A b a c u s
P r o p e r t y
G r o u p
ANNUAL FINANCIAL REPORT 2017
ABACUS PROPERTY GROUP
ANNUAL FINANCIAL REPORT
30 June 2017
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
Directors of Responsible Entities and
Abacus Group Holdings Limited:
John Thame, Chairman
Frank Wolf, Managing Director
William Bartlett
Malcolm Irving
Myra Salkinder
Peter Spira
Abacus Funds Management Limited
ABN: 66 007 415 590
Company Secretary:
Rob Baulderstone
Abacus Storage Funds Management Limited Auditor (Financial and Compliance Plan):
ABN: 41 109 324 834
Ernst & Young
200 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
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
CONTENTS
DIRECTORS’ REPORT
AUDITORS INDEPENDENCE DECLARATION
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CASH FLOW
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDIT REPORT
2
33
34
35
36
37
39
40
97
98
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 2017. It
is also recommended that the report be considered together with any public announcements made by the Abacus Property Group in
accordance with its continuous disclosure obligations arising under the Corporations Act 2001.
1
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
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 2017.
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 and residential developments and property funds
management. The retail funds management activities were substantially reduced during the year with the sale of
hotels held by Abacus Hospitality Fund and the winding up of Abacus Diversified Income Fund II.
OPERATING AND FINANCIAL REVIEW
The operating and financial review is intended to convey the Directors’ perspective of Abacus Property Group and
its operational and financial performance. It sets out information to assist securityholders to understand and
interpret the financial statements prepared in accordance with Australian International Financial Reporting
Standards (“AIFRS”) included in this report. It should be read in conjunction with the financial statements and
accompanying notes.
Listed Structure / Entities
The listed Abacus Property Group is a diversified property group that operates predominantly in Australia. It
comprises AGHL, AT, AGPL, AIT, ASPT and ASOL (collectively “Abacus”) and its securities trade on the
Australian Securities Exchange (“ASX”) as ABP. Abacus was listed on the ASX in November 2002 and its market
capitalisation was over $1.86 billion at 30 June 2017.
Shares in AGHL, AGPL and ASOL and units in AT, AIT and ASPT have been stapled together so that none can
be dealt with without the others and are traded together on the ASX as Abacus securities. An Abacus security
consists of one share in AGHL, one unit in AT, one share in AGPL, one unit in AIT, one share in ASOL and one
unit in ASPT. A transfer, issue or reorganisation of a share or unit in any of the component parts requires, while
they continue to be stapled, a corresponding transfer, issue or reorganisation of a share or unit in each of the
other component parts.
AGHL, AGPL and ASOL are companies that are incorporated and domiciled in Australia. AT, AIT and ASPT are
Australian registered managed investment schemes. AFML is the Responsible Entity of AT and AIT and ASFML
is the Responsible Entity of ASPT. Both AFML and ASFML are incorporated and domiciled in Australia and are
wholly-owned subsidiaries of AGHL.
Abacus Property Group Consolidation
The application of AASB10 by Abacus results in the consolidation of Abacus Hospitality Fund, Abacus Diversified
Income Fund II 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 2017 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
2017 included:
investment in self-storage, office, retail and industrial properties to derive rental and fee income;
•
• participation in property and residential developments to derive interest income and development profits.
2
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
OPERATING AND FINANCIAL REVIEW (continued)
These activities are reported in the segment information note.
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 diligent 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.
• We invest in core plus property investments that are expected to yield c.12% per annum equity total returns
over time.
• We drive value through active management of the asset portfolio and through the reinvestment of sales
proceeds.
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. We look for assets and projects in major centres,
typically on the Eastern seaboard of Australia, that are, in our opinion, mispriced by the market and which we
believe have the potential for income and capital growth.
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.
3
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
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
2017
251.6
463.4
285.1
186.8
32.71
116.2
20.35
17.50
7.4x
571.2
2016
263.7
394.6
185.9
124.0
22.36
91.5
16.50
17.00
4.2x
554.7
The Group earned a statutory net profit excluding non-controlling interests of $285.1 million for the year ended 30
June 2017 (2016: $185.9 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 $186.8 million, a 51% increase on the 2016 underlying profit of
$124.0 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.
4
DIRECTORS’ REPORT
30 June 2017
OPERATING AND FINANCIAL REVIEW (continued)
GROUP RESULTS SUMMARY (continued)
ABACUS PROPERTY GROUP
Consolidated statutory net profit after tax attributable to members of the Group
add back: Consolidated profits relating to the managed funds (these profits are excluded as the
profits 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 change in fair value of investment properties held at balance date
Net change in fair value of investments and financial instruments held at balance date
Net change in fair value of derivatives
Net change in fair value of property, plant and equipment and investment properties included in equity
accounted investments
Impairment of land development
Net tax expense / (benefit) on significant items
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
2017
2016
$'000
285,097
$'000
185,886
(27,165) (16,154)
169,732
257,932
(74,773) (74,029)
10,677 (14)
8,258
(4,317)
(718) (11,575)
- 40,622
(1,999) (8,983)
186,802
124,011
2017
49.91
2016
33.51
32.71
22.36
17.50
17.00
571.2
554.7
During the 12 months to 30 June 2017 the real estate markets across Australia continued to see similar market
conditions to those of the prior year. Historically low interest rates and an expectation for this low interest rate
environment to continue for the foreseeable future combined with an unabated weight of global capital seeking
yield in a low yield global environment. These conditions saw further cap rate compression across all sectors of
the market from traditional asset classes of office, retail and industrial through to alternative asset classes of self-
storage, healthcare facilities, manufactured homes and hotels and pubs. A general improvement in the outlook of
the leasing market during the year also contributed to the attractiveness of real estate assets to domestic and
global investors. The strength of the market continues despite a backdrop of economic uncertainty and disparate
economic activity throughout Australian States.
The office markets across the Eastern Seaboard, in particular Sydney and Melbourne have continued to
strengthen with office demand in each market exceeding forecasts from 12 months prior. The markets have
worked through respective supply cycles and now have limited supply for the next few years. With demand
forecast to remain positive during this period, vacancy rates are expected to contract and rental growth to
strengthen in the short to medium term.
Australian retail sales have continued to grow, led by the Eastern states with employment growth being stimulated
by government and infrastructure investment across these states. This should see a continued growth
environment for retail sales, notwithstanding the future concern of a structural shift occurring with the expansion
of online retailing and the introduction of Amazon which has stated intent to commence operations in Australia.
The investment market for institutional grade industrial product has been strong over the past few years, with
landmark assets and portfolios transacting at yields firmer than at previous market peaks. Despite a modest
growth outlook and increasing supply side issues, assets with strong covenants and long weighted lease expiries
have been well sought after. The medium term outlook is for a stabilisation of yields as this investment activity
tapers off, while rents are likely to remain stable.
5
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
OPERATING AND FINANCIAL REVIEW (continued)
GROUP RESULTS SUMMARY (continued)
The self-storage market over the last 12 months has seen strong transaction activity as the sector becomes more
institutionalised. The sector has become more attractive to institutional and high net worth investors which have
resulted in continued capitalisation rate compression. It is difficult to get a sense of the rates of rental rate growth
achieved across geographic regions as rates depend upon a number of local market factors, in addition to
specific occupancy levels such that the more mature the store the greater the potential to optimise rental rates
and revenue per available metre (i.e. RevPAM).
Abacus has held a cautious investment approach for a number of years while we intensified our investment
analysis to ensure assets represented strong value propositions. As a result, during FY17 we focused our
investment capital on acquisitions across the self-storage and office sectors as we believed they represented the
best risk adjusted returns. This was in line with the investment strategy presented at the Group’s Annual General
Meeting in November 2016 which also indicated that we would look to fund future investments across these
sectors via the realisation of our residential developments over the coming years. This strategy is focussed on
growing the contribution to earnings from recurring revenue sources to fund the Group’s targeted distribution
growth of 2-3% pa.
During the year Abacus added two office assets in Brisbane CBD, 324 Queen Street and 444 Queen Street, for
$90 million for Abacus’ ownership stake. Both assets illustrate strong core plus characteristics that met our
investment criteria at this point in the cycle to drive capital value while providing a strong income yield. Abacus
continues to utilise our third party capital platform with the introduction of a new investment partner, Investec
Australia on the 324 Queen Street acquisition (50/50 respective ownership percentages). Abacus also acquired a
number of self-storage and industrial assets for $22 million which we intend to convert into self-storage.
The low interest rate environment continued to support the residential market throughout the year, particularly in
the Eastern states, despite pockets of oversupply in Brisbane and Melbourne. Concern over the ability of
purchasers to settle on off the plan sales remains strong following lending restrictions introduced by the major
banks and exchange controls introduced by the Chinese government. Despite this concern most major
residential developers have not encountered a strong increase in defaults, although some delays in the timeframe
for settlement to occur have been reported. During the 12 months to 30 June, Abacus’ experiences have
matched those of the general market while continuing to deliver a number of strong results across its residential
developments business.
The increase in the Group’s statutory net profit excluding non-controlling interests was principally due to the net
change in fair value of investment properties, stronger transactional profits across both the commercial property
investment portfolio and residential developments and strong performance fee income across assets held via our
third party capital platform.
The impact of both year-end fair value adjustments and the Group’s performance on its financial position were as
follows:
Total assets ($ million)
Gearing^ (%)
Net assets* ($ million)
Net tangible assets*^ ($ million)
NTA per security^ ($)
NTA per security post distribution^ ($)
^ Abacus - gearing calculated as debt minus cash divided by total assets minus cash
* Excluding external non-controlling interests of $48.5 million (2016: $43.3 million)
2017
2,436.7
2016
2,450.3
20.5
25.8
1,766.1
1,516.0
1,737.1
1,480.0
3.02
2.66
2.93
2.59
The increase in net assets of the Group by 16% reflects the improved performance compared to the previous
year and a substantial reduction in liabilities.
6
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
OPERATING AND FINANCIAL REVIEW (continued)
GROUP RESULTS SUMMARY (continued)
Capital management
The Abacus balance sheet continues to be strong with gearing remaining conservative at 20.5%, well within our
target gearing limit of 35%. At 30 June 2017, Abacus had $295 million of available liquidity that provides capacity
for use for up to $519 million of accretive acquisitions.
We continue to improve and reweight the balance sheet to larger, higher quality assets with a focus on disciplined
capital management strategies. We anticipate Abacus’ weighted average interest rate will remain relatively stable
as current capacity is utilised and anticipate it should be no greater than 5.50% 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 Investment
Commercial Portfolio
Abacus’ commercial portfolio delivered a segment result of $180.0 million for the year ended 30 June 2017 which
was substantially higher than the previous period by 55.6% (2016: $115.7 million) largely as a result of strong
transactional earnings. The commercial portfolio consists of 34 assets (2016: 32 assets) and had a total value of
$1.2 billion at year end (2016: $1.1 billion).
Pursuant to the 2017 portfolio valuation process, 16 out of 26 of the commercial properties (excluding equity
accounted properties) or 57% by value were independently valued during the year to 30 June 2017. 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 $47.5 million (2016: $37.4 million gain) or 5.3% of
commercial portfolio.
Commercial portfolio (office, retail, industrial and other)
1. WACR: Weighted Average Capitalisation Rate
2. Like for like rental growth. Excluding movement in occupancy, rental growth for Office and Retail portfolio reflects 4.1% and 6.0% increase, respectively period
on period.
* See segment note on page 44
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ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
OPERATING AND FINANCIAL REVIEW (continued)
CORE SEGMENT RESULTS SUMMARY (continued)
During the year Abacus was able to secure two commercial properties that met our investment criteria:
• 324 Queen Street, Brisbane QLD for $66 million (ABP interest 50%)
• 444 Queen Street, Brisbane QLD for $23.5 million (ABP interest 67%)
Abacus and its partners sold a number of properties during the year. These properties delivered some strong
returns to the group and included:
• 50% interest in Westpac House, Adelaide SA for $88.5 million
• 31-49 Brown Road, Clayton VIC for $51.5 million
• World Trade Centre, Melbourne VIC for $267.5 million
As a result of changes in the portfolio from acquisitions and sales and a mixed leasing environment across
regions the portfolio occupancy decreased from 91.2% at 30 June 2016 to 90.5% at 30 June 2017. Pleasingly,
like for like rental growth remained strong across our existing and stabilised portfolio to deliver growth of 2.7%.
This was largely as a result of the performance of the Group’s property management team and in-built annual
rental increases.
We believe Abacus’ portfolio is well suited to the current 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. Alongside the market, Abacus has also been a beneficiary of the stronger leasing environment
with the strong re-leasing spreads across new and renewing leases, particularly in the Sydney CBD.
Abacus’ retail portfolio is largely based around properties that are the dominant trader in their respective trade
areas. They are heavily focused on non-discretionary and convenience based shopping and trade well in their
respective markets. The Group typically targets assets that have been classified as non-core from institutional
and high net worth owners and require some levels of refurbishment and upgrade. These assets tend to illustrate
strong turnaround prospects and Abacus looks to take advantage of the capital and income improvements
achievable through clever cost effective regeneration projects.
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. As
previously mentioned we expanded the platform with a new joint venture with Investec Australia to acquire 324
Queen Street in Brisbane for $132 million (100% asset value). Abacus and its joint venture partner KKR sold
their interests in World Trade Centre in Melbourne for $187.25 million, which valued 100% of the asset at $267.5
million. This delivered an equity IRR of over 30% to the joint venture.
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 focus on driving our third party strategy to expand our capital base.
8
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
OPERATING AND FINANCIAL REVIEW (continued)
CORE SEGMENT RESULTS SUMMARY (continued)
Self-storage
Abacus’ self-storage portfolio delivered a segment result of $70.7 million for the year ended 30 June 2017. This
represents a 5.2% decrease on the FY16’s result of $74.6 million and can be attributed to a lower level of fair
value increases from the self-storage portfolio offsetting a 14% increase in self-storage EBITDA. Portfolio assets
totalled $629 million across a total portfolio of 65 facilities, an overall increase of four facilities during the period,
although two existing facilities operating adjacent to each other were merged into one facility during the period.
Pursuant to the 2017 valuation process 24 self-storage facilities out of 65 or 36.3% by value were independently
valued during the year to 30 June 2017. The remaining facilities were subject to internal review and, where
appropriate, their values were adjusted. The valuation process resulted in a net full year revaluation gain of $27.3
million (2016: $36.7 million gain) or 4.6% of investment properties.
The self-storage portfolio is well diversified in Australia and New Zealand.
1. Stabilised portfolio
2. WACR: Weighted Average Capitalisation Rate
3. Revenue per available square metre
4. Average over last 12 months (by area)
As stated at the Group’s Annual General Meeting in November, we continue to consider investment into our self-
storage portfolio as one of our sectors of choice to deliver the Group’s returns and help fund our targeted
distribution growth into the future. The last 12 months saw additional asset acquisitions, and we continue to
target assets that will contribute to improving the portfolio’s metrics, particularly focusing on conversion
opportunities in metropolitan areas in Australia’s Eastern Seaboard.
