Appendix 4E
Abacus Property Group
(comprising Abacus Group Holdings Limited and its controlled entities, Abacus Trust and its controlled entities, Abacus Income Trust and its
controlled entities, Abacus Group Projects Limited and its controlled entities, Abacus Storage Property Trust and its controlled entities and
Abacus Storage Operations Limited and its controlled entities)
ABN: 31 080 604 619
Annual Financial Report
For the year ended 30 June 2019
Results for announcement to the market
(corresponding period: year ended 30 June 2018)
Total revenues and other income
Net profit after income tax expense attributable to
stapled security holders
Underlying profit (1)
Funds from operations ("FFO") (2)
down
down
down
down
15%
17%
24%
24%
to
to
to
to
$388.2m
$202.7m
$139.4m
$129.2m
(1) Underlying profit has been prepared in accordance with the AICD / Finsia reporting principles and includes change in fair value of
investment properties derecognised.
(2) 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.
Basic earnings per security (cents)
Basic underlying earnings per security^ (cents)
Basic funds from operations per security^ (cents)
Distribution per security (cents - including proposed distribution)
Weighted average securities on issue (million)
^Abacus
Distributions
June 2019 half year
34.95
24.03
42.18
31.73
22.28
29.39
18.50
580.0
18.00
577.8
per stapled security
9.25 cents
This distribution was declared on 21 June 2019 and will be paid on 30 August 2019.
Record date for determining entitlement to the distributions
28 June 2019
Refer to the attached announcement for a detailed discussion of the Abacus Property Group's results and the above figures for the
year ended 30 June 2019.
Details of individual and total distribution payments
per stapled security
Half December 2018 distribution
paid 28 February 2019
9.25
Total
$53.6m
The distribution was paid in full by Abacus Trust which does not pay tax, hence there were no franking credits attached.
Net tangible assets per security (3)
30 June 2019
30 June 2018
$3.33
$3.18
(3) Net tangible assets per security excludes the external non-controlling interest and is adjusted for the recognition of the June 2019 and
2018 distributions.
Distribution Reinvestment Plan (DRP)
The Abacus Property Group DRP allows securityholders to reinvest their distributions into ABP securities. Information on the terms of the DRP
is available from our website www.abacusproperty.com.au.
Securityholders wishing to participate in the DRP may lodge their election notice at any time. The record date for determining entitlements to
each distribution is also the record date for participation in the DRP for that distribution.
Abacus Property Group
ABN 31 080 604 619
Financial Report
For the year ended
30 June 2019
ABACUS PROPERTY GROUP
ANNUAL FINANCIAL REPORT
30 June 2019
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
Mark Haberlin
Holly Kramer
Jingmin Qian
Myra Salkinder
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
32
33
34
35
37
38
40
96
97
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 2019. It
is also recommended that the report be considered together with any public announcements made by the Abacus Property Group in
accordance with its continuous disclosure obligations arising under the Corporations Act 2001.
1
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
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 2019.
PRINCIPAL ACTIVITIES
The principal activities of Abacus Property Group during the year were investment in self storage and commercial
(office, retail and industrial) properties and property developments. Abacus is well advanced in its strategy to
transition to a more consistent annuity style, strong asset backed business.
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 $2.38 billion at 30 June 2019.
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
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.
Abacus Hospitality Fund (AHF)
The only remaining hotel in the fund, Twin Waters on the Sunshine Coast QLD, was sold in August 2018 and the
capital has been returned to the securityholders. Accordingly AHF has been treated as a discontinued operation
in the financial statements.
Abacus Wodonga Land Fund (AWLF)
AWLF owns the residential estate known as White Box Rise located in Wodonga, Victoria. During the year 77
residential lots were settled for combined proceeds of $11.2 million. There are approximately 76 lots left to sell in
the estate, and these are expected to be sold over the next two years.
AGHL has been identified as the parent entity of the Group. The financial reports of the Group for the year ended
30 June 2019 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.
2
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
OPERATING AND FINANCIAL REVIEW (continued)
The principal activities of Abacus that contributed to its earnings during the year ended 30 June 2019 included:
investment in self storage and commercial (office, retail and industrial) properties to derive rental and
management and other fee income; and
participation in property developments including lending 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 is transitioning to a more consistent annuity style, strong asset backed business with key investment
sectors of commercial office and self storage.
Abacus invests its 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:
Use of our specialised knowledge, track record and market positioning.
Continuing to invest in core and core plus property investments that are expected to yield an appropriate risk
adjusted return over time.
Driving value through active management of the asset portfolio.
Abacus has a successful track record of acquiring property based assets and actively managing those assets to
enhance income and capital growth. This track record has facilitated joint ventures with a number of sophisticated
local and global third party capital providers. Most of our investment success is from assets mostly in major city
centres or suburban areas, typically on the eastern seaboard of Australia.
Experience has shown that strict adherence to our fundamental investment criteria enables us to buy assets well
and provide opportunities for outperformance while minimising downside risk to equity.
3
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
OPERATING AND FINANCIAL REVIEW (continued)
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 measures are underlying profit and funds from operations (“FFO”).
Revenue ($ million)
Total income ($ million)
Statutory net profit excluding non-controlling interests ($ million)
Underlying profit^ ($ million)
Underlying profit per security^ (c)
Funds from operations^ ($ million)
Funds from operations per security^ (c)
Distributions per security^ (c)
Interest cover ratio
Weighted securities on issue^ (million)
^ Abacus
2019
270.4
388.2
202.7
139.4
24.03
129.2
22.28
18.50
6.6x
580.0
2018
292.3
457.4
243.7
183.3
31.73
169.8
29.39
18.00
8.7x
577.8
The Group earned a statutory net profit excluding non-controlling interests of $202.7million for the year ended 30
June 2019 (2018: $243.7 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’ FFO of $129.2 million (2018: $169.8 million) and underlying profit of $139.4 million
(2018 $183.3 million).
FFO and underlying profit are derived from the statutory profit and present the results of the ongoing business
activities in a way that reflects our underlying performance. FFO and underlying profit are the basis on which
distributions are determined.
FFO has been determined with reference to the Property Council of Australia’s voluntary disclosure guidelines to
help investors and analysts compare Australian real estate organisations. 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, capital costs, unrealised fair value gains / losses on investment
properties, adjustments arising from the effect of revaluing assets / liabilities carried at fair value (such as
derivatives, financial instruments and investments), and other non-recurring adjustments deemed significant on
account of their nature and non-FFO tax benefit/expense. 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 underlying profit has been prepared in accordance with the AICD / Finsia reporting principles and includes
change in fair value of investment properties derecognised.
4
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
OPERATING AND FINANCIAL REVIEW (continued)
GROUP RESULTS SUMMARY (continued)
The reconciliation between the Group’s statutory profit excluding non-controlling interests and Abacus’ underlying
profit and FFO is below. This reconciliation has not been reviewed or audited by the Group’s auditor.
