A b a c u s
P r o p e r t y
G r o u p
ANNUAL FINANCIAL REPORT 2018
ABACUS PROPERTY GROUP
ANNUAL FINANCIAL REPORT
30 June 2018
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
Steven Sewell, Managing Director
William Bartlett
Jingmin Qian
Myra Salkinder
Peter Spira
Abacus Funds Management Limited
ABN: 66 007 415 590
Company Secretary:
Robert 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
34
35
36
37
39
40
42
95
96
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 2018. 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.
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ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
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 2018.
IN MEMORIAM
In April 2018, Dr Frank Wolf, Abacus Property Group’s co-founder and Managing Director for the last 12 years
died following a short battle with cancer. Abacus Property Group, led by Frank, became well known as a strong
Value Add/Core Plus investor in real estate. Frank’s expertise over 30 years of experience was able to see the
value in assets that most could not or were unable to extract. The Group was known for delivering strategies to
unlock and crystallise capital growth over the short, medium and long periods of time and was often an early
mover into sectors or geographies of the real estate market, uncovering value in asset classes as they became
more institutionalised including retirement, aged care and particularly self-storage.
Early in his career, Frank graduated from The University of British Columbia, with a doctorate in accounting whilst
considering a life in academia. Frank ultimately entered the corporate world becoming a partner of Touche Ross
& Co and later senior management roles throughout the insurance and financial advisory industries. During this
time Frank had been instrumental in over $5 billion of property related and corporate acquisitions and divestments
within the retail, commercial, industrial and hospitality sectors in Australia, New Zealand and the United States.
Outside of his professional life, Frank was meaningfully involved in multiple philanthropic activities, particularly as
a major donor and strong advocate of the Jewish community. Frank was heavily involved in multiple charities,
most notably with the Jewish Community Appeal where, since 2005, he chaired a number of important
committees and was an integral member of the charities executive team.
Frank brought to Abacus his incredible work-ethic, energy and a willingness to give anyone with an idea an
opportunity to succeed. He had a wicked sense of humour. Frank was extremely humble yet very generous. He
was 64 years of age when he died.
MANAGING DIRECTOR SUCCESSION
As announced by the Group in January 2018, Mr Steven Sewell was appointed Managing Director elect. Mr
Sewell was appointed to the role of Managing Director and to the Board upon Dr Wolf’s passing in April 2018.
PRINCIPAL ACTIVITIES
The principal activities of Abacus Property Group are investment in self-storage, office, retail and industrial
properties, participation in property and residential developments and property funds management. The retail
funds management activities continued to be substantially reduced during the year as the Abacus Hospitality
Fund and the Abacus Wodonga Land Fund are managed through to wind up in the short to medium term.
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 $2.18 billion at 30 June 2018.
Shares in AGHL, AGPL and ASOL and units in AT, AIT and ASPT have been stapled together so that none can
be dealt 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
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ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
OPERATING AND FINANCIAL REVIEW (continued)
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 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.
AGHL has been identified as the parent entity of the Group. The financial reports of the Group for the year ended
30 June 2018 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 and Abacus
Wodonga Land Fund.
The principal activities of Abacus that contributed to its earnings during the year ended 30 June 2018 included:
•
investment in self-storage, office, retail and industrial properties to derive rental and management and other
fee income; and
• participation in property and residential developments to derive interest income and development profits.
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.
OUR STRATEGY
Abacus’ overarching strategy has been to invest our capital in assets with value add opportunities that are
forecast 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 can provide 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, track record and market positioning.
• We invest in core and core plus property investments that are expected to yield an appropriate risk adjusted
return over time.
• We drive value through active management of the asset portfolio.
We have a successful track record of acquiring property based assets and actively managing those assets to
enhance income and capital growth. Our track record has facilitated joint ventures with a number of sophisticated
local and global third party capital providers. Our assets are mostly in major city centres or suburban areas,
typically on the eastern seaboard of Australia.
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.
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DIRECTORS’ REPORT
30 June 2018
OPERATING AND FINANCIAL REVIEW (continued)
ABACUS PROPERTY GROUP
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
2018
307.9
473.7
243.7
183.3
31.73
194.3
33.53
18.00
8.7x
577.8
2017
251.6
463.4
285.1
186.8
32.71
116.2
20.35
17.50
7.4x
571.2
The Group earned a statutory net profit excluding non-controlling interests of $243.7 million for the year ended 30
June 2018 (2017: $285.1 million). This profit has been calculated in accordance with Australian Accounting
Standards. It includes certain significant items that need adjustment to enable securityholders to obtain an
understanding of Abacus’ underlying profit of $183.3 million, a 2% decrease on the 2017 underlying profit of
$186.8 million.
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ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
OPERATING AND FINANCIAL REVIEW (continued)
GROUP RESULTS SUMMARY (continued)
The underlying profit reflects the statutory profit as adjusted 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 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 have not been reviewed or audited by the Group’s
auditor.
Consolidated statutory net profit after tax attributable to members of the Group
add back: Consolidated 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
Net tax 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
2018
2017
$'000
243,709
$'000
285,097
1,169 (27,165)
257,932
244,878
(60,724) (74,773)
6,363
10,677
(730) (4,317)
(4,635) (718)
(1,831) (1,999)
183,321
186,802
2018
42.18
2017
49.91
31.73
32.71
18.00
17.50
577.8
571.2
During the 12 months to 30 June 2018 the real estate markets across Australia continued to see historically low
interest rates as the RBA maintained the cash rate at 1.5% while the forward guidance is for an ultimate increase
in the cash rate. This outlook continues to support Australia as an appealing real estate market to global capital
seeking high quality assets with attractive yields in a global low yield environment. These conditions saw further
cap rate compression across the majority of sectors of the market from traditional asset classes lead by the
highest quality of office, retail and industrial through to alternative asset classes of self-storage, healthcare
facilities, manufactured homes and hotels/pubs. A strong leasing market, particularly in Sydney and Melbourne
office markets and general industrial markets during the year also contributed to the attractiveness of real estate
assets to domestic and global investors. Increased merger and acquisition activity in the listed real estate
markets has also intensified valuations and interest in direct real estate markets. The strength of the market
continues despite a backdrop of economic uncertainty and disparate economic activity throughout Australian
States.
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ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
OPERATING AND FINANCIAL REVIEW (continued)
GROUP RESULTS SUMMARY (continued)
The office markets across the eastern seaboard, in particular Sydney and Melbourne have remained very strong
delivering exceptional growth in net effective rents and strong valuation growth. The strong markets in Sydney are
anticipated to continue as supply continues to remain limited for the next few years. The Melbourne office market
is expected to see an elevated level of supply over this same time period however absorption is also expected to
remain strong keeping vacancy rates low and provide upward pressure of rents. The Abacus office portfolio is
approximately 64% located within these markets.
The self-storage markets across Australia and New Zealand continue to experience the impacts from several
attempts to consolidate the sector. Following the recent institutionalisation of the market as investors increased
their awareness of self-storage as a viable asset class resulted in several participants investing heavily into the
sector looking to increase their market share of the self-storage sector. This increased transactional activity and
heightened interest has continued to deliver strong capitalisation rate compression across the sector. It is
anticipated this strong market will continue as this alternative asset class benefits from higher passing yields than
high quality assets in more traditional sectors.
Australian retail sales grew modestly during the year with the eastern states leading the way as employment
growth continues to be stimulated by government and infrastructure investment across these states. A bifurcation
in the retail environment is occurring with high quality assets continuing to be well bid for by the investment
market keeping valuations strong in these classes. Super regional assets providing a full experiential shopping
offer that dominate their region remain sought after by domestic and international listed and unlisted institutions.
Neighbourhood and select sub-regional assets that offer a strong food and service-based tenant offering with
limited exposure to tenants exposed to discretionary spending remain in favour with high net worth and listed
investors.
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.
During FY18 Abacus continued to focus our investment capital on acquisitions across the self-storage and office
sectors in line with our capital allocation strategy as we believed they represented the best risk adjusted returns
over the investment period. This activity was and will continue to be funded via reduction in retail investment and
the realisation of our residential developments over the coming years. This strategy is focussed on growing the
contribution to recurring earnings to fund the Group’s targeted distribution growth of 2-3% pa.
Abacus had an active year in FY18 adding assets to the office portfolio, largely on the back of our city fringe
investment thematic that focuses on assets in the fringes of the CBD. As a result, we acquired a number of
assets including 187 Todd Road in Port Melbourne for $43.5m, 452 Johnston Street in Abbotsford for $93.5m, a
50% interest in 464 St Kilda Road in St Kilda for $47.7m all within the Melbourne city fringe. We also acquired two
CBD fringe assets in Sydney - 11 Bowden Street in Alexandria for $48.9m and 63 Ann Street in Surry Hills for
$27.5m. All these assets illustrate strong long-term growth prospects, providing access to stable and growing
cash flows from high quality tenants and improving rental rate outlook as inner suburban areas continue to
undergo gentrification and elevated levels of infrastructure spend.
Abacus continued to utilise our third party capital platform with the introduction of a new investment partner, Wing
Tai on the 464 St Kilda Road acquisition (50/50 respective ownership percentages as tenants in common).
Abacus also acquired two self-storage and industrial assets for $10 million which we intend to convert into self-
storage facilities.
The residential markets in Australia also encountered strong bifurcation of markets with Melbourne and Sydney
markets weathering some of the impacts that have slowed other residential markets around Australia. Pockets of
oversupply in Brisbane combined with a reduction in the availability of financing for investors, particularly offshore
investors, has slowed settlement and sales rates, increased settlement timeframes and in some cases increased
the number of defaults. During the 12 months to 30 June 2018, even in spite of Abacus’ experiences matching
those of the general market, the Group has managed to deliver several good results across its residential
developments business. The decrease in the Group’s statutory net profit excluding non-controlling interests was
principally due to lower net change in fair value of investment properties and lower fair value derecognised from
divestments in the commercial property investment portfolio.
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ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
OPERATING AND FINANCIAL REVIEW (continued)
GROUP RESULTS SUMMARY (continued)
The reconciliation between the Group’s statutory profit excluding non-controlling interests, Abacus’ underlying
profit and funds from operation (“FFO”) is below. This reconciliation and the FFO has not been reviewed or
audited by the Group’s auditor.
Abacus funds from operations ("FFO")
Adjust for:
Net change in fair value of investment properties derecognised
Reversal of impairment of inventory
Depreciation on owner occupied property, plant and equipment
Amortisation of rent abatement incentives
Amortisation of other tenant incentives
Tax benefit on Non-FFO Items
Underlying profit attributable to Abacus securityholders
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
Net tax expense on significant items
2018
2017
$'000
169,790
$'000
156,440
15,265
36,775
2,660 (3,000)
(1,090) (667)
(1,981) (1,335)
(1,646) (1,611)
323
200
183,321
186,802
60,724
74,773
(6,363) (10,677)
730
4,635
4,317
718
1,831
1,999
Consolidated profits relating to the managed funds (these profits are excluded as the profits of the
managed funds cannot and do not form part of the assessable and distributable income of Abacus)
Consolidated statutory net profit after tax attributable to members of the Group
(1,169)
243,709
27,165
285,097
FFO has been determined with reference to the updated Property Council of Australia’s voluntary disclosure
guidelines to help investors and analysts compare many different AREITs. FFO is calculated by adding back
tenant incentive amortisation, depreciation on owner occupied property, plant & equipment (PP&E), change in fair
value of investment properties derecognised, impairment of inventory and non-FFO tax benefit/expense to
underlying profit.