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. The stabilised
portfolio occupancy grew to 89.2% from 87.4% and average rental rate increased to $262m2 from $259m2. The
increased rental and occupancy improved portfolio RevPAM to $234m2 from $227m2 in 2016, a 3.1% increase
assuming a stabilised New Zealand exchange rate. RevPAM measures the profitability and efficiency of your
portfolio.
The Group made $22 million of acquisitions during the year including two stabilised facilities for $12.2 million and
$9.8 million of assets for conversion into self-storage facilities. These facilities to be converted were acquired in
metropolitan areas in NSW and ACT. We remain focused on investment opportunities in metropolitan locations
that will deliver higher average rental rates than the current portfolio average to drive portfolio returns.
The self-storage sector has seen further interest from investors and capital partners highlighting the sector’s
continued attractiveness and further evidence that it sits alongside traditional asset class of office, retail and
industrial. The increased institutional recognition has driven strong pricing of assets as new and existing entrants
to the sector seek assets and market share. This continues to drive strong capitalisation rate compression across
the asset class.
* See segment note on page 44
9
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
OPERATING AND FINANCIAL REVIEW (continued)
CORE SEGMENT RESULTS SUMMARY (continued)
Developments
The developments business delivered an increased segment result of $55.0 million (2016: $16.4 million). The
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 $448 million invested across a number of residential developments in capital city markets
across the eastern seaboard of Australia. Abacus controls c.9,500 apartment units or land lots which equates to
c.$47,000 cost base per unit/land lot. This low average price provides evidence that the developments business
has prospects for strong returns.
Abacus completed two residential joint venture development projects during the last 12 months:
• Spice Apartments, South Brisbane QLD was a development to build 274 apartments. All apartments
have now settled.
• The Prince, Canberra ACT was a 152 residential apartments project in the Kingston Foreshore precinct,
overlooking Lake Burley Griffin. All apartments have settled.
The pipeline of projects that are due for completion over the 12 months to 30 June 2018 includes:
• The Eminence, Melbourne VIC (current investment $14.2 million) – Development to build 193 apartments
in the inner city suburb of Carlton. The project is a 50/25/25 joint venture with the Crema and Lechte
Groups. All apartments have been sold with the project completing in June 2017. The settlement
process commenced in late June 2017 and we anticipate finalisation by October 2017.
•
• Ashfield Central, Sydney NSW (current investment $24.1 million) – Development to build 101 apartments
in the inner city suburb of Ashfield. The project is 100% owned by Abacus. All apartments have been
sold and we are anticipating completion by June 2018.
Ivy and Eve, Brisbane QLD (current investment $27.5 million) – Development to build 476 apartments
across two buildings in the inner city suburb of South Brisbane, 500m from the CBD overlooking the
Brisbane River. The project is a joint venture with CDL, a Singaporean developer and Kilcor Properties.
464 apartments have been sold with the expected completion on Ivy and Eve by December 2017 and
June 2018 respectively.
• One A, Erskineville Sydney NSW (current investment $31.2 million) – Development to build 175
apartments in the inner city suburb of Sydney. The project is a joint venture with the Linear Group. 164
apartments have been sold with the expected completion by June 2018.
Abacus also has a number of ventures that own land sites, across the Metropolitan Sydney area, undergoing
residential rezoning. It is anticipated that a number of these sites will receive their approvals in 2018 and will
either be sold to developers or built with our joint venture partners. FY17 saw the realisation of a number of
projects including:
• Campsie, Sydney VIC was a collection of unzoned parcels of land that was combined and approved for a
proposed 439 residential apartment project in the local suburb of Sydney. Abacus was a lender to the
project and receives a 50% profit share upon sale. The two sites were sold in late 2016 and early 2017
with settlement occurring in 2017.
The timeframe to work through the rezoning of non-residential zoned land is uncertain and complex. This is the
reason it is possible to derive higher risk adjusted returns through projects of this type. Timeframes can be
disrupted through unpredictable changes in local council and state governments. This includes the ongoing NSW
council amalgamation program and subsequent court actions which continue to created headwinds for developers
seeking development approvals. Administrators placed into councils affected by amalgamations have caused a
back log of approvals while mergers are implemented. This has caused delays to a number of rezoning
applications and has created increased uncertainty to delivery and realisation timings.
* See segment note on page 44
10
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
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 2017 is as follows:
Abacus Hospitality Fund (AHF)
AHF owns one hotel: A sales programme for the last remaining asset, the Twin Waters hotel, was undertaken
throughout 2016 and 2017. Despite extensive due diligence by one party, no sale contract was exchanged.
Abacus will use its best endeavours to source a suitable buyer for the property when market conditions for this
hotel improve. When the property is sold capital will be distributed and the Fund will be wound up.
Abacus Diversified Income Fund II (ADIF II)
On 31 March 2017 retail investors were repaid their original investment.
Abacus Wodonga Land Fund (AWLF)
AWLF owns the residential estate known as White Box Rise located in Wodonga, Victoria. During the year 117
residential lots were settled for combined gross proceeds of $16.2 million. This takes the total number of lots
settled to 833 since the start of the project. There are approximately 239 lots left to sell in the estate, and these
are expected to be sold over the next 2-3 years.
FUTURE PROSPECTS AND RISKS
Abacus has committed to growing its investments across its commercial and self-storage property segments as a
means to growing its contribution to the Group’s recurring earnings. This follows the investment strategy
presented at the Group’s Annual General Meeting in November 2016 which focussed on growing recurring
revenue sources to fund the Group’s targeted distribution growth of 2-3% pa. This investment strategy would be
funded via the realisation of our residential developments over the coming years. Abacus has had a successful
start to this strategy through the realisations and acquisitions that have delivered its record results through FY17.
Abacus acquisition strategy remains focused on core plus investment properties either through joint venture or
directly on balance sheet. We will continue to actively manage our portfolio and where appropriate recycle the
mature, lower growth assets realising its improved capital position. At 30 June 2017 Abacus held sufficient
acquisition capacity to acquire a further $519 million of properties directly on the balance sheet. This capacity
can be further leveraged to invest in a larger number of projects through joint venture arrangements.
Recurring underlying earnings should increase over the coming year as the Group sources additional acquisitions
and an increased level of rental income as assets currently under development come back on line. Growth in
revenue through further acquisitions will be driven or limited by our ability to access new opportunities that deliver
our required equity returns in current markets that are showing signs of strong pricing. The different
characteristics of each leasing market across office, retail and industrial sectors in each state has the potential to
increase volatility in rental revenue. Any sales of investment properties or the completion and repayment of any
development project loans will also have a negative influence of recurring revenue growth.
Abacus will continue to be invested across the residential development sector. In FY17 its projects have
delivered strong returns to the Group. Its pipeline for project completions remains robust for the next few years.
The outlook for the residential sector remains strong in Sydney, where over 77% of the Group’s invested capital is
located. The contribution to earnings from finance income is directly correlated to the levels of loans extended to
borrowers. This has potential to fall as the current pipeline is realised and the Group returns to more normalised
levels of investments of approximately 10% of balance sheet total assets.
11
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
OPERATING AND FINANCIAL REVIEW (continued)
FUTURE PROSPECTS AND RISKS (continued)
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 outline is not exhaustive, and
performance may be affected adversely by any of these risk and other factors.
• Returns from investment – Returns from investment in real property and other related property exposures
depend largely on the amount of rental income that can be generated from the property, the expenses
incurred in operations, including the management and maintenance of the property, as well as changes in the
market value of the property. Factors which may adversely impact these returns include:
•
•
•
the overall conditions in the national and local economy, such as changes in gross domestic product,
employment trends, inflation and interest rates;
local real estate conditions, such as the level of demand for and supply of retail, commercial and
industrial space;
the perception of prospective tenants of the attractiveness, practicality and convenience of the rental
space;
changes in tenancy laws and planning approval requirements;
•
• external factors including major world events such as war, terrorist attacks or force majeure events;
• unforeseen capital expenditures;
•
•
•
cost of property outgoings and recoverability from tenants; and
supply of new property and other investment assets;
investor demand/liquidity in investment markets.
• 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 of 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.
12
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
OPERATING AND FINANCIAL REVIEW (continued)
FUTURE PROSPECTS AND RISKS (continued)
• Leasing terms and tenant defaults – The future financial performance of Abacus will depend, in part, on its
ability to continue to lease existing retail, office, industrial, self-storage and hotel space that is vacant or
becomes vacant on economically favourable terms. In addition, its ability to lease new asset space in line
with expected terms will impact on the financial performance of Abacus.
The ability of major tenants to meet their rental and other contractual commitments to Abacus (such as in
situations of insolvency or closure of their businesses) may have an adverse impact on the income from
properties, which may result in an adverse impact on the financial performance of Abacus.
This risk is managed through active asset management including ongoing liaison with tenants, regular
maintenance and refurbishment of properties to attract tenants, timely marketing programs for vacant space
and due diligence on the financial strength of prospective tenants prior to entering into leases.
• Funding – The property investment and development sector is highly capital intensive. The ability of Abacus
to raise funds (equity and debt) on acceptable terms will depend on a number of factors including capital
market conditions, general economic and political conditions, Abacus’ performance, and credit availability.
Changes in the cost of current and future borrowings and equity raisings may impact the earnings of Abacus,
and impact the availability of funding for new acquisitions and projects, or increase refinancing risk as debt
facilities mature.
Abacus uses debt funding provided by major banks. Any downgrade of Abacus’ bank credit assessment may
increase overall debt funding costs and adversely affect Abacus’ access to debt funding and the terms on
which that funding is offered. Abacus staggers the debt maturity profile to reduce the concentration of
refinancing risks at any point in time and obtains funding through different banks to reduce credit and
counterparty risks.
•
Insurance – While Abacus carries property insurance, there are types of losses (such as against floods and
earthquakes) that are generally not insured at full replacement cost or that are insured subject to larger
deductibles or insurance may not be able to be obtained. Additionally, Abacus will face risks associated with
the financial strength of its insurers to meet their indemnity obligations when called upon which could lead to
an adverse effect on earnings.
Abacus mitigates this risk through the use of insurance brokers to seek to place cover with well rated insurers
and ensure that this insurance risk is diversified across various insurers. The diversification of the property
portfolio across geographical regions reduces the impact of any potential losses to Abacus.
• Environmental – Abacus may from time to time be exposed to a range of environmental risks including those
resulting from soil and water contamination, construction, cultural heritage and flora and fauna (e.g. native
vegetation). In addition, there is a risk that property owned by or projects undertaken by Abacus from time to
time may be contaminated by materials harmful to human health (such as asbestos or other hazardous
materials). Also, returns may be adversely impacted by changes to sustainability and environmental
requirements and potentially costs associated with the carbon pricing or the introduction of new regulations
referable to the property industry.
In these circumstances, Abacus may be required to undertake remedial works on contaminated sites.
Additional expenses may result from changes in environmental regulations across the industry. Abacus as
part of the property acquisition due diligence engages experts to advise on any potential environmental risks
and factors these into the acquisition price of the property. Abacus also constantly monitors for any potential
exposure in changes in environmental regulations to manage any costs and impacts associated with these
risks.
• 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
13
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
OPERATING AND FINANCIAL REVIEW (continued)
FUTURE PROSPECTS AND RISKS (continued)
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.
• Workplace Health and Safety (WH&S) – Abacus manages its exposure to WH&S by way of a documented
WH&S program including policies and procedures for managing safety. The management system ensures
compliance by stakeholders including site contractors and employees through training and education.
The management system protects from the risk of incidents, causing financial or physical impact arising from
an accident or event at an asset owned or managed by Abacus.
• Talent retention – The inability to attract, retain and develop talented people can frustrate the execution of
the strategy, limiting the ability to deliver the business’ objectives.
14
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
OPERATING AND FINANCIAL REVIEW (continued)
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: 14 years (All as Chairman)
Frank Wolf OAM, PhD, BA (Hons)
Managing Director
Dr Wolf has over 30 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: 14 years (10 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.
Mr Irving is Chairman of the Audit & Risk and Compliance Committees and a member of the Due Diligence
Committee.
Tenure: 13 years
William J Bartlett FCA, FCPA, FCMA, CA(SA), FAICD
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 Committees.
Tenure: 10 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: 6 years
15
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
OPERATING AND FINANCIAL REVIEW (continued)
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 1995 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: 2 years
Robert Baulderstone BA, CA, FCIS
Company Secretary and Chief Financial Officer
Mr Baulderstone has been the Company Secretary since February 2017. He has been a chartered accountant for
over 25 years.
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
Directors’ Meetings
ABP securities held
84,590
3,606,382
33,125
52,343
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
11
11
11
11
11
11
11
11
11
11
11
11
4
4
4
4
3
4
1
1
1
1
1
1
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.
16
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
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 33.
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 Corporations
Instrument 2016/191. The group is an entity to which the instrument applies.
17
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited)
This Remuneration Report describes Abacus’ remuneration arrangements for directors and executives in
accordance with the requirements of the Corporations Act and Regulations. Key terms used in this report are
defined in the glossary at Table 15.
This report contains details of the remuneration of the following key management personnel (KMPs)
(i) Non-executive Directors
J. Thame
W. Bartlett
M. Irving
M. Salkinder
P. Spira
Chairman
Director
Director
Director
Director
(ii) Executive Director
F. Wolf
Managing Director
(iii) Executives
R. Baulderstone
C. Laird
P. Strain
Chief Financial Officer
Director Property Development
Director Property Investments
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. Further details about the Committee’s
membership and functions are contained in the Corporate Governance Report.
18
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
Executive remuneration
Snapshot
Abacus is a core plus investor in the Australian real estate sector.
We seek to acquire properties that are mispriced in the market through flaws in their capital structure, leasing or
use.
Our risk profile differs from traditional A-REITS that primarily manage rental income streams.
We have structured our remuneration policies so that our executives are not encouraged to take undue risks.
With core plus property, opportunistic investing can only be assessed over time.
Variable remuneration is short and long dated.
Variable remuneration recognises different contributions. For executives focused on transaction, initiation and
value delivery outcomes, it recognises the realisation of value from historic transactions that have crystallised in
the current period and other non-financial contributions. For other executives it recognises contributions through
provision of infrastructure, management and specialist services to enable the effective functioning of the Group.
Long dated variable remuneration is linked to Abacus’ security price that reflects the market assessment of the
business’s longer term ability to deliver sustainable distributions and growth.
Long dated variable remuneration is subject to clawback.
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 executives and securityholders through
the use of variable remuneration linked to an underlying profit gateway range and to the Abacus security price
over the vesting period for deferred remuneration. 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 over the last 5 years is illustrated below.
Table 1: 5 year performance
Underlying earnings per security (cents)*
Distributions paid and proposed (cents)
Closing security price (30 June)
Net tangible assets per security**
Weighted average securities on issue
* Underlying earnings are unaudited.
