65,476
$2.476 13/09/2015 to 2018
13/09/14
13/09/13
36,376
$2.476 13/09/2015 to 2018
58,200
$2.476 13/09/2015 to 2018
13/09/14
13/09/13
40,012
$2.476 13/09/2015 to 2018
13/09/14
13/09/13
13/09/14
13/09/13
72,752
$2.476 13/09/2015 to 2018
58,200
$2.476 13/09/2015 to 2018
13/09/14
13/09/13
13/09/14
13/09/13
–
69,352
53,105
–
16,644
21,242
–
11,096
16,340
–
16,644
16,340
–
12,206
18,730
–
16,644
17,913
–
16,644
16,340
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The value of SARs granted, exercised and lapsed during the year:
TABLE 2
F Wolf
E Varejes
C Aarons
R Baulderstone
J L'Estrange
C Laird
P Strain
VALUE OF SARS GRANTED
DURING THE YEAR
$
VALUE OF SARS EXERCISED
DURING THE YEAR
$
VALUE OF SARS LAPSED DURING
THE YEAR
$
540,412
162,119
90,067
144,103
99,070
180,134
144,103
349,757
109,123
79,206
94,594
89,366
99,255
94,594
–
–
–
–
–
–
–
Refer to Note 22 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.
54 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED REMUNERATION REPORT (AUDITED) (CONTINUED)
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
P Strain
SECURITIES ACQUIRED
NO.
PAID PER SECURITY
$
133,803
41,746
30,301
36,188
34,188
37,971
36,188
2.61
2.61
2.61
2.61
2.61
2.61
2.61
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:
TABLE 4
Director
F Wolf
Executives
E Varejes
C Aarons
R Baulderstone
J L'Estrange
C Laird
P Strain
Total
BALANCE
1 JULY 2014
GRANTED AS
REMUNERATION
SARS
EXERCISED
BALANCE
30 JUNE 2015
VESTED
30 JUNE 2015
436,723
218,260
(122,457)
532,526
130,302
93,404
115,596
105,014
120,315
115,596
65,476
36,376
58,200
40,012
72,752
58,200
(37,886)
(27,436)
(32,984)
(30,936)
(34,557)
(32,984)
157,892
102,344
140,812
114,090
158,510
140,812
1,116,950
549,276
(319,240)
1,346,986
–
–
–
–
–
–
–
–
Annual Report 2015 55
DIRECTORS’ REPORT30 JUNE 2015CONTINUED REMUNERATION REPORT (AUDITED) (CONTINUED)
Link between remuneration policy and Abacus’ performance
Abacus’ performance is compared with its peers in the S&P/ASX 300 A-REIT index. This peer group reflects Abacus’ competitors
for capital transactions and 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
120
110
100
90
80
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
01/07/2014
01/01/2015
30/06/2015
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**
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
2015
24.47
17.00
$2.92
$2.49
Weighted average securities on issue
372.3m
400.9m
446.4m
486.1m
524.4m
* Underlying earnings are unaudited
** Net tangible assets per security include the impact of the fair value movements
56 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED REMUNERATION REPORT (AUDITED) (CONTINUED)
Employment contracts
Managing Director
The Managing Director, Dr Wolf, is employed under a rolling contract. The current employment contract commenced
on 10 October 2002. Under the terms of the contract:
– Dr Wolf receives a base salary that is reviewed annually;
– he is eligible to participate in the deferred variable income plans that are made available and to receive current variable
remuneration payments;
– Dr Wolf may resign from his position and thus terminate this contract by giving 6 months written notice; and
– Abacus may terminate this employment agreement by providing 12 months written notice or providing payment in lieu
of notice (based on the fixed component of Dr Wolf’s remuneration).
Other Executives
The other executives are employed on an ongoing basis under letter agreements until (generally) one month’s notice is given
by either party. Abacus may terminate an executive’s service at any time without notice if serious misconduct has occurred.
Where termination with cause occurs the executive is only entitled to remuneration up to the date of termination. Deferred
variable remuneration allocations vest according to the SARs plan rules.
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
P Strain
Total
BALANCE
1 JULY 2014
75,276
2,914,341
29,444
40,472
98,200
57,691
26,224
20,831
19,215
66,081
VESTING
OF SARS
–
133,803
–
–
41,746
30,301
36,188
34,188
37,971
36,188
3,347,775
350,385
PURCHASES/
(SALES)
BALANCE
30 JUNE 2015
9,314
90,000
3,681
6,157
(24,747)
4,191
5,202
2,318
3,500
5,249
104,865
84,590
3,138,144
33,125
46,629
115,199
92,183
67,614
57,337
60,686
107,518
3,803,025
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 no loans to key management personnel and their related parties at any time in 2015 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.
Annual Report 2015 57
DIRECTORS’ REPORT30 JUNE 2015CONTINUED –
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Annual Report 2015 59
Signed in accordance with a resolution of the directors.
Abacus Group Holdings Limited (ABN 31 080 604 619)
John Thame
Chairman
Sydney, 21 August 2015
Frank Wolf
Managing Director
60 Abacus Property Group
DIRECTORS’ REPORT30 JUNE 2015CONTINUED
Annual Report 2015 61
DIRECTORS’ REPORT30 JUNE 2015CONTINUED 62 Abacus Property Group
FINANCIALS
Annual Report 2015 63
CONSOLIDATED
INCOME STATEMENT
YEAR ENDED 30 JUNE 2015
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 financial instruments derecognised
Net change in fair value of investment properties and property, plant and
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 loss on sale of property, plant and equipment
Net change in fair value of derivatives
Impairment of inventory
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
2015
$’000
2014
$’000
91,178
55,100
50,072
27,038
3,588
107,336
49,658
52,633
19,606
2,607
60,787
138,584
287,763
370,424
32,688
1,671
22,282
1,608
29,883
12,335
2,814
24,528
2,068
12,525
375,895
424,694
(19,590)
(21,043)
(39,450)
(6,162)
(20,158)
(18,208)
(41,098)
(8,912)
(56,552)
(124,252)
(1,547)
(9,851)
(9,620)
(41,757)
(30,460)
–
(14,533)
–
(50,930)
(24,526)
139,863
122,077
1(a)
1(b)
8(a)
3(a)
3(b)
3(c)
4(a)
(6,644)
(14,710)
133,219
107,367
6,027
21,457
84,972
6,039
3,317
1,358
31,785
56,007
10,078
4,307
(11,385)
27,809
133,498
108,273
(279)
(906)
133,219
107,367
Basic and diluted earnings per stapled security (cents)
2
25.46
22.27
64 Abacus Property Group
CONSOLIDATED
STATEMENT OF
COMPREHENSIVE
INCOME
YEAR ENDED 30 JUNE 2015
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
2015
$’000
2014
$’000
133,219
107,367
350
(63)
(3,490)
3,944
130,079
111,248
130,893
111,532
(814)
(284)
130,079
111,248
5,093
84,972
6,039
3,317
(144)
31,616
22,403
56,007
10,078
4,307
(9,155)
27,892
TOTAL COMPREHENSIVE INCOME AFTER TAX ATTRIBUTABLE TO MEMBERS OF THE GROUP
130,893
111,532
Annual Report 2015 65
CONSOLIDATED
STATEMENT OF
FINANCIAL POSITION
AS AT 30 JUNE 2015
CURRENT ASSETS
Investment properties held for sale
Inventory
Property loans
Cash and cash equivalents
Property, plant and equipment
Trade and other receivables
Derivatives at fair value
Other
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Investment properties
Inventory
Property loans
Equity accounted investments
Deferred tax assets
Property, plant and equipment
Other financial assets
Trade and other receivables
Intangible assets and goodwill
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Interest-bearing loans and borrowings
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
66 Abacus Property Group
NOTES
2015
$’000
2014
$’000
5
6(a)
7(a)
9
17
18
5
6(b)
7(b)
8
4(c)
17
7(c)
24
11(a)
23
51,047
7,464
25
38,388
3,080
11,680
263
2,742
186,543
14,182
4,939
61,653
2,700
21,165
247
3,407
114,689
294,836
1,317,101
1,158,951
112,689
263,008
137,227
6,658
85,020
184,415
125,432
5,480
118,019
154,383
34,595
–
33,261
30,473
7,085
33,261
2,022,558
1,784,500
2,137,247
2,079,336
29,812
–
3,329
25
9,057
42,223
21,527
16,667
6,357
1,136
7,335
53,022
11(b)
544,045
620,247
4(c)
23
51,125
10,490
45,940
5,296
57,602
10,323
45,983
1,969
656,896
736,124
699,119
789,146
1,438,128
1,290,190
1,438,128
1,290,190
CONSOLIDATED
STATEMENT OF
FINANCIAL POSITION
(CONTINUED)
AS AT 30 JUNE 2015
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
Retained earnings / (accumulated losses)
Total equity attributable to members of AGPL:
Equity attributable to unitholders of AIT:
Contributed equity
Accumulated losses
Total equity attributable to unitholders of AIT:
Equity attributable to members of ASPT:
Contributed equity
Reserves
Accumulated losses
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
2015
$’000
2014
$’000
330,029
304,410
7,870
8,433
(16,502)
(22,528)
321,397
290,315
899,670
840,236
(128,683)
(139,036)
770,987
701,200
25,649
3,979
29,628
23,431
(2,060)
21,371
125,682
(56,970)
68,712
116,575
(49,992)
66,583
114,369
103,092
(293)
(17,322)
96,754
1,209
(15,822)
88,479
18,616
16,012
(5)
101,060
119,671
164
69,275
85,451
65,543
73,668
139
(34,703)
30,979
674
(37,551)
36,791
1,438,128
1,290,190
13
1,514,015
1,403,756
7,572
9,806
(114,438)
(160,163)
1,407,149
1,253,399
30,979
36,791
1,438,128
1,290,190
Annual Report 2015 67
CONSOLIDATED
STATEMENT OF
CASH FLOW
YEAR ENDED 30 JUNE 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Income receipts
Interest received
Distributions received
Income tax paid
Finance costs paid
Operating payments
Payments for land acquisitions
NOTES
2015
$’000
2014
$’000
327,734
353,192
2,502
1,059
(11,122)
(41,141)
3,009
1,207
(2,754)
(50,214)
(120,040)
(124,831)
(39,660)
(59,022)
NET CASH FLOWS FROM OPERATING ACTIVITIES
9
119,332
120,587
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
Disposal of property, plant and equipment
Purchase of investment properties
Disposal of investment properties
Payment for other investments
(140,373)
(96,906)
58,934
(3,640)
32,699
3,955
(6,764)
–
(210,821)
(110,173)
235,293
232,035
(3,270)
(417)
NET CASH FLOWS (USED IN) / FROM INVESTING ACTIVITIES
(31,178)
21,730
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
107,569
(585)
(2,985)
95,968
(4,339)
(4,065)
(238,150)
(305,595)
115,892
138,005
(93,005)
(45,923)
NET CASH FLOWS USED IN FINANCING ACTIVITIES
(111,264)
(125,949)
NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS
Net foreign exchange differences
Cash and cash equivalents at beginning of year
(23,110)
16,368
(155)
463
61,653