The impact of both year-end fair value adjustments and the Group’s performance on its financial position were as
follows:
Total assets ($ million)
Gearing^ (%)
Net assets* ($ million)
Net tangible assets* ($ million)
NTA per security^# ($)
^ Abacus - gearing calculated as debt minus cash divided by total assets minus cash
* Excluding external non-controlling interests of $46.6 million (2017: $48.5 million)
# Following recognition of June 2018 and 2017 distributions
2018
2,795.6
2017
2,436.7
23.3
20.5
1,870.1
1,766.1
1,841.7
1,737.1
3.18
2.93
The increase in net assets of the Group by 6% reflects the increase in fair value of investments and undistributed
share of equity accounted income during the year.
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ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
OPERATING AND FINANCIAL REVIEW (continued)
GROUP RESULTS SUMMARY (continued)
Capital management
The Abacus balance sheet remains strong with gearing levels conservative at 23.3%, well within our target
gearing limit of 35%. At 30 June 2018, Abacus had $135 million of available liquidity that provides capacity for
use for up to $211 million of accretive acquisitions. Post year end several asset settlements occurred further
adding to the Group’s liquidity balances providing significant opportunity to prudently invest and up weight our
exposure to office and self-storage markets throughout select Australian markets. We view low gearing and high
liquidity levels positively as we extend through, what we consider to be the top of the property markets, with the
ability to take advantage should opportunities arise. We anticipate Abacus’ weighted average interest rate will
remain relatively stable as current capacity is utilised and anticipate it should be no greater than 5.0% over the
next year.
CORE SEGMENT RESULTS SUMMARY
Business activities that specifically contributed to the Abacus’ operating performance and financial condition for
the financial year were:
Property Investment
Commercial Portfolio
Abacus’ commercial portfolio delivered a segment result of $119.8 million for the year ended 30 June 2018 which
was 35.2% lower than the previous period (2017: $184.9 million) largely due to a reduction in the value of fair
value increases from the investment property portfolio. The commercial portfolio consists of 35 assets (2017: 34
assets) and had a total value of $1.5 billion at year end (2017: $1.2 billion).
Pursuant to the 2018 portfolio valuation process, 13 out of 31 of the commercial properties (excluding equity
accounted properties) or 53% by value were independently valued during the year to 30 June 2018. 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 $18.4 million (2017: $47.4 million gain) or 1.2% of
commercial portfolio.
Commercial portfolio (office, retail, industrial and other)
1. WACR: Weighted Average Capitalisation Rate
2. Like for like rental growth.
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ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
OPERATING AND FINANCIAL REVIEW (continued)
CORE SEGMENT RESULTS SUMMARY (continued)
During the year Abacus was able to secure several high profile quality commercial properties that met our
investment criteria, including:
• 187 Todd Road, Port Melbourne VIC for $43.5 million (Abacus interest 100%), settled November 2017
• 452 Johnston Street, Abbotsford VIC for $93.5 million (Abacus interest 100%), settled March 2018
• 464 St Kilda Road, Melbourne VIC for $47.7 million (Abacus interest 50%), settled May 2018
• 11 Bowden Street, Alexandria NSW for $48.9 million (Abacus interest 100%), settled March 2018; and
• 63 Ann Street, Surry Hills NSW for $27.5 million (Abacus interest 100%), settled April 2018
Abacus and its partners divested several properties at various stages during the year which delivered some
strong returns to the group and included:
• 50% interest in 201 Pacific Highway, St Leonards NSW for $85.8 million, settled May 2018; and
• 169 Australis Drive, Derrimut VIC for $34.0 million, settled June 2018
As a result of changes in the portfolio from acquisitions and divestments and a mixed leasing environment across
regions the portfolio occupancy increased from 90.5% at 30 June 2017 to 91.3% at 30 June 2018. Pleasingly,
like for like rental growth remained strong across our existing and stabilised portfolio to deliver growth of 3.6%.
This was largely due to the performance of the Group’s property management team, leasing of developed assets
and in-built annual rental increases.
We believe Abacus’ portfolio is suited to the current conditions. The majority of 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. As a result of current market conditions and a shift in future expectations in the office sector,
Abacus has targeted assets that offer more stabilised income streams with longer dated value enhancing
strategies. This capital allocation strategy supports our drive to improve recurring earnings to support our
distribution policy to securityholders.
Abacus’ retail portfolio is currently development focused as all assets are at some stage of redevelopment to
support our retail thematic of “super convenience retail”. The thematic supports assets that incorporate up to
three national brand supermarkets with a heavy focus on food, services and minimal exposure to discretionary
retail tenancies that enable centres to control their catchment and limit the impact from shifting trends in shoppers
activities highlighted by an increase in online shopping for discretionary retail. Assets that are considered non-
core to this strategic thesis have and will be sold. Abacus has formed joint venture / capital partnership
relationships with likeminded institutions that share our vision of super convenience retail assets with existing
portfolio assets or new opportunities within the sector.
Abacus remains focused on maintaining revenue and cashflows to support securityholder distributions but
nevertheless being conscious of the market’s leasing requirements and competitive offerings.
Contribution from Third Party Capital
Abacus’ third party capital joint ventures remain an integral strategic investment platform for the Group. As
previously mentioned, we have expanded the platform with a new joint venture with Wing Tai, out of Hong Kong
to acquire 464 St Kilda Road in Melbourne for $95.4 million (100% asset value). Abacus and its joint venture
partner Heitman completed its investment fund during the year. Abacus currently has $1.8 billion of assets under
management including Abacus’ $693 million ownership share. Abacus typically invests 25% to 50% of the
required equity with our capital partners investing the balance. Management of the property typically remains with
Abacus and as a result we are able to leverage our capital to gain greater exposure to a higher number of high
quality 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.
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ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
OPERATING AND FINANCIAL REVIEW (continued)
CORE SEGMENT RESULTS SUMMARY (continued)
Self-storage
Abacus’ self-storage portfolio delivered a segment result of $97.7 million for the year ended 30 June 2018. This
represents a 38% increase on the FY17’s result of $70.7 million and can be attributed to strong increases in self-
storage EBITDA, gains on the sale of a non-core portfolio of regional assets and higher fair value increases in the
self-storage portfolio. Portfolio assets totalled $666 million across a total portfolio of 62 assets, an overall net
reduction of three facilities during the period.
Pursuant to the 2018 valuation process 39 self-storage facilities out of 62 or 66% by value were independently
valued during the year to 30 June 2018. 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 $42.4
million (2017: $27.3 million gain) or 6.8% 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)
The Group has continued with its stated strategy of allocating investment capital to growing exposure to the self-
storage sector. Abacus remains committed to growing the asset base while ensuring the portfolio is operating as
efficiently and profitably as possible. With this in mind, an evaluation of the portfolio occurred during the year and
as a result it highlighted a portfolio of five assets as non-core due to regional concerns and limitations to future
occupancy and rental growth. This portfolio was divested in May 2018 for $26.5 million. The Group also acquired
two development sites during the year in Robina and Stafford in QLD for development into self-storage facilities
that should begin to deliver returns to the portfolio in the next few years. We remain committed to growing our
presence in metropolitan areas on Australia’s eastern seaboard that will deliver higher average rental rates than
the current portfolio average to drive portfolio returns.
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. Despite the
portfolios reduction to 62 assets, the stabilised portfolio grew occupancy to 89.4% from 89.2% and average rental
rate increased to $276/m2 from $262/m2. The increased rental and occupancy improved portfolio revenue per
available metre (RevPAM) to $247/m2 from $234/m2 in 2017, a 5.6% increase assuming a stabilised New Zealand
exchange rate. RevPAM measures the profitability and efficiency of the portfolio.
The portfolio’s development pipeline of non-self-storage or non-stabilised assets currently numbers 9 assets
valued at $51 million. These assets are at various stages of development or occupancy/rate stabilisation and are
anticipated to be delivered to the stabilised portfolio over the next few years as they reach established occupancy
levels. We anticipate these assets to enhance the average rental rate and RevPAM across the stabilised portfolio
at this time.
10
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
OPERATING AND FINANCIAL REVIEW (continued)
CORE SEGMENT RESULTS SUMMARY (continued)
Developments - residential
The residential developments business delivered an increased segment result of $85.6 million (2017: $55.0
million). The business invests in projects and provides finance solutions that focus on select residential and
commercial development opportunities in core locations directly on balance sheet and with experienced local joint
venture partners. Abacus has total assets of $449 million invested across a number of residential developments
in capital city markets across the eastern seaboard of Australia. Abacus controls approximately 7,700 apartment
units or land lots which equates to approximately $58,000 cost base per unit/land lot. This low average price
provides evidence that the developments business has prospects for strong returns.
Abacus completed four residential joint venture development projects during the last 12 months. As at 30 June
2018:
• The Eminence, Melbourne VIC delivered 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 but one have settled.
• Ashfield Central, Sydney NSW delivered 101 apartments in the inner-city suburb of Ashfield. The project
is 100% owned by Abacus. Settlements began in June 2018 with 81 apartments settled, and we remain
confident of settling the remainder in early FY19.
Ivy and Eve, Brisbane QLD delivered 476 apartments across two buildings in the inner-city suburb of
South Brisbane. The project is a joint venture with City Developments Limited, a Singaporean developer
and Kilcor Properties. Settlements began in early 2018 with 365 apartments settled and while we are
experiencing a number of defaults and an elongation to settlement time frames we are confident of
settling the majority of apartments in FY19 with the delivery of anticipated project returns.
•
• One A, Erskineville Sydney NSW delivered 175 apartments in the inner-city suburb of Sydney. The
project is a joint venture with the Linear Group. Settlements began in June 2018 with 146 apartments
settled, and we remain confident of settling the remainder in early FY19.
Further, Abacus also has a number of ventures that own land sites, across the Metropolitan Sydney area,
undergoing residential rezoning. 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
and can affect Abacus’ ability to correctly forecast when projects will be realised.
In the period, Abacus has sought to sell several parcels of this land, with good demand from developers of
residential and especially for industrial zoned properties.
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 2018 is as follows:
Abacus Hospitality Fund (AHF)
The remaining hotel in the fund, Twin Waters on the Sunshine Coast QLD, reported total income of $30.2m in the
year to 30 June 2018 with an average occupancy of 69%, compared to total income of $27.3m and occupancy of
64% in the prior year. The hotel has traded strongly for both room revenue and food and beverage revenue,
driven by solid conference and leisure traveller demand.
Abacus Wodonga Land Fund (AWLF)
AWLF owns the residential estate known as White Box Rise located in Wodonga, Victoria. During the year 87
residential lots were settled for combined proceeds of $12.8 million. This takes the total number of lots settled to
920 since the start of the project. There are approximately 153 lots left to sell in the estate, and these are
expected to be sold over the next 1-2 years.
11
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
OPERATING AND FINANCIAL REVIEW (continued)
FUTURE PROSPECTS AND RISKS
Following a review of current market conditions, project status and outlook, Abacus has refined it strategic
direction giving prominence to sectors where we have a clear competitive advantage. Abacus’ future capital
allocation framework will focus heavily upon increasing our exposure to the self-storage and office markets while
reducing our exposure to retail and residential markets at this point in the cycle. This strategy will target longer
dated core plus office assets that we can develop into core assets that Abacus is happy to hold for the longer
term. Increasing exposure to these asset classes will enhance our ability to grow recurring revenue sources to
maintain the Group’s targeted distribution growth of 2-3% pa.