2013
18.76
16.50
$2.27
$2.32
446.4m
2014
20.83
16.75
$2.50
$2.38
486.1m
2015
24.53
17.00
$2.92
$2.49
524.4m
2016
22.36
17.00
$3.15
$2.66
554.7m
2017
32.71
17.50
$3.24
$3.02
571.2m
** Net tangible assets per security include the impact of the fair value movements.
19
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
The table below sets out the structure of Abacus’ executive remuneration arrangements. Each element is
discussed in further detail in the sections that follow.
Table 2: Summary of ABP’s remuneration structure
Remuneration
component
Fixed remuneration
Current variable
component (capped at
75% of fixed remuneration
for the Managing Director
and at 60% for other
executives)
Deferred variable
component (capped at
75% of fixed remuneration
for the Managing Director
and at 60% for other
executives)
Method
Purpose
Link to performance
Paid mainly as cash salary -
comprises base salary,
superannuation contributions
and other non-monetary benefits
(car parking and associated
fringe benefits tax).
Paid in cash in September.
Awards are made in the form of
security acquisition rights.
Set with reference to role,
market, experience and skill-
set.
Indirect link to performance. Periodic
increases are linked to market
movements, changes in roles and
responsibilities, and incumbent
experience.
To drive achievement of the
underlying profit target range
as set by the Board.
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.
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.
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 result is a higher proportion of fixed remuneration for executives compared to other A-
REITs and a lower proportion of variable remuneration, with the variable remuneration designed to reward
consistency of sustainable distributions and steady improvement to the underlying financial strength of the
business. This strategy aligns with the Board’s desired positioning of the group within the A-REIT industry.
Accordingly, the Board considers it appropriate that for the key management personnel the proportion of fixed to
the potential maximum variable pay (the remuneration ratio) is 40:60 for the Managing Director and 45:55 for the
other executives, with half of the variable component generally allocated to current variable remuneration and the
other half to deferred variable remuneration. There may be variations from the ratio based on personal
performance, but each executive’s total current and deferred variable remuneration is generally capped at 150%
for the Managing Director and 120% for the other executives of their fixed remuneration.
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. This information is used by the Committee for
benchmarking purposes
Fixed Remuneration
Abacus aims to set a fair base salary. Base salary is set by reference to each executive’s position, performance
and experience, and the Committee has regard to independent benchmarking information. The Committee has
authority to engage independent advisers to assist it in its role. No external adviser provided any remuneration
recommendations in relation to any member of the KMP during the year.
Fixed remuneration is benchmarked against data for the property industry as well as data from the stock market
to determine an appropriate market-competitive level of pay. Stock market data covers listed industry companies
of comparable size and, within that, A-REITs of comparable size.
Base salaries paid to executives increased by an average of 1.8% in the year ended 30 June 2017.
20
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
Current variable remuneration
Table 3: Summary of the current variable remuneration plan
What is current variable remuneration?
A cash incentive plan linked to specific annual targets.
What were the outcomes for executives
this year and last year?
For the 2017 financial year current variable remuneration awards of $1,710,000 have been
accrued and will be paid in September 2017.
The awards made to each executive and their achievements against the maximum
potential payment are set out in table 6.
What is the purpose of current variable
remuneration?
To link the achievement of Abacus’ operational targets to the remuneration received by all
the executives charged with meeting those targets. This is designed to encourage the
executives to work as a team to achieve the underlying profit target range.
What are the performance conditions?
For each financial year, the Board specifies an underlying profit target range. The lower
end of the target range operates as a gateway that must be passed if current variable
remuneration awards are to be generally payable. The profit target range for the 2017
financial year was $119m to $125m.
If the gateway is passed, the value of the award for each executive is determined having
regard to achievement against pre-determined key performance indicators or KPIs. The
target levels of performance set by the Board are challenging, and 100% payments require
a high level of consistent performance.
The KPIs for the year ended 30 June 2017 are set out below:
KPI
Proportion of current variable
remuneration award measure
applies to
Managing
Director
Other
executives
20-80%
(dependent on
role)
Financial measure:
60%
-
-
-
Contribution to Abacus
underlying profit
Contribution to
sustainability of
distribution
Contributions to projects
expected to grow
security value
Non-financial measures:
40%
20-80%
-
-
-
-
-
Quality of analysis and
recommendations
Transaction and project
management
Key growth activities
Risk management
Other performance
measures focused on
achieving business
imperatives
Account is also taken of qualitative indicators of effectiveness, performance and behaviour.
21
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
ABACUS PROPERTY GROUP
Why were these measures chosen?
An underlying profit target range was chosen because, of several financial performance
measures considered by the Board, underlying profit demonstrated the closest correlation
to security-holder value creation (measured by total security-holder return). Underlying
profit reflects the statutory profit as adjusted in order to present a figure that reflects the
Directors’ assessment of the result for the ongoing business activities of Abacus, in
accordance with the AICD/Finsia principles for reporting underlying profit.
The other financial and non-financial KPIs 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.
How is the total current variable
remuneration pool determined?
The current variable remuneration pool is linked directly to, and contingent on, the
achievement of the underlying profit gateway for the assessment year.
How is performance assessed?
The Remuneration and Nomination Committee considers the performance of the
executives against their KPIs and other applicable measures and has regard to
independent benchmarking information. The Committee then recommends current variable
remuneration payments, if any, to the Board for its approval.
What discretions does the Board have?
If the underlying profit gateway 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.
If the underlying profit gateway is missed, the Board also retains the discretion to pay
current variable remuneration awards to selected individuals to reward them for their
personal above target performance.
When approving awards for individual executives, 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 board will disclose the exercise of any of these discretions.
No discretions have been exercised in respect of the reporting year.
What happens on cessation of
employment?
An executive will generally not be entitled to be paid a current variable remuneration award
if they resign or if their employment is terminated with cause.
Table 4: Summary of the pooling and assessment process
The process for determining an individual’s current variable remuneration award is as follows:
Beginning of the year
Set the plan parameters
-
Underlying profit target range for coming
year
KPIs for each participant
-
- Maximum current variable remuneration
payable for each participant based on
remuneration ratio
Year-end
Measure Abacus’ financial performance
-
-
-
Is underlying profit gateway met or
exceeded?
If no, a payment will generally not be
made
If yes, gateway is passed
After year-end
Distribute current variable remuneration
-
-
Assess individual performance against
KPIs and other measures
Pay current variable remuneration
entitlements
22
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
Current variable remuneration outcome for the Managing Director
The following table sets out the performance of the Managing Director against his KPI targets for the year ended
30 June 2017 (scorecard) which are reviewed by the Remuneration and Nomination Committee and the Board.
These KPIs are intended to provide a link between remuneration outcomes and the key drivers of long term
securityholder value:
Table 5: Managing Director’s performance against KPIs
Category
Weighting
Result
Performance Detail
Financial performance –
measured by underlying profit
Sustainable distribution –
measured by payment of the
target amount
40%
20%
Above target
Above target
Abacus delivered an underlying profit of $186.8m which is
57% higher than the variable remuneration gateway.
Abacus has paid a distribution of 17.5c per security which is
3% higher than the target distribution of 17.0c per security.
Growth – measured by revenue
growth, funds under
management, acquisitions,
capital partners and expanded
activities
Business management –
measured by debt management,
rent and leasing management,
operating costs and delivery of
business plans
People – measured by
leadership performance,
employee engagement, retention
and development
15%
Above target
15%
Above target
10%
At target
Abacus achieved a 21% increase in revenue and continued to
grow the property portfolio. Abacus also entered into joint
ventures with new capital partners which led to an increase in
funds and properties under management
Abacus has a strong capital position and sound controls that
have supported its performance in maintaining occupancy
levels above 90%, comparable WALE and the delivery of
operational improvements and efficiencies
An independent survey undertaken with senior staff during the
year concluded that Abacus has positive and focused
leadership. The average tenure of all employees in Abacus is
greater than 5 years.
The scorecards for other executives are similar to that of the Managing Director, but with different weightings and
with KPIs applicable to their individual roles.
Current variable remuneration awards
Application of the KPIs against the scorecards resulted in no executive achieving the maximum possible variable
remuneration. The following table sets out the awards made to each executive based on their performance during
the year ended 30 June 2017.
Table 6: Current variable awards
Maximum STI
as per the
plan
1,050,000
300,000
300,000
300,000
Fixed salary
1,400,000
500,000
500,000
500,000
Current
variable
remuneration
award
900,000
270,000
270,000
270,000
% of maximum
possible current
award earned
86%
90%
90%
90%
F Wolf
R Baulderstone
C Laird
P Strain
23
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
Deferred variable remuneration
Table 7: Summary of the deferred variable remuneration plan
What is deferred variable remuneration?
Deferred variable remuneration is delivered in the form of an annual grant of security
acquisition right (SARs) under the deferred security acquisition rights plan (SARs Plan).
SARs allocated to an executive as their deferred variable remuneration for a financial year
will vest in four equal annual tranches on the first, second, third and fourth anniversaries of
the allocation date.
Executives are entitled before any tranche of SARs vests, to extend the vesting date for
that tranche by 12 months.
What is the purpose of deferred variable
remuneration?
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.
The structure of the plan 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.
How is the value of the deferred variable
remuneration determined?
A deferred variable remuneration award is available to an executive who satisfies the KPIs
outlined in the current variable remuneration section.
As a starting point, the deferred variable remuneration award for a financial year will match
the value of the current variable remuneration award paid for that year.
The matching allocations may then 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
exceptional individual performance, the potential of an executive, or their future
employment plans and aspirations.
Once the grant value is determined by the Board, the number of SARs to be awarded is
calculated based on the face value of Abacus’ securities. The face value is calculated
using a 10 day volume weighted average price (VWAP) for the period commencing on the
second trading day after the full year results announcement.
Can deferred variable remuneration be
forfeited?
Deferred variable remuneration will usually be forfeited if an executive resigns or is
summarily dismissed prior to the vesting date (see the ‘Cessation of employment section’
below for more detail).
The Board has the discretion to forfeit unvested SARs tranches of an allocation of SARs if
ABP distributions fall by more than the annualised distribution rate per ABP security set at
the time of the relevant allocation. The rate set for the reporting year was $0.17. No
forfeitures of SARs for unsustainable performance occurred in the reporting period.
Further, if the Board determines that an 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.
Do executives receive distributions on
their unvested deferred variable
remuneration?
No. However, to achieve a closer alignment of the interests of securityholders and senior
executives, when a tranche of SARs vests, the holder will receive an additional number of
ABP securities equivalent in value to the distributions the executive would have received
over the vesting period if their SARs had been ABP securities.
24
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
What discretions does the Board have?
The Board has the discretion to award SARs in excess of the deferred remuneration cap in
the case of exceptional performance.
The board will disclose the exercise of any of these discretions.
No discretions have been exercised in respect of the reporting year.
What happens on cessation of
employment?
To receive the deferred remuneration award the executive must remain employed by
Abacus, unless they are considered a good leaver (that is, through disability, termination
without cause, genuine retirement, death or some other circumstance considered
acceptable by the board in its discretion).
Further details about deferred variable remuneration grants are set out in tables 10 to 13 and the terms of prior
year grants are set out in earlier remuneration reports.
Employment contracts and termination entitlements
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 may resign from his position by giving 6 months written notice; and
- Abacus may terminate the employment agreement by providing 12 months written notice or providing
payment in lieu of notice.
The other executives are employed on an ongoing basis under letter agreements until 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.
25
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
Non-executive director remuneration
Objective
The Committee assesses the appropriateness of the nature and amount of remuneration of non-executive
directors 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 8.)
The aggregate remuneration limit and the fee structure are reviewed annually and fees were last increased in
August 2015.
Fees payable, inclusive of superannuation, to non-executive directors are as follows:
Table 8: Non-Executive Director fee levels
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
Fee
Chairman*
$221,000
Member
Chairman
Member
Chairman
Member
Chairman
Member
Chairman
Member
$95,000
$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.
26
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
Table 9: Remuneration of Key Management Personnel
ABACUS PROPERTY GROUP
2017
Short-term benefits
Post
Long-term
Security-
based
Total
Perform ance
em ploym ent
benefits
paym ent
related
Current
variable
incentive
Non-
m onetary
benefits
Total cash
paym ents
and short
term
benefits Superannuation
$
$
$
$
Long
service
leave*
$
Security
acquisition
rights
(SARs)*
$
$
-
-
-
-
-
-
-
-
-
-
-
-
201,828
114,155
140,028
109,589
91,324
656,924
19,172
10,845
9,828
10,411
8,676
58,932
-
-
-
-
-
-
-
-
-
-
-
-
221,000
125,000
149,856
120,000
100,000
715,856
Salary & fees
$
201,828
114,155
140,028
109,589
91,324
656,924
%
-
-
-
-
1,375,411
900,000
6,673
2,282,084
24,589
27,621
569,887
2,904,181
51%
252,333
465,000
465,000
465,000
-
270,000
270,000
270,000
3,022,744
1,710,000
3,679,668
1,710,000
3,336
-
6,673
6,673
23,355
23,355
255,669
735,000
741,673
741,673
4,756,099
5,413,023
15,167
35,000
35,000
35,000
144,756
203,688
4,273
10,122
9,362
10,284
61,662
61,662
64,470
138,910
165,435
151,579
339,579
919,032
951,470
938,536
1,090,281
6,052,798
1,090,281
6,768,654
Non-executive directors
J Thame - Chairman
W Bartlett
M Irving
M Salkinder
P Spira
Sub-total non-executive directors
Executive Directors
F Wolf - Managing Director
Other key m anagem ent personnel
E Varejes - Chief Operating Officer #
R Baulderstone - Chief Financial Officer
C Laird - Director Property Developments
P Strain - Director Property Investments
Sub-total executive KMP
Total
* Accrued no presently entitled
# Mr Varejes ceased to meet the definition of a key management person in December 2016
19%
44%
46%
45%
27
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
Table 9: Remuneration of Key Management Personnel
2016
Short-term benefits
Post
em ploym ent
Long-term
benefits
Current
variable
incentive
Non-
m onetary
benefits
Total cash
paym ents
and short
term
benefits Superannuation
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
201,828
114,155
136,991
109,589
91,324
653,887
19,172
10,845
12,363
10,411
8,676
61,467
Long
service
leave*
$
-
-
-
-
-
-
Salary & fees
$
201,828
114,155
136,991
109,589
91,324
653,887
ABACUS PROPERTY GROUP
Total
Perform ance
related
Security-
based
paym ent
Security
acquisition
rights
(SARs)*
$
$
-
-
-
-
-
-
221,000
125,000
149,354
120,000
100,000
715,354
%
-
-
-
-
1,351,069
750,000
6,673
2,107,742
28,931
31,345
552,974
2,720,992
48%
504,000
455,000
455,000
455,000
160,000
200,000
200,000
200,000
3,220,069
1,510,000
3,873,956
1,510,000
6,673
-
6,673
6,673
26,692
26,692
670,673
655,000
661,673
661,673
4,756,761
5,410,648
31,000
35,000
35,000
35,000
164,931
226,398
8,530
9,777
9,036
9,937
68,625
68,625
143,673
137,473
164,265
150,373
853,876
837,250
869,974
856,983
1,148,758
6,139,075
1,148,758
6,854,429
36%
40%
42%
41%
28
Non-executive directors
J Thame - Chairman
W Bartlett
M Irving
M Salkinder
P Spira
Sub-total non-executive directors
Executive Directors
F Wolf - Managing Director
Other key m anagem ent personnel
E Varejes - Chief Operating Officer
R Baulderstone - Chief Financial Officer
C Laird - Director Property Ventures
P Strain - Director Property
Sub-total executive KMP
Total
*Accrued but not presently entitled
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
ABACUS PROPERTY GROUP
Table 10: Grants under the Deferred Security Acquisition Rights Plan
The table below discloses unvested SARs held by key management personnel as well as the number of SARs
that vested or lapsed during the year.