44,822
CASH AND CASH EQUIVALENTS AT END OF YEAR
9
38,388
61,653
68 Abacus Property Group
CONSOLIDATED
STATEMENT OF
CHANGES IN EQUITY
YEAR ENDED 30 JUNE 2015
CONSOLIDATED
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
At 1 July 2014
1,403,756
–
2,517
7,289
(160,163)
36,791
1,290,190
Other comprehensive
income
Net income for the year
Total comprehensive
income for the year
Equity raisings
Return of capital
Issue costs
Distribution reinvestment
plan
Security acquisition rights
Distribution to security
holders
–
–
–
107,570
–
(701)
3,390
–
–
211
–
(2,815)
–
211
(2,815)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
370
–
133,498
(536)
(279)
(3,140)
133,219
133,498
(815)
130,079
–
–
–
–
–
–
107,570
(585)
–
–
–
(585)
(701)
3,390
370
–
(87,773)
(4,412)
(92,185)
At 30 June 2015
1,514,015
211
(298)
7,659
(114,438)
30,979
1,438,128
CONSOLIDATED
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
At 1 July 2013
1,268,381
Other comprehensive
income
Net income for the year
Total comprehensive
income for the year
Equity raisings
Return of capital
Issue costs
Distribution reinvestment
plan
Security acquisition rights
Distribution to security
holders
–
–
–
95,968
–
(820)
40,227
–
–
At 30 June 2014
1,403,756
3,295
–
(39)
3,295
39
(39)
–
–
–
–
–
–
–
–
(778)
6,616
(190,223)
43,785
1,127,820
–
–
–
–
–
–
–
673
–
625
3,881
108,273
(906)
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
Annual Report 2015 69
CONTENTS
30 JUNE 2015
Notes to
the financial
statements
About this report
Segment information
Page 71
Page 73
RESULTS FOR THE YEAR OPERATING ASSETS
AND LIABILITIES
CAPITAL STRUCTURE
AND FINANCING
COSTS
GROUP STRUCTURE
OTHER ITEMS
1. Revenue
5. Investment
properties
9. Cash and cash
equivalents
15. Interest in
subsidiaries
17. Property, Plant
and equipment
2. Earnings per
6. Inventory
10. Capital
stapled security
management
16. Parent entity
information
18. Trade and other
receivables
19. Commitments
and
contingencies
20. Related party
disclosures
21. Key
management
personnel
22. Security based
payments
23. Other financial
liabilities
24. Intangible assets
and goodwill
25. Summary of
significant
accounting
policies
26. Auditors
remuneration
27. Events after
balance date
Page 144
Page 145
3. Expenses
7. Property loans
11. Interest bearing
and other financial
assets
loans and
borrowings
4. Income tax
8. Investments
12. Financial
accounted for
using the equity
method
instruments
13. Contributed
equity
14. Distributions
paid and
proposed
Signed
reports
Directors’ declaration
Independent auditor’s report
70 Abacus Property Group
NOTES TO THE
FINANCIAL STATEMENTS
30 JUNE 2015
ABOUT THIS REPORT
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 2015 was authorised for issue in accordance with a resolution of the
directors on 21 August 2015.
The nature of the operations and principal activities of the Group are described in the Directors’ Report.
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
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 24.
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.
Annual Report 2015 71
ABOUT THIS REPORT (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 25(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 $31 million (2014: $30.5 million).
72 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED
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;
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;
Property Ventures: provides secured lending and related property financing solutions and is also responsible for the
Group’s investment in joint venture developments and construction projects, which includes revenue from debt and equity
investments in joint ventures. This segment is also responsible for the Group’s investment in property securities; and
(b)
(c)
(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
(up until 30 June 2014) 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.
Annual Report 2015 73
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 8
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Annual Report 2015 79
I
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1. REVENUE
(a) Finance income
Interest and fee income on secured loans
Bank interest
Total finance income
(b) Net change in fair value of investments 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
2. 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 ($'000)
Weighted average number of shares:
2015
$’000
2014
$’000
26,248
18,764
790
842
27,038
19,606
–
1,608
1,608
2,100
(32)
2,068
2015
25.46
2014
22.27
133,498
108,273
Weighted average number of stapled securities for basic earning per security ('000)
524,437
486,109
3. 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) Finance costs
Interest on loans
Amortisation of finance costs
Total finance costs
(c) Administrative and other expenses
Wages and salaries
Contributions to defined contribution plans
Other expenses
Total administrative and other expenses
80 Abacus Property Group
2015
$’000
2014
$’000
4,360
(435)
2,237
6,162
4,442
1,434
3,036
8,912
39,822
1,935
41,757
47,747
3,183
50,930
15,035
12,040
896
14,529
30,460
845
11,641
24,526
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 4. 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
2015
$’000
2014
$’000
7,430
277
9,194
2,100
(1,063)
6,644
3,416
14,710
(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
139,863
122,077
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
Other items (net)
Income tax expense
42,312
(330)
(36,659)
5,323
277
315
18
(15)
726
6,644
36,239
258
(26,087)
10,410
2,100
–
21
2
2,177
14,710
Income tax expense reported in the consolidated income statement
6,644
14,710
Annual Report 2015 81
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 4. INCOME TAX (CONTINUED)
(c) Recognised deferred tax assets and liabilities
Deferred income tax at 30 June 2015 relates to the following:
Deferred tax liabilities
Revaluation of investment properties at fair value
Revaluation of investments and financial instruments at fair value
Capital allowances
Reset of tax cost bases
Other
Gross deferred income tax liabilities
Set off against 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 – AHF)
Losses available for offset against future taxable income
Other
Gross deferred income tax assets
Set off of deferred tax liabilities
Net deferred income tax assets
2015
$’000
2014
$’000
9,483
2,022
889
–
641
13,035
(2,545)
10,490
1,849
3,178
1,244
(1,000)
3,022
910
9,203
(2,545)
6,658
9,416
1,722
2,040
598
561
14,337
(4,014)
10,323
1,992
2,961
1,215
(1,000)
3,247
1,079
9,494
(4,014)
5,480
Unrecognised temporary differences
At 30 June 2015, the Group has unrecognised deferred tax assets on capital account in relation to the fair value of investments
of $0.5 million gross (2014: $0.5 million) and fair value of investment properties of $0.6 million gross (2014: $3.6 million).
Losses available for offset against future gains
At 30 June 2015, AHL has recognised a deferred tax asset of $2.0 million (2014: $2.2 million) from unutilised tax losses which are
available indefinitely for offset against future taxable profits subject to continuing to meet relevant statutory tests. The utilisation
of these losses is dependent on future taxable profits being generated within the entities subject to tax. AHL has determined,
based on a profit forecast prepared, that future taxable profits will be available to offset these losses.
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. These 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.
82 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 5. INVESTMENT PROPERTIES
Leasehold investment properties1
Freehold investment properties
Total investment properties
1. The carrying amount of the leasehold property is presented gross of the finance liability of $2.1 million.
Investment properties held for sale
Retail
Office
Industrial
Total investment properties held for sale
Investment properties
Retail
Office
Industrial
Storage
Other
Total investment properties
2015
$’000
11,119
2014
$’000
–
1,357,029
1,345,494
1,368,148
1,345,494
2015
$’000
2014
$’000
19,100
5,750
26,197
51,047
157,856
10,484
18,203
186,543
237,500
501,350
102,790
453,761
21,700
243,751
355,950
123,890
411,760
23,600
1,317,101
1,158,951
Total investment properties including held for sale
1,368,148
1,345,494
Reconciliation
A reconciliation of the carrying amount of investment properties at the beginning and end of the period is as follows. All
investment properties are classified as Level 3 in accordance with the fair value hierarchy outlined in Note 12(e):
LEASEHOLD INVESTMENT PROPERTIES
Carrying amount at beginning of the financial year
Additions and capital expenditure
Fair value movements
Carrying amount at end of the financial year
FREEHOLD INVESTMENT PROPERTIES
Non-current
2015
$’000
–
11,119
–
11,119
2014
$’000
–
–
–
–
Held for sale
Non-current
2015
$’000
2014
$’000
2015
$’000
2014
$’000
Carrying amount at beginning of the financial year
186,543
175,710
1,158,950
1,221,395
Additions and capital expenditure
Net change in fair value as at balance date
Net change in fair value derecognised
Disposals
Effect of movements in foreign exchange
214
(1,697)
983
(682)
32,688
(233,534)
6,894
(138,304)
200,010
131,761
24,255
–
–
23,420
4,501
(93,437)
7,943
–
–
(4,400)
Properties transferred (to) / from held for sale
66,833
141,942
(66,833)
(141,942)
Transfers
–
–
(6,000)
5,310
Carrying amount at end of the financial year
51,047
186,543
1,305,982
1,158,951
Annual Report 2015 83
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 5. INVESTMENT PROPERTIES (CONTINUED)
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.
Sensitivity Information
SIGNIFICANT INPUT
Adopted capitalisation rate
Optimal occupancy
Adopted discount rate
FAIR VALUE MEASUREMENT SENSITIVITY
TO SIGNIFICANT INCREASE IN INPUT
FAIR VALUE MEASUREMENT SENSITIVITY
TO SIGNIFICANT DECREASE IN INPUT
Decrease
Increase
Decrease
Increase
Decrease
Increase
The adopted capitalisation rate forms part of the income capitalisation approach.