This investment strategy will continue to be funded via the realisation of our residential developments over the
coming years and reducing our exposure to retail based assets at this point in the cycle. Abacus has had a
successful start to this strategy through project and asset realisations and acquisitions that have delivered its
strong results through FY18.
Abacus held elevated levels of acquisition capacity at 30 June 2018 that were substantially increased following a
number of post balance date settlements increasing the Group’s capacity to over $600 million. This provides
excellent opportunity to take advantage of prospects in the self-storage and office markets as markets move into
the next stage of the cycle. This capacity can be further leveraged to invest in a larger number of projects
through joint venture arrangements.
Recurring underlying earnings should continue to increase over the coming year as the Group sources additional
acquisitions and an increased level of rental income as assets currently under development come 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 markets that are continuing to show signs of strong pricing. The
different characteristics of each leasing market, particularly office sectors across different states, have the
potential to increase volatility in rental revenue. Any sales of investment properties will also have a negative
influence of recurring revenue growth.
A number of legacy residential construction projects were completed in FY18 and while the sector continues to
face substantial head winds including reduced access to finance for purchasers and several pockets of
oversupply, it is likely that Abacus will be able to achieve forecast returns on its projects, and also review and
possibly reduce its commitment to future residential projects at this stage. In our land mortgages business,
Abacus has a portfolio of joint ventures and loans to developers, covering land to be rezoned and developed into
residential. Abacus is actively exploring opportunities to realise a number of these projects in the near term to
reduce our exposure to residential markets. The contribution to earnings from finance income is directly
correlated to the levels of loans extended to borrowers, and this has potential to reduce as the current pipeline of
assets is realised.
Abacus is likely to reduce its exposure to transactional returns from the realisation of investment properties as it
looks to invest in assets to be held over a longer term. A reduced level of gains from the sale of assets will have a
negative effect on underlying profit, although the group will benefit from growing recurring earnings as these
strong income producing assets are held for longer.
12
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
OPERATING AND FINANCIAL REVIEW (continued)
FUTURE PROSPECTS AND RISKS (continued)
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.
13
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
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 and self-storage 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 (for example,
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
14
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
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. Abacus is committed to ensuring our
workplace, market standing and strategic objectives remain relevant and attract the most appropriately skilled
and diverse workforce for the organisation to deliver on its goals
15
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
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 a member of the Audit & Risk, Nomination & Remuneration and Compliance Committees.
Tenure: 15 years (All as Chairman)
Steven Sewell BSc
Managing Director
Mr Sewell joined Abacus in October 2017 bringing over 17 years’ experience in real estate funds management,
asset management, equity and debt capital markets and M&A transactions. Steven joined Abacus from the
Macquarie Group where he was an Executive Director of Macquarie Infrastructure and Real Assets. Previously
Steven was CEO and Managing Director of Federation Centres Ltd (now renamed Vicinity Centres), Charter Hall
Retail REIT (previously known as Macquarie Countrywide Trust). Steven’s prior career experience is across
various real estate sectors, and importantly provides a valuable insight and connection to institutional investors,
the whole Group’s business and investment strategies, capital allocation and developing third party capital
relationships. Steven was appointed Managing Director elect in January 2018, and appointed to the role
permanently in April 2018.
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 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 Audit & Risk Committee and a member of the Nomination & Remuneration
Committee.
Tenure: 11 years
Jingmin Qian CFA, MBA, FAICD
Ms Qian is a Non-Executive Director and has significant expertise in the property, infrastructure and resource
sectors as well as rich experience in Asia. Ms Qian is a director of Jing Meridian and specialises in advising
boards and senior management on investment, strategic management and cross-cultural management. Ms Qian
has served as a member of the business liaison program of the Reserve Bank of Australia. Ms Qian is a trustee of
Club Plus Super, a member of Macquarie University Council, a director of the Chartered Financial Analyst Society
of Sydney and a director of the Australia China Business Council.
Ms Qian is Chairperson of the Compliance Committee and a member of the Audit & Risk Committee.
Tenure: 1 year
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 Nomination & Remuneration and Compliance Committees.
Tenure: 7 years
16
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
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 Chairman of the Nomination & Remuneration Committee.
Tenure: 3 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
W Bartlett
ABP securities held
84,590
33,125
Directors’ Meetings
The number of meetings of directors (including meetings of committees of directors) of AGHL, AFML (the
Responsible Entity of AT and AIT), AGPL, ASFML (the Responsible Entity of ASPT) and ASOL, held during the
year and the number of meetings attended by each director were as follows:
Board
Audit &
Risk
Committee
Remuneration &
Nomination
Committee
Compliance
Committee
Eligible
Attended
Eligible
Attended
Eligible
Attended
Eligible
Attended
J Thame
F Wolf (deceased)
S Sewell
W Bartlett
M Irving
J Qian
M Salkinder
P Spira
12
8
4
12
5
10
12
12
12
8
4
12
5
10
12
12
5
5
1
4
5
5
1
4
4
4
4
1
4
3
4
1
2
2
2
4
2
2
2
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.
17
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
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 34.
NOTIFICATION OF AUDITOR ROTATION REQUIREMENTS
On 24 April 2018 the board of directors approved the extension of the Lead Audit Partner rotation period for one
year in accordance with section 324DAB of the Corporations Act 2001 and of the Corporations Legislative
Amendment (Audit Enhancement) Act 2012. The decision was based on the directors determining that the
extension provided consistency in the audit process during the change in the Group’s Managing Director. The
directors believe that this enhanced the overall quality of the Group’s audit and the extension does not give rise to
a conflict of interest.
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.
18
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
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
J. Qian
M. Salkinder
P. Spira
Chairman
Director
Director (retired on 14 November 2017)
Director (appointed on 26 September 2017)
Director
Director
(ii) Executive Director
S. Sewell
Managing Director (appointed as KMP on 3 October 2017 and
Managing Director on 18 April 2018)
F. Wolf
Managing Director (died on 18 April 2018)
(iii) Executives
R. Baulderstone
C. Laird
P. Strain
Chief Financial Officer
Director Property Development
Director Property Investments
Board oversight of remuneration
Nomination & Remuneration Committee
The Nomination & Remuneration 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.
19
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
REMUNERATION REPORT (audited) (continued)
Executive remuneration
Snapshot
Abacus is a high conviction investor and manager of real estate assets in the Australian and New Zealand
markets.
Abacus’ primary focus is to acquire long dated assets in the core sectors of self-storage and office sectors that
contribute to and drive recurring earnings growth to fulfil our distribution policy. In addition, core investment
opportunities in the retail and industrial sectors will also be considered at appropriate times in the property cycle.
Abacus will continue on a limited scale, to invest in core plus/opportunistic investments across higher risk return
projects in residential development, office, retail and industrial depending upon the nature of the opportunity, the
property cycle and capital availability. The preferred funding sources for this type of investment will be within
Abacus’ third party capital platform in order to achieve a higher level of investment returns.
Remuneration incentives have been set up to ensure executives are not encouraged to take undue risks.
Short and long dated variable remunerations are structured in such a way that different contributions by each
executive can be appropriated rewarded.
Long dated variable remuneration, which is subject to clawback, is linked to Abacus’ security price that reflects
the market assessment of the business’s longer term ability to deliver sustainable distributions and growth.
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.
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
$2.93
571.2m
2018
31.73
18.00
$3.77
$3.18
577.8m
** Net tangible assets per security include the impact of the fair value movements and are adjusted for the recognition of the June distribution
in the respective financial years.
20
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
REMUNERATION REPORT (audited) (continued)
Structure
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 Method
Purpose
Link to performance
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)
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 2.0% in the year ended 30 June 2018.
21
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
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 2018 financial year current variable remuneration awards of
$1,760,000 have been accrued and will be paid in September 2018.
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 2018 financial year
was $128m to $135m.
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 2018 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.
22
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
REMUNERATION REPORT (audited) (continued)
Current variable remuneration (continued)
Table 3: Summary of the current variable remuneration plan (continued)
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?
What discretions does the Board have?
The Nomination & Remuneration 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.
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.
23
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
REMUNERATION REPORT (audited) (continued)
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
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 2018 (scorecard) which are reviewed by the Nomination & Remuneration 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 $183.3m which is
43% higher than the variable remuneration gateway.
Abacus has paid a distribution of 18.0 c per security which is
3% higher than the target distribution of 17.5c 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 24% 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 on leadership was undertaken with
senior staff during the year and the overall results were very
positive. The average tenure of all employees in Abacus is
greater than 6 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.
24
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
REMUNERATION REPORT (audited) (continued)
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 2018.
Table 6: Current variable awards
Maximum
STI as per
the plan
488,014
855,062
306,000
306,000
306,000
Current
variable
remuneration
award
480,000
480,000
300,000
250,000
250,000
% of maximum
possible current
award earned
98%
56%
98%
82%
82%
Fixed salary
650,685
1,140,082
510,000
510,000
510,000
S Sewell *
F Wolf *
R Baulderstone
C Laird
P Strain
* part-period
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.
25
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
REMUNERATION REPORT (audited) (continued)
Deferred variable remuneration (continued)
Table 7: Summary of the deferred variable remuneration plan (continued)
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.
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.
What happens on cessation of
employment?
The board will disclose the exercise of any of these discretions.
No discretions have been exercised in respect of the reporting year.
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.
26
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
REMUNERATION REPORT (audited) (continued)
Deferred variable remuneration (continued)
Employment contracts and termination entitlements
The Managing Director, Mr Sewell, is employed under a contract dated 15 February 2018 and may be terminated
by either party giving 9 months written notice or in the case of Abacus by providing payment in lieu of notice.
The previous Managing Director, Dr Wolf, was employed under a rolling contract which commenced on 10
October 2002. Under the terms of the contract:
- Dr Wolf was able to resign from his position by giving 6 months written notice; and
- Abacus was able to terminate the employment agreement by providing 12 months written notice or providing
payment in lieu of notice.
Dr Wolf died on 18 April 2018 and the following amounts were paid in accordance with the terms of his
employment contract:
- The 800,044 SARs held by Dr Wolf that vested at the date of his death;
- Accrued leave entitlements; and
- Dr Wolf’s estate will receive his current variable remuneration award for the year ended 30 June 2018.
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.
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 14 November 2017 when securityholders approved an aggregate remuneration limit of
$1,000,000 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 July
2017.
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
Nomination & Remuneration Committee
Nomination & Remuneration Committee
Role
Chairman*
Member
Chairman
Member
Chairman
Member
Chairman
Member
Fee
$232,050
$105,000
$27,300
$10,500
$14,700
$10,500
$15,750
$10,500
* 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.