Year
Grant date
SARs
granted
Fair value
per right
at grant
date
Vesting date
No.
vested
during
the year
No.
lapsed
during
the year
Director
F Wolf
Executives
R Baulderstone
C Laird
P Strain
E Varejes
2017
2016
2015
2014
2013
2017
2016
2015
2014
2013
2017
2016
2015
2014
2013
2017
2016
2015
2014
2013
2017
2016
2015
2014
2013
230,260
57,564
65,788
57,564
46,052
14/11/2016
21/11/2015
21/11/2014
29/11/2013
15/05/2013
14/11/2016
21/11/2015
21/11/2014
29/11/2013
15/05/2013
14/11/2016
21/11/2015
21/11/2014
29/11/2013
15/05/2013
14/11/2016
21/11/2015
21/11/2014
29/11/2013
15/05/2013
14/11/2016
21/11/2015
21/11/2014
29/11/2013
15/05/2013
$2.379 over 4 years
13/09/2016
13/09/2016
13/09/2016
13/09/2016
$2.379 over 4 years
13/09/2016
13/09/2016
13/09/2016
13/09/2016
$2.379 over 4 years
13/09/2016
13/09/2016
13/09/2016
13/09/2016
$2.379 over 4 years
13/09/2016
13/09/2016
13/09/2016
13/09/2016
$2.379 over 4 years
13/09/2016
13/09/2015
13/09/2015
13/09/2015
-
58,294
54,565
69,352
53,105
-
13,324
14,550
16,644
16,340
-
16,655
18,188
16,644
17,913
-
16,655
14,550
16,644
16,340
-
12,491
16,369
16,644
21,242
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Table 11: The value of SARs granted, exercised and lapsed during the year
Value of SARs
granted during
the year
Value of SARs
exercised during
the year
Value of SARs
lapsed during
the year
$
$
$
F Wolf
R Baulderstone
C Laird
P Strain
E Varejes
547,841
136,958
156,525
136,958
109,568
770,065
200,207
227,390
210,248
220,902
-
-
-
-
-
Refer to Note 20 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.
29
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
Table 12: Securities acquired on exercise of options
Securities
acquired
No.
269,845
70,158
79,682
73,675
77,411
Paid per
security
$
2.84
2.84
2.84
2.84
2.84
F Wolf
R Baulderstone
C Laird
P Strain
E Varejes
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.
Table 13: Movements in SARs holdings of key management personnel during the year
Balance
1 July 2016
Granted as
remuneration
SARs
Vested
Balance
exercised 30 June 2017 30 June 2017
-
-
-
-
-
Director
F Wolf
Executives
R Baulderstone
C Laird
P Strain
E Varejes
588,680
230,260
(235,316)
583,624
146,574
172,385
159,898
153,601
57,564
65,788
57,564
46,052
(60,858)
(69,400)
(64,189)
(66,746)
143,280
168,773
153,273
132,907
Total
1,221,138
457,228
(496,509)
1,181,857
Table 14: Securityholdings of key management personnel
Balance
1 July 2016
Vesting of
SARs
Purchases/
(sales)
Balance
30 June 2017
Directors
J Thame
F Wolf
W Bartlett
a Irving
Executives
R Baulderstone
C Laird
P Strain
Total
84,590
-
3,336,537
269,845
33,125
49,370
121,044
119,832
165,831
-
-
70,158
79,682
73,675
-
-
-
2,973
-
(34,000)
15,498
84,590
3,606,382
33,125
52,343
191,202
165,514
255,004
3,910,329
493,360
(15,529)
4,388,160
All equity transactions with key management personnel other than those arising from the vesting of the security
acquisition rights have been entered into under terms and conditions no more favourable than those the Group
would have adopted if dealing at arm’s length.
Loans to key management personnel
There were no loans to key management personnel and their related parties at any time in 2017 or in the prior
year.
30
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2017
REMUNERATION REPORT (audited) (continued)
Other transactions with key management personnel
During the year, transactions occurred between the Group and key management personnel which are within
normal employee and investor relationships.
Table 15: Glossary of terms used in the Remuneration Report
Term
Definition
allocation date for an award of SARS
the first business day after a period of 10 trading days on
ASX starting from the second trading day after the full year
results announcement for the Group for the previous
financial year has elapsed
Executives
the Managing Director and the other senior executives of
Abacus who are members of the KMP
Key Management Personnel or KMP
Security acquisition rights or SARs
those executives who for the purposes of the accounting
standards are considered to have authority and
responsibility for planning, directing and controlling the
major activities of Abacus, and includes the directors
SARs are awarded under the deferred security acquisition
rights plan. If a SAR vests, it will convert into ABP security
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 face value of an ABP security at around the time of
vesting
31
DIRECTORS’ REPORT
30 June 2017
ABACUS PROPERTY GROUP
Signed in accordance with a resolution of the directors.
Abacus Group Holdings Limited (ABN 31 080 604 619)
John Thame
Chairman
Sydney, 18 August 2017
Frank Wolf
Managing Director
32
33
CONSOLIDATED INCOME STATEMENT
YEAR ENDED 30 JUNE 2017
REVENUE
Rental income
Hotel income
Finance income
Fee Income
Sale of inventory
Total Revenue
OTHER INCOME
Net change in fair value of investment properties derecognised
Net change in fair value of investments and financial instruments derecognised
Net profit on sale of property, plant and equipment
Net change in fair value of investment properties and property, plant & equipment held at
balance date
Net change in fair value of derivatives
Share of profit from equity accounted investments
Other income
Total Revenue and Other Income
Property expenses and outgoings
Hotel expenses
Depreciation, amortisation and impairment expense
Cost of inventory sales
Net change in fair value of investments held at balance date
Impairment charges
Finance costs
Administrative and other expenses
PROFIT BEFORE TAX
Income tax (expense) / benefit
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
ABACUS PROPERTY GROUP
Notes
2017
$'000
2016
$'000
154,334 148,846
30,968 46,749
1
44,637 46,913
5,470 4,070
16,192 17,148
251,601 263,726
45,267 5,101
7,167 14,512
11,762 (92)
84,948 88,896
4,458 (8,057)
8(a)
54,273 30,543
3,956
-
463,432 394,629
(43,477) (40,864)
(23,415) (36,874)
3(a)
(2,481) (5,579)
(10,968) (16,573)
3(b)
(15,554)
95
- (38,922)
3(c)
3(d)
(35,826) (40,056)
(29,483) (27,448)
302,228 188,408
4(a)
(10,140)
1,684
292,088 190,092
66,005 23,396
157,181 95,098
5,189 7,462
3,391 4,047
13,395 16,420
39,936 39,463
285,097 185,886
6,991 4,206
292,088 190,092
Basic and diluted earnings per stapled security (cents)
2
49.91
33.51
34
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 30 JUNE 2017
ABACUS PROPERTY GROUP
NET PROFIT AFTER TAX
292,088 190,092
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified subsequently to the income statement
Revaluation of assets, nil tax effect
10,565 8,813
2017
$'000
2016
$'000
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 attributable to members of the Group analysed by amounts
attributable to:
AGHL members
AT members
AGPL members
AIT members
ASPT members
ASOL members
TOTAL COMPREHENSIVE INCOME AFTER TAX ATTRIBUTABLE
TO MEMBERS OF THE GROUP
(42)
2,662
302,611 201,567
291,414 193,858
11,197 7,709
302,611 201,567
72,364 28,706
157,181 95,098
5,189 7,462
3,391 4,047
13,353 18,942
39,936 39,603
291,414 193,858
35
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2017
ABACUS PROPERTY GROUP
CURRENT ASSETS
Investment properties held for sale
Inventory
Property loans
Cash and cash equivalents
Property, plant and equipment held for sale
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
Intangible assets and goodwill
TOTAL NON-CURRENT ASSETS
Notes
5
6(a)
7(a)
9
16
2017
$'000
2016
$'000
8,000 186,550
8,474 9,845
72,597 93,685
56,288 43,792
- 130,000
18,457 8,851
1,667
-
3,242 5,138
168,725 477,861
5
6(b)
7(b)
8
4(c)
16
7(c)
21
1,563,523 1,335,069
96,479 68,633
274,070 291,577
167,248 179,935
6,954 10,876
84,734 4,676
42,543 49,269
32,394 32,394
2,267,945 1,972,429
TOTAL ASSETS
2,436,670 2,450,290
CURRENT LIABILITIES
Trade and other payables
Interest-bearing loans and borrowings
Derivatives at fair value
Income tax payable
Other financial liabilities
Other
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Interest-bearing loans and borrowings
Derivatives at fair value
Deferred tax liabilities
Other
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
TOTAL EQUITY
27,865 26,167
11(a)
- 124,745
5,469 2,650
740 507
- 45,934
6,910 8,476
40,984 208,479
11(b)
549,184 631,323
16,814 37,591
4(c)
10,358 9,535
4,709 4,085
581,065 682,534
622,049 891,013
1,814,621 1,559,277
1,814,621 1,559,277
36
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)
AS AT 30 JUNE 2017
ABACUS PROPERTY GROUP
Equity attributable to members of AGHL:
Contributed equity
Reserves
Retained earnings
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
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
Retained earnings / (accumulated losses)
Total stapled security holders' interest in equity
Total external non-controlling interest
TOTAL EQUITY
Notes
2017
$'000
2016
$'000
344,284 332,074
18,373 12,793
72,899 6,894
435,556 351,761
935,977 905,159
(23,340) (104,318)
912,637 800,841
27,150 25,867
16,630 11,441
43,780 37,308
130,556 126,451
(80,300) (69,309)
50,256 57,142
122,535 115,441
2,148 2,230
(2,100) (8,285)
122,583 109,386
20,654 18,886
174 135
180,459 140,523
201,287 159,544
68,809 72,822
7,847 3,642
(28,134) (33,169)
48,522 43,295
1,814,621 1,559,277
13
1,581,156 1,523,878
20,695 15,158
164,248 (23,054)
1,766,099 1,515,982
48,522 43,295
1,814,621 1,559,277
37
CONSOLIDATED STATEMENT OF CASH FLOW
YEAR ENDED 30 JUNE 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Income receipts
Interest received
Distributions received
Income tax paid
Finance costs paid
Operating payments
Payments for land acquisitions
ABACUS PROPERTY GROUP
Notes
2017
$'000
2016
$'000
289,437 282,404
1,329 642
347 432
(2,944) (8,524)
(35,409) (38,694)
(102,757) (133,709)
(33,772) (11,016)
NET CASH FLOWS FROM OPERATING ACTIVITIES
9
116,231 91,535
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
(92,770) (186,867)
153,354 70,419
(1,100) (3,555)
72,698 3,768
(141,049) (158,637)
182,070 84,645
(2,124) (1,753)
NET CASH FLOWS FROM / (USED IN) INVESTING ACTIVITIES
171,079 (191,980)
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
17,550 7,498
(4,213) (234)
(1,436) (4,236)
(260,130) (43,107)
37,152 238,023
(63,767) (92,228)
NET CASH FLOWS (USED IN) / FROM FINANCING ACTIVITIES
(274,844)
105,716
NET INCREASE IN CASH AND CASH EQUIVALENTS
Net foreign exchange differences
Cash and cash equivalents at beginning of year
12,466 5,271
30 133
43,792 38,388
CASH AND CASH EQUIVALENTS AT END OF YEAR
9
56,288 43,792
38
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 30 JUNE 2017
ABACUS PROPERTY GROUP
CONSOLIDATED
Attributable to the stapled security holder
Asset
Foreign
Employee
External
Non-
Issued
revaluation
currency
equity
Retained
controlling
capital
$'000
reserve
translation
benefits
earnings
interest
$'000
$'000
$'000
$'000
$'000
Total
Equity
$'000
At 1 July 2016
Other comprehensive income
1,523,878 5,521 2,364 7,273 (23,054)
43,295
1,559,277
- 6,359 (42)
- - 4,206
10,523
Net income for the year
-
-
-
- 285,097 6,991
292,088
Total comprehensive income for
the year
Equity raisings
Return of capital
Issue costs
- 6,359 (42)
- 285,097 11,197
302,611
17,347
-
-
- - 203
17,550
-
-
-
- - (4,213) (4,213)
(104)
-
-
- -
- (104)
Distribution reinvestment plan
40,035
-
-
- -
- 40,035
Security acquisition rights
-
-
- (780)
-
- (780)
Distribution to security holders
-
-
-
- (97,795) (1,960) (99,755)
At 30 June 2017
1,581,156 11,880 2,322 6,493
164,248 48,522
1,814,621
CONSOLIDATED
Attributable to the stapled security holder
Asset
Foreign
Employee
External
Non-
Issued
revaluation
currency
equity Accumulated
controlling
capital
$'000
reserve
translation
benefits
$'000
$'000
$'000
Losses
$'000
interest
$'000
Total
Equity
$'000
At 1 July 2015
Other comprehensive income
1,514,015 211 (298)
7,659 (114,438)
30,979
1,438,128
- 5,310 2,662
- - 3,503
11,475
Net income for the year
-
-
-
- 185,886 4,206
190,092
Total comprehensive income for
the year
Equity raisings
Return of capital
Issue costs
- 5,310 2,662
- 185,886 7,709
201,567
-
-
-
- - 7,504
7,504
-
-
-
- - (234) (234)
(89)
-
-
- -
- (89)
Distribution reinvestment plan
9,952
-
-
- -
- 9,952
Security acquisition rights
-
-
- (386)
-
- (386)
Distribution to security holders
-
-
-
- (94,502) (2,663) (97,165)
At 30 June 2016
1,523,878 5,521 2,364 7,273 (23,054)
43,295
1,559,277
39
CONTENTS
30 JUNE 2017
ABACUS PROPERTY GROUP
Notes to
the financial
statements
About this report
Segment information
Page 41
Page 43
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. Parent entity
information
16. Property, plant
and equipment
2. Earnings per
6. Inventory
10. Capital
stapled security
management
3. Expenses
7. Property loans
and other
financial assets
11. Interest bearing
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
17. Commitments
and
contingencies
18. Related party
disclosures
19. Key
management
personnel
20. Security based
payments
21. Intangible
assets and
goodwill
22. Summary of
significant
accounting
policies
23. Auditors
remuneration
24. Events after
balance date
Page 97
Page 98
40
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS – About this Report
30 JUNE 2017
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 2017 was authorised for issue in accordance with a
resolution of the directors on 18 August 2017.