When calculating the income capitalisation approach, the net market rent has a strong interrelationship with the adopted
capitalisation rate given the methodology involves assessing the total net market income receivable from the property and
capitalising this in perpetuity to derive a capital value. In theory, an increase in the net market rent and an increase (softening)
in the adopted capitalisation rate could potentially offset the impact to the fair value. The same can be said for a decrease
in the net market rent and a decrease (tightening) in the adopted capitalisation rate. A directionally opposite change
in the net market rent and the adopted capitalisation rate could potentially magnify the impact to the fair value.
When assessing a discounted cash flow, the adopted discount rate has a strong interrelationship in deriving at a fair value given
the discount rate will determine the rate in which the terminal value is discounted to the present value.
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. He 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 outlined in Note 11.
84 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 5. INVESTMENT PROPERTIES (continued)
Abacus*
The weighted average capitalisation rate for Abacus is 7.98% (30 June 2014: 8.36%) and for each category is as follows;
– Retail – 7.30% (30 June 2014: 7.83%)
– Office – 7.60% (30 June 2014: 8.35%)
– Industrial – 8.62% (30 June 2014: 10.00%)
– Storage – 8.62% (30 June 2014: 8.84%)
– Other – 7.04% (30 June 2014: 7.01%)
The current occupancy rate for the principal portfolio excluding development and self-storage assets is 93.4%
(30 June 2014: 94.6%). The current occupancy rate for self-storage assets is 84.9% (30 June 2014: 84.9%).
A weighted average rent review for the 12 months to 30 June 2015 of 3.5% (30 June 2014: 3.6%).
During the year ended 30 June 2015, 50% (30 June 2014: 39%) of the number of investment properties in the portfolio
was subject to external valuations, the remaining 50% (30 June 2014: 61%) was subject to internal valuation.
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II and Abacus Wodonga Land Fund
Abacus Diversified Income Fund II
A weighted average capitalisation rate for each category is as follows;
– Office – 8.82% (30 June 2014: 9.95%)
– Industrial – 8.47% (30 June 2014: 9.00%)
The current occupancy rate for the portfolio is 78.8% (30 June 2014: 82.0%).
During the year ended 30 June 2015, 100% (30 June 2014: 100%) of the number of investment properties in the portfolio
was subject to external valuations, the remaining Nil% (30 June 2014: Nil) was subject to internal valuation.
Annual Report 2015 85
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 6. INVENTORY
(a) Current
Hotel supplies
Projects1
– purchase consideration
– development costs
– finance costs2
(b) Non-current
Projects1
– purchase consideration
– development costs
– finance costs2
– other costs3
– diminution
Total inventory
1. Inventories are held at the lower of cost and net realisable value.
2. Finance costs were capitalised at interest rates of 5.2% during the financial year (2014: 5.0%)
3. Other costs are described in Note 25.
7. 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
Derivatives – fair value
Other financial assets – fair value2
2015
$’000
2014
$’000
415
565
1,089
3,872
2,088
7,464
2,237
9,335
2,045
14,182
112,911
6,460
2,239
79
(9,000)
112,689
48,900
27,512
8,580
1,528
(1,500)
85,020
120,153
99,202
2015
$’000
2014
$’000
20
5
25
4,703
236
4,939
229,020
152,334
33,988
32,081
263,008
184,415
5,335
3,520
25,740
34,595
4,733
–
25,740
30,473
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 2016 and the non-current facilities will mature between 1 July 2016 and 30 June 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 (30 June 2014: $25.7 million).
86 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 8. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Investment in joint ventures
1. There were no impairment losses or contingent liabilities relating to the investment in the associates and joint ventures.
(a) Extract from joint ventures’ profit and loss statements
Revenue
Expenses
Net profit
Share of net profit
(b) Extract from joint ventures’ balance sheets
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Share of net assets
2015
$’000
2014
$’000
137,227
125,432
137,227
125,432
2015
$’000
358,312
(288,185)
70,127
2014
$’000
74,805
(39,544)
35,261
29,883
12,525
2015
$’000
2014
$’000
34,508
24,842
723,377
596,082
757,885
620,924
(27,408)
(13,516)
(387,297)
(258,441)
343,180
348,967
137,227
125,432
(c) 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 2015 was $1.59 million (30 June 2014: $3.77 million).
Annual Report 2015 87
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 8. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED)
(c) Material investments in joint ventures (continued)
Fordtrans Pty Ltd (Virginia Park) (“VP”) (continued)
Summarised financial information in respect of VP is as follows:
Cash and cash equivalents
Other current assets
Total current assets
Total non-current assets
Total assets
Current liabilities
Non-current financial liabilties
Total liabilities
Net assets
Share of net assets
Revenue
Interest income
Interest expense
Profit before tax
Total comprehensive income
Share of net profit
2015
$’000
828
528
1,356
191,627
192,983
794
65,274
66,068
2014
$’000
373
13,903
14,276
177,078
191,354
1,538
65,274
66,812
126,915
124,542
63,457
62,445
2015
$’000
8,866
1,601
(3,643)
3,380
3,380
2014
$’000
16,992
3,427
(4,436)
8,416
8,416
1,587
3,768
Australian Aggregation Head Trust (“AAHT”)
Abacus has a 25% interest in the ownership and voting rights of Australian Aggregation Head Trust. Abacus is also entitled
to receive variable returns based on performance.
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 2015 was $13.32 million (30 June 2014: $4.34 million).
Summarised financial information in respect of AAHT is as follows:
Cash and cash equivalents
Other current assets
Total current assets
Total non-current assets
Total assets
Current liabilities
Non-current financial liabilties
Total liabilities
Net assets
Share of net assets
88 Abacus Property Group
2015
$’000
2,372
726
3,098
123,000
126,098
1,183
58,680
2014
$’000
3,501
1,389
4,890
233,750
238,640
5,519
113,167
59,863
118,686
66,235
119,954
19,074
29,776
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 8. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED)
(c) Material investments in joint ventures (continued)
Australian Aggregation Head Trust (“AAHT”) (continued)
Revenue
Interest income
Interest expense
Profit before tax
Total comprehensive income
Share of net profit
2015
$’000
2014
$’000
161,234
26,449
89
(3,979)
27,356
27,356
61
(6,470)
16,905
16,905
13,320
4,339
Oasis JV Unit Trust (“Oasis”)
Abacus has a 40% interest in the ownership and voting rights of the Oasis JV Unit Trust.
Oasis owns Oasis Shopping Centre, a three-level sub-regional shopping mall at the centre of Broadbeach, Queensland,
on the Gold Coast. Abacus’ share of the net loss for the year ended 30 June 2015 was $1.73 million (2014: Nil).
Summarised financial information in respect of Oasis is as follows:
Cash and cash equivalents
Other current assets
Total current assets
Total non-current assets
Total assets
Current liabilities
Non-current financial liabilties
Total liabilities
Net assets
Share of net assets
Revenue
Interest income
Interest expense
Loss before tax
Total comprehensive loss
Share of net loss
2015
$’000
2,429
1,871
4,300
105,000
109,300
2,254
61,940
64,194
45,106
18,042
2015
$’000
3,647
3
(694)
(4,244)
(4,244)
(1,737)
2014
$’000
–
–
–
–
–
–
–
–
–
–
2014
$’000
–
–
–
–
–
–
Annual Report 2015 89
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 8. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED)
(c) Material investments in joint ventures (continued)
WTC JV Unit Trust (“WTC”)
Abacus has a 25% interest in the ownership and voting rights of the WTC JV Unit Trust.
WTC owns a 70% interest in Towers 2, 3 and 4 of the World Trade Centre, Melbourne. Abacus’ share of income
(including distributions) for the year ended 30 June 2015 was $0.90 million (30 June 2014: Nil).
Summarised financial information in respect of WTC is as follows:
2015
$’000
6,064
838
6,902
127,050
133,952
1,901
64,029
65,930
68,022
16,855
2015
$’000
8,421
49
(1,886)
2,906
2,906
895
2014
$’000
–
–
–
–
–
–
–
–
–
–
2014
$’000
–
–
–
–
–
–
Cash and cash equivalents
Other current assets
Total current assets
Total non-current assets
Total assets
Current liabilities
Non-current financial liabilties
Total liabilities
Net assets
Share of net assets
Revenue
Interest income
Interest expense
Profit before tax
Total comprehensive income
Share of net profit
90 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 9. CASH AND CASH EQUIVALENTS
Reconciliation to Statement of Cash Flow
For the purposes of the Statement of Cash Flow, cash and
cash equivalents comprise the following at 30 June 2015
2015
$’000
2014
$’000
Cash at bank and in hand1
1. Cash at bank earns interest at floating rates. The carrying amounts of cash and cash equivalents represent fair value.
38,388
61,653
Net profit
Adjustments for:
Depreciation and amortisation of non-current assets
Provision for doubtful debts
Diminution of inventory
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
2015
$’000
2014
$’000
133,219
107,367
6,162
725
9,620
9,851
(22,282)
(1,608)
8,912
120
–
14,533
(24,528)
(2,068)
Net change in fair value of investment properties derecognised
(32,688)
(12,335)
Net change in fair value of investment and financial instruments derecognised
Net (profit) / loss on disposal of property, plant and equipment
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 11.
(1,671)
1,547
(3,431)
195
13,926
5,767
(2,814)
–
6,448
(24,618)
60,497
(10,927)
119,332
120,587
(b) Disclosure of non-cash financing facilities
Non-cash financing activities include capital raised pursuant to the Abacus distribution reinvestment plan. During the year
1.25 million stapled securities were issued with a cash equivalent of $3.39 million.
Annual Report 2015 91
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 10. 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 a going concern. 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, 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.
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 cannot be met in all circumstances, as a result derivatives do not qualify for hedge accounting and are recorded
at fair value through the Statement of Income.
Abacus has a total gearing covenant as a condition of the current $480m Syndicated facility and the $40m Bilateral facility.
The total gearing covenant requires Abacus to have total liabilities (net of cash) to be less than or equal to 50% of total tangible
assets (net of cash). As at date of reporting period, Abacus was compliant in meeting all its debt covenants.
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II and Abacus Wodonga Land Fund
Consolidated Funds
The Capital Management approach and strategies employed by the Group are also deployed for the funds ABP manages
and which are consolidated in these accounts – AHF, ADIF II and AWLF (or the Consolidated Funds).
Points unique to the capital management of these respective funds are:
– The Consolidated Funds via their responsible entities comply with capital and distribution requirements of their constitutions
and/or deeds, the capital requirements of relevant regulatory authorities and continue to operate as going concerns; and
– There is currently no Distribution Reinvestment Plan for any of the Funds.