Consolidated statutory net profit after tax attributable to members of the Group
less: 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 and property, plant and equipment held at balance
date
Net change in fair value of investments and financial instruments held at balance date
Net change in fair value of derivatives
Net change in fair value of property, plant and equipment and investment properties included in equity
accounted investments
Impairment charges
Net tax expense / (benefit) on significant items
Underlying profit attributable to Abacus securityholders
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
Straightline of rental income
Tax (benefit)/expense on Non-FFO Items
Abacus funds from operations ("FFO")
Basic earnings per security (cents)
Basic underlying earnings per security^ (cents)
Basic FFO per security^ (cents)
Distribution per security^ (cents - including proposed distribution)
Weighted average securities on issue (million)
^Abacus
2019
2018
$'000
202,723
$'000
243,709
(9,614)
1,169
193,109
244,878
(69,640) (60,724)
2,332
6,363
6,750 (730)
(1,278) (4,635)
7,771
-
320 (1,831)
139,364
183,321
(13,532) (15,265)
- (2,660)
1,081
1,090
2,836
1,981
1,827
1,646
(4,220)
-
1,870 (323)
129,226
169,790
2019
34.95
24.03
22.28
2018
42.18
31.73
29.39
18.50
18.00
580.0
577.8
The RBA recently cut interest rates, (both in June and July 2019) to an all time low Official Cash Rate of 1.0%.
This decision comes after more than 2½ years in which the cash rate remained steady. 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.
5
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
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 continued to grow during the year. A bifurcation in the retail property 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. Changes in
consumer behaviour and customer needs are also driving a new era of mixed-use developments.
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.
During FY19 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 believe they represented the best risk adjusted returns
over the investment period. This activity was and will continue to be funded via reduction in retail property
investment and the realisation of our development portfolio over the coming years. This strategy is focused on
growing the contribution to recurring earnings to fund the Group’s targeted distribution growth of 2-3% pa. In
FY19, Abacus’ net property income increased by 8.4% to $114.8 million (2018: $105.9 million).
Abacus continued to expand the office portfolio investment thematic that focuses on CBD and select fringe
markets. As a result, we acquired a number of assets including 2 King Street in Fortitude Valley, 28-30 Orwell
Street in Potts Point and 459-471 Church Street, Richmond.
In early June 2019 Abacus and Charter Hall Group (collectively “Consortium”) together acquired a 19.9%
strategic interest in Australian Unity Office Fund (ASX:AOF) for a total consideration of $95.6 million and
announced a non-binding, indicative proposal to acquire all the units in AOF that the Consortium did not already
own for $2.95 cash per unit by way of trust scheme of arrangement. On 3 July 2019, the Consortium increased
the price to $3.04 per unit. The offer price and envisaged structure reflects a further capital commitment of c.$308
million for Abacus. AOF owns a portfolio of nine office properties located in five Australian capital cities that is
consistent with Abacus’ investment objectives.
In July 2019 Abacus completed a fully underwritten institutional placement of 63.3 million new ordinary stapled
securities at an issue price of $3.95 per stapled security which raised $250 million. A Security Purchase Plan
(“SPP”) has also been offered to eligible securityholders to apply for up to $15,000 of new securities at $3.95 per
stapled security.
The residential markets in Australia also encountered strong bifurcation of markets with the Melbourne and
Sydney markets seeing significant negative capital growth during the period. Pockets of oversupply in Brisbane
combined with a reduction in the availability of financing for investors, particularly offshore investors, has slowed
settlement and sales rates, increased settlement timeframes and in some cases increased the number of
defaults. During the 12 months to 30 June 2019, the Group has continued to reduce its exposure in this market.
6
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
OPERATING AND FINANCIAL REVIEW (continued)
GROUP RESULTS SUMMARY (continued)
The decrease in the Group’s statutory net profit excluding non-controlling interests was principally due to lower
returns from:
the share of profit from equity accounted investments associated with the divestments of 201 Pacific
Highway, St Leonards and an office portfolio co-owned with Heitman LLC; and
reduction in sale of inventory as we continue to wind down the development division.
Key operating metrics of the Group are:
Total assets ($ million)
Gearing^ (%)
Net assets* ($ million)
Net tangible assets* ($ million)
NTA per security^# ($)
2019
2,827.7
2018
2,795.6
24.1
23.3
1,960.7
1,870.1
1,933.6
1,841.7
3.33
3.18
^ Abacus - gearing calculated as debt minus cash divided by total assets minus cash
* Excluding external non-controlling interests of $4.7 million (2018: $46.6 million)
# Following recognition of June 2019 and 2018 distributions
The increase in net assets of the Group by 5% reflects the increase in fair value of investments and undistributed
share of equity accounted income during the year.
Capital management
The Abacus balance sheet remains strong with gearing levels conservative at 24.1%, well within our target
gearing limit of 35%. At 30 June 2019, Abacus had $276 million of available liquidity that provides capacity for
use for up to $483 million of accretive acquisitions. Importantly, post year end Abacus undertook an equity capital
raising, further adding to the Group’s liquidity balances and increases the acquisition capacity to $900 million.
This represents a 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 4.0% 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 $91.6 million for the year ended 30 June 2019 which
was 23.6% lower than the previous period (2018: $119.8 million) largely due to a reduction in the share of profit
from equity accounted investments associated with the divestments of 201 Pacific Highway, St Leonards and an
office portfolio owned with Heitman LLC. The commercial portfolio consists of 34 assets (2018: 35 assets) and
had a total value of $1.4 billion at year end (2018: $1.5 billion).
Pursuant to the 2019 portfolio valuation process, 20 out of 31 of the commercial properties (excluding equity
accounted properties) or 65% by number were independently valued during the year to 30 June 2019. The
remaining properties were subject to internal valuation and, where appropriate, their values were adjusted. The
valuation process resulted in a net full year revaluation gain of $18.2 million (2018: $18.4 million gain) or 1.5% of
commercial portfolio.
7
DIRECTORS’ REPORT
30 June 2019
OPERATING AND FINANCIAL REVIEW (continued)
CORE SEGMENT RESULTS SUMMARY (continued)
ABACUS PROPERTY GROUP
Commercial portfolio (office, retail, industrial and other)
1. WACR: Weighted Average Capitalisation Rate
During the year Abacus was able to secure several high profile quality commercial properties that met our
investment criteria, including:
2 King Street, Fortitude Valley QLD for $170.0 million (Abacus interest 50%), settled August 2018;
28-30 Orwell Street, Potts Point NSW for $18.0 million (Abacus interest 100%), settled February 2019; and
459-471 Church Street, Richmond VIC for $51.0 million (Abacus interest 50%), settled May 2019.
Abacus divested several non-core properties at various stages during the year which included:
The Village, Bacchus Marsh VIC for $61.7 million, settled July 2018;
79-85 Melville Street, Hobart TAS for $15.0 million (Abacus interest 50%), settled November 2018;
95 Mina Parade, Alderley QLD for $8.0 million, settled June 2019;
169 Varsity Parade, Varsity Lakes QLD for $14.0 million, settled June 2019; and
99 Bathurst Street, Hobart TAS for $22.4 million (Abacus interest 50%), settled June 2019.
During the year, Abacus also settled the divestment of a 50% interest in two Abacus owned super convenience
retail assets being Ashfield Mall in Sydney NSW and Lutwyche City Shopping Centre in Brisbane QLD.
As a result of changes in the portfolio from acquisitions and divestments and a mixed leasing environment across
regions the portfolio occupancy increased from 91.3% at 30 June 2018 to 91.9% at 30 June 2019. Pleasingly,
like for like rental growth remained strong across our existing and stabilised portfolio to deliver growth of 4.8%.
This was largely due to the performance of the Group’s property management team (internal and outsourced),
leasing of developed assets and in-built annual rental increases.
8
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
OPERATING AND FINANCIAL REVIEW (continued)
CORE SEGMENT RESULTS SUMMARY (continued)
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 elsewhere. 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.