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 these 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 21.
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.
41
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS – About this Report (continued)
30 JUNE 2017
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 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 and property, plant and
equipment (Note 22(n)). 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 and property, plant and equipment 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.
42
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS – Segment Information
30 JUNE 2017
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 Investments: the segment is responsible for the investment in and ownership of commercial, retail,
industrial properties and self-storage facilities. This segment also includes the equity accounting of co-
investments in property entities not engaged in development and construction projects; and
(b) Property Development: 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.
Segment result includes transactions between operating segments which are then eliminated.
The Group has consolidated the Abacus Hospitality Fund, Abacus Diversified Income Fund II and Abacus
Wodonga Land Fund. The performances of these entities are operated as externally managed investment
schemes and are reviewed separately to that of the performance of the Group’s business segments. The
performances of the Abacus Hospitality Fund and Abacus Diversified Income Fund II are included in the non-core
segment.
* The operating segments reported by the Group have changed from the prior year. Accordingly, prior year comparatives have been restated
to reflect the change.
43
NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued)
30 JUNE 2017
ABACUS PROPERTY GROUP
Share of profit from equity accounted investments ^
33,557
- 20,716
Year ended 30 June 2017
Revenue
Rental income
Hotel income
Finance income
Fee income
Sale of inventory
Net change in fair value of investment properties derecognised
Net change in fair value of investments and financial instruments
derecognised
Net gain on sale of property, plant & equipment
Net change in investment properties and property, plant & equipment
held at balance date
Net change in fair value of derivatives
Other income
Other unallocated revenue
Total consolidated revenue
Property expenses and outgoings
Hotel expenses
Depreciation and amortisation expense
Cost of inventory sales
Impairment charges
Segment result
Net change in fair value of investments held at balance date
Finance costs
Profit before tax
Income tax expense
Net profit for the year
less non-controlling interest
Net profit for the year attributable to members of the Group
^ includes fair value gain of $0.7 million
Property Investments
Commercial
$'000
Storage
$'000
Core Segments
Property
Developments
Unallocated
$'000
$'000
Total Core
Segments
$'000
Non Core Segments
Other
$'000
Eliminations
Consolidated
$'000
$'000
75,334 69,687
9,298
- - - - - 30,968
- - 43,891
4
- 15 145,036
12,620
- - - 16,192
- 43,891
- - - 12,620
16,192
- - - 36,775
36,775
- 154,334
- 30,968
- 43,895
- (7,150)
5,470
- - 16,192
8,492
- 45,267
6,674
- - - 6,674
493
- 7,167
- - - - - 11,077
685
11,762
47,440 27,333
- - 74,773
10,175
- 84,948
- - - 4,317
2,402
- 1,051
- - - 375
4,317
- 54,273
- 3,453
375
214,802 97,020 65,658
(15,174) (25,939)
20,899 398,379
- (286) (41,399) (2,379)
- - - - - (23,415)
- (3) (2,281) (200)
(1,872) (406)
367
141
- 4,458
- - 54,273
825 (322)
3,956
- 742
71,840 (6,787) 463,432
301 (43,477)
- (23,415)
- (2,481)
- 2,516 (10,968)
- - - (13,484) (13,484)
- - (3,000)
3,000
- - - -
10,029 315,755
- (7,609) (97) (25,460) (1,452) (2,571) (29,483)
44,394 (6,541) 353,608
27,998 (15,554)
4,255 (35,826)
25,712 302,228
- (10,140)
25,712 292,088
- (6,991)
25,712 285,097
(15,537) (28,015)
(32,898) (7,183)
267,320
9,196
(7,863) (2,277)
259,457
6,919
(1,044) (5,947)
972
258,413
Administrative and other expenses
(17,754)
180,002 70,675 55,049
44
NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued)
30 JUNE 2017
ABACUS PROPERTY GROUP
Year ended 30 June 2016
Revenue
Rental income
Hotel income
Finance income
Fee income
Sale of inventory
Net change in fair value of investment properties derecognised
Net change in fair value of investments and financial instruments
derecognised
Net change in fair value of investments held at balance date
Net change in investment properties and property, plant & equipment
held at balance date
Share of profit from equity accounted investments ^
Other income
Other unallocated revenue
Total consolidated revenue
Property expenses and outgoings
Hotel expenses
Depreciation and amortisation expense
Cost of inventory sales
Net loss on sale of property, plant & equipment
Impairment charges
Administrative and other expenses
Segment result
Net change in fair value of derivatives
Finance costs
Profit before tax
Income tax benefit / (expense)
Net profit for the year
less non-controlling interest
Net profit for the year attributable to members of the Group
^ includes fair value loss of $11.6 million
Property Investments
Commercial
$'000
Storage
$'000
Core Segments
Property
Developments
Unallocated
$'000
$'000
Total Core
Segments
$'000
Non Core Segments
Other
$'000
Eliminations
Consolidated
$'000
$'000
69,602 61,343
- - 46,276
321
12,487
347
3,813
- 18 130,963
- - - 321
- 46,276
- - - 12,487
- 2,624
17,148
- - - 3,813
14,177
6
17,883
46,428
- 148,846
- 46,749
- 46,282
- (8,417)
4,070
- - 17,148
- 5,101
1,288
3,103
- 9,149
- 12,252
2,260
- 14,512
14
- - - 14
8,651 (8,570)
95
37,370 36,659
- - 74,029
14,867
- 88,896
25,312
- - - - - - - -
- - - 472
- 5,651 (420)
- - 30,543
30,543
152,369 98,002 63,700
(14,027) (23,050)
(1,483) (357)
(483)
(2,840)
(92)
(17,755)
- - (40,622)
115,689 74,595 16,355
472
159
- (2,284) (11,449) (16,573)
- - - (92)
1,700 (38,922)
14,247 328,318
- (368) (37,445) (3,910)
- - - (483) (36,391)
- (2) (1,842) (3,737)
- 631
91,542 (16,987) 402,873
491 (40,864)
- (36,874)
- (5,579)
- - (16,573)
- - (92)
- - (38,922)
- (4,439) (57) (22,251) (1,707) (3,490) (27,448)
45,797 (19,986) 236,521
- (8,057)
201
(8,258)
5,419 (40,056)
(31,340) (14,135)
31,863 (14,567) 188,408
171,112
- 1,684
2,232 (548)
31,315 (14,567) 190,092
173,344
- (4,206)
(1) (4,205)
27,110 (14,567) 185,886
173,343
4,071 210,710
45
NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued)
30 JUNE 2017
ABACUS PROPERTY GROUP
As at 30 June 2017
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Core Segments
Non Core Segments
Property
Property
Investment
Development
Unallocated
$'000
$'000
$'000
Total
$'000
Other
$'000
Eliminations
Consolidated
$'000
$'000
8,000 72,596 59,338
139,934 28,791
- 168,725
1,823,107
375,686 47,160
2,245,953 80,422 (58,430)
2,267,945
1,831,107
448,282
106,498
2,385,887
109,213 (58,430)
2,436,670
19,354 8,486 7,445 35,285 5,699
- 40,984
1,423 481
546,349
548,253 96,848 (64,036)
581,065
20,777 8,967
553,794
583,538
102,547 (64,036)
622,049
1,810,330
439,315 (447,296)
1,802,349 6,666 5,606
1,814,621
Total facilities - bank loans
Facilities used at reporting date - bank loans
Facilities unused at reporting date - bank loans
873,000
-
(513,691)
-
359,309
-
873,000
(513,691)
359,309
As at 30 June 2016
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
$'000
$'000
$'000
$'000
$'000
$'000
$'000
172,792 78,676 59,401
310,869
280,113 (113,121)
477,861
1,541,655
420,914 48,894
2,011,463
- (39,034)
1,972,429
1,714,447
499,590
108,295
2,322,332
280,113 (152,155)
2,450,290
62,825 4,580 1,476 68,881
248,119 (108,521)
208,479
1,263 316
701,034
702,613
- (20,079)
682,534
64,088 4,896
702,510
771,494
248,119 (128,600)
891,013
1,650,359
494,694 (594,215)
1,550,838 31,994 (23,555)
1,559,277
Total facilities - bank loans
Facilities used at reporting date - bank loans
Facilities unused at reporting date - bank loans
873,629
110,000
(629,406) (99,953)
244,223 10,047
983,629
(729,359)
254,270
46
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
1. REVENUE
Finance income
Interest and fee income on secured loans
Bank interest
Total finance income
2. EARNINGS PER STAPLED SECURITY
ABACUS PROPERTY GROUP
2017
$'000
2016
$'000
43,895 46,283
742 630
44,637 46,913
2017
2016
Basic and diluted earnings per stapled security (cents)
49.91
33.51
Reconciliation of earnings used in calculating earnings per stapled security
Basic and diluted earnings per stapled security
Net profit ($'000)
Weighted average number of shares:
Weighted average number of stapled securities for basic earning per security ('000)
285,097
185,886
571,204
554,703
3. EXPENSES
(a) Depreciation, amortisation and impairment expense
Depreciation and amortisation of property, plant and equipment and software
Amortisation - leasing costs
Total depreciation, amortisation and impairment expense
(b) Net change in fair value of investments held at balance date
Net change in fair value of property securities held at balance date
Net change in fair value of options held at balance date
Net change in fair value of other investments held at balance date
Total change in fair value of investments held at balance date
(c) Finance costs
Interest on loans
Amortisation of finance costs
Total finance costs
(d) Administrative and other expenses
Wages and salaries
Contributions to defined contribution plans
Other expenses
Total administrative and other expenses
2017
$'000
670
1,811
2,481
708
22,774
(7,928)
15,554
33,951
1,875
35,826
16,818
1,059
11,606
29,483
2016
$'000
4,256
1,323
5,579
-
2,966
(3,061)
(95)
38,045
2,011
40,056
13,477
1,011
12,960
27,448
47
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
4.
INCOME TAX
(a) Income tax expense
The major components of income tax expense are:
Income Statement
Current income tax
Current income tax charge / (benefit)
Adjustments in respect of current income tax of previous years
Deferred income tax
Relating to origination and reversal of temporary differences
Income tax expense / (benefit) reported in the income statement
ABACUS PROPERTY GROUP
2017
$'000
2016
$'000
10,851
1,209
(1,920)
10,140
(1,119)
(79)
(486)
(1,684)
(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
302,228
188,408
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
Unrecognised tax losses brought to account
Restructuring transactions
Other items (net)
Income tax expense / (benefit) reported in the income statement
89,176
833
(80,187)
9,822
1,209
(400)
-
(491)
10,140
55,917
565
(54,963)
1,519
(79)
-
(3,125)
1
(1,684)
48
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
4.
INCOME TAX (continued)
ABACUS PROPERTY GROUP
(c) Recognised deferred tax assets and liabilities
Deferred income tax at 30 June 2017 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
Other
Gross deferred income tax liabilities
Set off against deferred tax assets
Net deferred income tax liabilities
Deferred tax assets
Revaluation of investments and 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
Tax consolidation
2017
$'000
2016
$'000
8,540
-
1,080
4,948
14,568
(4,210)
10,358
6,451
1,500
2,929
(600)
682
202
11,164
(4,210)
6,954
8,097
832
1,016
1,668
11,613
(2,078)
9,535
1,418
1,500
1,951
-
7,308
777
12,954
(2,078)
10,876
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.
49
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
5.
INVESTMENT PROPERTIES
Leasehold investment properties 1
Freehold investment properties
Total investment properties
ABACUS PROPERTY GROUP
2017
2016
$'000
13,592 11,092
$'000
1,557,931 1,510,527
1,571,523 1,521,619
1. The carrying amount of the leasehold property is presented gross of the finance liability of $2.3 million (2016: $1.8 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
2017
$'000
2016
$'000
- 14,300
8,000 145,250
- 27,000
8,000 186,550
377,500 339,500
487,200 341,418
55,100 63,950
625,232 570,351
18,491 19,850
1,563,523 1,335,069
Total investment properties including held for sale
1,571,523 1,521,619
Reconciliation
A reconciliation of the carrying amount of investment properties at the beginning and end of the year is as follows.
All investment properties are classified as Level 3 in accordance with the fair value hierarchy outlined in Note
12(d):
Leasehold investment properties
Carrying amount at beginning of the financial year
Additions and capital expenditure
Net change in fair value as at balance date
Carrying amount at end of the year
Freehold investment properties
Carrying amount at beginning of the financial year
Additions and capital expenditure
Net change in fair value as at balance date
Net change in fair value derecognised
Disposals
Non-current
2017
2016
$'000
11,092 11,119
$'000
- 14
2,500 (41)
13,592 11,092
Held for sale
Non-current
2017
2016
2017
2016
$'000
186,550 51,047
$'000
$'000
1,323,977
$'000
1,305,982
890 21
141,896
175,504
224 777 82,223 77,927
41,929 1,901 3,337 3,200
(206,672) (52,446) (5,603) (60,968)
Effect of movements in foreign exchange
- - (164)
7,582
Transfer to inventory
Properties transferred to / from held for sale
Carrying amount at end of the year
- - (10,656)
-
(14,921)
185,250 14,921 (185,250)
8,000
186,550
1,549,931
1,323,977
50
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
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.
The adopted discount rate of a discounted cashflow 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 Director of Property
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.
Abacus*
The weighted average capitalisation rate for Abacus is 7.13% (2016: 7.47%) and for each significant category
above is as follows;
- Retail – 6.22% (2016: 6.69%)
- Office – 6.99% (2016: 7.21%)
-
Industrial – 8.42% (2016: 8.39%)
- Storage – 7.72% (2016: 7.98%)
The current occupancy rate for the principal portfolio excluding development and self-storage assets is 90.5%
(2016: 91.2%). The current occupancy rate for self-storage assets is 89.2% (2016: 85.9%).
During the year ended 30 June 2017, 44% (2016: 57%) of the number of investment properties in the portfolio
were subject to external valuations, the remaining 56% (2016: 43%) were subject to internal valuation.
* Excludes Abacus Hospitality Fund and Abacus Diversified Income Fund II
51
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
6.
INVENTORY
ABACUS PROPERTY GROUP
(a) Current
Hotel supplies
Projects1
- purchase consideration
- development costs
(b) Non-current
Projects1
- purchase consideration
- development costs
- provision
Total inventory
1.
Inventories are held at the lower of cost and net realisable value.
2017
$'000
2016
$'000
214 352
876 1,477
7,384 8,016
8,474 9,845
117,418 103,308
22,783 11,747
(43,722) (46,422)
96,479 68,633
104,953 78,478
52
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
7. PROPERTY LOANS AND OTHER FINANCIAL ASSETS
ABACUS PROPERTY GROUP
(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
Investment in securities and options - unlisted - fair value
Investments in debt instruments - unlisted - amortised cost2
Derivatives - projects - fair value
2017
$'000
2016
$'000
65,034 86,081
7,563 7,604
72,597 93,685
219,379 245,918
54,691 45,659
274,070 291,577
6,792 22,774
22,488 22,488
13,263 4,007
42,543 49,269
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 2018 and the non-current facilities will mature between 1 July 2018 and 22 December 2020.