A summary of compliance of banking covenants – by fund – is set out below:
METRICS
Nature of facilities
Debt covenants
AHF
ADIF II
Secured, non recourse
Secured, non recourse
Compliant
Compliant
92 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 11. INTEREST BEARING LOANS AND BORROWINGS
Abacus*
Current
Other loans – A$
(a) Total current
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
(b) Total non-current
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II and 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
2015
$’000
2014
$’000
–
–
–
2015
$’000
16,667
16,667
16,667
2014
$’000
311,815
439,297
76,017
4,292
(3,187)
61,086
4,292
(3,235)
388,937
501,440
51,233
–
24,640
(340)
42,500
23,759
25,552
(374)
75,533
91,437
79,895
27,760
(320)
(390)
79,575
27,370
544,045
620,247
2015
$’000
2014
$’000
–
197,213
346,832
16,667
494,246
130,000
544,045
640,913
Annual Report 2015 93
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED
11. 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 2016 to July 2021. The bank loans are secured by charges over the
investment properties, certain inventory and certain property, plant and equipment.
Approximately 88% (30 June 2014: 76%) of bank debt drawn was subject to fixed rate hedges with a weighted average term
to maturity of 4.3 years (30 June 2014: 4.6 years). Hedge cover as a percentage of available facilities at 30 June 2015 is 44.1%
(30 June 2014: 50.4%).
Abacus’ weighted average interest rate as at 30 June 2015 was 6.07% (30 June 2014: 5.41%). Line fees on undrawn facilities
contributed to 0.50% of the weighted average interest rate at 30 June 2015 (30 June 2014: 0.34%). Abacus’ weighted average
interest rate excluding the undrawn facilities line fees as at 30 June 2015 was 5.57% (30 June 2014: 5.07%). Abacus’ weighted
average interest rate was higher due to the weighted average drawn debt of $484.6 million being lower than the previous
period (30 June 2014: $567.0 million).
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II and 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 2015 approximately 58.6% (30 June 2014: 64.8%) of drawn bank debt facilities were subject to current fixed rate
hedges with a weighted average term to maturity of 1.8 years (30 June 2014: 2.8 years).
AHF’s weighted average interest rate as at 30 June 2015 was 8.1% (30 June 2014: 7.7%). AHF’s weighted average interest rate
was higher due to the weighted average drawn debt of $57.8 million being lower than the previous period (30 June 2014:
$60.8 million).
Abacus Diversified Income Fund II
ADIF II has financed its investment property portfolio via a single facility which matures in June 2017.
The facility is secured by charges over ADIF II’s investment properties and at 30 June 2015 approximately 67.0%
(30 June 2014: 100.0%) of drawn bank debt facilities were subject to fixed rate hedges. The bank debt drawn at 30 June 2015
has a weighted average term to maturity of 2.0 years (30 June 2014: 2.6 years). ADIF II’s weighted average interest rate was
lower due to ADIF II aggregating its banking facilities to a single lender during the financial period.
ADIF II’s weighted average interest rate as at 30 June 2015 was 7.60% (30 June 2014: 8.05%).
94 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 11. INTEREST BEARING LOANS AND BORROWINGS (CONTINUED)
(d) 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
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
(e) Defaults and breaches
During the current and prior years, there were no defaults or breaches of any of the Group’s loans.
2015
$’000
2014
$’000
3,080
2,700
31,947
186,543
35,027
189,243
3,489
3,589
114,030
150,307
6,000
31,008
1,297,111
1,102,281
1,420,630
1,287,185
1,455,657
1,476,428
Annual Report 2015 95
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 12. FINANCIAL INSTRUMENTS
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 the section about this report and Note 25 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.
96 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 12. FINANCIAL INSTRUMENTS (CONTINUED)
(a) Credit risk (continued)
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
2015
$’000
2014
$’000
11,680
30,922
263,033
189,354
34,595
38,388
30,473
61,653
347,696
312,402
As at 30 June 2015, the Group had the following concentrations of credit risk:
– Secured property loans: a loan which represents 30% 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
(2014: one issuer).
Secured property loans
The following table illustrates grouping of the Group’s investment in secured loans.
30 JUNE 2015
Loans
less: provisioning
Total
30 JUNE 2014
Loans
less: provisioning
Total
TOTAL
$’000
ORIGINAL
TERM
$’000
RENEWED/
EXTENDED
TERM1
$’000
263,033
232,530
30,503
–
–
–
263,033
232,530
30,503
PAST
DUE TERM
$’000
IMPAIRED2
$’000
–
–
–
–
–
–
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
–
–
–
–
–
–
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.
There was no movement in the allowance for impairment in respect of secured property loans and receivables during the year.
Annual Report 2015 97
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 12. FINANCIAL INSTRUMENTS (CONTINUED)
(b) Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding
through an adequate and diverse amount of committed credit facilities, the ability to close out market positions and the
flexibility to raise funds through the issue of new stapled securities or the distribution reinvestment plan.
The Group’s policy is to maintain an available loan facility with banks sufficient to meet expected operational expenses and to
finance investment acquisitions for a period of 90 days, including the servicing of financial obligations. Current loan facilities are
assessed and extended for a maximum period based on the Group’s expectations of future interest and market conditions.
As at 30 June 2015, the Group had undrawn facilities of $386.0 million and cash of $38.4 million which are adequate to cover
short term funding requirements. Further information regarding the Group’s debt profile is disclosed in Note 11.
The table below shows an analysis of the contractual maturities of key liabilities which forms part of the Group’s assessment
of liquidity risk.
30 JUNE 2015
Liabilities
Trade and other payables
Interest bearing loans and borrowings
incl derivatives#
Other financial liabilities
Total liabilities
30 JUNE 2014
Liabilities
Trade and other payables
Interest bearing loans and borrowings
incl derivatives#
Other financial liabilities
Total liabilities
CARRYING
AMOUNT
$’000
CONTRACTUAL
CASH FLOWS
$’000
1 YEAR
OR LESS
$’000
OVER 1 YEAR
TO 5 YEARS
$’000
OVER
5 YEARS
$’000
29,812
29,812
29,812
–
–
569,852
45,965
645,629
688,528
45,965
764,305
40,452
25
70,289
284,238
45,940
330,178
CARRYING
AMOUNT
$’000
CONTRACTUAL
CASH FLOWS
$’000
1 YEAR
OR LESS
$’000
OVER 1 YEAR
TO 5 YEARS
$’000
363,838
–
363,838
OVER
5 YEARS
$’000
21,527
21,527
21,527
–
–
863,158
1,079,510
47,119
47,119
78,837
1,136
931,804
1,148,156
101,500
855,751
45,983
901,734
144,922
–
144,922
# Carrying amount includes fair value of derivative liabilities. Contractual cash flows includes contracted debt and net swap payments using prevailing
forward rates
98 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 12. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect
the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage
and control market risk exposures within acceptable parameters, while optimising the return.
Foreign currency risk
The Group is exposed to currency risk on its investment in foreign operations, equity investments, investment in associates
and property loans denominated in a currency other than the functional currency of Group entities. The currencies in which
these transactions are conducted are primarily denominated in NZD. As a result the Group’s balance sheet can be affected by
movements in the A$/NZ$ exchange rates.
Assets
Cash at bank
Investment in securities
Total assets
Liabilities
Interest bearing loans and borrowings
Total liabilities
AUD
2015
$’000
2,892
5,307
8,199
2014
$’000
2,094
4,687
6,781
NZD
2015
$’000
2014
$’000
3,266
2,198
–
–
3,266
2,198
58,203
58,203
84,845
84,845
65,734
65,734
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 2015, 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/NZD + 10%
AUD/NZD – 10%
POST TAX PROFIT
HIGHER/(LOWER)
2015
$’000
(5,554)
6,788
2014
$’000
(5,735)
7,009
Annual Report 2015 99
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 12. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Market Risk (continued)
Interest rate risk / Fair value 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 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 2015, after taking into account the effect of interest rate swaps,
approximately 81.5% of the Group’s drawn debt is subject to fixed rate hedges (2014: 83.6%). Hedge cover as a percentage of
available facilities at 30 June 2015 is 46.7% (2014: 54.4%).
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 11.