Self storage
Abacus’ self storage portfolio delivered a segment result of $100.5 million for the year ended 30 June 2019. This
represents a 3% increase on the FY18’s result of $97.7 million and can be attributed to increases in self storage
EBITDA. Portfolio assets totalled $908 million across a total portfolio of 70 assets, an increase of eight facilities
during the period.
Pursuant to the 2019 valuation process 36 self storage facilities out of 70 or 51% by number were independently
valued during the year to 30 June 2019. The remaining facilities were subject to internal valuation and, where
appropriate, their values were adjusted. The valuation process resulted in a net full year revaluation gain of $51.4
million (2018: $42.4 million gain) or 6.5% 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)
9
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
OPERATING AND FINANCIAL REVIEW (continued)
CORE SEGMENT RESULTS SUMMARY (continued)
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. The Group acquired seven operating stores as well as one site for
development into a self storage facility that should begin to deliver returns to the portfolio in the next few years.
We remain committed to growing our presence in metropolitan areas.
The storage portfolio’s stabilised assets are the key contributor to underlying growth across the portfolio. The
storage portfolio continues to deliver improved operating performances across Australian and New Zealand
markets. The reduction in the stabilised portfolio’s occupancy to 88.5% from 89.4% was offset by the average
rental rate increasing to $283/m2 from $277/m2. This increased the portfolio’s revenue per available metre
(RevPAM) to $251/m2 from $248/m2 in 2019, a 1.2% 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 8 assets
valued at $71 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.
Developments
The developments business delivered an reduced segment result of $51.8 million (2018: $85.6 million) as we
continue to wind down this part of the business. The business invests in projects and provides finance solutions
that focus on select residential and commercial development opportunities in core locations and with experienced
local joint venture partners. Abacus has total assets of $334 million invested across a number of residential
developments in capital city markets across the eastern seaboard of Australia.
In the past 12 months, Abacus continued to settle on its completed residential apartment stock as well as
divesting a portfolio of three residential projects to an offshore property group for circa book value; demonstrating
delivery of Abacus’ strategic objective of reducing exposure to residential. As at 30 June 2019:
Ashfield Central, Ashfield NSW settled all 101 apartments.
One A, Erskineville Sydney NSW settled all 175 apartments.
Ivy and Eve, Brisbane QLD settled 456 out of 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. We are confident of settling the remaining apartments in FY20.
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 accurately forecast when projects will be realised.
10
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
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 FY19.
Abacus held elevated levels of acquisition capacity at 30 June 2019 that were substantially increased following an
equity capital raising post balance date increasing the Group’s capacity to over $900 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.
Abacus is likely to reduce its exposure to returns from realisation of assets as it completes its reweighting and
renewal program. While this will impact on underlying profit in the short term the Group will benefit from growing
recurring earnings.
A number of legacy residential construction projects were sold/completed in FY19 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 lending 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.
11
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
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.
Strategic Investment Performance – Prevailing economic conditions, changing capitalisation rates and/or
failure to predict the market or invest in appropriate sectors can impact the value of our assets and our
financial performance. Setting the appropriate strategic direction for the business will assist in mitigating
against unfavourable business outcomes as a result of prevailing investment conditions. Abacus has a
number of approaches to the management of this risk including:
active Investment Committee which is governed by a charter;
regular Board reporting which includes stress testing;
due diligence processes;
performance evaluation processes;
analysis of macro-economic and property sector trends;
forecasting processes;
market conditions monitoring; and
valuation process consistent with the valuation policy.
Abacus recognises that its strategic goals, objectives and business plans are key drivers in determining the
overall appetite for risk and that it is not possible, or necessarily desirable, to eliminate every risk inherent in
its business activities. There is also acceptance of some risks such as economic conditions and the
regulatory environment which are not within its ability to control.
Operational – The failure to achieve financial targets due to inadequate or failed internal processes, people
or systems. Appropriate internal operational control allows Abacus to manage investment and key operational
processes (leasing, tenant management, property and building management, management of service
providers). Effective operational control results in appropriate management of future financial performance.
Abacus has several approaches to management of operational control including:
appropriate human resourcing and experience;
active Investment Committee which is governed by a charter;
due diligence processes;
forecasting and budgeting processes;
credit control;
performance evaluation of external service providers; and
insurance.
Climate Change – Abacus may be exposed to unforeseen material environmental risk or the impact of
climate change over time. Environmental and climate change related events have the potential to damage our
assets, disrupt operations and impact the health and wellbeing of our people and communities. Abacus
believes that integrating sustainability issues into our investment decision making and business operations is
congruent with the responsibility we have to our stakeholders and is critical to Abacus achieving its long-term
goals. Abacus continues to develop the appropriate strategies to protect its properties and mitigate the risks
of climate change. Environmental issues are incorporated into our decision-making process when acquiring
properties and as part of the ongoing management of each property. We manage this risk through the due
diligence process undertaken with each acquisition. Key environmental concerns are reported to the
Investment Committee and the Board as part of the governance framework. Environmental risks associated
with each property are monitored as part of the Group’s asset management processes.
12
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
OPERATING AND FINANCIAL REVIEW (continued)
FUTURE PROSPECTS AND RISKS (continued)
Capital markets and treasury risk – Changing debt and equity market conditions can affect our ability
obtain timely and appropriately priced capital which may prevent us achieving our business and investment
objectives. Abacus utilises capital and treasury risk management measures including:
capital management processes to monitor, manage and stress test interest rate, funding, liquidity and
credit risk with regular reporting to the Treasury Management Committee and the Board;
a treasury policy and procedures;
external treasury advisor; and
effective relationship with a range of banks and access to alternate funders;
Health and safety – Maintaining the health, safety and wellbeing of our people is of paramount importance to
Abacus. We recognise the fundamental right of all workers and those affected by our operations to a safe and
healthy environment. Abacus strives, through a process of continuous improvement, to integrate safety and
health into all aspects of its activities. We aim to achieve and sustain zero harm in the workplace through the
application of risk management principles, effective stakeholder engagement and continuously improving our
systems of work and organisational practice to empower all to work safely. We focus on maintaining a safety-
aware culture and ensuring proper standards of workplace health and safety for our employees and other key
stakeholders visiting or working at our properties.
People and culture – Attracting, engaging and retaining talented people is fundamental to delivering our
strategic objectives. Abacus has and is continuing to evolve a range of initiatives designed to ensure the most
appropriate corporate culture and capabilities are in place to deliver on our strategic business objectives.
These initiatives include:
recognising the benefits of creating an inclusive workplace;
a commitment to diversity and inclusion ensuring collective perspectives are valued;
encouraging flexible work practices that are supported by necessary systems and processes;
performance appraisal and training programs.
code of conduct and whistle-blower program; and
Technology and cyber security – Inadequate technology systems and controls could result in a loss of data
which could impact the business and its reputation. Abacus has a technology governance framework in place
which is designed to address privacy, network security, business continuity and incident response. The
technology governance is designed to protect, manage and configure network devices and to detect and
respond to network threats and to ensure a consistent and effective approach to management of security
incidents.
13
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
OPERATING AND FINANCIAL REVIEW (continued)
DIRECTORS AND SECRETARY
Board renewal
Over past two years the Abacus Board has been going through a renewal process, with the appointment of three
new non-executive independent directors. In May 2019 the Board announced that Myra Salkinder would succeed
John Thame as Chair of the Board effective 1 September 2019.