27
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
Table 9: Remuneration of Key Management Personnel
2018
Short-term benefits
Post
Long-term
Security-
based
Total
Perform ance
em ploym ent
benefits
paym ent
related
Salary & fees
Current
variable
incentive
Non-
m onetary
benefits
Total cash
paym ents
and short
term
benefits Superannuation
$
$
$
$
$
Long
service
leave*
$
Security
acquisition
rights
(SARs)*
$
$
212,001
126,495
53,393
87,719
115,068
104,934
699,610
-
-
-
-
-
-
-
636,323
1,129,127
480,000
480,000
-
-
-
-
-
-
-
-
212,001
126,495
53,393
87,719
115,068
104,934
699,610
1,116,323
6,467
1,615,594
485,000
485,000
485,000
300,000
250,000
250,000
3,220,450
1,760,000
3,920,060
1,760,000
-
6,467
6,467
19,401
19,401
785,000
741,467
741,467
4,999,851
5,699,461
20,049
12,017
5,072
8,333
10,931
9,968
66,370
15,036
13,603
25,000
25,000
25,000
103,639
170,009
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27,982
1,352,246
232,050
138,512
58,465
96,052
125,999
114,902
765,980
1,131,359
3,009,425
10,390
9,640
10,550
58,562
58,562
152,579
178,215
159,085
972,969
954,322
936,102
1,842,125
7,004,177
1,842,125
7,770,157
%
-
-
-
-
-
42%
61%
47%
45%
44%
Non-executive directors
J Thame - Chairman
W Bartlett
M Irving **
J Qian #
M Salkinder
P Spira
Sub-total non-executive directors
Executive Directors
S Sew ell - Managing Director ##
F Wolf - Managing Director ###
Other key m anagem ent personnel
R Baulderstone - Chief Financial Officer
C Laird - Director Property Developments
P Strain - Director Property Investments
Sub-total executive KMP
Total
*Accrued but not presently entitled except F Wolf
** Retired on 14 November 2017
# Appointed on 26 September 2017
## Commenced on 3 October 2017 and appointed Managing Director on 18 April 2018
### Died on 18 April 2018 which resulted in the vesting of all entitlements to SARs
28
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
Table 9: Remuneration of Key Management Personnel
2017
Short-term benefits
Post
Long-term
Security-
based
Total
Perform ance
em ploym ent
benefits
paym ent
related
Salary & fees
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
-
-
-
-
-
-
-
-
-
-
-
-
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
%
-
-
-
-
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
19%
44%
46%
45%
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 but not presently entitled
# Ceased to meet the definition of a key management person in December 2016
29
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
REMUNERATION REPORT (audited) (continued)
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.
Director
F Wolf
Executives
R Baulderstone
C Laird
P Strain
Year
Grant date
SARs
granted
Fair
value
per right
at grant
date
Vesting
date
No.
vested
during
the year
No.
lapsed
during
the year
2018
2017
2017
2016
2016
2015
2015
2014
2018
2017
2016
2015
2014
2018
2017
2016
2015
2014
2018
2017
2016
2015
2014
14/11/2017
216,420
$3.566
18/04/2018
216,420
14/11/2016
14/11/2016
21/11/2015
21/11/2015
21/11/2014
21/11/2014
29/11/2013
14/11/2017
48,868
14/11/2016
21/11/2015
21/11/2014
29/11/2013
14/11/2017
55,852
14/11/2016
21/11/2015
21/11/2014
29/11/2013
14/11/2017
48,868
14/11/2016
21/11/2015
21/11/2014
29/11/2013
13/09/2017
57,565
18/04/2018
172,695
13/09/2017
58,294
18/04/2018
116,588
13/09/2017
18/04/2018
13/09/2017
$3.566 over 4 years
13/09/2017
13/09/2017
13/09/2017
13/09/2017
$3.566 over 4 years
13/09/2017
13/09/2017
13/09/2017
13/09/2017
$3.566 over 4 years
13/09/2017
13/09/2017
13/09/2017
13/09/2017
54,565
54,565
69,352
-
14,391
13,324
14,550
16,644
-
16,447
16,655
18,188
16,644
-
14,391
16,655
14,550
16,644
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
771,754
174,263
199,168
174,263
3,168,963
255,356
293,668
269,368
-
-
-
-
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.
30
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
REMUNERATION REPORT (audited) (continued)
Table 12: Securities acquired on exercise of options
Securities
acquired
Paid per
security
No.
272,442
66,939
76,982
70,612
$
3.80
3.80
3.80
3.80
F Wolf
R Baulderstone
C Laird
P Strain
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.
Dr Wolf held 603,303 SARs at the date of his death. Ordinarily, the rights are satisfied with the purchase of
Abacus securities. The Board exercised its discretion as provided in the plan and instead paid the estate of the
late Dr Wolf the cash amount of $2,129,658.
Table 13: Movements in SARs holdings of key management personnel during the year
Balance
Granted as
SARs
Balance
Vested
1 July 2017 remuneration
exercised 30 June 2018 30 June 2018
Director
F Wolf
Executives
R Baulderstone
C Laird
P Strain
Total
583,624
216,420
(800,044)
-
143,280
168,773
153,273
48,868
55,852
48,868
(58,909)
(67,934)
(62,240)
1,048,950
370,008
(989,127)
133,239
156,691
139,901
429,831
-
-
-
-
-
Table 14: Securityholdings of key management personnel
Balance
1 July 2017
Vesting of
SARs
Purchases/
(sales)
Balance
30 June 2018
Directors
J Thame
W Bartlett
Executives
R Baulderstone
C Laird
P Strain
Total
84,590
33,125
191,202
165,514
255,004
729,435
-
-
66,939
76,982
70,612
214,533
-
-
-
(33,000)
16,213
(16,787)
84,590
33,125
258,141
209,496
341,829
927,181
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 2018 or in the prior
year.
31
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2018
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
32
DIRECTORS’ REPORT
30 June 2018
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, 17 August 2018
Steven Sewell
Managing Director
33
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Auditor’s Independence Declaration to the Directors of Abacus Group
Holdings Limited
As lead auditor for the audit of Abacus Group Holdings Limited for the financial year ended 30 June
2018, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Abacus Group Holdings Limited and the entities it controlled during the
financial year.
Ernst & Young
Kathy Parsons
Partner
17 August 2018
34
CONSOLIDATED INCOME STATEMENT
YEAR ENDED 30 JUNE 2018
REVENUE
Rental income
Hotel income
Finance income
Management and other 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 and amortisation expenses
Cost of inventory sales
Net change in fair value of investments held at balance date
Finance costs
Administrative and other expenses
PROFIT BEFORE TAX
Income tax expense
NET PROFIT AFTER TAX
PROFIT ATTRIBUTABLE TO:
Equity holders of the parent entity (AGHL)
Equity holders of other stapled entities
AT members
AGPL members
AIT members
ASPT members
ASOL members
Stapled security holders
Net profit attributable to external non-controlling interests
NET PROFIT
ABACUS PROPERTY GROUP
Notes
2018
$'000
2017
$'000
152,444 150,634
26,211 30,968
1
48,405 44,637
4,282 5,470
76,575 16,192
307,917 247,901
15,265 45,267
9,004 7,167
2,039 11,762
60,724 84,948
730 4,458
8(a)
73,749 54,273
4,279 7,656
473,707 463,432
(46,766) (43,477)
(20,491) (23,415)
3(a)
(5,179) (2,481)
(55,941) (10,968)
(6,363) (15,554)
(31,258) (35,826)
(31,938) (29,483)
3(b)
3(c)
3(d)
275,771 302,228
4(a)
(28,813) (10,140)
246,958 292,088
54,135 66,005
108,865 157,181
4,937 5,189
3,263 3,391
25,188 13,395
47,321 39,936
243,709 285,097
3,249 6,991
246,958 292,088
Basic and diluted earnings per stapled security (cents)
2
42.18
49.91
35
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 30 JUNE 2018
ABACUS PROPERTY GROUP
NET PROFIT AFTER TAX
246,958 292,088
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified subsequently to the income statement
Revaluation of assets, nil tax effect
10,053 10,565
2018
$'000
2017
$'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
(2,022) (42)
254,989 302,611
247,733 291,414
7,256 11,197
254,989 302,611
60,181 72,364
108,865 157,181
4,937 5,189
3,263 3,391
23,208 13,353
47,279 39,936
247,733 291,414
36
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2018
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
2018
$'000
2017
$'000
5
6(a)
7(a)
9
16
209,606 8,000
28,548 8,474
212,509 72,597
103,256 56,267
88,500
-
21,145 18,457
- 1,667
3,413 3,263
666,977 168,725
5
6(b)
7(b)
8
4(c)
16
7(c)
21
1,726,394 1,563,523
76,157 96,479
117,782 274,070
154,890 167,248
8,236 6,954
4,800 84,734
7,987 42,543
32,394 32,394
2,128,640 2,267,945
TOTAL ASSETS
2,795,617 2,436,670
CURRENT LIABILITIES
Trade and other payables
Interest-bearing loans and borrowings
Derivatives at fair value
Income tax payable
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
88,568 27,865
11(a)
38,765
-
61 5,469
20,906 740
8,108 6,910
156,408 40,984
11(b)
693,742 549,184
12,847 16,814
4(c)
12,218 10,358
3,700 4,709
722,507 581,065
878,915 622,049
1,916,702 1,814,621
1,916,702 1,814,621
37
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)
AS AT 30 JUNE 2018
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
Retained earnings / (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
Total stapled security holders' interest in equity
Total external non-controlling interest
TOTAL EQUITY
Notes
2018
$'000
2017
$'000
348,331 344,284
21,940 18,373
127,033 72,899
497,304 435,556
942,690 935,977
(40,062) (23,340)
902,628 912,637
27,413 27,150
21,567 16,630
48,980 43,780
131,300 130,556
(91,631) (80,300)
39,669 50,256
124,167 122,535
170 2,148
8,150 (2,100)
132,487 122,583
21,087 20,654
130 174
227,780 180,459
248,997 201,287
61,139 68,809
11,854 7,847
(26,356) (28,134)
46,637 48,522
1,916,702 1,814,621
13
1,594,988 1,581,156
22,240 20,695
252,837 164,248
1,870,065 1,766,099
46,637 48,522
1,916,702 1,814,621
38
CONSOLIDATED STATEMENT OF CASH FLOW
YEAR ENDED 30 JUNE 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Income receipts
Interest received
Income tax paid
Finance costs paid
Operating payments
Payments for inventory costs
ABACUS PROPERTY GROUP
Notes
2018
$'000
2017
$'000
390,428 289,763
939 1,329
(8,067) (2,944)
(28,571) (35,409)
(107,465) (102,757)
(52,998) (33,772)
NET CASH FLOWS FROM OPERATING ACTIVITIES
9
194,266 116,210
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
(65,727) (92,770)
126,590 153,354
(2,105) (1,100)
2,089 72,698
(346,821) (141,049)
58,050 182,070
(3,860) (2,124)
NET CASH FLOWS FROM / (USED IN) INVESTING ACTIVITIES
(231,784)
171,079
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
(42) (4,213)
(1,734) (1,436)
(63,685) (260,130)
243,794 37,152
(93,745) (63,767)
NET CASH FLOWS (USED IN) / FROM FINANCING ACTIVITIES
84,588 (274,844)
NET INCREASE IN CASH AND CASH EQUIVALENTS
Net foreign exchange differences
Cash and cash equivalents at beginning of year
47,070 12,445
(81)
30
56,267 43,792
CASH AND CASH EQUIVALENTS AT END OF YEAR
9
103,256 56,267
39
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 30 JUNE 2018
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 2017
1,581,156 11,880 2,322 6,493
164,248 48,522
1,814,621
Other comprehensive income
- 6,046 (2,022)
- - 4,007
8,031
Net income for the year
-
-
-
- 243,709 3,249
246,958
Total comprehensive income for
the year
- 6,046 (2,022)
- 243,709 7,256
254,989
Return of capital
-
-
-
- - (7,670) (7,670)
Distribution reinvestment plan
13,831
-
-
- -
- 13,831
Security acquisition rights
-
-
- (2,479)
-
- (2,479)
Acquisition of units in subsidiary
-
-
-
- (476)
- (476)
Distribution to security holders
-
-
-
- (154,643) (1,471) (156,114)
At 30 June 2018
1,594,987 17,926 300 4,014
252,838 46,637
1,916,702
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
1,523,878 5,521 2,364 7,273 (23,054)
43,295
1,559,277
Other comprehensive income
- 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
40
CONTENTS
30 JUNE 2018
ABACUS PROPERTY GROUP
Notes to
the financial
statements
About this report
Segment information
Page 42
Page 44
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 95
Page 96
41
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS – About this Report
30 JUNE 2018
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 2018 was authorised for issue in accordance with a
resolution of the directors on 17 August 2018.