100 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 12. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Market Risk (continued)
Interest rate risk / Fair value interest rate risk (continued)
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 2015
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
TOTAL
$’000
28,176
–
–
–
–
–
–
–
–
–
22,533
240,500
28,176
22,533
240,500
Weighted average interest rate*
2.10%
13.73%
12.68%
Financial liabilities
Interest bearing liabilities – bank
Interest bearing liabilities – other
Derivatives
Payables
387,832
–
–
–
Total financial liabilities
387,832
–
–
–
–
–
–
4,292
–
–
4,292
Notional principal swap balance maturities*
–
24,349
265,000
50,000
–
339,349
Weighted average interest rate on drawn bank debt*
6.07%
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
30 JUNE 2014
Financial assets
Cash and cash equivalents
Receivables
Derivatvies
Secured loans
Total financial assets
53,734
–
–
–
–
–
–
–
7,085
–
4,895
184,459
53,734
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28,176
8,007
3,783
8,007
3,783
–
263,033
11,790
302,999
–
–
387,832
4,292
43,978
43,978
18,917
18,917
62,895
455,019
–
–
–
–
–
–
–
–
–
–
–
53,734
17,762
24,847
247
247
–
189,354
18,009
268,182
–
–
500,383
20,959
39,329
39,329
13,549
13,549
52,878
574,220
Notional principal swap balance maturities*
–
59,900
250,555
70,000
–
380,455
Weighted average interest rate on drawn bank debt*
5.41%
* rate calculated at 30 June excluding forward starts
^ Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II and Abacus Wodonga Land Fund
Annual Report 2015 101
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 12. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Market Risk (continued)
Interest rate risk / Fair value interest rate risk (continued)
Abacus Hospitality Fund
30 JUNE 2015
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
51,233
Notional principal swap balance maturities*
–
Weighted average interest rate on drawn bank debt*
8.07%
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*
7.70%
* rate calculated at 30 June excluding forward starts
102 Abacus Property Group
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
7,222
–
7,222
2.10%
51,233
–
–
–
6,467
–
6,467
1.90%
65,885
–
–
65,885
–
–
–
–
–
–
–
–
–
–
–
–
24,640
–
–
24,640
30,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,551
–
–
25,551
42,942
–
–
–
–
–
–
–
–
–
TOTAL
$’000
7,222
1,751
8,973
–
1,751
1,751
–
–
2,598
7,411
51,233
24,640
2,598
7,411
10,009
85,882
–
30,000
TOTAL
$’000
6,467
1,907
8,374
–
1,907
1,907
–
–
9,675
6,044
65,885
25,551
9,675
6,044
15,719
107,155
–
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
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 12. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Market Risk (continued)
Interest rate risk / Fair value interest rate risk (continued)
Abacus Diversified Income Fund II
30 JUNE 2015
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*
7.60%
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
53,500
–
–
–
–
–
–
–
–
TOTAL
$’000
1,985
1,077
3,062
–
1,077
1,077
–
79,575
4,548
2,298
4,548
2,298
6,846
86,421
–
53,500
FLOATING
INTEREST
RATE
$’000
FIXED
INTEREST
LESS THAN
1 YEAR
$’000
FIXED
INTEREST
1 TO 5
YEARS
$’000
FIXED
INTEREST
OVER
5 YEARS
$’000
NON
INTEREST
BEARING
$’000
TOTAL
$’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*
8.05%
* rate calculated at 30 June
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
53,500
–
–
–
–
–
–
–
–
–
1,276
808
808
808
2,084
–
27,371
5,391
1,377
5,391
1,377
6,768
34,139
–
53,500
Annual Report 2015 103
1,985
–
1,985
2.10%
79,575
–
–
79,575
1,276
–
1,276
1.05%
27,371
–
–
27,371
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 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
1,005
–
1,005
2.02%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,005
845
845
845
1,850
1,186
1,186
1,186
1,186
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%
–
–
–
–
–
–
––
–
–
–
–
–
–
–
–
–
–
20,000
–
–
–
–
–
–
–
TOTAL
$’000
176
793
969
–
793
793
2,961
2,961
557
557
3,518
3,518
–
20,000
12. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Market Risk (continued)
Interest rate risk / Fair value interest rate risk (continued)
Abacus Wodonga Land Fund
30 JUNE 2015
Financial assets
Cash and cash equivalents
Receivables
Total financial assets
Weighted average interest rate*
Financial liabilities
Payables
Total financial liabilities
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*
* rate calculated at 30 June
104 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 12. FINANCIAL INSTRUMENTS (CONTINUED)
(c) Market Risk (continued)
Interest rate risk / Fair value interest rate risk (continued)
The following table is a summary of the interest rate sensitivity analysis:
30 JUNE 2015
Financial assets
Financial liabilities
30 JUNE 2014
Financial assets
Financial liabilities
144,451
(14,583)
CARRYING
AMOUNT
FLOATING
38,388
CARRYING
AMOUNT
FLOATING
61,654
AUD
-1%
AUD
-1%
EQUITY
–
–
EQUITY
–
–
PROFIT
(384)
PROFIT
(617)
+1%
PROFIT
384
13,906
+1%
PROFIT
617
18,991
EQUITY
–
–
EQUITY
–
–
200,601
(20,349)
The analysis for the interest rate sensitivity of financial liabilities includes derivatives.
(d) Other market 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 $0.56 million (2014: $0.50 million).
Annual Report 2015 105
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 12. FINANCIAL INSTRUMENTS (CONTINUED)
(e) 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
Derivatives (non-current)3
Investment in other financial assets3
Total financial assets
Financial liabilities
Trade and other payables1
Interest bearing loans and borrowings (current)4
Interest bearing loans and borrowings (non-current)4
Derivatives (non-current)3
Other financial liabilities (current)5
Other financial liabilities (non-current)5
Total financial liabilities
Net financial assets / (liabilities)
CARRYING
AMOUNT
2015
$’000
FAIR
VALUE
2015
$’000
CARRYING
AMOUNT
2014
$’000
38,388
11,680
–
25
38,388
11,680
–
25
61,653
21,165
7,085
4,939
FAIR
VALUE
2014
$’000
61,653
21,165
7,085
4,939
263,008
263,008
184,415
184,415
5,335
263
3,520
5,335
263
3,520
4,733
247
–
4,733
247
–
25,740
25,740
25,740
25,740
347,959
347,959
309,977
309,977
29,812
29,812
–
–
21,527
16,667
21,527
16,667
544,045
544,045
620,247
620,247
51,125
51,125
25
25
45,940
45,940
57,602
1,136
45,983
57,602
1,136
45,983
670,947
670,947
763,162
763,162
(322,988)
(322,988)
(453,185)
(453,185)
1. These financial assets and liabilities are not subject to interest rate or market 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
2015, 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 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.
4. The fair value of these financial liabilities (excluding derivative instruments and finance lease $2.1 million1) 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 recognises their associated risks and discounts any amounts payable in the future by an appropriate discount
rate. Refer to disclosure Note 23 for more details relating to this liability.
106 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 12. FINANCIAL INSTRUMENTS (CONTINUED)
(e) 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 2015
Current
Property loans
Derivative asset
Total current
Non-current
Property loans
Investment in securities – unlisted
Investment in options
Derivative assets
Derivative liabilities
Interest bearing loans and borrowings
Total non-current
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
There were no transfers between Levels 1, 2 and 3 during the period.
LEVEL 1
$’000
LEVEL 2
$’000
LEVEL 3
$’000
TOTAL
$’000
–
–
–
–
–
–
–
–
–
–
–
263
263
–
–
–
3,520
(51,125)
(544,045)
25
–
25
25
263
288
263,008
263,008
5,335
25,740
–
–
–
5,335
25,740
3,520
(51,125)
(544,045)
(591,650)
294,083
(297,567)
LEVEL 1
$’000
LEVEL 2
$’000
LEVEL 3
$’000
TOTAL
$’000
–
–
–
–
–
–
–
–
–
–
–
247
(16,667)
(16,420)
4,939
–
–
4,939
247
(16,667)
4,939
(11,481)
–
–
–
(57,602)
(620,247)
184,415
184,415
4,733
25,740
–
–
4,733
25,740
(57,602)
(620,247)
(677,849)
214,888
(462,961)
Annual Report 2015 107
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 12. FINANCIAL INSTRUMENTS (CONTINUED)
(e) 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 2015.
opening balance as at 30 June 2014
fair value movement through the income statement
redemptions / conversions
closing balance as at 30 June 2015
opening balance as at 30 June 2013
fair value movement through the income statement
redemptions / conversions
closing balance as at 30 June 2014
UNLISTED
SECURITIES
$’000
4,733
620
(18)
OPTIONS
$’000
25,740
–
–
TOTAL
$’000
30,473
620
(18)
5,335
25,740
31,075
UNLISTED
SECURITIES
$’000
4,642
416
(325)
OPTIONS
$’000
23,640
2,100
–
TOTAL
$’000
28,282
2,516
(325)
4,733
25,740
30,473
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 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% would have the effect of reducing the fair value by up to $8.8 million (30 June 2014: $7.9 million) or increase the fair value
by $8.8 million (30 June 2014: $7.9 million).
108 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 13. CONTRIBUTED EQUITY
(A) ISSUED STAPLED SECURITIES
Stapled securities
Issue costs
Total contributed equity
(B) MOVEMENT IN STAPLED SECURITIES ON ISSUE
At 30 June 2014
– equity raisings
– distribution reinvestment plan
– less transaction costs
Securities on issue at 30 June 2015
14. DISTRIBUTIONS PAID AND PROPOSED
ABACUS
(a) Distributions paid during the year
June 2014 half: 8.50 cents per stapled security (2013: 8.25 cents)
December 2014 half: 8.50 cents per stapled security (2013: 8.25 cents)
(b) Distributions proposed and not recognised as a liability^
June 2015 half: 8.50 cents per stapled security (2014: 8.50 cents)
2015
$’000
2014
$’000
1,555,563
1,444,602
(41,548)
(40,846)
1,514,015
1,403,756
STAPLED SECURITIES
NUMBER
$’000
VALUE
$’000
513,779
1,403,756
38,146
107,570
1,247
–
3,390
(701)
553,172
1,514,015
2015
$’000
2014
$’000
43,671
44,101
37,377
40,836
47,020
43,671
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 2015. The distribution paid on 14 August 2015 was $47.0 million. No
provision for the distribution has been recognised in the balance sheet at 30 June 2015 as the distribution had not been declared by the end of the year
NON-CORE FUNDS
(a) Distributions paid during the year
Abacus Hospitality Fund
Abacus Diversified Income Fund II
(b) Distributions proposed
Abacus Hospitality Fund – not recognised
Abacus Diversified Income Fund II – recognised
2015
$’000
2014
$’000
980
4,926
5,906
981
4,860
5,841
245
1,234
245
1,215
Annual Report 2015 109
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 14. DISTRIBUTIONS PAID AND PROPOSED (CONTINUED)
ABACUS*
Franking credit balance
The amount of franking credits available for the subsequent financial year are:
2015
$’000
2014
$’000
Franking account balance as at the beginning of the financial year at 30% (2014: 30%)
Prior year adjustment for franking credits that have arisen from the receipt of dividends
19,758
13,195
–
249
Franking credits that will arise from the payment of income tax payable at the end of the financial year
4,150
6,314
Franking account balance at the end of the financial year 30% (2014: 30%)
23,908
19,758
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II and Abacus Wodonga Land Fund
110 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 15. 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 2015
Abacus Hospitality Fund*
Abacus Wodonga Land Fund
30 June 2014
Abacus Hospitality Fund*
Abacus Miller Street Holding Trust
Abacus Wodonga Land Fund
PRINCIPAL
PLACE OF
BUSINESS
Australia
Australia
Australia
Australia
Australia
% HELD BY
NCI
(PROFIT)/LOSS
ALLOCATED TO
NCI
$’000
ACCUMULATED
NCI
$’000
90
85
90
70
85
1,112
–
25,310
–
1,112
25,310
1,743
(458)
–
27,939
–
–
1,285
27,939
The country of incorporation is the same as the principal place of business, unless stated otherwise.
There are no significant restrictions.