Myra Salkinder has been a director since 2011 and has been integrally involved in Abacus’ strategic direction,
several major transactions and most recently the new Managing Director transition.
John Thame has been a Director and Chair since 2002 and led Abacus through a period of significant growth and
activity.
The qualifications, experience and special responsibilities of the Directors and Company Secretary are as follows:
John Thame AIBF, FCPA
Chairman (non-executive)
John has over 30 years’ experience in the retail financial services industry in senior management positions. His
26-year career with Advance Bank included 10 years as Managing Director until the Bank’s merger with St
George Bank Limited in 1997. John was Chairman (2004 to 2008) and a director (1997 to 2008) of St George
Bank Limited and St George Life Limited.
John is a member of the Audit & Risk, People Performance, Nomination and Compliance Committees.
Tenure: 16 years (All as Chairman)
Steven Sewell BSc
Managing Director
Steven 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’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.
Tenure: 1 year
Myra Salkinder MBA, BA
Myra 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. Myra is a director of various companies associated with the Kirsh Group
worldwide.
Myra is a member of the People Performance, Nomination and Compliance Committees.
Tenure: 8 years
Mark Haberlin BSc (Eng) Hons, FCA
Mark is a Non-Executive Director and joined the Board in November 2018. He has significant expertise in fields
that cover accounting and audit, capital transactions, mergers and acquisitions and risk management in the real
estate and financial services sectors. Mark was a partner at PwC for 25 years where he developed key
accounting and audit experience. Mark was a member of the PwC Governance Board and completed his last two
years as Chairman.
Mark is Chair of the Audit & Risk Committee.
Tenure: 7 months
14
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
OPERATING AND FINANCIAL REVIEW (continued)
DIRECTORS AND SECRETARY
Holly Kramer BA Econ, MBA
Holly is a Non-Executive Director and joined the Board in December 2018. Holly brings a significant range of
skills and expertise in a number of important areas relevant to our business including a strong customer lens,
given her career across consumer and retail, with customer centricity in marketing. She has substantial ASX
governance experience including leading various remuneration committees. Holly is currently Deputy Chair of
Australia Post, a non-executive director of Woolworths Group Ltd, Western Sydney University and the GO
Foundation and a member of ASIC’s External Advisory Panel. Previously a director of AMP (October 2015 to May
2018) and Nine Entertainment Corporation (May 2015 to February 2017).
Holly is Chair of the People Performance and Nomination Committees.
Tenure: 6 months
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 non-
executive director of IPH Limited, a trustee of Club Plus Super, a member of Macquarie University Council and a
director of the Australia China Business Council.
Ms Qian is Chair of the Compliance Committee and a member of the Audit & Risk Committee.
Tenure: 2 years
Robert Baulderstone BA, CA, FCIS Company Secretary and Chief Financial Officer
Mr Baulderstone has been the Company Secretary since February 2017. He has been a chartered accountant
for over 25 years.
As at the date of this report, the relevant interests of the directors in the stapled securities of ABP Group were as
follows:
Directors
J Thame
H Kramer
Directors’ Meetings
ABP securities held
84,590
13,679
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
People
Performance
Committee
Compliance
Committee
Eligible
Attended
Eligible
Attended
Eligible
Attended
Eligible
Attended
9
9
9
4
3
9
5
5
9
9
9
4
3
9
3
5
4
3
4
1
3
3
4
1
4
4
1
2
2
4
4
1
2
2
4
4
4
4
4
4
J Thame
S Sewell
M Salkinder
M Haberlin
H Kramer
J Qian
W Bartlett*
P Spira*
*Retired 15 November 2018
15
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
OPERATING AND FINANCIAL REVIEW (continued)
DIRECTORS AND SECRETARY (continued)
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.
EVENTS AFTER BALANCE SHEET DATE
In July 2019 Abacus completed a fully underwritten institutional placement of 63.3 million new ordinary stapled
securities at an issue price of $3.95 per stapled security which raised $250 million. A Security Purchase Plan
(“SPP”) has also been offered to eligible securityholders to apply for up to $15,000 of new securities at $3.95 per
stapled security.
On 9 August 2019, Abacus exchanged contracts for the acquisition of a 32% tenants-in-common interest in 201
Elizabeth Street, Sydney NSW for $201.6 million excluding transaction costs. The transaction will complete in two
tranches, with settlement of a 24% stake in November 2019 and the balance between July and October 2020.
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.
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Group is subject to 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 32.
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 for the financial year ended 30 June 2019 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.
16
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
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
M. Haberlin
H. Kramer
J. Qian
M. Salkinder
Chairman
Director (appointed on 15 November 2018)
Director (appointed on 13 December 2018)
Director
Director
W. Bartlett
Director (retired on 15 November 2018)
P. Spira
Director (retired on 15 November 2018)
(ii) Executive Director
S. Sewell
Managing Director
(iii) Executives
R. Baulderstone
P. Strain
Chief Financial Officer
Group General Manager - Property
Board oversight of remuneration
People Performance Committee
The People Performance 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.
17
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
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. Historically, Abacus operated a core plus model across diverse property sectors, which resulted in
earnings being more volatile as cycles of various sectors evolved.
Going forward, our strategy is to concentrate on real estate sectors that we judge are best to realise value
through enhanced portfolio management, redevelopment investment and where it makes commercial sense, long
term capital partnering. Abacus’ primary focus is to acquire long dated assets in the self-storage and office
sectors that contribute to and drive recurring earnings growth to fulfil our distribution policy.
Successful implementation of this strategy will position Abacus to be a high conviction owner and manager,
transitioning to a long term sustainable operating income and capital growth model. The Abacus strategy and
business will continue to evolve in the transition towards a more consistent and recurring earnings profile.
Short and long dated variable remuneration is structured in such a way, that different contributions by each
executive can be appropriately rewarded.
Long dated variable remuneration, which is subject to clawback, is linked to Abacus’ security price that reflects
the market assessment of the business’ longer-term ability to deliver sustainable distributions and growth.
Objective
The remuneration policy for executives supports Abacus’ 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 profit
2015
24.53
17.00
$2.92
$2.49
2016
22.36
17.00
$3.15
$2.66
2018
31.73
18.00
$3.77
$3.18
524.4m 554.7m 571.2m 577.8m
128.3m 124.0m 186.8m 183.3m
2017
32.71
17.50
$3.24
$2.93
* Underlying earnings are unaudited.
** Net tangible assets per security include the impact of the fair value movements.
2019
24.03
18.50
$4.10
$3.33
580.0m
139.4m
18
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
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 Abacus’ remuneration structure
Remuneration component Method
Purpose
Link to performance
Fixed remuneration
Paid mainly as cash salary -
comprises base salary,
superannuation contributions
and other non-monetary benefits
(car parking and associated
fringe benefits tax).
Set with reference to role,
market, experience and skill-set.
Current variable component
Paid in cash in September.
To drive performance against a
range of financial and non-
financial KPIs by end of financial
year, including underlying profit.
Indirect link to performance.
Periodic increases are linked to
market movements, changes in
roles and responsibilities, and
incumbent experience.
Underlying profit is a key financial
gateway for a current variable
award. Individual performance is
then tested against KPIs, key
effectiveness indicators and other
internal financial and performance
measures.
Awards are made in the form of
security acquisition rights, with
25% vesting in each of years 1 -
4.