2. Abacus has a 50% investment in a joint venture St Leonards JV Unit Trust held via preference shares.
53
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
8.
INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
(a) Extract from joint ventures’ profit and loss statements
Fordtrans Pty Ltd*
Other Joint Ventures
Total
Revenue
Expenses
2017
$'000
2016
$'000
9,646 20,516 478,590 140,896 488,236 161,412
2017
$'000
2016
$'000
2017
$'000
2016
$'000
(14,152) (6,854) (351,811) (89,026) (365,963) (95,880)
Net profit / (loss)
(4,506)
13,662 126,779 51,870 122,273 65,532
Share of net profit / (loss)
(2,253)
6,934 56,526 23,609 54,273 30,543
* Included in the net profit of Fordtrans Pty Ltd for the year ended 30 June 2017: interest income $1.9 million (2016: $1.6 million) and
interest expense $2.8 million (2016: $2.8 million).
(b) Extract from joint ventures’ balance sheets
Fordtrans Pty Ltd*
Other Joint Ventures
Total
2017
$'000
15,436
2016
$'000
2,971
2017
$'000
101,401
2016
$'000
26,728
2017
$'000
116,837
2016
$'000
29,699
Current assets
Non-current assets
183,031
204,798
666,721
752,004
849,752
956,802
198,467
207,769
768,122
778,732
966,589
986,501
Current liabilities
(3,265) (786) (83,167) (16,283) (86,432) (17,069)
Non-current liabilities
(64,800) (68,374) (406,812) (447,630) (471,612) (516,004)
Net assets
130,402
138,609
278,143
314,819
408,545
453,428
Share of net assets
65,201
74,511
102,047
105,424
167,248
179,935
* Included in the net assets of Fordtrans Pty Ltd as at 30 June 2017: cash and cash equivalents $0.7 million (2016: $2.4 million), current
interest bearing loans and borrowings $Nil (2016: $Nil) and non-current interest bearing loans and borrowings $64.8 million (2016: $68.4
million).
There were no impairment losses or contingent liabilities relating to the investment in the joint ventures.
1. 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 and cafe. 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 has received distributions for the year ended 30 June 2017 of $2.0 million (2016: $1.0 million).
54
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
9. CASH AND CASH EQUIVALENTS
ABACUS PROPERTY GROUP
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 2017
Cash at bank and in hand1
56,288
43,792
1. Cash at bank earns interest at floating rates. The carrying amounts of cash and cash equivalents represent fair value.
2017
$'000
2016
$'000
Net profit
Adjustments for:
Depreciation and amortisation of non-current assets
Impairment charges
Net change in fair value of derivatives
Net change in fair value of investment properties held at balance date
Net change in fair value of investments held at balance date
Net change in fair value of investment properties derecognised
Net change in fair value of investment and financial instruments derecognised
Net (gain) / loss on disposal of property, plant and equipment
Share of profit from equity accounted investments
Increase / (decrease) in payables
(Increase) / decrease in inventories
(Increase) / decrease in receivables and other assets
Net cash from operating activities
292,088
190,092
2,481
-
(4,458)
(84,948)
15,554
(45,267)
(7,167)
(11,762)
(54,273)
15,617
(22,043)
20,409
116,231
5,579
38,922
8,057
(88,896)
(95)
(5,101)
(14,512)
92
(30,543)
(7,320)
2,433
(7,173)
91,535
(a) Disclosure of financing facilities
Refer to Note 11.
(b) Disclosure of non-cash financing facilities
Non-cash financing activities include capital raised pursuant to the Abacus distribution reinvestment plan. During the year 13.35 million (2016:
3.4 million) stapled securities were issued with a cash equivalent of $40.0 million (2016: $9.95 million).
55
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
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 has a total gearing covenant as a condition of the current $480m Syndicated facility and the $54m
Bilateral facility. The total gearing covenant requires Abacus to have total liabilities (net of cash) to be less than or
equal to 50% of total tangible assets (net of cash). As at date of reporting period, Abacus was compliant in
meeting all its debt covenants.
Consolidated Funds
The Capital Management approach and strategies employed by the Group are also deployed for the funds ABP
manages and which are consolidated in these accounts – AHF and AWLF (or the Consolidated Funds).
Points unique to the capital management of these respective funds are:
- The Consolidated Funds via their responsible entities comply with capital and distribution requirements of
their constitutions and/or deeds, the capital requirements of relevant regulatory authorities and continue to
operate as going concerns; and
- There is currently no Distribution Reinvestment Plan for any of the Funds.
56
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
11. INTEREST BEARING LOANS AND BORROWINGS
ABACUS PROPERTY GROUP
Other
Current
Bank loans - A$
Other loans - A$
Less: Unamortised borrowing costs
(a) Total current
Abacus*
Non-current
Bank loans - A$
Bank loans - A$ value of NZ$ denominated loan
Other loans - A$
Less: Unamortised borrowing costs
(b) Total non-current
2017
$'000
2016
$'000
- 99,953
- 25,138
- (346)
- 124,745
2017
$'000
2016
$'000
440,657 556,296
73,033 73,110
37,426 4,292
(1,932) (2,375)
549,184 631,323
* Excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, 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
2017
$'000
2016
$'000
- 124,745
419,184 501,323
130,000 130,000
549,184 756,068
57
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
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 2018 to July 2022. The bank loans
are secured by charges over the investment properties, certain inventory and certain property, plant and
equipment.
Approximately 48.6% (2016: 53.2%) of bank debt drawn was subject to fixed rate hedges with a weighted
average term to maturity of 3.4 years (2016: 3.5 years). Hedge cover as a percentage of available facilities at 30
June 2017 is 28.6% (2016: 38.3%).
Abacus’ weighted average interest rate as at 30 June 2017 was 5.23% (2016: 5.39%). Line fees on undrawn
facilities contributed to 0.36% of the weighted average interest rate at 30 June 2017 (2016: 0.34%). Abacus’
weighted average interest rate excluding the undrawn facilities line fees as at 30 June 2017 was 4.87% (2016:
5.05%).
* Excludes Abacus Hospitality Fund and Abacus Diversified Income Fund II
(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
Inventory
Investment properties
Total non-current assets pledged as security
2017
$'000
2016
$'000
- 130,000
8,000 172,250
8,000 302,250
36,231
-
1,524,431 1,319,619
1,560,662 1,319,619
Total assets pledged as security
1,568,662 1,621,869
58
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
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 22
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 Developments 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;
-
-
-
-
- market analysis of the completed development being used to service drawdown.
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
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.
59
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
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
ABACUS PROPERTY GROUP
Carrying Amount
2017
2016
$'000
18,457 8,851
$'000
346,667 385,262
42,543 49,269
56,288 43,792
463,955 487,174
As at 30 June 2017, the Group had the following concentrations of credit risk:
- Secured property loans: a loan which represents 29% (2016: 23%) of the portfolio covers two large projects
at Riverlands and Camellia.
Secured property loans
The Group has a total investment of $346.7 million in secured property loans as at 30 June 2017 (2016: $385.3
million). Of these loans $64.5 million has been renewed / extended beyond the original term on commercial
terms (2016 $52.9 million).
In considering the impairment of loans, the Group undertakes 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 where no loans are past due and not impaired.
60
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
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.
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 2017
Liabilities
Trade and other payables
Carrying
Amount
Contractual
cash flows
1 Year or
less
Over 1 year
to 5 years
Over
5 years
$'000
$'000
$'000
$'000
$'000
27,865
27,865
27,865
- -
Interest bearing loans and borrowings incl derivatives#
571,467 655,906
32,704 493,132 130,070
Total liabilities
599,332 683,771
60,569 493,132 130,070
30 June 2016
Liabilities
Trade and other payables
Carrying
Amount
Contractual
cash flows
1 Year or
less
Over 1 year
to 5 years
Over
5 years
$'000
$'000
$'000
$'000
$'000
26,167
26,167
26,167
- -
Interest bearing loans and borrowings incl derivatives#
796,309 904,182 172,512 598,421 133,249
Other financial liabilities
Total liabilities
45,934
45,934
45,934
- -
868,410 976,283 244,613 598,421 133,249
# Carrying amount includes fair value of derivative liabilities. Contractual cash flows includes contracted debt and net swap payments using
prevailing forward rates
61
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
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.
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.
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 2017, after taking into account the effect of interest rate swaps, approximately 48.6% of the
Group’s drawn debt is subject to fixed rate hedges (2016: 53.2%). Hedge cover as a percentage of available
facilities at 30 June 2017 is 28.6% (2016: 38.3%).
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.
62
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
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 2017
Financial Assets
Cash and cash equivalents
Receivables
Secured loans
Derivatives
Floating
interest rate
Fixed interest
less than
1 year
Fixed interest
1 to 5 years
Fixed interest
over 5 years
Non interest
bearing
$'000
$'000
$'000
$'000
$'000
Total
$'000
27,638
- - - - 27,638
- - - - 17,531
17,531
- 93,148
253,518
- - 346,666
- - - - 1,667
1,667
Total financial assets
27,638
93,148
253,518
- 19,198 393,502
Weighted average interest rate*
1.60%
8.41%
11.27%
Financial liabilities
Interest bearing liabilities - bank
Interest bearing liabilities - other
Derivatives
Payables
513,691
- - - - 513,691
- - 11,525
- - 11,525
- - - - 22,283
22,283
- - - - 21,653
21,653
Total financial liabilities
513,691
- 11,525
- 43,936 569,152
Notional principal swap balance
maturities*
-
130,000
119,500
-
-
249,500
Weighted average interest rate on
drawn bank debt*
5.23%
30 June 2016
Financial Assets
Cash and cash equivalents
Receivables
Secured loans
Floating
interest rate
Fixed interest
less than
1 year
Fixed interest
1 to 5 years
Fixed interest
over 5 years
Non interest
bearing
$'000
$'000
$'000
$'000
$'000
Total
$'000
36,284
- - - - 36,284
- - - - 5,657
5,657
- 166,723
218,539
- - 385,262
Total financial assets
36,284
166,723
218,539
- 5,657 427,203
Weighted average interest rate*
1.85%
7.64%
13.15%
Financial liabilities
Interest bearing liabilities - bank
Interest bearing liabilities - other
Derivatives
Payables
629,406
- - - - 629,406
- - 4,292
- - 4,292
- - - - 37,591
37,591
- - - - 16,546
16,546
Total financial liabilities
629,406
- 4,292
- 54,137 687,835
Notional principal swap balance
maturities*
-
-
284,500
50,000
-
334,500
Weighted average interest rate on
drawn bank debt*
5.39%
calculated at 30 June
*
^ excludes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Wodonga Land Fund
63
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
12. FINANCIAL INSTRUMENTS (continued)
(c) Market Risk (continued)
Interest rate risk / Fair value interest rate risk (continued)
Other^
30 June 2017
Financial Assets
Cash and cash equivalents
Receivables
Total financial assets
Floating
interest rate
Fixed interest
less than
1 year
Fixed interest
1 to 5 years
Fixed interest
over 5 years
Non interest
bearing
$'000
$'000
$'000
$'000
$'000
Total
$'000
28,650
- - - - 28,650
- - - - 926
926
28,650
- - - 926
29,576
Weighted average interest rate*
1.60%
Financial liabilities
Payables
- - - - 6,212
6,212
Total financial liabilities
- - - - 6,212
6,212
30 June 2016
Financial Assets
Cash and cash equivalents
Receivables
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
7,505
- - - - 7,505
- - - - 3,197
3,197
7,505
- - - 3,197
10,702
Weighted average interest rate*
1.85%
Financial liabilities
Interest bearing liabilities - bank
Derivatives
Payables
99,767
- - - - 99,767
- - - - 2,650
2,650
- - - - 9,622
9,622
Total financial liabilities
99,767
- - - 12,272 112,039
Notional principal swap balance
maturities*
-
51,750
-
-
-
51,750
Weighted average interest rate on
drawn bank debt*
6.97%
* calculated at 30 June
^
Includes Abacus Hospitality Fund, Abacus Diversified Income Fund II, Abacus Wodonga Land Fund
64
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
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 2017
Financial assets
Financial liabilities
30 June 2016
Financial assets
Financial liabilities
AUD
Carrying amount
-1%
Floating
$'000
Profit
$'000
Equity
$'000
+1%
Profit
$'000
Equity
$'000
56,288 (562)
- 562
-
535,973 (3,828)
- 3,558
-
AUD
Carrying amount
-1%
Floating
$'000
Profit
$'000
Equity
$'000
+1%
Profit
$'000
Equity
$'000
43,792 (438)
- 438
-
796,308 (7,809)
- 7,361
-
The analysis for the interest rate sensitivity of financial liabilities includes derivatives.
65
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
12. FINANCIAL INSTRUMENTS (continued)
(d) Fair values
The fair value of the Group’s financial assets and liabilities are approximately equal to that of their carrying
values.
Class of assets /
liabilities
Investment properties
Fair value
hierarchy
Level 3
Valuation technique
Discounted Cash Flow ("DCF") and
Income capitalisation method
Inputs used to measure fair value
Adopted capitalisation rate
Optimal occupancy
Adopted discount rate
Property, plant and
equipment
Derivative - project
entitlement
Level 3
Income capitalisation method
Level 3
Residual cash flow analysis
Securities and options
- unlisted
Level 3
Pricing models
Derivative - financial
instruments
Level 2
DCF (adjusted for counterparty credit
worthiness)
Net market EBITDA
Optimal occupancy
Adopted capitalisation rate
Project cash flow forecast
Project payment priorities
Security price
Underlying net asset
Property valuations
Interest rates
Consumer Price Index ("CPI")
Volatility
Level 1
Level 2
Quoted prices (unadjusted) in active market for identical assets or liabilities;
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.
There were no transfers between Levels 1, 2 and 3 during the period.
Income capitalisation method
This method involves assessing the total net market income receivable from the property and
capitalising this in perpetuity to derive a capital value, with allowances for capital expenditure
reversions.
Discounted cash flow method
Under the DCF method, the fair value is estimated using explicit assumptions regarding the benefits
and liabilities of ownership over the assets’ or liabilities’ life including an exit or terminal value. The
DCF method involves the projection of a series of cash flows from the assets or liabilities. To this
projected cash flow series, an appropriate, market-derived discount rate is applied to establish the
present value of the cash flow stream associated with the assets or liabilities.
Residual cash flow analysis
The analysis takes into account the time value of money in a more detailed way than simply a
developer’s profit margin as it considers the timing of all costs and income associated with the project.
Pricing models – unlisted
securities
The fair value is determined by reference to the net assets which approximates fair value of the
underlying entities.
Pricing models – options
The fair value 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.
66
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
12. FINANCIAL INSTRUMENTS (continued)
(d) Fair values (continued)
The following table is a reconciliation of the movements in derivatives (projects), unlisted securities and options
classified as Level 3 for the year ended 30 June 2017.