* The Abacus working capital facility ranks pari passu for downside but not upside at fund wind up
(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
ABACUS WODONGA LAND FUND
Current assets
Current liabilities
Net current assets
Non-current assets
Non-current liabilities
Net non-current assets
Net deficiency
2015
$’000
9,677
(8,236)
1,441
2014
$’000
9,424
(7,101)
2,323
116,827
153,454
(149,249)
(181,130)
(32,422)
(27,676)
(30,981)
(25,353)
2015
$’000
14,250
(1,186)
13,064
2014
$’000
11,513
(550)
10,963
9,088
(23,432)
24,623
(41,864)
(14,344)
(17,241)
(1,280)
(6,278)
Annual Report 2015 111
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 2015
$’000
47,829
(2,265)
(914)
(3,179)
–
2014
$’000
52,004
(4,580)
(209)
(4,789)
622
(3,179)
(4,167)
2015
$’000
34,922
4,999
–
2014
$’000
20,982
9,885
–
4,999
9,885
–
–
4,999
9,885
15. INTEREST IN SUBSIDIARIES (CONTINUED)
(b) Summarised financial information about subsidiaries with material NCI (continued)
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 expense
ABACUS WODONGA LAND FUND
Revenue
Profit before income tax
Income tax expense
Profit after tax
Other comprehensive income
Total comprehensive income
112 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 16. 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
2015
$’000
2014
$’000
1,897
1,897
(26,913)
(26,913)
731
7,801
341,006
307,169
3,014
4,946
66,394
59,801
274,612
247,368
332,929
307,952
(65,976)
(67,873)
7,659
7,289
274,612
247,368
(a) Parent entity contingencies
As at 30 June 2015, the parent entity has entered into, or still bound by, the following agreements:
– Act as guarantor for borrowings for certain joint venture arrangements to a guarantee limit of $22.8 million (30 June 2014: Nil).
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 2015 (2014: Nil).
Annual Report 2015 113
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 17. 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 12(e) for the year ended 30 June 2015.
Property, plant and equipment held for sale
Current
Hotel properties1
Total current property, plant and equipment held for sale
Non-current
Hotel properties
Storage properties
Office equipment / furniture and fittings
Total non-current property, plant and equipment
2015
$’000
2014
$’000
3,080
3,080
2,700
2,700
114,030
150,307
3,489
500
3,455
621
118,019
154,383
Total property, plant and equipment including held for sale
121,099
157,083
Land and buildings
At the beginning of the period, net of accumulated depreciation
Additions
Fair value movement through the income statement
Fair value movement through comprehensive income
Disposal
Effect of movements in foreign exchange
Depreciation charge for the period
2015
$’000
2014
$’000
142,259
137,649
1,353
361
350
(35,760)
333
(1,416)
3,084
(123)
(64)
–
2,861
(1,148)
At the end of the period net of accumulated depreciation
107,480
142,259
Gross value
Accumulated depreciation
Net carrying amount at end of period
Plant and equipment
At the beginning of the period, net of accumulated depreciation
Additions
Disposals
Effect of movements in foreign exchange
Depreciation charge for the period
At the end of the period net of accumulated depreciation
Gross value
Accumulated depreciation
Net carrying amount at end of period
Total
1. Includes a pub property but excludes the value of licence that is accounted for separately as an intangible (Note 24).
114 Abacus Property Group
122,258
(14,778)
157,194
(14,935)
107,480
142,259
14,824
2,281
(530)
46
(3,002)
13,619
40,392
(26,773)
13,619
14,451
3,591
–
5
(3,223)
14,824
42,853
(28,029)
14,824
121,099
157,083
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED
17. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
The property, plant and equipment are carried at the directors’ determination of fair value except held for sale which are
measured at the lower of their carrying amount and fair value less costs to sell. 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.
Sensitivity Information
SIGNIFICANT INPUT
Net market EBITDA
Optimal occupancy
Adopted capitalisation rate
FAIR VALUE MEASUREMENT SENSITIVITY
TO SIGNIFICANT INCREASE IN INPUT
FAIR VALUE MEASUREMENT SENSITIVITY
TO SIGNIFICANT DECREASE IN INPUT
Increase
Increase
Decrease
Decrease
Decrease
Increase
The adopted capitalisation rate forms part of the income capitalisation approach.
When calculating the income capitalisation approach, the EBITDA has a strong interrelationship with the adopted capitalisation
rate given the methodology involves assessing the total EBITDA generated from the property and capitalising this in perpetuity
to derive a capital value. In theory, an increase in the EBITDA and an increase (softening) in the adopted capitalisation rate could
potentially offset the impact to the fair value. The same can be said for a decrease in the EBITDA and a decrease (tightening)
in the adopted capitalisation rate. A directionally opposite change in the EBITDA and the adopted capitalisation rate could
potentially magnify the impact to the fair value.
Hotel Properties
– A weighted average capitalisation rate is 8.81% (30 June 2014: 9.57%)
– The current weighted average occupancy rate is 72% (30 June 2014: 72%)
Storage Properties
– A weighted average capitalisation rate is 8.62% (30 June 2014: 8.84%)
– The current weighted average occupancy rate is 90.2% (30 June 2014: 84.9%)
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.
18. TRADE AND OTHER RECEIVABLES
Current
Gross receivables
Less provision for doubtful debts
Net current receivables
2015
$’000
2014
$’000
14,523
(2,843)
11,680
23,283
(2,118)
21,165
Annual Report 2015 115
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 19. 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 2015 are as follows:
Within one year
After one year but not more than five years
More than five years
2015
$’000
1,006
1,046
–
2014
$’000
967
2,052
–
2,052
3,019
(b) Operating lease commitments – Group as lessor
Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2015 are as follows:
Within one year
After one year but not more than five years
More than five years
2015
$’000
2014
$’000
70,917
92,576
169,351
206,546
73,379
88,309
313,647
387,431
These amounts do not include contingent 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 2015 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
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II and Abacus Wodonga Land Fund
2015
$’000
2014
$’000
112,293
2,460
29,056
56,465
17,486
4,700
14,271
7,139
200,274
43,596
116 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 19. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(c) 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
Abacus Diversified Income Fund II
2015
$’000
2014
$’000
41,145
41,145
3,035
3,035
(a) Operating lease commitments – as lessor
Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2015 are as follows:
Within one year
After one year but not more than five years
More than five years
2015
$’000
7,672
15,442
7,503
2014
$’000
9,643
21,788
8,875
30,617
40,306
These amounts do not include contingent 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 WODONGA LAND FUND
(a) Capital and other commitments
Within one year
– property development costs
2015
$’000
348
348
2014
$’000
3,056
3,056
2015
$’000
2014
$’000
3,600
3,600
2,440
2,440
Annual Report 2015 117
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED
20. 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 Airways NZ Trust
Abacus Castle Hill Trust
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 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
Oasis Staffing Pty Ltd
Yarradale Developments 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
118 Abacus Property Group
EQUITY INTEREST
2015
%
2014
%
–
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
50
50
50
51
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 20. 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 Oasis 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 WTC Trust
Abacus 14 Martin Place Trust
Abacus 171 Clarence Street Trust
Abacus 309 George Street Trust
Abacus 33 Queen Street Trust
Abacus 710 Collins Street Trust
Abacus Income Trust and its subsidiaries:
Abacus Eagle Farm Trust
Abacus Independent Retail Property Trust
Abacus Retail Property Trust
Abacus Wollongong Property Trust
* These entities are wholly owned by Abacus
EQUITY INTEREST
2015
%
2014
%
100
100
–
100
100
100
100
100
100
100
100
100
–
–
–
100
100
–
–
100
25
25
100
100
100
24
100
–
100
100
100
100
100
100
–
100
100
100
100
75
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
25
25
100
–
100
24
100
100
100
100
100
100
–
100
100
100
100
–
100
75
100
100
Annual Report 2015 119
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 20. RELATED PARTY DISCLOSURES (CONTINUED)
(a) Subsidiaries (continued)
ENTITY
Abacus Storage Operations Limited and its subsidiaries:
Balmain Storage 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 Wodonga Land Fund
EQUITY INTEREST
2015
%
2014
%
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
17
10
15
–
10
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 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 payments are disclosed in Note 21.
120 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 20. 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
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
2015
$’000
2014
$’000
177
162
2,459
–
30,410
3,038
2,040
88
1,769
1,110
(83,400)
32,077
511
(21,838)
6,224
2,201
Loan repayments to joint ventures
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.
(1,421)
(4,000)
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 (2014: 49%).
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
3% of gross rental
14 Martin Place
4 Martin Place
Tenants in common
3% of gross rental
100% owned by Kirsh
3% of gross rental
Birkenhead Point Marina Pty Ltd
Joint Venture
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
During the year, Abacus Funds Management Limited received a performance fee of $500,000 in relation to the sale of
Birkenhead Point Shopping Centre.
Mrs Myra Salkinder is a non-executive director of the Group and is a senior executive of Kirsh.
AMT $
158,304
301,669
176,734
21,213
AMT $
189,836
Annual Report 2015 121
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 21. KEY MANAGEMENT PERSONNEL
(a) Compensation for key management personnel
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Security-based payments
2015
$
2014
$
6,497,887
6,481,824
269,901
275,208
87,905
82,540
1,166,488
907,735
8,022,181
7,747,307
(b) Loans to key management personnel
There were no loans to key management personnel and their related parties at any time in 2015 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.
122 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 22. 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
(b) Type of security – based payment plan
2015
$’000
1,683
2014
$’000
1,242
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
September 2015
September 2016
September 2017
September 2018
AMOUNT VESTED*
One quarter of the initial issue
One quarter of the initial issue
One quarter of the initial issue
One quarter of the initial issue
POTENTIAL NUMBER TO VEST
201,428
201,428
201,428
201,428
* The Board is able to claw back unvested SARs if the distribution level falls by more than a specified percentage 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 2015 123
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 22. 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
Vested during the year
Outstanding at the end of the year
Exercisable at the end of the year
2015
NO.
1,596,803
805,712
2014
NO.
929,252
899,864
(457,279)
(232,313)
1,945,236
1,596,803
–
–
The weighted average remaining life of the instrument at 30 June 2015 was 1.3 years (2014: 1.5 years) and the weighted average
fair value of the SARs granted during the year was $2.48 (2014: $1.98).
The following table lists the inputs to the model used for the SARs plan for the years ended 30 June 2015 and 30 June 2014:
Expected volatility (%)
Risk-free interest rate (%)
Life of instrument (years)
Model used
2015
20
2014
20
2.44 – 2.65
2.47 – 3.20
0.8 – 3.8
0.8 – 3.8
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.