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.
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.
(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)
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. This strategy aligns with the Board’s desired positioning of Abacus within the A-REIT industry.
Accordingly, the Board considers it appropriate that for the key management personnel the proportion of fixed to
the potential target 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 5.0% in the year ended 30 June 2019, which it
should be noted included a movement upon transition to the role of Managing Director and market based
adjustments for the Chief Financial Officer.
19
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
REMUNERATION REPORT (audited) (continued)
Current variable remuneration
Table 3: Summary of the Current Variable Incentive Plan
What is current variable
remuneration?
What were the outcomes for
executives this year and last
year?
A cash incentive plan linked to specific annual targets.
For the 2019 financial year current variable remuneration awards of $1,255,000 have been accrued
and will be paid in September 2019.
The awards made to each executive and their achievements against the target 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 2019 financial year was $126m to $133m.
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 2019 are set out below:
KPI
Proportion of current variable remuneration award
measure applies to
Managing Director
Other executives
Financial measure:
60%
20-80% (dependent on role)
-
-
-
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
Why were these measures
chosen?
How is the total current
variable remuneration pool
determined?
Account is also taken of qualitative indicators of effectiveness, performance and behaviour.
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.
The current variable remuneration pool is linked directly to, and contingent on, the achievement of
the underlying profit gateway for the assessment year.
20
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
REMUNERATION REPORT (audited) (continued)
Current variable remuneration (continued)
Table 3: Summary of the Current Variable Incentive Plan (continued)
How is performance
assessed?
The People Performance Committee considers the performance of the executives against their KPIs
and other applicable measures and has regard to independent benchmarking information. The
Committee then recommends current variable remuneration payments, if any, to the Board for its
approval.
What discretions does the
Board have?
If the underlying profit gateway is missed, the Board retains the discretion to make the current
variable remuneration pool, or a reduced pool, generally available if it determines the circumstances
warrant such action. If performance has been exceptionally strong the Board may increase the total
pool size to provide additional current variable remuneration awards reflective of the above target
performance.
If the underlying profit gateway is missed, the Board also retains the discretion to pay current
variable remuneration awards to selected individuals to reward them for their personal above target
performance.
When approving awards for individual executives, the Board has the discretion to consider each
executive’s total contribution to Abacus 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.
Were any changes made to
the Current Variable
Incentive Plan in FY19?
No changes have been made to the Current Variable Incentive Plan.
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;
Set KPIs and measures for each
participant; and
Target current variable remuneration
payable for each participant based on
remuneration ratio.
After year- end
-
-
Pay current variable incentive
entitlements; and
Pending approval at Annual General
Meeting, allocate deferred variable
incentives (SARs).
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.
Measure individual performance
-
Assess individual performance against
KPIs and measures.
21
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
REMUNERATION REPORT (audited) (continued)
Current variable remuneration outcome for the Managing Director
The following table sets out the performance of the Managing Director against his KPI targets for the year ended
30 June 2019 (scorecard) which are reviewed by the People Performance 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
35%
Above
target
Abacus delivered an underlying profit of $139.4 million which is
10.6% higher than the variable remuneration gateway.
Sustainable distribution – measured by
payment of the target amount
15%
At target
Growth – measured by revenue growth,
funds under management, acquisitions,
capital partners and expanded activities
10%
Above
target
Business management – measured by
Debt, Rent and Leasing, Operating costs,
delivery of business plans and integration
of SK as required
10%
At target
Abacus has paid a distribution of 18.5 cents per security which is
in line with the FY19 forecast distribution of 18.5 cents per
security.
Executed on several long - term strategic partnerships, Salta
and ISPT. Led acquisition of strategic stake in Storage King
(SK) management platform. Revenue and Funds from
Operations were achieved as forecast.
Enhanced focus on asset management, operating processes,
capability, business planning and Investment Committee
process. Acted as lead on advisory committee on building
ongoing SK operating framework. Led early refinance of storage
debt facility. Managed risk of market, Liquidity and Balance
Sheet.
Legacy investment exposure - measured
by strategic divestment of assets in agreed
portfolios
Team leadership and team work -
measured by talent management diversity
and flexibility, WH&S, sustainability,
philanthropy and representation externally
to all stakeholders, Board, investors,
industry peers and business partners.
10%
20%
Above
target
In line with strategy, implemented timely delivery of planned and
measured divestment of nominated assets in agreed portfolios.
Above
target
Since assuming and carrying the role of MD, new talent
engaged, key members of leadership team retained and
considerable progress and enhancement made at Abacus,
including ESG commitments and engagement of internal and
external stakeholders.
The scorecards for other executives are similar to that of the Managing Director, but with different weightings and
with KPIs applicable to their individual roles.
Current variable remuneration awards
Application of the KPIs against the scorecards resulted in no executive exceeding the target possible variable
remuneration. The following table sets out the awards made to each executive based on their performance during
the year ended 30 June 2019.
Table 6: Current variable awards
S Sewell
R Baulderstone
P Strain
Fixed salary
1,050,000
550,000
530,000
Target STI
as per the
plan
787,500
330,000
318,000
Current
variable
remuneration
award
725,000
310,000
220,000
% of maximum
possible current
award earned
92%
94%
69%
22
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
REMUNERATION REPORT (audited) (continued)
Deferred variable remuneration
Table 7: Summary of the Deferred Variable Incentive Plan
What is deferred variable
incentive?
Deferred variable incentive 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 incentives?
The objective of the Deferred Variable Incentive Plan is to reward executives for sustaining
underlying profit that covers the distribution level implicit in the Abacus security price and for the
sustainability of distributions over a four year period.
The structure of the plan recognises that long-term value is the product of a string of sustained
short-term outcomes and seeks to discourage volatile earnings and distributions. Reward is
accordingly contingent on both current performance and the maintenance of that performance in
succeeding years. The two are not considered independent, and the reward structure intentionally
does not allow for separate short term and long term measures.
How is the value of the
deferred variable incentive
determined?
A deferred variable incentive award is available to an executive who satisfies the KPIs outlined in
the current variable remuneration section.
As a starting point, the deferred variable incentive award for a financial year will match the value of
the current variable incentive 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
incentives be forfeited?
Deferred variable incentives 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 $0.18. 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
incentives?
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.
23
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
REMUNERATION REPORT (audited) (continued)
Deferred variable remuneration (continued)
Table 7: Summary of the Deferred Variable Incentive Plan (continued)
What discretions does the
Board have?
The Board has the discretion to award SARs in excess of the deferred variable incentive cap in the
case of exceptional performance.
The board will disclose the exercise of any of these discretions.
No discretions have been exercised in respect of the reporting year.
What happens on cessation
of employment?
To receive the deferred remuneration award the executive must remain employed by Abacus,
unless they are considered a good leaver (that is, through disability, termination without cause,
genuine retirement, death or some other circumstance considered acceptable by the board in its
discretion).
What is the vesting schedule
of the Deferred Variable
Incentive Plan?
The SARs allocated to an executive for a financial year vests in 4 equal annual tranches on the
first, second, third and fourth anniversaries of the allocation date.
Further details about deferred variable incentive grants are set out in tables 10 to 13 and the terms of prior year
grants are set out in earlier remuneration reports.
Employment contracts and termination entitlements
The Managing Director, 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 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.