Opening balance as at 30 June 2016
Fair value movement through the income statement
Additions
Closing balance as at 30 June 2017
Opening balance as at 30 June 2015
Fair value movement through the income statement
Redemptions / conversions / disposals
Closing balance as at 30 June 2016
Derivatives -
projects
$'000
Unlisted
securities/
options
$'000
Total
$'000
4,007 22,774
26,781
9,256 (23,482) (14,226)
- 7,500
7,500
13,263 6,792
20,055
Derivatives -
projects
Unlisted
securities/
options
Total
$'000
$'000
$'000
3,520 31,075
34,595
487 (3,013) (2,526)
- (5,288) (5,288)
4,007 22,774
26,781
Sensitivity of Level 3 – unlisted securities and options
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 $0.8 million (2016: $9.3 million) or
increase the fair value by $0.8 million (2016: $9.3 million).
13. CONTRIBUTED EQUITY
(a) Issued stapled securities
Stapled securities
Issue costs
Total contributed equity
(b) Movement in stapled securities on issue
At 30 June 2016
- equity raisings
- distribution reinvestment plan
- less transaction costs
Securities on issue at 30 June 2017
2017
2016
$'000
1,622,897 1,565,515
$'000
(41,741) (41,637)
1,581,156 1,523,878
Stapled securities
Number
Value
$'000
556,577 1,523,878
'000
5,642 17,347
13,351 40,035
- (104)
575,570 1,581,156
67
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
14. DISTRIBUTIONS PAID AND PROPOSED
ABACUS PROPERTY GROUP
Abacus
(a) Distributions paid during the year
2017
$'000
2016
$'000
June 2016 half: 8.50 cents per stapled security (2015: 8.50 cents)
December 2016 half: 8.75 cents per stapled security (2015: 8.50 cents)
47,309
47,011
50,486
47,491
(b) Distributions proposed and not recognised as a liability^
June 2017 half: 8.75 cents per stapled security (2016: 8.50 cents)
50,362
47,309
Distributions were paid from Abacus Trust, Abacus Income Trust and Abacus Storage PropertyTrust (which do not pay tax provided they
distribute all their taxable income) hence, there were no franking credits attached.
^ The final distribution of 8.75 cents per stapled security was declared on 3 July 2017. The distribution being paid on or around 31 August
2017 will be approximately $50.4 million. No provision for the distribution has been recognised in the balance sheet at 30 June 2017 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
Abacus
Franking credit balance
The amount of franking credits available for the subsequent financial year are:
Franking account balance as at the beginning of the financial year at 30% (2016: 30%)
Franking credits that will arise from the payment of income tax payable at the end of the financial
year
Franking account balance at the end of the financial year 30% (2016: 30%)
2017
$'000
2016
$'000
1,349 980
5,052
5,004
6,401
5,984
368 245
- 1,256
2017
$'000
2016
$'000
30,362
1,393
31,755
23,908
6,454
30,362
68
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
15. PARENT ENTITY FINANCIAL INFORMATION
ABACUS PROPERTY GROUP
Results of the parent entity
Loss for the year
Total comprehensive 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
Accumulated losses
Employee options reserve
Total equity
(a) Parent entity contingencies
2017
$'000
2016
$'000
(9,871) (4,028)
(9,871) (4,028)
1,512 482
336,195 339,008
146 240
62,566 66,691
273,629 272,317
347,011 335,050
(79,875) (70,004)
6,493 7,271
273,629 272,317
As at 30 June 2017, 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 $18.5 million
(30 June 2016: $27.5 million). No property security has been provided by the parent.
(b) Parent entity capital commitments
There are no capital commitments of the parent entity as at 30 June 2017 (2016: Nil).
69
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
16. PROPERTY, PLANT AND EQUIPMENT
The following table is a reconciliation of the movements of property, plant and equipment for the year ended 30
June 2017.
ABACUS PROPERTY GROUP
Property, plant and equipment held for sale
Current
Hotel properties1
Total current property, plant and equipment held for sale
Non-current
Hotel property1
Storage properties
Office equipment / furniture and fittings
Total non-current property, plant and equipment
2017
$'000
2016
$'000
- 130,000
- 130,000
80,000
-
4,226 4,051
508 625
84,734 4,676
Total property, plant and equipment including held for sale
84,734 134,676
1. Abacus Hospitality Fund sold 2 of its hotel properties during the year. The remaining property has been withdrawn from sale and
reclassified as non-current.
Land and buildings
At the beginning of the year net of accumulated depreciation
Additions
Fair value movement through the income statement
Fair value movement through comprehensive income
Disposal
Depreciation charge for the year
At the end of the year net of accumulated depreciation
Gross value
Accumulated depreciation
Net carrying amount at end of the year
Plant and equipment
Gross value
Accumulated depreciation
Net carrying amount at end of the year
2017
$'000
2016
$'000
121,411
107,480
99
-
12,282
(61,964)
-
71,828
81,139
(9,311)
71,828
31,546
(18,640)
12,906
630
8,513
8,812
(3,106)
(918)
121,411
137,106
(15,695)
121,411
42,526
(29,261)
13,265
Total
84,734
134,676
If property, plant and equipment was carried under the cost model, the carrying amount would be $62.7 million
(2016: $117.9 million).
70
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
16. PROPERTY, PLANT AND EQUIPMENT (continued)
The property, plant and equipment1 has been disclosed as held for sale which are measured at the lower of their
carrying amount and fair value less costs to sell.
ABACUS PROPERTY GROUP
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
- The weighted average capitalisation rate is 7.00% (2016: 7.83%)
- The current weighted average occupancy rate is 79% (2016: 77%)
Storage Properties
- The weighted average capitalisation rate is 7.72% (2016: 7.98%)
- The current weighted average occupancy rate is 88% (2016: 86%)
External valuations are conducted by qualified independent valuers who are appointed by the Director of Property
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.
1. Other than corporate property, plant and equipment
71
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
17. 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 five years with an option to
renew for another five years.
Future minimum rentals payable under non-cancellable operating leases as at 30 June 2017 are as follows:
Within one year
After one year but not more than five years
More than five years
2017
2016
$'000
1,030 1,026
$'000
3,227 523
1,163
-
5,420 1,549
(b) Operating lease commitments – Group as lessor
Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2017 are as follows:
Within one year
After one year but not more than five years
More than five years
2017
2016
$'000
72,465 67,721
$'000
163,080 165,477
76,649 68,773
312,194 301,971
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 2017 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
2017
$'000
2016
$'000
- 13,350
15,136 9,020
11,176 8,420
28,087 25,821
54,399 56,611
72
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
17. COMMITMENTS AND CONTINGENCIES
(c) Capital and other commitments (continued)
Contingent liabilities:
Within one year
- corporate guarantee
ABACUS PROPERTY GROUP
2017
$'000
18,712
18,712
2016
$'000
43,025
43,025
73
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
18. 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 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 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 Hobart Growth Trust
Abacus Group Projects Limited and its subsidiaries
Abacus Property Pty Ltd
Abacus Allara Street Trust*
Abacus Wasjig Holdings Pty Limited*
Abacus Repository Trust*
Abacus Ventures Trust*
* These entities are wholly owned by Abacus
equity interest
2017
%
2016
%
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
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
50
50
51
74
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
18. RELATED PARTY DISCLOSURES (continued)
(a) Subsidiaries (continued)
Entity
Abacus Trust and its subsidiaries:
Abacus 1769 Hume Highway Trust
Abacus AGIT Trust
Abacus Alderley Trust
Abacus Ashfield Mall Property 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 Jetstream Trust
Abacus Liverpool Plaza Trust
Abacus Lutwyche Trust
Abacus Macquarie Street 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 Short Street Trust
Abacus SP Fund
Abacus St Leonards Trust
Abacus Varsity Lakes Trust
Abacus Virginia Trust
Abacus Westpac House Trust
Abacus Westpac House No2 Trust
Abacus WTC Trust
Abacus 14 Martin Place Trust
Abacus 324 Queen Street Trust
Abacus 33 Queen Street Trust
Abacus 37 Epping Road Trust
Abacus 710 Collins Street Trust
444 Queen Street Trust
Lutwyche City Shopping Centre Unit Trust
Abacus Income Trust and its subsidiaries:
Abacus Eagle Farm Trust
Abacus Grant Street Trust
Abacus Independent Retail Property Trust
Abacus Retail Property Trust
Abacus Wollongong Property Trust
* These entities are wholly owned by Abacus
ABACUS PROPERTY GROUP
equity interest
2017
%
2016
%
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
100
100
100
100
75
100
100
75
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
-
75
100
-
75
100
100
75
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
18. RELATED PARTY DISCLOSURES (continued)
(a) Subsidiaries (continued)
ABACUS PROPERTY GROUP
Entity
Abacus Storage Operations Limited and its subsidiaries:
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
2017
%
2016
%
100
100
100
100
100
100
100
100
100
100
100
17
10
15
100
100
100
100
100
100
100
100
100
100
100
17
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).
30 June 2017
Abacus Hospitality Fund
30 June 2016
Abacus Hospitality Fund
Principal
place of
business
Australia
Australia
% held by
NCI
90
90
(Profit)/loss
allocated to
Accumulated
NCI
$'000
NCI
$'000
(7,821)
40,840
(4,204)
32,037
(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 19.
76
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
18. 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
Revenue received / receivable from joint ventures
Other transactions
Loan advanced to joint ventures
Loan repayments from joint ventures
Loan advanced from joint ventures
Terms and conditions of transactions
ABACUS PROPERTY GROUP
2017
$'000
2016
$'000
196 189
4,316 3,569
61,186 41,512
(12,019) (27,716)
18,161 57,345
762 498
Sales and fees to and purchases and fees charged from related parties are made in arm’s length transactions both at normal market prices
and on normal commercial terms.
Outstanding balances at year-end are unsecured and settlement occurs in cash.
No provision for doubtful debts has been recognised or bad debts incurred with respect to amounts payable or receivable from related parties
during the year.
Entity with significant influence
Calculator Australia Pty Ltd (“Kirsh”) is a significant securityholder in the Group with a holding of approximately
49% of the ordinary securities of the Group (2016: 49%).
During the year, Abacus Property Services Pty Ltd was engaged to manage the following properties:
Property
Relationship with Kirsh
Charge per annum
14 Martin Place
4 Martin Place
Tenants in common
100% owned by Kirsh
3% of gross rental
3% of gross rental
2017
$
195,782
177,492
2016
$
301,899
189,216
Mrs Myra Salkinder is a non-executive director of the Group and is a senior executive of Kirsh.
77
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
19. KEY MANAGEMENT PERSONNEL
(a) Compensation for key management personnel
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Security-based payments
ABACUS PROPERTY GROUP
2017
$
2016
$
5,413,023 5,410,648
203,688 226,398
61,662 68,625
1,090,281 1,148,758
6,768,654 6,854,429
(b) Loans to key management personnel
There were no loans to key management personnel and their related parties at any time in 2017 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 and investor relationships.
78
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
20. 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
2,062 1,983
2017
$'000
2016
$'000
(b) Type of security – based payment plan
Security Acquisition Rights (SARs)
The deferred variable incentive plan has been designed to align the interests of executives with those of
securityholders by providing for a significant portion of the remuneration of participating executives to be linked to
the delivery of sustainable underlying profit that covers the distribution level implicit in the Group’s security price.
Key executives have been allocated SARs in the current financial year generally equal to the last current variable
incentive paid. Allocations were based on the performance assessment completed in determining current
variable incentive awards for the prior financial year, adjusted to take into account other factors that the Board
considers specifically relevant to the purpose of providing deferred variable incentives.
The SARs granted during the year vest as follows:
Vesting date
Amount Vested*
Potential number to vest
September 2017
September 2018
September 2019
September 2020
One quarter of the initial issue
One quarter of the initial issue
One quarter of the initial issue
One quarter of the initial issue
216,273
216,273
216,273
216,273
* The Board is able to claw back unvested SARs if the distribution level fails by more than 10% below the sustainable annual distribution
rate
For valuation purposes the SARs are equivalent to European call options (in that they may be “exercised” only at
their maturity (i.e. vesting date)). The fair value of the SARs granted is estimated at the date of the grant using a
trinomial tree model (using 500 steps) cross checked by a modified Black-Scholes model. The trinomial tree
model and the Black-Scholes model generally produce the same values for an option over a non-dividend paying
share, or where the option is entitled to the same distributions as are paid on the underlying security, as is
assumed in this case, and if the time to exercise is the same, (i.e. at the end of the term).
When SARs vest they will convert into ABP securities on a one for one basis or at the Board’s discretion a cash
equivalent amount will be paid.
79
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
20. 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
Forfeited during the year
Vested during the year
Outstanding at the end of the year
Exercisable at the end of the year
ABACUS PROPERTY GROUP
2017
No.
2016
No.
2,111,757 1,945,236
865,092 825,228
(13,519)
-
(865,014) (658,707)
2,098,316 2,111,757
-
-
The weighted average remaining life of the instrument at 30 June 2017 was 1.2 years (2016: 1.2 years) and the
weighted average fair value of the SARs granted during the year was $2.38 (2016: $2.66).
The following table lists the inputs to the model used for the SARs plan for the years ended 30 June 2017 and 30
June 2016:
Expected volatility (%)
Risk-free interest rate (%)
Life of instrument (years)
Model used
2017
2016
18 21
1.41 - 1.68
1.91 - 2.18
0.8 - 3.8
Trinomial
0.8 - 3.8
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.
80
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
21. INTANGIBLE ASSETS AND GOODWILL
Description of the Group’s intangible assets
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
ABACUS PROPERTY GROUP
2017
$'000
2016
$'000
32,394 32,394
32,394 32,394
- 800
- (800)
-
-
Total goodwill and intangibles
32,394 32,394
Impairment tests for goodwill with indefinite useful lives
(i) Description of the cash generating units and other relevant information
Goodwill is allocated to a cash generating unit, where the Goodwill acquired through business combinations for
the purposes of impairment testing is allocated to the Groups Property Investments segment relating to the
property / asset management business. The recoverable amount of the unit has been determined based on a fair
value less costs to sell calculation using cash flow projections as at 30 June 2017 covering a five-year period.
(ii) Key assumptions used in valuation calculations
Goodwill – the calculation of fair value less costs to sell 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. Selling costs: management’s estimate of costs to sell the funds/properties under management
e. A pre-tax discount rate of 9.40% (2016: 9.40%) and a terminal growth rate of 2.7% (2016: 2.7%) have been
applied to the cash flow projections
(iii) 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 2017 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.
81
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Preparation
The financial report is a general-purpose financial report, which has been prepared in accordance with the
requirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has also
been prepared on a historical cost basis, except for investment properties and derivative financial instruments
which have been measured at fair value, interests in joint ventures and associates which are accounted for using
the equity method, and certain investments and financial assets measured at fair value.
The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars
($'000) unless otherwise stated under the option available to the Group under ASIC Corporations Instrument
2016/191. 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 for the adoption of
new standards and interpretations effective as of 1 July 2016.