124 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 23. 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 2
Class A $1.00 – Term 3
7.50% pa
7.75% pa
$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 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 $46.0 million (30 June 2014: $47.1 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 2 of $25,000 will be paid on 30 September 2015.
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II and Abacus Wodonga Land Fund
Annual Report 2015 125
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 24. 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
2015
$’000
2014
$’000
32,461
32,461
32,461
32,461
800
–
800
800
–
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 2015 covering a five-year period.
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 2015 have regards to market sales evidence in
adopting a market valuation for each property including the key assumptions outlined.
126 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED
24. 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
2015
$’000
2014
$’000
32,394
32,394
Management rights, licences and entitlements
–
–
2015
$’000
67
800
2014
$’000
67
800
2015
$’000
2014
$’000
32,461
32,461
800
800
FUNDS MANAGEMENT
PROPERTY
TOTAL
(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
d. A pre-tax discount rate of 9.40% (2014: 10.80%) and a terminal growth rate of 2.7% (2014: 3%) have been applied to the cash
flow projections
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 2015 was 14.0% (2014: 14.0%)
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 2015 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.
Annual Report 2015 127
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 25. SUMMARY OF SIGINIFICANT 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 2014 along with the required changes arising from
improvements to AASBs 2010-2012 cycle. Adoption of these standards and interpretations did not have any material effect
on the financial position or performance of the Group.
– AASB 2012-3: – Offsetting Financial Assets and Financial Liabilities
The amendments clarify the meaning of ‘currently has a legally enforceable right to set-off’ and the criteria for non-
simultaneous settlement mechanisms of clearing houses to qualify for offsetting and is applied retrospectively. These
amendments have no impact on the Group as no entities within the Group have any offsetting arrangements.
(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 2015. These are outlined below:
– AASB 9 Financial Instruments (effective 1 January 2018 / applicable for Group 1 July 2018)
This standard includes requirement to improve and simplify the approach for classification and measurement of financial
assets compared with the requirements of AASB 139 Financial Instruments: Recognition and Measurement.
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.
– Accounting for Acquisitions of Interests in Joint Operations (AASB 1 and AASB 11) (effective 1 January 2016 / applicable
for Group 1 July 2016)
AASB 2014-3 amends AASB 11 to provide guidance on the accounting for acquisitions of interests in joint operations in which
the activity constitutes a business. The amendments require:
a. The acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in AASB 3
Business Combinations, to apply all of the principles on business combinations accounting in AASB 3 and other Australian
Accounting Standards except for those principles that conflict with the guidance in AASB 11; and
b. The acquirer to disclose the information required by AASB 3 and other Australian Accounting Standards for business
combinations.
This Standard also makes an editorial correction to AASB 11.
We are currently assessing the impact of the amendment to the Group.
128 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED
25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) New accounting standards and interpretations (continued)
(ii) Accounting Standards and Interpretation issued but not yet effective (continued)
– Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to AASB 116 and AASB 138)
(effective 1 January 2016 / applicable for Group 1 July 2016)
AASB 16 and AASB 138 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
the asset. The amendment also clarified that revenue is generally presumed to be an inappropriate basis for measuring
the consumption of the economic benefits embodies in an intangible asset. This presumption, however, can be rebutted
in certain limited circumstances.
The revision will have no impact on how the Group measures its depreciation and amortisation.
– Revenue from Contracts with Customers (effective 1 January 2017 / applicable for Group 1 July 2017)
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaces IAS 11 Construction
Contracts, IAS 18 Revenue and related Interpretations (IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for
the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue – Barter Transactions
Involving Advertising Services).
The core principle 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 entitled in exchange for those
goods or services. An entity recognises revenue in accordance with that core principle by applying the flowing 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
Early adoption of this Standard is permitted. AASB 2015-5 incorporates the consequential amendments to a number
of Australian Accounting Standards (including interpretations) arising from the issuance of AASB 15.
The Group will review any contracts it has with customers and assess the disclosure requirements, if any,
of these contracts.
– Equity Method in Separate Financial Statements (effective 1 January 2016 / applicable for Group 1 July 2016)
AASB 2014-9 amends AASB 127 Separate Financial Statements, and consequently amends AASB 1 First-time
Adoption of Australian Accounting Standards and AASB 128 Investments in Associates and Joint Ventures, to allow
entities to use the equity method of accounting for investments in subsidiaries, joint ventures and associates in their
separate financial statements.
AASB 2014-9 also makes editorial correction to AASB 127. AASB 2014-9 applies to annual reporting periods beginning on
or after 1 January 2016. Early adoption permitted.
We are currently assessing the impact of the amendment to the Group.
– Sale or Contribution of Assets between an Investor and its Associate for Joint Venture (effective 1 January 2016 /
applicable for Group 1 July 2016)
AASB 201-10 amends AASB 10 Consolidated Financial Statements and AASB 128 to address an inconsistency between
the requirements in AASB 10 and those in AASB 128 (August 2011), in dealing with the sale or contribution of assets
between an investor and its associate or joint venture. The amendments require:
Annual Report 2015 129
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED
25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) New accounting standards and interpretations (continued)
(ii) Accounting Standards and Interpretation issued but not yet effective (continued)
a. A full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary or not);
and
b. A partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these
assets are housed in a subsidiary.
AASB 2010-10 also makes an editorial correction to AASB 10. AASB 2010-10 applies to annual reporting periods
beginning on or after 1 January 2016. Early adoption permitted.
We are currently assessing the impact of the amendment to the Group.
– Annual improvements to Australian Accounting Standards 2012-2014 Cycle (effective 1 January 2016 / applicable to
Group 1 July 2016)
The subjects of the principal amendments to the Standards are set out below:
– AASB 5 Non-current Assets Held for Sale and Discontinued Operations:
Changes in methods of disposal – when an entity reclassifies an asset (or disposal group) directly from being held for
distribution to being held for sale (or vice versa), an entity shall not follow the guidance in paragraphs 27-29 to account
for this change.
– AASB 7 Financial Instruments: Disclosures:
Servicing contracts – clarifies how an entity should apply the guidance in paragraph 42C of AASB 7 to a servicing
contract to decide whether a servicing contract is ‘continuing involvement’ for the purpose of applying the disclosure
requirements in paragraph 42E – 42H of AASB 134.
Applicability of the amendments to AASB 7 to condensed interim financial statements – clarify that the additional
disclosure required by the amendments to AASB 7 Disclosure – Offsetting Financial Assets and Financial Labilities is
not specifically required for all interim periods. However, the additional disclosure is required to be given in condensed
interim financial statements that are prepared in accordance with AASB 134 Interim Financial Reporting when its
inclusion would be required by the requirements of AASB 134.
– AASB 119 Employee Benefits
Discount rate: regional market issues – clarifies that the high quality corporate bonds used to estimate the discount rate
for post-employment benefit obligations should be denominated in the same currency as the liability. Further it clarifies
that the depth of the market for high quality corporate bonds should be assessed at the currency level.
– AASB 134 Interim Financial Reporting
Disclosure of information ‘elsewhere in the interim financial report’ amends AASB 134 to clarify the meaning of
disclosure of information ‘elsewhere in the interim financial report’ and to require the inclusion of a cross-reference from
the interim financial statements to the location of this information.
We are currently assessing the impact of the amendment to the Group.
– Disclosure Initiative: Amendments to AASB 101 (effective 1 January 2016 / applicable for Group 1 July 2016)
The Standard makes amendment to AASB 101 Presentation of Financial Statements arising from the IASB’s Disclosure
Initiative project. The amendments are designed to further encourage companies to apply professional judgement in
determining what information to disclose in the financial statements. For example, the amendments make clear that
materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the
usefulness of financial disclosure. The amendments also clarify that the companies should use professional judgement in
determining where and in what order information is presented in the financial disclosures.
130 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED
25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) New accounting standards and interpretations (continued)
(ii) Accounting Standards and Interpretation issued but not yet effective (continued)
The Group has commenced a simplification and streamlining project on the format and presentation of the APG statutory
report to keep up with industry standards and current focus on reducing complexity. This is an ongoing project and the
Group will assess current format in line with the Standard when adopted by the AASB.
AASB 14, AASB 2014-6, AASB 1056, AASB 2015-3, AASB 2015-4, AASB 2015-5 and AASB 2015-6 will have no application to
the Group.
(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.
Annual Report 2015 131
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED
25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
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.
132 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) Revenue recognition (continued)
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.
(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.
Annual Report 2015 133
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
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
(2014: $30.5 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.
134 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Investment in associates (continued)
Transactions resulting in unrealised profit in the associate are eliminate to the extent that they reduce the carrying value of the
investment to nil. 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.
(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.
Annual Report 2015 135
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(n) Property, plant and equipment (continued)
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.
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.
136 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) Investment properties (continued)
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.
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.
Annual Report 2015 137
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(q) Goodwill and intangibles (continued)
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.
(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.
138 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(t) Provisions and employee leave benefits (continued)
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.
(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.
Annual Report 2015 139
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 25(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.
(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.
140 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(z) Taxation (continued)
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.
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% (2014: 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% (2014: 28%).
Annual Report 2015 141
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 25. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES (CONTINUED)
(z) Taxation (continued)
Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST except when the GST incurred on a purchase of goods
and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of
the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in
the balance sheet.
Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing
and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
(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 22).
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.
142 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 26. AUDITOR’S REMUNERATION
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
1,015,101
1,030,607
– Other services in relation to the entity and any other entity in the consolidated group
2015
$
2014
$
– other assurance services
– taxation related services
64,219
35,827
79,300
8,624
1,115,147
1,118,531
27. 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.
Annual Report 2015 143
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED DIRECTORS’
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 2015 and
of their performance for the year ended on that date; and
complying with Australian Accounting Standards (including Australian Accounting Interpretations) and the
Corporations Regulations 2001;
(ii)
b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 25(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 2015.
On behalf of the Board
John Thame
Chairman
Sydney, 21 August 2015
Frank Wolf
Managing Director
144 Abacus Property Group
Annual Report 2015 145
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 146 Abacus Property Group
NOTES TO THE FINANCIAL STATEMENTS30 JUNE 2015CONTINUED 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 us tab on the Abacus website at www.abacusproperty.com.au.