Pending changes for financial year 2020
As the Abacus strategy and business will continue to evolve in the transition towards a more consistent and
recurring earnings profile, the Board considered and approved the following minor amendments to the Deferred
Variable Incentive Plan (DVIP) which will be implemented in financial year 2020:
.
re -weighting of the vesting schedule from 25% per annum to Nil in year 1; and
one third vesting in years 2, 3 and 4.
These minor amendments to the DVIP are designed to further encourage a longer - term executive focus.
24
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
REMUNERATION REPORT (audited) (continued)
Non-executive director remuneration
Objective
The Committee assesses the appropriateness of the nature and amount of remuneration of non-executive
directors on a periodic basis by reference to market rates with the overall objective of attracting and retaining
Board members with an appropriate combination of industry and specialist functional knowledge and experience.
Structure
Abacus’ constituent documents and the ASX Listing Rules specify that the maximum aggregate remuneration of
non-executive directors must be approved by securityholders. The last determination was at the annual general
meeting held on 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
People Performance Committee and Nomination
Committee
Role
Chairman*
Member
Chairman
Member
Chairman
Member
Chairman
Fee
$232,142
$105,000
$27,300
$10,500
$14,700
$10,500
$15,750
People Performance Committee and Nomination Committee
Member
$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.
25
DIRECTORS’ REPORT
30 June 2019
Table 9: Remuneration of Key Management Personnel
2019
Short-term benefits
Post
Long-term
Security-
based
Total
Perform ance
em ploym ent
benefits
paym ent
related
ABACUS PROPERTY GROUP
Non-executive directors
J Thame - Chairman
M Haberlin ##
H Kramer ###
J Qian
M Salkinder
W Bartlett #
P Spira #
Sub-total non-executive directors
Executive Directors
S Sew ell - Managing Director
Other key m anagem ent personnel
R Baulderstone - Chief Financial Officer
P Strain - Group General Manager Property
Sub-total executive KMP
Total
* Accrued but not presently entitled
# Retired on 15 November 2018
## Appointed on 15 November 2018
### Appointed on 13 December 2018
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)*
$
$
212,002
75,514
60,826
118,904
115,068
48,904
41,353
672,571
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
212,002
75,514
60,826
118,904
115,068
48,904
41,353
672,571
20,140
7,174
5,778
11,296
10,932
4,646
3,929
63,895
1,029,469
725,000
6,467
1,760,936
20,531
-
-
-
-
-
-
-
-
-
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
232,142
82,688
66,604
130,200
126,000
53,550
45,282
736,466
176,799
1,958,266
46%
525,000
505,000
310,000
220,000
2,059,469
1,255,000
2,732,040
1,255,000
-
6,467
12,934
12,934
835,000
731,467
3,327,403
3,999,974
25,000
25,000
70,531
134,426
17,793
13,709
31,502
31,502
176,321
170,157
523,277
523,277
1,054,114
940,333
3,952,713
4,689,179
46%
41%
26
DIRECTORS’ REPORT
30 June 2019
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
ABACUS PROPERTY GROUP
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)*
$
$
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
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
-
6,467
6,467
785,000
741,467
741,467
Sub-total executive KMP
3,220,450
1,760,000
19,401
4,999,851
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
^ Ceased to meet the definition of a key management person on 1 July 2018
1,760,000
3,920,060
19,401
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%
27
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
REMUNERATION REPORT (audited) (continued)
Table 10: Grants under the Deferred Security Acquisition Rights Plan
The table below discloses the SARs granted to key management personnel as well as the number of SARs that
vested or lapsed during the year.
Year
Grant date
SARs
granted
Fair
value
per right
at grant
date
Vesting
date
No. vested
during the
year
No.
lapsed
during
the year
Director
S Sewell
Executives
R Baulderstone
P Strain
2019
15/11/2018
165,996
$2.891 over 4 years
-
71,552
$2.891 over 4 years
13/09/2018
2019
2018
2017
2016
2015
2019
2018
2017
2016
2015
15/11/2018
14/11/2017
14/11/2016
21/11/2015
21/11/2014
15/11/2018
62,964
14/11/2017
14/11/2016
21/11/2015
21/11/2014
13/09/2017
13/09/2017
13/09/2017
$2.891 over 4 years
13/09/2018
13/09/2017
13/09/2017
13/09/2017
-
12,217
14,391
13,324
14,550
-
12,217
14,391
16,655
14,550
-
-
-
-
-
-
-
-
-
-
-
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
$
$
$
S Sewell
R Baulderstone
P Strain
479,894
206,857
182,029
-
228,806
243,039
-
-
-
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.
28
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
REMUNERATION REPORT (audited) (continued)
Table 12: Securities acquired on exercise of options
Securities
acquired
Paid per
security
No.
62,951
66,867
$
3.62
3.62
R Baulderstone
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.
Table 13: Movements in SARs holdings of key management personnel during the year
Balance
Granted as
SARs
Balance
Vested
1 July 2018 remuneration
exercised 30 June 2019 30 June 2019
Director
S Sewell
Executives
R Baulderstone
P Strain
Total
-
165,996
-
165,996
133,239
139,901
273,140
71,552
62,964
(54,482)
(57,813)
300,512
(112,295)
150,309
145,052
461,357
-
-
-
-
Table 14: Securityholdings of key management personnel
Balance
1 July 2018
Vesting of
SARs
Purchases/
(sales)
Retired
Balance
30 June 2019
Directors
J Thame
W Bartlett
H Kramer
Executives
R Baulderstone
P Strain
Total
84,590
33,125
-
258,141
341,829
717,685
-
-
-
62,951
66,867
129,818
-
-
13,679
-
17,873
31,552
-
(33,125)
-
-
-
(33,125)
84,590
-
13,679
321,092
426,569
845,930
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 that Abacus
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 2019 or in the prior
year.