The Group has adopted the following new or amended standards which became applicable on 1 July 2016:
- AASB 2014-3 – Accounting for Acquisitions of Interests in Joint Ventures
- AASB 2014-4 – Clarification of Acceptable Methods of Depreciation and Amortisation
- AASB 1057 – Application of Accounting Standards
- AASB 2014-9 – Equity Method in Separate Financial Statements
- AASB 2015-1 – Annual Improvements to Australian Accounting Standards 2012-2014 Cycle
- AASB 2015-2 – Disclosure Initiative: Amendments for AASB 101 Presentation of Financial Statements
- AASB 2015-5 – Investments Entities: applying the consolidation exception
- AASB 2015-9 – Scope and Application Paragraphs (AASB 8, AASB 133 and AASB 1057)
The adoption of these amended standards has no material impact on the financial statements of the Group.
(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 2017. The
significant new standards or amendments 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 Standard contains requirements in the areas of classification, measurement, hedge
accounting and derecognition.
The most significant change for the adoption of AASB 9 will be the introduction of the new impairment model
relating to the Group’s property loans. It is likely that the Group will recognise an impairment loss upon initial
application of the new credit loss model.
As it is the first-time application of the Standard, the Group will adjust the retained earnings of the Group as
at 1 July 2018 as opposed to restating the previous year amounts.
82
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(c) New accounting standards and interpretations (continued)
- Revenue from Contracts with Customers (effective 1 January 2018 / applicable for Group 1 July 2018)
AASB15 replaces the current revenue recognition standards AASB 111 Construction Contracts, AASB 118
Revenue and related Interpretations.
AASB 15 specifies the accounting treatment for revenue arising from contracts with customers (except for
contracts within the scope of other accounting standards such as leases or financial instruments). 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.
Early adoption of this Standard is permitted.
The Group has undertaken an analysis to scope out its revenue streams to identify specific impacts of the
Standard. The revenue streams identified are:
- Rental / hotel income
-
Finance income
-
Fee income
-
Sale of inventory
The majority of the Group’s revenue streams have application under other relevant standards and therefore,
application of AASB 15 does not apply (rental income, finance income). Where the Standard does apply, the
Group has assessed that there will be no change to the recognition or measurement of revenue upon
application of the Standard or has considered that the impact to the Group’s results to be immaterial.
-
Leases (effective 1 January 2019 / applicable for Group 1 July 2019)
AASB 16 supersedes: AASB 117 Leases and associated interpretations.
The key features of AASB 16 are as follows:
Lessee accounting
-
Lessees are required to recognise assets and liabilities for all leases with a term of more than 12
months, unless the underlying asset of low value
- A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities
similarly to other financial liabilities
- Assets and liabilities arising from a lease are initially measured on a present value basis. The
measurement includes non-cancellable lease payments (including inflation-linked payments), and
also includes payments to be made in optional periods if the lessee is reasonably certain to exercise
an option to extend the lease, or not to exercise an option to terminate the lease
- AASB 16 contains disclosure requirements for lessees
Lessor accounting
- AASB 16 substantially carries forward the lessor accounting requirements in AASB 117.
Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to
account for those two types of leases differently
- AABB 16 also requires enhanced disclosures to be provided by lessors that will improve information
disclosed about a lessor’s risk exposure, particularly to residual value risk
Early adoption is permitted, provided the new revenue standard, AASB15 Revenue from Contracts with
Customers, has been applied, or is applied at the same date as AASB 16.
The Group has entered into a Net Lease Proposal and upon execution of the Lease Agreement, the Group
will review the terms and consider its impact.
83
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(c) New accounting standards and interpretations (continued)
AASB 2016-1, AASB 2016-2, AASB 2014-10, AASB 2016-5 and IFRIC 23 are applicable to the Group, however
will have no significant impact on the Group.
AASB 2016-4, AASB 2017-2, AASB 2016-6 AASB 2017-1, AASB interpretation 22, AASB 2016-8 and AASB 17
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 resulted in the consolidation of Abacus Hospitality Fund, Abacus Diversified Income
Fund II and 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 Wodonga Land
Fund, Abacus Jigsaw Trust, Lutwyche City Shopping Centre Unit 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.
84
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(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 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.
Fee Income
Revenue from rendering of services is recognised in accordance with the terms and conditions of the service
agreements and the accounting standards.
85
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(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 short-term deposits with
an original maturity of three months or less that are readily convertible to known amounts of cash which are
subject to an insignificant risk of changes in value.
For the purposes of the Statement of Cash Flow, cash and cash equivalents consist of cash and cash equivalents
as defined above.
(i) Trade and other receivables
Trade receivables, which generally have 30 day terms, are recognised at amortised cost, which in the case of the
Group, is the original invoice amount less an allowance for any uncollectible amounts.
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.
86
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(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 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.
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.
87
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(l)
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.
(m) Property, plant and equipment
Hotel property, plant and equipment
Property (including land and buildings), plant and equipment represent owner-occupied properties and are initially
measured at cost including transaction costs and acquisition costs. Subsequent to initial recognition, properties
are measured at fair value less accumulated depreciation and any impairment in value after the date of
revaluation.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Buildings – 50 years
Plant and equipment – 3 to 20 years
Revaluations of land and buildings
Any revaluation increment is credited to the asset revaluation reserve included in the equity section of the balance
sheet except to the extent that it reverses a revaluation decrease of the same asset previously recognised in
profit or loss, in which case the increase is recognised in profit or loss.
Any revaluation decrease is recognised in profit or loss except to the extent that it offsets a previous revaluation
increase for the same asset in which case the decrease is debited directly to the asset revaluation reserve to the
extent of the credit balance existing in the revaluation reserve for that asset.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are
included in the income statement.
Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amounts of the
assets and the net amounts are restated to the revalued amounts of the assets.
Hotel property, plant and equipment are independently valued on an annual basis unless the underlying financing
requires a more frequent independent valuation cycle.
Other property, plant and equipment
Land and buildings are measured at fair value, based on periodic valuations by external independent valuers, less
accumulated depreciation on buildings and less any impairment losses recognised after the date of the
revaluation.
Plant and equipment is stated at historical cost less accumulated depreciation and any impairment losses.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Buildings – 40 years
Plant and equipment – over 5 to 15 years
88
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(m) Property, plant and equipment (continued)
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.
(n)
Investment properties
Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the
cost of replacing parts of an existing investment property at the time that the cost is incurred if the recognition
criteria are met, and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial
recognition, investment properties are stated at fair value, which reflects market and property specific conditions
at the balance sheet date. Gains or losses arising from changes in the fair values of investment properties are
recognised in the income statement in the year in which they arise.
Investment properties are derecognised either when they have been disposed of or when the investment property
is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or
losses on the retirement or disposal of an investment property are recognised in the income statement in the year
of retirement or disposal.
Investment properties under construction are carried at fair value. Fair value is calculated based on estimated fair
value on completion after allowing for the remaining expected costs of completion plus an appropriate risk
adjusted development margin.
Transfers are made to investment property when, and only when, there is a change in use, evidenced by
commencement of an operating lease to another party or ending of construction or development. Transfers are
made from investment property when, and only when, there is a change in use, evidenced by commencement of
development with a view to sale.
For a transfer from investment property to inventories, the deemed cost of property for subsequent accounting is
its fair value at the date of change in use. For a transfer from inventories to investment property, any difference
between the fair value of the property at that date and its previous carrying amount is recognised in profit or loss.
Land and buildings that meet the definition of investment property are considered to have the function of an
investment and are therefore regarded as a composite asset, the overall value of which is influenced by many
factors, the most prominent being income yield, rather than diminution in value of the building content due to the
passing of time. Accordingly, the buildings and all components thereof, including integral plant and equipment,
are not depreciated.
89
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(n)
Investment properties (continued)
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.
(o) 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.
(p) Goodwill and intangibles
Goodwill
Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over
the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following
initial recognition, goodwill is measured at cost less any accumulated impairment losses and is not amortised.
Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate
that the carrying value may be impaired.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date,
allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to
benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are
assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:
- Represents the lowest level within the Group at which the goodwill is monitored for internal management
-
purposes; and
Is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format
determined in accordance with AASB 8 Operating Segments.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-
generating units), to which the goodwill relates. When the recoverable amount of the cash-generating unit (group
of cash-generating units) is less that the carrying amount, an impairment loss is recognised. When goodwill
forms part of a cash-generating unit (group of cash-generating units) and an operation within that unit is disposed
of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation
when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured
based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
Impairment losses recognised for goodwill are not subsequently reversed.
90
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(q)
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.
(r) 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.
(s) Provisions and employee leave benefits
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past
event and it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle
the present obligation at the balance sheet date. If the effect of the time value of money is material, provisions
are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the
liability. The increase in the provision resulting from the passage of time is recognised in finance costs.
Employee leave benefits
(i) Wages, salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave
expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up
to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled.
Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates
paid or payable.
ii) Long service leave
The liability for long service leave is recognised and measured as the present value of expected future payments
to be made in respect of services provided by employees up to the reporting date using the projected unit credit
method. Consideration is given to expected future wage and salary levels, experience of employee departures,
and periods of service. Expected future payments are discounted using market yields at the reporting date on
national government bonds with terms to maturity and currencies that match, as closely as possible, the
estimated future cash outflows.
(t) 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.
91
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(u)
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 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.
(v) 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.
(w) 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 22(n).
Gains and losses from revaluations on initial classification and subsequent re-measurement are recognised in the
income statement.
(x)
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.
92
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(y) 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 and ADIFII are not liable to Australian
income tax provided security holders are presently entitled to the taxable income of the trusts and the trusts
generally distribute their taxable income.
Company income tax
AGHL and its Australian resident wholly-owned subsidiaries, ASOL and its Australian resident wholly-owned
subsidiaries and AHL and its Australian resident wholly-owned subsidiaries have formed separate tax
consolidation groups. AGHL, ASOL and AHL have entered into tax funding agreements with their Australian
resident wholly-owned subsidiaries, so that each subsidiary agrees to pay or receive its share of the allocated tax
at the current tax rate.
The head tax entity and the controlled entities in each tax consolidated group continue to account for their own
current and deferred tax amounts.
In addition to its own current and deferred tax amounts, the head tax entity also recognises the current tax
liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed
from controlled entities in the tax consolidated group.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as
amounts receivable from or payable to other entities in the group.
Any difference between the amounts assumed and amounts receivable or payable under the tax funding
agreements are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be
recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are
those that are enacted or substantively enacted by the balance sheet date.
Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax
assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be
utilised, except:
- when the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; or
- when the deductible temporary differences associated with investments in subsidiaries, associates and
interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable profit will be available against which
the temporary differences can be utilised.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred
income tax asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the
extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of
assets and liabilities and their carrying amounts for financial reporting purposes.
93
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(y) Taxation (continued)
Deferred income tax liabilities are recognised for all taxable temporary differences, except:
- when the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; or
- when the taxable temporary differences associated with investments in subsidiaries, associates and interests
in joint ventures, and the timing of the reversal of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year
when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in the income
statement.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity
and the same taxation authority.
New Zealand
The trusts that operate in New Zealand (“NZ”) are treated as a company for NZ income tax purposes and are
taxed at the corporate tax rate of 28% (2016: 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% (2016: 28%).
Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST except when the GST incurred on a
purchase of goods and services is not recoverable from the taxation authority, in which case the GST is
recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables
or payables in the balance sheet.
Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows
arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are
classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the
taxation authority.
94
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(z) 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.
(za) 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 20).
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.
95
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2017
23. AUDITOR’S REMUNERATION
ABACUS PROPERTY GROUP
2017
$
2016
$
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
1,104,110 1,090,930
- Other services in relation to the entity and any other entity in the consolidated group
- assurance services
- compliance services
116,420 101,835
37,150 35,800
1,257,680 1,228,565
24. 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.
96
DIRECTORS’ DECLARATION
ABACUS PROPERTY GROUP
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 2017 and of their performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including Australian Accounting
Interpretations) and the Corporations Regulations 2001;
b.
c.
the financial report also complies with International Financial Reporting Standards as disclosed in
Note 22(b); and
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 2017.
On behalf of the Board
John Thame
Chairman
Sydney, 18 August 2017
Frank Wolf
Managing Director
97
98
99
100
101
102
103
104
105
Abacus Property Group
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 18 August 2017 and has been approved by the boards of AGHL,
AFML (the Responsible Entity of AT and AIT), AGPL, ASFML (the Responsible Entity of ASPT)
and ASOL (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.
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Corporate Governance Report
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.
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
Abacus is a ‘relevant employer’ under the Workplace Gender Equality Act. Abacus continues to
meet the reporting obligations under that legislation.
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 18 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 16.
The Chairman of the committee is independent.
The Nomination and Remuneration Committee Charter is available on the Abacus website.
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Corporate Governance Report
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 15.
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.
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Corporate Governance Report
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 15.
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 15.
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.
Principle 4: Safeguard integrity in corporate reporting
Recommendation 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 16.
Details of the skills, experience and expertise of each member of the committee are set out on
page 15. Other directors who are not members of the committee, the external auditor and other
senior executives attend meetings by invitation.
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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
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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.
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 16.
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 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.
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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 16.
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.
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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 4 August 2017.
Number of holders of ordinary fully paid stapled securities
6,789
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
427
Rob Baulderstone
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
(02) 9290 9600
Other stock exchanges on which Abacus Property Group securities are quoted
none
Number and class of restricted securities or securities
subject to voluntary escrow that are on issue
none
There is no current on-market buy-back
SUBSTANTIAL SECURITYHOLDER NOTIFICATIONS
Securityholders
Calculator Australia Pty Limited
Investor Mutual Limited
Number of Securities
252,981,605
29,523,171
113
SECURITIES REGISTER
Number of Securities
Number of Securityholders
Total Securities
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001-over
Totals
1,245
2,403
1,443
1,625
73
6,789
470,678
6,878,320
10,488,062
35,925,093
521,808,215
575,570,368
TOP 20 LARGEST SECURITYHOLDINGS
Holder Name
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES
J P MORGAN NOMINEES AUSTRALIA
Number of
Securities
% Issued
Securities
190,498,670
33.097%
96,089,134
16.695%
58,054,301
10.086%
CALCULATOR AUSTRALIA PTY LIMITED
57,750,613
10.034%
CALCULATOR AUSTRALIA PTY LIMITED
NATIONAL NOMINEES LIMITED
CALCULATOR AUSTRALIA PTY LIMITED
CITIGROUP NOMINESS PTY LIMITED
BNP PARIBAS NOMINEES PTY LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
BAINPRO NOMINEES PTY LIMITED
POWERWRAP LIMITED
BNP PARIBAS NOMS (NZ) LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
AMP LIFE LIMITED
MR FRANK MICHAEL WOLF
45,547,846
20,420,010
14,200,000
6,632,379
5,980,723
3,692,141
3,007,000
1,455,607
1,337,711
1,279,360
1,096,854
1,023,775
798,507
776,424
698,541
665,643
7.914%
3.548%
2.467%
1.152%
1.039%
0.641%
0.522%
0.253%
0.232%
0.222%
0.191%
0.178%
0.139%
0.135%
0.121%
0.116%
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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