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
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.
Impairment of property loans and financial assets
In considering the impairment of property loans and financial assets, the Group undertakes a market analysis of
the secured property development and other securities being utilised to support the underlying loan and financial
assets and identifies 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.
42
NOTES TO THE FINANCIAL STATEMENTS – About this Report (continued)
ABACUS PROPERTY GROUP
30 JUNE 2018
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/units sold per year and the average selling price per lot/unit. 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 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.
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.
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.
43
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS – Segment Information
30 JUNE 2018
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 and Abacus Wodonga Land Fund. The performances
of these entities which are operated as externally managed investment schemes are considered to be non-core
segments and are reviewed separately to that of the performance of the Group’s business segments.
* The operating segments reported by the Group have changed from the prior year. Accordingly, prior year comparatives have been restated
to reflect the change.
44
NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued)
30 JUNE 2018
ABACUS PROPERTY GROUP
Year ended 30 June 2018
Revenue
Rental income
Hotel income
Finance income
Management and other 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
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
78,607 73,825
- - 152,432
12
- 152,444
- - - - - 26,211
- 26,211
- - 47,460
- 47,460
5
- 47,465
7,888
- - - 7,888
- (3,606)
4,282
- - 63,821
- 63,821
12,754
- 76,575
8,300 6,965
- - 15,265
- - 15,265
2,318
- 6,686
- 9,004
- - 9,004
- 2,039
- - 2,039
- - 2,039
18,410 42,314
- - 60,724
- - 60,724
- - - 730
730
- - 730
Share of profit from equity accounted investments ^
42,849
- 30,900
- 73,749
- - 73,749
Other income
Other unallocated revenue
Total consolidated revenue
Property expenses and outgoings
Hotel expenses
4,111
- 136
- 4,247
32
- 4,279
- - - 295
295
645
- 940
162,483
125,143
149,003 1,025 437,654
39,659 (3,606)
473,707
(19,568) (26,976)
- - (46,544) (222)
- (46,766)
- - - - - (20,491)
- (20,491)
Depreciation and amortisation expense
(2,312) (424)
- - (2,736) (2,443)
- (5,179)
Cost of inventory sales
- - (50,388)
- (50,388) (9,977)
1,764 (58,601)
Net change in fair value of investments held at balance date
284 (42) (6,605)
- (6,363)
- - (6,363)
Impairment charges (reversal)
Administrative and other expenses
Segment result
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 $4.6 million
- - 2,660
- 2,660
- - 2,660
(21,091)
- (9,040)
- (30,131) (1,365) (442) (31,938)
119,796 97,701 85,630 1,025 304,152
5,161 (2,284)
307,029
(30,473) (2,884)
2,099 (31,258)
273,679
2,277 (185)
275,771
(28,813)
- - (28,813)
244,866
2,277 (185)
246,958
12 (3,261)
(3,249)
244,878 (984) (185)
243,709
45
NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued)
30 JUNE 2018
ABACUS PROPERTY GROUP
Year ended 30 June 2017
Revenue
Rental income
Hotel income
Finance income
Management and other 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
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
71,634 69,687
- - 141,321
9,313
- 150,634
- - - - - 30,968
- 30,968
- - 43,891
- 43,891
4
- 43,895
12,620
- - - 12,620
- (7,150)
5,470
- - - - - 16,192
- 16,192
36,775
- - - 36,775
8,492
- 45,267
11,534
- - - 11,534
493 (4,860)
7,167
- - - - - 11,077
685
11,762
47,440 27,333
- - 74,773
10,175
- 84,948
- - - 4,317
4,317
141
- 4,458
Share of profit from equity accounted investments ^
33,557
- 20,716
- 54,273
- - 54,273
Other income
Other unallocated revenue
Total consolidated revenue
Property expenses and outgoings
Hotel expenses
6,102
- 1,057
- 7,159
825 (328)
7,656
- - - 365
365
377
- 742
219,662 97,020 65,664 4,682 387,028
88,057 (11,653)
463,432
(15,174) (25,939)
- - (41,113) (2,665)
301 (43,477)
- - - - - (23,415)
- (23,415)
Depreciation and amortisation expense
(1,872) (406)
- - (2,278) (203)
- (2,481)
Cost of inventory sales
Impairment charges
Administrative and other expenses
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
- - - - - (13,490)
2,522 (10,968)
- - (3,000)
- (3,000)
3,000
- -
(17,754)
- (7,609)
- (25,363) (1,549) (2,571) (29,483)
184,862 70,675 55,055 4,682 315,274
49,735 (11,401)
353,608
(15,537) (28,015)
27,998 (15,554)
(32,898) (7,183)
4,255 (35,826)
266,839
14,537
20,852 302,228
(7,863) (2,277)
- (10,140)
258,976
12,260
20,852 292,088
(1,044) (5,947)
- (6,991)
257,932
6,313
20,852 285,097
46
NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued)
30 JUNE 2018
ABACUS PROPERTY GROUP
As at 30 June 2018
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
250,106
232,410 96,673 579,189
128,298 (40,510)
666,977
1,880,362
217,025 41,529
2,138,916 620 (10,896)
2,128,640
2,130,468
449,435
138,202
2,718,105
128,918 (51,406)
2,795,617
25,160 11,468 85,644 122,272
104,170 (70,034)
156,408
942 404
702,218 703,564 7,265 11,678 722,507
26,102 11,872
787,862 825,836
111,435 (58,356)
878,915
2,104,366
437,563 (649,660)
1,892,269 17,483 6,950
1,916,702
Total facilities - bank loans
Facilities used at reporting date - bank loans
Facilities unused at reporting date - bank loans
891,000
-
(694,970)
-
196,030
-
891,000
(694,970)
196,030
As at 30 June 2017
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
$'000
$'000
$'000
$'000
$'000
$'000
$'000
8,000 72,596 49,925 130,521 38,204
- 168,725
1,823,107
375,686 39,825
2,238,618 87,757 (58,430)
2,267,945
1,831,107
448,282 89,750
2,369,139
125,961 (58,430)
2,436,670
19,354 8,486 6,494 34,334 6,650
- 40,984
1,423 481
552,074 553,978 91,123 (64,036)
581,065
20,777 8,967
558,568 588,312 97,773 (64,036)
622,049
1,810,330
439,315 (468,818)
1,780,827 28,188 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
47
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
1. REVENUE
Finance income
Interest and fee income on secured loans
Bank interest
Total finance income
2. EARNINGS PER STAPLED SECURITY
ABACUS PROPERTY GROUP
2018
$'000
2017
$'000
47,465 43,895
940 742
48,405 44,637
2018
2017
Basic and diluted earnings per stapled security (cents)
42.18
49.91
Reconciliation of earnings used in calculating earnings per stapled security
Basic and diluted earnings per stapled security
Net profit ($'000)
Weighted average number of shares:
243,709
285,097
Weighted average number of stapled securities for basic earning per security ('000)
577,806
571,204
3. EXPENSES
(a) Depreciation and amortisation expenses
Depreciation and amortisation of property, plant and equipment and software
Amortisation - leasing costs
Total depreciation and amortisation expenses
(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
2018
$'000
3,533
1,646
5,179
29
-
6,334
6,363
28,819
2,439
31,258
18,052
1,054
12,832
31,938
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
48
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
4.
INCOME TAX
(a) Income tax expense
The major components of income tax expense are:
Income Statement
Current income tax
Current income tax charge
Adjustments in respect of current income tax of previous years
Deferred income tax
Relating to origination and reversal of temporary differences
Income tax expense reported in the income statement
ABACUS PROPERTY GROUP
2018
$'000
2017
$'000
26,989
1,271
553
28,813
10,851
1,209
(1,920)
10,140
(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
275,771
302,228
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
Other items (net)
Income tax expense reported in the income statement
81,775
893
(56,327)
26,340
1,271
7
1,195
28,813
89,176
833
(80,187)
9,822
1,209
(400)
(491)
10,140
49
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
4.
INCOME TAX (continued)
ABACUS PROPERTY GROUP
(c) Recognised deferred tax assets and liabilities
Deferred income tax relates to the following:
Deferred tax liabilities
Revaluation of investment properties 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
2018
$'000
2017
$'000
10,675
1,976
2,209
14,860
(2,642)
12,218
6,024
1,500
2,272
(607)
655
1,034
10,878
(2,642)
8,236
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
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.
50
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
5.
INVESTMENT PROPERTIES
Leasehold investment properties 1
Freehold investment properties
Total investment properties
ABACUS PROPERTY GROUP
2018
$'000
2017
$'000
12,690 13,592
1,923,310 1,557,931
1,936,000 1,571,523
1. The carrying amount of the leasehold property is presented gross of the finance liability of $2.7 million (2017: $2.3 million).
Investment properties held for sale
Retail
Office
Total investment properties held for sale
Investment properties
Retail
Office
Industrial
Storage
Other
Total investment properties
2018
$'000
2017
$'000
209,606
-
- 8,000
209,606 8,000
190,427 377,500
809,284 487,200
44,400 55,100
661,953 625,232
20,330 18,491
1,726,394 1,563,523
Total investment properties including held for sale
1,936,000 1,571,523
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
Net change in fair value as at balance date
Carrying amount at end of the year
Non-current
2018
2017
$'000
13,592 11,092
$'000
(902)
2,500
12,690 13,592
Held for sale
Non-current
2018
2017
2018
2017
Freehold investment properties
Carrying amount at beginning of the financial year
$'000
8,000
$'000
186,550
$'000
1,549,931
$'000
1,323,977
Additions
Capital expenditure
Net change in fair value as at balance date
Net change in fair value derecognised
Disposals
- - 297,000
116,951
- 890
54,126 24,945
- 224
61,627 82,223
- 41,929
15,265 3,337
- (206,672) (57,956) (5,603)
Effect of movements in foreign exchange
- - (4,683) (164)
Transfer to inventory
Properties transferred to / from held for sale
Carrying amount at end of the year
- - - (10,656)
201,606 (14,921) (201,606)
14,921
209,606 8,000
1,713,704
1,549,931
51
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 an in-house certified
professional valuer who is 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 6.62% (2017: 7.13%) and for each significant category
above is as follows:
- Retail – 5.76% (2017: 6.22%)
- Office – 6.29% (2017: 6.99%)
-
Industrial – 8.44% (2017: 8.42%)
- Storage – 7.45% (2017: 7.72%)
The optimal occupancy rate utilised in the valuation process ranged from 80.0% to 95.0% (2017: 80.0% to
100.0%). The current occupancy rate for the principal portfolio excluding development and self-storage assets is
91.3% (2017: 90.5%). The current occupancy rate for self-storage assets is 89.4% (2017: 89.2%).