29
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2019
REMUNERATION REPORT (audited) (continued)
Other transactions with key management personnel
During the year, transactions occurred between Abacus 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 Abacus 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
30
DIRECTORS’ REPORT
30 June 2019
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, 16 August 2019
Steven Sewell
Managing Director
31
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
2019, 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
16 August 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
CONSOLIDATED INCOME STATEMENT
YEAR ENDED 30 JUNE 2019
Continuing Operations
REVENUE
Rental income
Finance income
Management and other fee income
Sale of inventory
Total Revenue
OTHER INCOME
Net change in fair value of investment properties and property, plant and equipment
derecognised
Net change in fair value of investments and financial instruments derecognised
Net change in fair value of investment properties and property, plant & equipment held at
balance date
Share of profit from equity accounted investments
Other income
Total Revenue and Other Income
Property expenses and outgoings
Depreciation and amortisation expenses
Cost of inventory sales
Net change in fair value of investments held at balance date
Net change in fair value of derivatives
Impairment charges
Finance costs
Administrative and other expenses
PROFIT BEFORE TAX FROM CONTINUING OPERATIONS
ABACUS PROPERTY GROUP
Notes
2019
$'000
2018
$'000
175,207
163,710
1
42,580
47,768
4,783
4,282
47,843
76,575
270,413
292,335
13,532
17,304
18,037
9,004
69,640
60,724
8(a)
14,668
73,749
1,885
4,247
388,175
457,363
(60,539) (58,032)
3(a)
(2,911) (2,739)
(36,650) (55,941)
3(b)
(2,332) (6,363)
(6,750)
730
(7,771)
-
3(c)
3(d)
(28,616) (31,258)
(33,886) (31,577)
208,720
272,183
Income tax expense
NET PROFIT AFTER TAX FROM CONTINUING OPERATIONS
4(a)
(16,113) (28,813)
192,607
243,370
Discontinued Operations
Net profit after tax from discontinued operations
NET PROFIT AFTER TAX
PROFIT ATTRIBUTABLE TO:
Equity holders of the parent entity (AGHL)
Equity holders of other stapled entities
AT members
AGPL members
AIT members
ASPT members
ASOL members
Stapled security holders
Net profit / (loss) attributable to external non-controlling interests
NET PROFIT
22
1,840
3,588
194,447
246,958
43,752
54,135
71,517
108,865
(663)
4,937
12,400
3,263
29,795
25,188
45,922
47,321
202,723
(8,276)
243,709
3,249
194,447
246,958
Basic and diluted earnings per stapled security (cents)
Basic and diluted earnings per stapled security from continuing operations (cents)
2
2
34.95
32.77
42.18
41.76
33
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 30 JUNE 2019
ABACUS PROPERTY GROUP
NET PROFIT AFTER TAX
194,447
246,958
OTHER COMPREHENSIVE INCOME
Items that will not be reclassified subsequently to the income statement
Revaluation of assets, nil tax effect
- 10,053
2019
$'000
2018
$'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
2,625 (2,022)
197,072
254,989
205,348
247,733
(8,276)
7,256
197,072
254,989
43,752
60,181
71,517
108,865
(663)
4,937
12,400
3,263
32,407
23,208
45,935
47,279
205,348
247,733
34
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2019
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
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
Other
TOTAL NON-CURRENT ASSETS
Notes
5
6(a)
7(a)
9
16
2019
$'000
2018
$'000
78,850
209,606
12,800
28,548
122,709
216,259
89,028
103,256
- 88,500
26,030
21,145
3,874
3,413
333,291
670,727
5
6(b)
7(b)
8
4(c)
16
7(c)
21
1,983,644
1,726,394
45,809
76,157
188,323
118,805
168,100
154,890
12,682
8,236
10,548
4,800
48,255
3,214
32,394
32,394
4,615
-
2,494,370
2,124,890
TOTAL ASSETS
2,827,661
2,795,617
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
73,475
88,568
11(a)
- 38,765
- 61
178
20,906
5,750
8,108
79,403
156,408
11(b)
744,535
693,742
16,692
12,847
4(c)
17,976
12,218
3,651
3,700
782,854
722,507
862,257
878,915
1,965,404
1,916,702
1,965,404
1,916,702
35
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)
AS AT 30 JUNE 2019
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
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
2019
$'000
2018
$'000
349,226
348,331
4,020
21,940
180,032
127,033
533,278
497,304
944,808
942,690
(67,892) (40,062)
876,916
902,628
27,500
27,413
20,904
21,567
48,404
48,980
131,538
131,300
(89,800) (91,631)
41,738
39,669
124,804
124,167
2,782
170
37,695
8,150
165,281
132,487
21,269
21,087
143
130
273,702
227,780
295,114
248,997
24,805
61,139
- 11,854
(20,132) (26,356)
4,673
46,637
1,965,404
1,916,702
13
1,599,145
1,594,988
6,945
22,240
354,641
252,837
1,960,731
1,870,065
4,673
46,637
1,965,404
1,916,702
36
CONSOLIDATED STATEMENT OF CASH FLOW
YEAR ENDED 30 JUNE 2019
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
2019
$'000
2018
$'000
267,856 390,428
1,414 939
(30,865) (8,067)
(28,892) (28,571)
(90,457) (107,465)
(9,964) (52,998)
NET CASH FLOWS FROM OPERATING ACTIVITIES
9
109,092 194,266
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
(70,964) (65,727)
139,972 126,590
(7,081) (2,105)
83,660 2,089
(303,819) (346,821)
263,997 58,050
(54,799) (3,860)
NET CASH FLOWS FROM / (USED IN) INVESTING ACTIVITIES
50,966 (231,784)
CASH FLOWS FROM FINANCING ACTIVITIES
Return of capital
Payment of issue / finance costs
Repayment of borrowings
Proceeds from borrowings
Distributions paid
(36,298) (42)
(3,335) (1,734)
(103,605) (63,685)
73,168 243,794
(104,249) (93,745)
NET CASH FLOWS (USED IN) / FROM FINANCING ACTIVITIES
(174,319)
84,588
NET INCREASE IN CASH AND CASH EQUIVALENTS
Net foreign exchange differences
Cash and cash equivalents at beginning of year
(14,261)
47,070
33 (81)
103,256 56,267
CASH AND CASH EQUIVALENTS AT END OF YEAR
9
89,028 103,256
37
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 30 JUNE 2019
ABACUS PROPERTY GROUP
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
1,594,987 17,926 300 4,014
252,838 46,637
1,916,702
-
-
-
- (11,150)
- (11,150)
1,594,987 17,926 300 4,014
241,688 46,637
1,905,552
CONSOLIDATED
At 1 July 2018
Impact of changes in accounting
standards
Adjusted balance at 1 July 2018
Other comprehensive income
-
- 2,625
- -
- 2,625
Net income for the year
-
-
-
- 202,723 (8,276)
194,447
Total comprehensive income for
the year
-
- 2,625
- 202,723 (8,276)
197,072
Return of capital
-
-
-
- - (32,583) (32,583)
Distribution reinvestment plan
4,158
-
-
- -
- 4,158
Security acquisition rights
-
-
- 6
-
- 6
Distribution to security holders
(107,696) (1,105) (108,801)
Transfer of reserve (hotel disposal)
- (17,926)
-
- 17,926
-
-
At 30 June 2019
1,599,145
- 2,925 4,020
354,641 4,673
1,965,404
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
The Group has adopted AASB 9 Financial Instruments. This resulted in a charge of $11.2 million to retained profits as at 1
July 2018, being the cumulative effect on initial application of the standard (refer to Note 23). The comparative results for the
year ended 30 June 2018 are not restated as permitted by the standard.
38
CONTENTS
30 JUNE 2019
ABACUS PROPERTY GROUP
Notes to
the financial
statements
About this report
Segment information
Page 40
Page 42
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. Discontinued
operations
23. Summary of
significant
accounting
policies
24. Auditors
remuneration
25. Events after
balance date
Page 96
Page 97
39
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS – About this Report
30 JUNE 2019
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 2019 was authorised for issue in accordance with a
resolution of the directors on 16 August 2019.
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
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 23(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.
Expected credit loss (ECL) provision and impairment of property loans and financial assets
The Group has applied the simplified approach and recorded lifetime expected losses on financial assets with the
exception of property loans. In estimating the ECL provision, historical recoverability and underlying risks within
the financial asset are considered.
In considering the ECL provision for property loan financial assets at amortised cost, the Group has established a
provision matrix which includes assessing the credit rating of each borrower to determine the probability of
default, loss given default and exposure at default, taking into account sensitivity factors to work out the ECL
provision for each property loan.
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.
Valuation of property loans at fair value
The Group makes judgements in respect of the fair value of property loans at fair value. The fair value of these
property loans at fair value are reviewed by management with reference to external independent property
valuations of the underlying security, market conditions existing at reporting date, using generally accepted
market practices and the Group’s entitlement to any variable returns associated with the loans.
40
NOTES TO THE FINANCIAL STATEMENTS – About this Report (continued)
ABACUS PROPERTY GROUP
30 JUNE 2019
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 listed and 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.