This report is current as at 21 August 2015 and has been approved by the board.
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 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
The Selection and Appointment of Non-Executive Directors Policy sets out the procedures followed when considering the
appointment of a new director and the disclosures made to securityholders.
The Selection and Appointment of Non-Executive Directors Policy is available on the Abacus website.
Recommendation 1.3
The Board Charter sets out the roles and responsibilities of the board. Individual committee charters set out the roles and
responsibilities for committee members.
The Board Charter and the Constitutions (which are available on the Abacus website) set out:
– the term of appointment of directors;
– remuneration;
– Abacus’ policy on when directors may seek independent professional advice at Abacus’ expense;
– circumstances in which a director’s office becomes vacant;
– indemnity and insurance arrangements; and
– rights of access to corporate information.
Prior to commencing employment, senior executives employment receive a letter of offer setting out their employment terms
that they are required to accept prior to commencing employment with Abacus which covers these things (to the extent
applicable) as well as a position description, whom they report to and circumstances in which they may be terminated.
Directors and all staff (including senior executives) sign an annual Code of Conduct Declaration which includes (among
other things) confirmation of any conflicts of interest, compliance obligations with the Abacus Trading Policy and ongoing
confidentiality obligations.
Recommendation 1.4
The Board Charter and the Constitutions (which are available on the Abacus website) set out the role and responsibilities of the
company secretary.
Recommendation 1.5
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 and the Sustainability Report
included in the Annual Report provides workplace metrics including gender composition and female salaries as a percentage of
male salaries.
The board set as a target in 2011 having at least one female representative at board level. 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.
In 2015 Abacus became a ‘relevant employer’ under the Workplace Gender Equality Act. Abacus has met the reporting
obligations under that legislation.
Annual Report 2015 147
Recommendation 1.6
The board has a documented Performance Evaluation Policy which outlines the process for evaluating the performance of the
board, its committees and individual directors.
An annual review has taken place in the reporting period in accordance with that policy.
Recommendation 1.7
The Remuneration and Nomination Committee is responsible for making recommendations to the board on the remuneration
arrangements for non-executive directors and executives.
The Remuneration Report at page 45 sets out the structure of the remuneration arrangements. In summary, executive total
remuneration comprises fixed and variable components (with both current and deferred elements to the variable component).
Fixed remuneration reflects market rates and variable pay reflects a combination of individual and Abacus performance.
The board has the discretion to consider each executive’s total contribution to the group in addition to specific key performance
indicators which are established for each executive for the relevant year.
An annual review has taken place in the reporting period in accordance with the Remuneration Report structure.
Principle 2: Structure the board to add value
Recommendation 2.1
The board has established a Nomination and Remuneration Committee. The Committee’s charter sets its role, responsibilities
and membership requirements. The members of the committee and their attendance at meetings are provided on page 43.
The Chairman of the committee is independent.
The Nomination and Remuneration Committee Charter is available on the Abacus website.
Recommendation 2.2
Abacus has a board skills matrix which is reviewed and updated as part of the annual review process set out in response to
Recommendation 1.6 above. The current skills matrix shows the current Board have skills in the following relevant areas:
– Financial reporting;
– Technological innovation;
– Storage markets;
– Property markets;
– Listed markets;
– International markets;
– Foreign investment;
– Joint ventures;
– Information security;
– Financial markets;
– Hospitality markets;
– Governance;
– Regulatory compliance; and
– Capital investment.
The board considers that the current mix of skills is appropriate for the Group.
Given the nature of the Group’s business and current stage of development, the board considers its current composition
provides the necessary skills and experience to ensure a proper understanding of, and competence to deal with, the current and
emerging issues of the business to optimise the financial performance of the Group and returns to securityholders. Details of
the skills, experience and expertise of each director are set out on page 42.
148 Abacus Property Group
CORPORATE GOVERNANCE REPORT 30 JUNE 2015CONTINUED Recommendation 2.3
The board comprises one executive director and five non-executive directors. The majority of the board (Messrs Thame,
Bartlett, Irving and Spira) 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;
– does not have close family ties with any person who falls within any of the categories described;
– has not been a director of the entity for such a period that their independence may have been compromised;
– is not a material supplier or customer of the Group, or an officer of or otherwise associated directly or indirectly with a material
supplier or customer; or
– does not have a material contractual relationship with the Group other than as a director.
No independent non-executive director has a relationship significant enough to compromise their independence on the board.
Non-executive directors confer regularly without management present.
Any change in the independence of a non-executive director would be disclosed and explained to the market in a timely manner.
The independence of each non-executive director is assessed at least annually and in any case, as soon as practicable after any
change in the non-executive director’s interests, positions, associations or relationships.
Detail of the length of service of each director is set out on page 42.
Recommendation 2.4
The majority of the board (Messrs Thame, Bartlett, Irving and Spira) are independent members.
Recommendation 2.5
The Chairman of the board (Mr John Thame) is an independent non-executive director.
The roles of Chairman and 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 2.6
The Selection and Appointment of Non-Executive Directors Policy provides for induction training for new directors.
Abacus has a board skills matrix which is reviewed and updated as part of the annual review process set out in response to
Recommendation 1.6 above including a training needs analysis of individual directors.
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 42.
Principle 3: Act ethically and responsibly
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.
Annual Report 2015 149
CORPORATE GOVERNANCE REPORT30 JUNE 2015CONTINUED Principle 4: Safeguard integrity in corporate reporting
Recomendation 4.1
The board has established an Audit and Risk Committee.
The Audit and Risk Committee comprises three independent non-executive directors and the chairman of the Committee is not
the chairman of the board.
The members of the committee and their attendance at meetings are provided on page 43. Details of the skills, experience and
expertise of each member of the committee are set out on page 42. Other directors who 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 that 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.
Recommendation 4.2
Before approving the financial statements for a financial period, the board receives from the Managing Director and Chief
Financial Officer a declaration that, in their opinion, the financial records of the entity have been properly maintained and that
the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position
and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and
internal control that is operating effectively
Recommendation 4.3
The external auditor attends the Abacus annual general meeting and is available at the meeting to answer questions from
securityholders relevant to the audit.
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.
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, as well as a corporate governance landing page from which all relevant corporate governance information can be
accessed. 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.
Recommendation 6.2
The Continuous Disclosure and Securityholder Communications Policy, which is available on the Abacus website, sets out
Abacus’ communication strategy with securityholders.
Routine queries received by the Group’s registry are responded to by the registry. Non-routine queries are directed to the
Group’s Head of Investor Relations for response. Securityholders, other financial market participants and the financial media
also communicate directly with the Head of Investor Relations to seek information and provide feedback. Relevant feedback is
communicated by the Head of Investor Relations to the Managing Director and the board as required.
Recommendation 6.3
Abacus’ annual general meeting is webcast to allow securityholders to hear proceedings online. There is also the functionality
for investors to participate.
Securityholders may vote online, by proxy or by attending meetings.
The Continuous Disclosure and Securityholder Communications Policy is available on the Abacus website.
150 Abacus Property Group
CORPORATE GOVERNANCE REPORT 30 JUNE 2015CONTINUED Recommendation 6.4
Securityholders may elect to receive and send communications to Abacus and to the Group’s registry electronically. Email
contact details for the registry are provided on the Abacus website.
Principle 7: Recognise and manage risk
Recommendation 7.1 and 7.2
The Audit and Risk Committee has responsibility for reviewing the Group’s risk management framework. The members of the
committee and their attendance at meetings are provided on page 43.
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. This review has
been completed in the reporting period.
The Audit and Risk Committee Charter is available on the Abacus website.
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.
An independent consultant has been engaged to review business processes and undertake formal internal audit assessments
throughout the year. These assessments are provided to the Audit and Risk Committee for review.
Recommendation 7.3
An independent consultant has been engaged to review business processes and undertake formal internal audit assessments
throughout the year. These assessments are provided to the Audit and Risk Committee for review.
Recommendation 7.4
The Sustainability Report outlines the impact that Abacus’ business activities have on environmental, social and governance risks.
Abacus’s Sustainability Protocol and Sustainability Reports, which are available on the Abacus website and in the annual report,
include a commitment to implementing sustainability practices in Abacus’ investments, property management, development
activities and workplaces. Abacus uses these practices to manage risks, create opportunities and strengthen operations.
Principle 8: Remunerate fairly and responsibly
Recommendation 8.1 and 8.2
The board has established a Nomination and Remuneration Committee.
The Nomination and Remuneration 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 Nomination and Remuneration
Committee is independent and the Committee has a majority of independent members.
The Group’s remuneration policies including security-based payment plans and the remuneration of key management
personnel are discussed in the Remuneration Report.
The Nomination and Remuneration 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 43.
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.
Recommendation 8.3
Abacus’s Trading Policy is on the Abacus website.
The Trading Policy sets out restrictions on trading by all directors, officers, and other staff, including restrictions on the use of
derivatives and hedging transactions in relation to Abacus securities.
Annual Report 2015 151
CORPORATE GOVERNANCE REPORT30 JUNE 2015CONTINUED 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 20 August 2015.
Number of holders of ordinary fully paid stapled securities
7,550
Voting rights attached to ordinary fully paid stapled securities
one vote per stapled security
Number of holders holding less than a marketable parcel of ordinary fully paid
stapled securities
Secretary, Abacus Funds Management Limited
Secretary, Abacus Storage Funds Management Limited
Secretary, Abacus Group Holdings Limited
Secretary, Abacus Group Projects Limited
Secretary, Abacus Storage Operations Limited
Registered office
Abacus Funds Management Limited
Abacus Storage Funds Management Limited
Abacus Group Holdings Limited
Abacus Group Projects Limited
Abacus Storage Operations Limited
Registry
Other stock exchanges on which Abacus Property Group securities are quoted
Number and class of restricted securities or securities subject to voluntary
escrow that are on issue
There is no current on-market buy-back
SUBSTANTIAL SECURITYHOLDER NOTIFICATIONS
SECURITYHOLDERS
Calculator Australia Pty Limited
408
Ellis Varejes
Level 34, Australia Square
264-278 George Street
Sydney NSW 2000
612 9253 8600
Boardroom Pty Limited
Level 12, 225 George Street
Sydney NSW 2000
61 (2) 9290 9600
none
none
NUMBER OF SECURITIES
252,981,605
152 Abacus Property Group
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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