During the year ended 30 June 2018, 56% (2017: 44%) of the number of investment properties in the portfolio
were subject to external valuations, the remaining 44% (2017: 56%) were subject to internal valuation.
* Excludes Abacus Hospitality Fund.
52
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
6.
INVENTORY
(a) Current
Hotel supplies
Property developments1
- purchase consideration
- development costs
- provision
(b) Non-current
Property developments1
- purchase consideration
- development costs
- provision
Total inventory
1.
Inventories are held at the lower of cost and net realisable value.
ABACUS PROPERTY GROUP
2018
$'000
2017
$'000
237 214
50,112 876
19,161 7,384
(40,962)
-
28,548 8,474
72,803 117,418
3,354 22,783
- (43,722)
76,157 96,479
104,705 104,953
53
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 - property developments - fair value
2018
$'000
2017
$'000
154,701 65,034
57,808 7,563
212,509 72,597
110,484 219,379
7,298 54,691
117,782 274,070
1,329 6,792
- 22,488
6,658 13,263
7,987 42,543
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 2019 and the non-current facilities will mature between 1 July 2019 and 27 January 2021.
2. Abacus had a 50% investment in a joint venture St Leonards JV Unit Trust held via preference shares which were realised during the
year.
54
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
8.
INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
(a) Extract from joint ventures’ profit and loss statements
ABACUS PROPERTY GROUP
Fordtrans Pty Ltd*
Merivale Pty Ltd
Other Joint Ventures
Total
2018
$'000
2017
$'000
2018
$'000
2017
$'000
2018
$'000
2017
$'000
2018
$'000
2017
$'000
Revenue
Expenses
23,722 9,646 192,389
20 557,993 478,570 774,104 488,236
(10,699) (14,152) (161,082) (1,751) (482,296) (350,060) (654,077) (365,963)
Net profit / (loss)
13,023 (4,506)
31,307 (1,731)
75,697 128,510 120,027 122,273
Share of net profit / (loss)
8,659 (2,253)
15,403 (852)
49,687 57,378 73,749 54,273
* Included in the net profit of Fordtrans Pty Ltd for the year ended 30 June 2018: interest income $1.4 million (2017: $1.9 million) and
interest expense $2.9 million (2017: $2.8 million).
(b) Extract from joint ventures’ balance sheets
Current assets
Non-current assets
Fordtrans Pty Ltd*
Merivale Pty Ltd
Other Joint Ventures
Total
2018
$'000
2017
$'000
2018
$'000
2017
$'000
2018
$'000
2017
$'000
2018
$'000
2017
$'000
1,073 15,436 95,677 1,085 70,800 100,316 167,550 116,837
215,214 183,031
- 119,359 243,328 547,362 458,542 849,752
216,287 198,467 95,677 120,444 314,128 647,678 626,092 966,589
Current liabilities
(18,128) (3,265) (1,745) (157) (156,147) (83,010) (176,020) (86,432)
Non-current liabilities
(64,800) (64,800)
- (59,401) (22,372) (347,411) (87,172) (471,612)
Net assets
133,359 130,402 93,932 60,886 135,609 217,257 362,900 408,545
Share of net assets
66,679 65,201 45,625 27,490 42,586 74,557 154,890 167,248
* Included in the net assets of Fordtrans Pty Ltd as at 30 June 2018: cash and cash equivalents $0.3 million (2017: $0.7 million), current
interest bearing loans and borrowings $Nil (2017: $Nil) and non-current interest bearing loans and borrowings $64.8 million (2017: $64.8
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’ share of distributions (including capital distributions) for the year ended 30 June 2018 was $7.2 million
(2017: $2.0 million).
2. Merivale Pty Ltd (Ivy & Eve)
Abacus has a 49.2% interest in the ownership and voting rights of Merivale Pty Ltd. Merivale’s principal place of
business is in South Brisbane.
Merivale Pty Ltd owns a residential development in Merivale Street, South Brisbane, Queenland. The
development consists of two 30 storey residential towers, Ivy and Eve accommodating 472 one, two and three
bedroom apartments overlooking the Brisbane River and CBD. Abacus jointly controls the venture with the other
partners under the terms of Unitholders Agreement and requires major consent for all major decisions over the
relevant activities.
Abacus did not receive any distributions during the year ended 30 June 2018 (2017: $Nil).
55
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 2018
Cash at bank and in hand1
103,256
56,267
1. Cash at bank earns interest at floating rates. The carrying amounts of cash and cash equivalents represent fair value.
2018
$'000
2017
$'000
Net profit
Adjustments for:
Depreciation and amortisation of non-current assets
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
(a) Disclosure of financing facilities
Refer to Note 11.
(b) Disclosure of non-cash financing facilities
246,958
292,088
5,179
(730)
(60,724)
6,363
(15,265)
(9,004)
(2,039)
(73,749)
23,476
1,524
72,277
194,266
2,481
(4,458)
(84,948)
15,554
(45,267)
(7,167)
(11,762)
(54,273)
15,617
(22,043)
20,388
116,210
Non-cash financing activities include capital raised pursuant to the Abacus distribution reinvestment plan. During the year 3.79 million (2017:
13.35 million) stapled securities were issued with a cash equivalent of $12.1 million (2017: $40.0 million).
56
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 and collars, 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 $11m
Bilateral facility. The total gearing covenant requires Abacus to have total liabilities (net of cash) to be less than or
equal to 50% of total tangible assets (net of cash). As at date of reporting period, Abacus was compliant in
meeting all its debt covenants.
Consolidated Funds
The Capital Management approach and strategies employed by the Group are also deployed for the funds
Abacus manages and which are consolidated in these accounts – AHF and AWLF (or the Consolidated Funds).
Points unique to the capital management of these respective funds are:
- The Consolidated Funds via their responsible entities comply with capital and distribution requirements of
their constitutions and/or deeds, the capital requirements of relevant regulatory authorities and continue to
operate as going concerns; and
- There is currently no Distribution Reinvestment Plan for any of the Funds.
57
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
11. INTEREST BEARING LOANS AND BORROWINGS
ABACUS PROPERTY GROUP
Other
Current
Other loans - A$
(a) Total current
Abacus*
Non-current
Bank loans - A$
Bank loans - A$ value of NZ$ denominated loan
Other loans - A$
Less: Unamortised borrowing costs
(b) Total non-current
* Excludes Abacus Hospitality Fund and Abacus Wodonga Land Fund.
(c) Maturity profile of current and non-current interest bearing loans
Due within one year
Due between one and five years
Due after five years
2018
$'000
2017
$'000
38,765
38,765
-
-
2018
$'000
2017
$'000
624,636 440,657
70,334 73,033
- 37,426
(1,228) (1,932)
693,742 549,184
2018
$'000
2017
$'000
38,765
-
413,742 419,184
280,000 130,000
732,507 549,184
58
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 2019 to July 2024. The bank loans
are secured by charges over the investment properties, certain inventory and certain property, plant and
equipment.
Approximately 41.7% (2017: 48.6%) of bank debt drawn was subject to fixed rate hedges with a weighted
average term to maturity of 3.8 years (2017: 3.4 years). Hedge cover as a percentage of available facilities at 30
June 2018 is 32.6% (2017: 28.6%).
Abacus’ weighted average interest rate as at 30 June 2018 was 4.27% (2017: 5.23%). Line fees on undrawn
facilities contributed to 0.40% of the weighted average interest rate at 30 June 2018 (2017: 0.36%). Abacus’
weighted average interest rate excluding the undrawn facilities line fees as at 30 June 2018 was 3.87% (2017:
4.87%).
* Excludes Abacus Hospitality Fund.
(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
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
2018
$'000
2017
$'000
162,948 8,000
162,948 8,000
12,481 36,231
1,636,334 1,524,431
1,648,815 1,560,662
Total assets pledged as security
1,811,763 1,568,662
59
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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
derivatives. 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 Loan Valuation Ratio (LVR) at drawdown;
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:
-
- 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.
60
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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
2018
$'000
2017
$'000
21,145 18,457
330,291 346,667
7,987 42,543
103,256 56,267
462,679 463,934
As at 30 June 2018, the Group had the following concentrations of credit risk:
- Secured property loans: cross-collateralised loans which were secured by two large developments at
Riverlands and Camellia and other small developments collectively represent 56% (2017: 48%) of the
portfolio.
Secured property loans
The Group has a total investment of $330.3 million in secured property loans as at 30 June 2018 (2017: $346.7
million). Of these loans $76.0 million has been renewed / extended beyond the original term on commercial
terms (2017 $64.5 million).
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.
61
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 2018
Liabilities
Carrying
Amount
Contractual
cash flows
1 Year or
less
Over 1 year
to 5 years
Over
5 years
$'000
$'000
$'000
$'000
$'000
Trade and other payables
88,568
88,568
88,568
- -
Interest bearing loans and borrowings incl derivatives#
745,415 863,123
73,285 503,225 286,613
Total liabilities
833,983 951,691 161,853 503,225 286,613
30 June 2017
Liabilities
Carrying
Amount
Contractual
cash flows
1 Year or
less
Over 1 year
to 5 years
Over
5 years
$'000
$'000
$'000
$'000
$'000
Trade and other payables
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
# Carrying amount includes fair value of derivative liabilities. Contractual cash flows includes contracted debt and net swap payments using
prevailing forward rates
(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 2018, after taking into account the effect of interest rate swaps, approximately 41.7% (2017:
48.6%) of the Group’s drawn debt is subject to fixed rate hedges. Hedge cover as a percentage of available
facilities at 30 June 2018 is 32.6% (2017: 28.6%). 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 2018
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 2018
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
Cash and cash equivalents
73,262
- - - - 73,262
Receivables
Secured loans
- - - - 20,133
67,537
- 262,976
20,133
- - 330,513
Total financial assets
73,262
262,976
67,537
- 20,133 423,908
Weighted average interest rate*
1.60%
10.91%
9.96%
Financial liabilities
Interest bearing liabilities - bank
Interest bearing liabilities - other
Derivatives
Payables
694,970
- - - - 694,970
- 12,078
- - - 12,078
- - - - 12,908
12,908
- - - - 82,099
82,099
Total financial liabilities
694,970
12,078
- - 95,007 802,055
Notional principal swap balance
maturities*
Weighted average interest rate on
drawn bank debt*
30 June 2017
Financial Assets
-
110,000
180,000
-
-
290,000
4.27%
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
Cash and cash equivalents
27,638
- - - - 27,638
Receivables
Secured loans
Derivatives
- - - - 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%
calculated at 30 June
*
^ excludes Abacus Hospitality Fund and Abacus Wodonga Land Fund
63
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
12. FINANCIAL INSTRUMENTS (continued)
(c) Market Risk (continued)
Interest rate risk / Fair value interest rate risk (continued)
Other^
30 June 2018
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
Cash and cash equivalents
29,994
- - - - 29,994
Receivables
Total financial assets
- - - - 1,012
1,012
29,994
- - - 1,012
31,006
Weighted average interest rate*
1.60%
Financial liabilities
Payables
- - - - 6,469
6,469
Total financial liabilities
- - - - 6,469
6,469
30 June 2017
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
Cash and cash equivalents
28,650
- - - - 28,650
Receivables
Total financial assets
- - - - 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
* calculated at 30 June
^
Includes Abacus Hospitality Fund and Abacus Wodonga Land Fund
64
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 2018
Financial assets
Financial liabilities
30 June 2017
Financial assets
Financial liabilities
AUD
Carrying amount
-1%
Floating
$'000
Profit
$'000
Equity
$'000
+1%
Profit
$'000
Equity
$'000
103,256 (1,033)
- 1,033
-
719,956 (1,400)
- 1,294
-
AUD
Carrying amount
-1%
Floating
$'000
Profit
$'000
Equity
$'000
+1%
Profit
$'000
Equity
$'000
56,267 (562)
- 562
-
547,499 (3,828)
- 3,558
-
The analysis for the interest rate sensitivity of financial liabilities includes derivatives.
65
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 2018
12. FINANCIAL INSTRUMENTS (continued)
(d) Fair values (continued)
The following table is a reconciliation of the movements in derivatives (property developments), unlisted securities
and options classified as Level 3 for the year ended 30 June 2018.
Opening balance as at 30 June 2017
Fair value movement through the income statement
Disposals
Closing balance as at 30 June 2018
Opening balance as at 30 June 2016
Fair value movement through the income statement
Additions
Closing balance as at 30 June 2017
Sensitivity of Level 3 – derivatives - property developments
Derivatives -
property
developments
Unlisted
securities/
options
Total
$'000
$'000
$'000
13,263 6,792
20,055
(6,605) (29) (6,634)
- (5,434) (5,434)
6,658 1,329
7,987
Derivatives -
property
developments
Unlisted
securities/
options
Total
$'000
$'000
$'000
4,007 22,774
26,781
9,256 (23,482) (14,226)
- 7,500
13,263 6,792
7,500
20,055
The potential effect of using reasonable possible alternative assumptions based on a change in the underlying
property developments’ returns by 5% would have the effect of reducing the fair value by up to $0.3 million (2017:
$0.7 million) or increase the fair value by $0.3 million (2017: $0.7 million).
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 $0.1 million (2017: $0.8 million) or
increase the fair value by $0.1 million (2017: $0.8 million).
13. CONTRIBUTED EQUITY
(a) Issued stapled securities
Stapled securities
Issue costs
Total contributed equity
(b) Movement in stapled securities on issue
At beginning of financial year
- equity raisings
- distribution reinvestment plan
Securities on issue at end of financial year
2018
$'000
2017
$'000
1,635,046 1,622,897
(40,058) (41,741)
1,594,988 1,581,156
Stapled securities
Number
'000
Number
'000
575,570 556,577
- 5,642
3,793 13,351
579,363 575,570
67
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
14. DISTRIBUTIONS PAID AND PROPOSED
ABACUS PROPERTY GROUP
Abacus
(a) Distributions paid during the year
2018
$'000
2017
$'000
June 2017 half: 8.75 cents per stapled security (2016: 8.50 cents)
December 2017 half: 9.00 cents per stapled security (2016: 8.75 cents)
50,362
47,309
51,975
50,486
(b) Distributions proposed and recognised as a liability^
June 2018 half: 9.00 cents per stapled security (2017: 8.75 cents)
52,143
50,362
Distributions were paid from Abacus Trust, Abacus Income Trust and Abacus Storage Property Trust (which do not pay tax provided they
distribute all their taxable income) hence, there were no franking credits attached.
^ The final distribution of 9.00 cents per stapled security was declared on 21 June 2018. The distribution being paid on or around 31 August
2018 will be approximately $52.1 million.
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
2018
$'000
2017
$'000
1,471
1,349
- 5,052
1,471
6,401
368 368
The total amount of franking credits available for the subsequent financial years including franking credits that will arise from the payment of
income tax payable at the end of the financial year, based on a tax rate of 30 per cent, is $62 million (2017: $35 million).
68
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
15. PARENT ENTITY FINANCIAL INFORMATION
ABACUS PROPERTY GROUP
Results of the parent entity
Profit / (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
2018
$'000
2017
$'000
6,388 (9,871)
6,388 (9,871)
35,551 1,512
353,113 336,195
29,931 146
74,256 62,566
278,857 273,629
348,331 347,011
(73,488) (79,875)
4,014 6,493
278,857 273,629
As at 30 June 2018, 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 $3.5 million
(30 June 2017: $18.5 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 2018 (2017: Nil).
69
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 2018.
ABACUS PROPERTY GROUP
Property, plant and equipment held for sale
Current
Hotel property
Total current property, plant and equipment held for sale
Non-current
Hotel property
Storage properties
Office equipment / furniture and fittings
Total non-current property, plant and equipment
2018
$'000
2017
$'000
88,500
-
88,500
-
- 80,000
3,848 4,226
952 508
4,800 84,734
Total property, plant and equipment including held for sale
93,300 84,734
The hotel property held for sale is measured at the lower of their carrying amount and fair value less costs to sell.
Land and buildings
At the beginning of the year net of accumulated depreciation
Additions
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
2018
$'000
71,828
109
10,052
-
(921)
81,068
91,300
(10,232)
81,068
33,155
(20,923)
12,232
2017
$'000
121,411
99
12,282
(61,964)
-
71,828
81,139
(9,311)
71,828
31,546
(18,640)
12,906
Total
93,300
84,734
If property, plant and equipment was carried under the cost model, the carrying amount would be $63.5 million
(2017: $62.7 million).
70
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 2018 are as follows:
Within one year
After one year but not more than five years
More than five years
2018
$'000
2017
$'000
1,034 1,030
3,357 3,227
- 1,163
4,391 5,420
(b) Operating lease commitments – Group as lessor
Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2018 are as follows:
Within one year
After one year but not more than five years
More than five years
2018
$'000
2017
$'000
65,911 72,465
163,353 163,080
62,749 76,649
292,013 312,194
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 2018 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 property
developments 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
Contingent liabilities:
Within one year
- corporate guarantee
2018
$'000
2017
$'000
15,750
-
6,574 15,136
19,546 11,176
35,694 28,087
77,564 54,399
3,520
3,520
18,712
18,712
71
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 Hampstead Trust
Abacus Investment Pty Ltd
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 Nominees (No 11) Pty Limited
Abacus Note Facilities Pty Ltd
Abacus Property Services Pty Ltd
Abacus SP Note Facility Pty Ltd
Abacus Storage Funds Management Limited
Abacus Wodonga Land Commercial Trust
Amiga Pty Limited
Fitzroy Street Pty Ltd
Oasis Staffing Pty Ltd
Yarradale Developments Trust
Abacus Hobart Growth Trust
Abacus Melbat Trust
Hurstbat Pty Limited
Villemel Pty Limited
Abacus Group Projects Limited and its subsidiaries
Abacus Property Pty Ltd
Abacus Allara Street Trust*
Abacus Repository Trust*
Abacus Ventures Trust*
* These entities are wholly owned by Abacus
equity interest
2018
%
2017
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
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
75
-
100
100
100
100
100
100
100
50
50
51
72
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
18. RELATED PARTY DISCLOSURES (continued)
(a) Subsidiaries (continued)
Entity
Abacus Trust and its subsidiaries:
Abacus 1769 Hume Highway Trust
Abacus Abbotsford Trust
Abacus AGIT Trust
Abacus Alderley Trust
Abacus Ann Street Trust
Abacus Ashfield Mall Property Trust
Abacus Australian Aggregation Holding Trust
Abacus Australis Drive Trust
Abacus Bacchus Marsh Trust
Abacus Birkenhead Point Trust
Abacus Bowden Street 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 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 No. 2 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 464 St Kilda Road Trust
Abacus 710 Collins Street Trust
444 Queen Street Trust
Lutwyche City Shopping Centre Unit Trust
Abacus Income Trust and its subsidiaries:
Abacus Brendale Trust
Abacus Eagle Farm Trust
Abacus Grant Street Trust
Abacus Independent Retail Property Trust
Abacus Retail Property Trust
Abacus Todd Road Trust
* These entities are wholly owned by Abacus
ABACUS PROPERTY GROUP
equity interest
2018
%
2017
%
100
100
100
100
100
100
100
100
100
-
100
100
-
100
100
100
100
100
25
25
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
-
100
100
100
-
100
100
-
100
100
100
100
100
-
100
100
100
100
100
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
-
73
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 SK Pty Limited
Abacus Storage Property Trust and its subsidiary:
Abacus Storage NZ Property Trust
Abacus Hospitality Fund
Abacus Wodonga Land Fund
Subsidiaries controlled by the Group with material non-controlling interest
equity interest
2018
%
2017
%
100
100
100
100
100
100
100
100
100
100
100
100
10
15
100
100
100
100
100
100
100
100
100
100
-
100
10
15
Principal
place of
business
Australia
Australia
Australia
(Profit)/loss
allocated to
Accumulated
NCI
$'000
NCI
$'000
(5,017)
44,536
(2,101)
2,101
(7,821)
40,840
% held by
NCI
90
85
90
30 June 2018
Abacus Hospitality Fund
Abacus Wodonga Land Fund
30 June 2017
Abacus Hospitality Fund
(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.
74
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
18. RELATED PARTY DISCLOSURES (continued)
(d) Transactions with related parties
ABACUS PROPERTY GROUP
Transactions with related parties other than associates and joint ventures
Revenues
Property management fees received / receivable
206 196
2018
$'000
2017
$'000
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
3,510 4,316
82,743 61,186
(13,158) (12,019)
48,735 18,161
785 762
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 (2017: 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
2018
$
181,422
206,237
2017
$
195,782
177,492
Mrs Myra Salkinder is a non-executive director of the Group and is a senior executive of Kirsh.
75
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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
2018
$
2017
$
5,699,461 5,413,023
170,009 203,688
58,562 61,662
1,842,125 1,090,281
7,770,157 6,768,654
(b) Loans to key management personnel
There were no loans to key management personnel and their related parties at any time in 2018 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.
76
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
20. SECURITY BASED PAYMENTS
(a) Recognised security payment expenses
The expense recognised for employee services received during the year is as follows:
2018
$'000
2017
$'000
Expense arising from equity-settled payment transactions
3,296 2,062
(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 2018
September 2019
September 2020
September 2021
One quarter of the initial issue
One quarter of the initial issue
One quarter of the initial issue
One quarter of the initial issue
128,456
128,456
128,456
128,456
* 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.
77
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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
ABACUS PROPERTY GROUP
2018
No.
2017
No.
2,098,316 2,111,757
730,244 865,092
- (13,519)
(1,404,023) (865,014)
1,424,537 2,098,316
Exercisable at the end of the year
-
-
The weighted average remaining life of the instrument at 30 June 2018 was 1.2 years (2017: 1.2 years) and the
weighted average fair value of the SARs granted during the year was $3.57 (2017: $2.38).
The following table lists the inputs to the model used for the SARs plan for the years ended 30 June 2018 and 30
June 2017:
Expected volatility (%)
Risk-free interest rate (%)
Life of instrument (years)
Model used
2018
2017
19 18
1.53 - 2.04
1.41 - 1.68
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.
78
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
21. INTANGIBLE ASSETS AND GOODWILL
Description of the Group’s intangible assets
ABACUS PROPERTY GROUP
Goodwill
Balance at 1 July
Balance at 30 June
2018
$'000
2017
$'000
32,394 32,394
32,394 32,394
Impairment tests for goodwill with indefinite useful lives
(i) Description of the cash generating units and other relevant information
Goodwill acquired through business combinations for the purposes of impairment testing is allocated to one of the
Group’s property / asset management business or a cash generating unit relating to one of the Group’s segment.
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 2018 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. Management and other fee income: based on actual income and funds under management within the
financial year.
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% (2017: 9.40%) and a terminal growth rate of 2.7% (2017: 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 2018 has significant
head room thus no reasonable changes in the assumptions would cause or give rise to an impairment.
79
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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
2017/191. 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 2017.
The Group has adopted the following new or amended standards which became applicable on 1 July 2017:
- AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for
Unrealised Losses
- AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to
AASB 107
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 2018. 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. The Group is currently finalising its quantification of the impairment
that will be recognised on initial application of the accounting standard. As the year ending 30 June 2019 will
be the first time application of the Standard, the Group has elected to adjust the retained earnings of the
Group as at 1 July 2018 as opposed to restating the previous year amounts.
80
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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
- Management and other 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 likely 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 reviewed terms of its lease agreement and has considered that the impact to the Group’s
results to be immaterial.
81
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(c) New accounting standards and interpretations (continued)
AASB 2014-10, AASB 2016-5, AASB 2017-1, AASB 2017-2, AASB 2017-5 and AASB Interpretation 23 are
applicable to the Group, however will have no significant impact on the Group.
AASB 2016-6, AASB 2017-3, AASB 2017-4, AASB 2017-6 AASB 2018-1, AASB 2018-2, AASB Interpretation 22,
AASB 2017-8 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 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.
82
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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. 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.
Management and other fee income
Revenue from rendering of services is recognised in accordance with the terms and conditions of the service
agreements and the accounting standards.
83
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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 derivatives 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.
84
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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.
85
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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
86
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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.
87
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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.
88
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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.
89
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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.
90
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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.
91
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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% (2017: 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% (2017: 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.
92
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
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.
93
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2018
23. AUDITOR’S REMUNERATION
ABACUS PROPERTY GROUP
2018
$
2017
$
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
1,037,571 1,104,110
- Other services in relation to the entity and any other entity in the consolidated group
- assurance services
- compliance services
95,895 116,420
38,200 37,150
1,171,666 1,257,680
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.
94
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 2018 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 2018.
On behalf of the Board
John Thame
Chairman
Sydney, 17 August 2018
Steven Sewell
Managing Director
95
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Independent Auditor's Report to the Members of Abacus Group
Holdings Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Abacus Group Holdings Limited (the Company) and its
subsidiaries (collectively the Group), which comprises the consolidated statement of financial
position as at 30 June 2018, the consolidated statement of comprehensive income, the
consolidated statement of changes in equity and the consolidated statement of cash flows for the
year then ended, notes to the financial statements, including a summary of significant accounting
policies, and the Directors’ Declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the
Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the consolidated financial position of the Group as at 30 June
2018 and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report. We are independent of the Group in accordance with the
auditor independence requirements of the Corporations Act 2001 and the ethical requirements of
the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audit of the financial report in
Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance
in our audit of the financial report of the current year. These matters were addressed in the context
of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not
provide a separate opinion on these matters. For each matter below, our description of how our
audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the financial report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying financial report.
96
Investment Properties
Why significant
How our audit addressed the key audit matter
The Group’s total assets include investment
properties either held directly or via interests in
Joint Ventures. These assets are carried at fair
value, which is assessed by the directors with
reference to either external independent
property valuations or internal valuations, and
are based on market conditions existing at the
reporting date.
This was considered a key audit matter due to
the number of judgments required in
determining fair value. These judgments include
assessing the capitalisation rate, discount rate,
market rent, re-leasing costs and forecast
occupancy levels.
Disclosure of investment properties and
significant judgments are included in Note 5 of
the financial report.
Our audit procedures included the following:
We assessed the effectiveness of relevant
controls over the leasing process and associated
tenancy reports which are used as source data in
the property valuations by testing a sample of the
relevant controls.
For a sample of internal and external valuations,
we evaluated the key assumptions and tested key
inputs to tenancy schedules. These assumptions
and inputs included market and contractual rent,
occupancy rates including forecast occupancy
levels, lease terms, re-leasing costs, operating
expenditure and future capital expenditure.
For a sample of internal valuations we tested the
mathematical accuracy of the valuation.
For selected properties we involved our real
estate specialists to assist with the assessment of
the valuation.
Where relevant we evaluated the movement in
the capitalisation rates across the portfolio based
on our knowledge of the property portfolio,
published industry reports and comparable
external valuations.
Where relevant we assessed the reasonableness
of comparable transactions utilised in the
valuation process.
We evaluated the suitability of the valuation
methodology across the portfolio based on the
type of asset; and
We assessed the qualifications, competence and
objectivity of the valuers.
97
Property Loans
Why significant
The Group provides mortgage loans to external
parties for which the underlying security is
primarily development property assets.
This was considered a key audit matter as the
assessment of the recoverability of the loans,
including any capitalised interest, is subject to
significant judgment as to the value of underlying
security or performance of the underlying
development. Changes in feasibility assumptions
impacting project cashflows may give rise to an
impairment of the loans.
Some of the loan arrangements include a profit
share component that entitles the Group to
additional returns, depending on the outcome of
the underlying development. There are complex
accounting judgments relating to the amount and
timing of revenue recognition for these
participation rights.
Disclosure of property loans is included in note 7
of the financial report.
Disclosure of revenue recognition policies is
included in Note 22(f) of the financial report.
How our audit addressed the key audit matter
Our audit procedures included the following:
We considered the Group’s assessment of
recoverability of the loans.
We evaluated the adequacy of the security on a
sample of loans by assessing the feasibilities of
the underlying development asset. For this
sample we assessed the feasibility by
performing procedures consistent with those
performed on Inventories as set out in the
inventories key audit matter below.
For a sample of properties, where a valuation
was obtained as part of the recoverability
assessment performed by the Group, we
assessed the valuation by performing
procedures consistent with those performed on
Investment property valuations referred to in
the preceding key audit matter.
We assessed the qualifications, competence and
objectivity of the valuers, the assumptions used
in the valuations and evaluated the suitability of
the valuation methodology for valuations
obtained.
We evaluated the classification of loans and the
status of the underlying property supporting
recoverability based on the expected timing of
settlement and the status of the underlying
developments.
We assessed the Group’s framework for
recognising additional revenue for loans with
profit share arrangements and re-performed the
Group’s calculations based on the underlying
development financial information.
98
Inventories
Why significant
The Group’s total assets include development
property assets either held directly or via
interests in Joint Ventures. Development assets
are carried at the lower of cost or net realisable
value. The net realisable value is determined
through a feasibility model for each project that
estimates the revenue and costs of the
development over the life of the project.
This was considered a key audit matter as the
determination of net realisable value is affected
by subjective elements within the estimated
costs and projected revenues over an assumed
development life. These values are sensitive to
changes in the underlying assumptions.
Disclosure of inventories is included in Note 6 of
the financial report.
Disclosure of revenue recognition policies is
included in Note 22(f) of the financial report.
How our audit addressed the key audit matter
Our audit procedures included the following:
We Interviewed Project Managers employed by
the Group, to understand the status and progress
of the developments
We assessed the historical accuracy of previous
forecast development outcomes
We assessed the feasibility models prepared by
the Group for a sample of developments currently
in progress
Where applicable we evaluated the assumptions
adopted in light of current market evidence by:
comparing the sales revenue assumed to the
most recent historical or comparable sales;
corroborating the costs projected to signed
contracts, recent or actual costs incurred for
current or comparable projects; and
assessed contingency estimates for remaining
development risks.
Where relevant, we performed sensitivity
analyses in relation to the key forward looking
assumptions including sales price achieved,
finance costs, time to completion, and escalation
rates.
We tested the mathematical accuracy of the
feasibilities.
99
Equity Accounted Investments
Why significant
How our audit addressed the key audit matter
The Group has entered into a number of joint
venture arrangements which are involved in
property investment or property development.
The application of the equity method of
accounting for the joint venture investments is
predicated on the Group having joint control with
the other party(ies) under the arrangements.
We have focused on this area as a key audit
matter due to the judgment involved in assessing
whether the entities are controlled or joint
ventures. Some joint arrangements include the
potential to earn variable returns subject to
reaching certain performance thresholds. The
determination of the variable returns is based on
a calculation that is specified under the relevant
joint venture agreement.
Disclosure of equity accounted investments is
included in Note 8 of the financial report.
Our audit procedures included the following:
For new joint ventures entered into during the
year we assessed the joint venture agreements to
understand the ownership interest and rights of
each joint venture party. We considered the
Group’s assessment of joint control and the
determination of applying equity accounting to
the investment.
For existing joint ventures we confirmed with the
Group that there had been no changes to the joint
arrangements with respect to decision making
power and entitlement to profits nor in the
underlying operation and performance of the
arrangement, which would amend the conclusion
from prior periods.
We assessed the Group’s variable return
calculation against the provisions of the joint
venture agreement and tested the calculation
methodology.
100
Information Other than the Financial Report and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the
information included in the Group’s 2018 Annual Report, other than the financial report and our
auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual
Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of
the Annual Report after the date of this auditor’s report.
Our opinion on the financial report does not cover the other information and we do not and will not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report
and our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial report or our knowledge obtained in the audit or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors’ for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives
a true and fair view in accordance with Australian Accounting Standards and the Corporations Act
2001 and for such internal control as the directors determine is necessary to enable the
preparation of the financial report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the Group or to
cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with the Australian Auditing Standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
101
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the financial
report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and
events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the financial report.
We are responsible for the direction, supervision and performance of the Group audit. We
remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
102
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 19 to 32 of the Directors' Report for
the year ended 30 June 2018.
In our opinion, the Remuneration Report of Abacus Group Holdings Limited for the year ended 30
June 2018, complies with section 300A of the Corporations Act 2001.
Responsibilities
The Directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Ernst & Young
Kathy Parsons
Partner
Sydney
17 August 2018
103
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 16 August 2018.
Number of holders of ordinary fully paid stapled securities
6,177
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
432
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
The Vanguard Group, Inc
Number of Securities
252,981,605
28,986,784
104
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
1,220
2,243
1,281
1,359
74
6,177
431,899
6,279,436
9,257,398
29,609,142
533,784,662
579,362,537
TOP 20 LARGEST SECURITYHOLDINGS
Holder Name
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES
CALCULATOR AUSTRALIA PTY
J P MORGAN NOMINEES AUSTRALIA
CALCULATOR AUSTRALIA PTY
NATIONAL NOMINEES LIMITED
CALCULATOR AUSTRALIA PTY
BNP PARIBAS NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMS PTY LTD
AMP LIFE LIMITED
WARBONT NOMINEES PTY LTD
POWERWRAP LIMITED
NULIS NOMINEES (AUSTRALIA)
NATIONAL NOMINEES LIMITED
MR FRANK MICHAEL WOLF
HSBC CUSTODY NOMINEES
BOND STREET CUSTODIANS LIMITED
AUSTRALIAN EXECUTOR TRUSTEES
WOODROSS NOMINEES PTY LTD
Number of
Securities
% Issued
Securities
192,346,848 33.200%
107,406,711 18.539%
57,750,613
54,373,501
45,547,846
16,345,612
14,200,000
10,733,277
6,952,748
4,566,263
2,702,737
1,542,269
1,134,589
1,006,272
1,000,000
938,085
850,986
792,598
626,007
612,754
9.968%
9.385%
7.862%
2.821%
2.451%
1.853%
1.200%
0.788%
0.467%
0.266%
0.196%
0.174%
0.173%
0.162%
0.147%
0.137%
0.108%
0.106%
105
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