41
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS – Segment Information
30 JUNE 2019
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 self storage and
commercial (office, retail and industrial) properties. This segment also includes the equity accounting of co-
investments in property entities not engaged in development projects; and
(b) Property Development: provides secured lending and is also responsible for the Group’s investment in joint
venture developments 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.
42
NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued)
30 JUNE 2019
ABACUS PROPERTY GROUP
Year ended 30 June 2019
Revenue
Rental income
Finance income
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
98,737 76,455
- - 175,192
15
- 175,207
- - 42,152 419
42,571
9
- 42,580
Management and other fee income
8,345
- - - 8,345
- (3,562)
4,783
Sale of inventory
Net change in fair value of investment properties and property, plant and
equipment derecognised
Net change in fair value of investments and financial instruments
derecognised
Net change in investment properties and property, plant & equipment
held at balance date
Share of profit from equity accounted investments ^
Other income
Total consolidated revenue
Property expenses and outgoings
Depreciation and amortisation expense
Cost of inventory sales
- - 36,659
- 36,659
11,184
- 47,843
13,532
- - - 13,532 (1,703)
1,703
13,532
3,515
- 14,522
- 18,037
- - 18,037
18,264 51,376
- - 69,640
- - 69,640
6,766 909 6,993
- 14,668
- - 14,668
99 1,369 417
- 1,885
- - 1,885
149,258
130,109
100,743 419 380,529
9,505 (1,859)
388,175
(31,341) (29,016)
- - (60,357) (182)
- (60,539)
(2,151) (757)
- - (2,908) (3)
- (2,911)
- - (29,090)
- (29,090) (7,939)
379 (36,650)
Net change in fair value of investments held at balance date
(53)
134 (2,413)
- (2,332)
- - (2,332)
Net change in fair value of derivatives
Impairment charges
Administrative and other expenses
Segment result
Finance costs
Profit before tax
Income tax expense
Net profit for the year from continuing operations
Net profit after tax from discontinued operations
Net profit for the year
Plus non-controlling interest
Net profit for the year attributable to members of the Group
^ includes fair value gain of $1.3 million
- - - (6,750) (6,750)
- - (6,750)
- - (7,771)
- (7,771)
- - (7,771)
(24,163)
- (9,666)
- (33,829) (611)
554 (33,886)
91,550
100,470 51,803 (6,331)
237,492
770 (926)
237,336
(28,270) (346)
- (28,616)
209,222
424 (926)
208,720
(16,113)
- - (16,113)
193,109
424 (926)
192,607
- 1,840
- 1,840
193,109
2,264 (926)
194,447
- 8,276
- 8,276
193,109
10,540 (926)
202,723
43
NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued)
30 JUNE 2019
ABACUS PROPERTY GROUP
Year ended 30 June 2018
Revenue
Rental 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
89,873 73,825
- - 163,698
12
- 163,710
- - 47,460 295
47,755
13
- 47,768
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
Total consolidated revenue
Property expenses and outgoings
Depreciation and amortisation expense
Cost of inventory sales
4,111
- 136
- 4,247
- - 4,247
173,749
125,143
149,003 1,025 448,920
12,779 (3,606)
458,093
(30,834) (26,976)
- - (57,810) (222)
- (58,032)
(2,312) (424)
- - (2,736) (3)
- (2,739)
- - (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 from continuing operations
Net profit after tax from discontinued operations
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) (1,004) (442) (31,577)
119,796 97,701 85,630 1,025 304,152
1,573 (2,284)
303,441
(30,473) (2,884)
2,099 (31,258)
273,679 (1,311) (185)
272,183
(28,813)
- - (28,813)
244,866 (1,311) (185)
243,370
- 3,588
- 3,588
244,866
2,277 (185)
246,958
12 (3,261)
(3,249)
244,878 (984) (185)
243,709
44
NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued)
30 JUNE 2019
ABACUS PROPERTY GROUP
As at 30 June 2019
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
117,484
91,682
118,055
327,221
6,070
- 333,291
2,205,373
242,225
50,589
2,498,187
1,230 (5,047)
2,494,370
2,322,857
333,907
168,644
2,825,408
7,300 (5,047)
2,827,661
17,465
7,434
54,251
79,150
253
- 79,403
928
398
762,584
763,910
1,550
17,394
782,854
18,393
7,832
816,835
843,060
1,803
17,394
862,257
2,304,464
326,075 (648,191)
1,982,348
5,497 (22,441)
1,965,404
Total facilities - bank loans
Facilities used at reporting date - bank loans
Facilities unused at reporting date - bank loans
1,047,750
-
(710,719)
-
337,031
-
1,047,750
(710,719)
337,031
As at 30 June 2018
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
$'000
$'000
$'000
$'000
$'000
$'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
45
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
1. REVENUE
Finance income
Interest and fee income on secured loans - amortised cost
Interest and fee income on secured loans - fair value
Bank interest
Total finance income
ABACUS PROPERTY GROUP
2019
$'000
2018
$'000
21,692
47,465
20,460
-
428
303
42,580
47,768
The Group has adopted AASB 9 Financial Instruments. This resulted in the reclassification of $125.8 million of secured loans
– amortised cost to secured loans – fair value (refer to Note 12(d)). The comparative results for the year ended 30 June 2018
are not restated as permitted by the standard.
2. EARNINGS PER STAPLED SECURITY
2019
2018
Basic and diluted earnings per stapled security (cents)
Basic and diluted earnings per stapled security for continuing operations (cents)
34.95
42.18
32.77
41.76
Reconciliation of earnings used in calculating earnings per stapled security
Basic and diluted earnings per stapled security
Continuing operations
Discontinued operations
Net profit ($'000)
Weighted average number of shares:
190,034
241,281
12,689
2,428
202,723
243,709
Weighted average number of stapled securities for basic earning per security ('000)
579,979
577,806
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 listed and unlisted property securities 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
2019
$'000
1,084
1,827
2,911
(81)
2,413
2,332
27,666
950
28,616
2018
$'000
1,093
1,646
2,739
29
6,334
6,363
28,819
2,439
31,258
46
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
3. EXPENSES (continued)
ABACUS PROPERTY GROUP
(d) Administrative and other expenses
Wages and salaries
Contributions to defined contribution plans
Provisions
Other expenses
Total administrative and other expenses
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
2019
$'000
17,319
938
4,647
10,982
33,886
2018
$'000
18,052
1,054
-
12,471
31,577
2019
$'000
2018
$'000
10,740
(970)
6,343
16,113
26,989
1,271
553
28,813
(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 tax from continuing operations
Profit before tax from discontinued operations
Profit before income tax expense
Prima facie income tax expense calculated at 30% (AU)
Prima facie income tax expense calculated at 28% (NZ)
Less prima facie income tax expense on profit from Trusts
Prima Facie income tax of entities subject to income tax
Adjustment of prior year tax applied
Unrecognised tax losses brought to account
Share of results of joint ventures and associates
Security acquisition rights
Other items (net)
Income tax expense reported in the income statement
208,720
1,840
210,560
62,305
805
(40,767)
22,343
(970)
(69)
(3,471)
(999)
(721)
16,113
272,183
3,588
275,771
81,774
893
(56,327)
26,340
1,271
7
3,899
-
(2,704)
28,813
47
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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
2019
$'000
2018
$'000
16,695
1,691
5,601
23,987
(6,011)
17,976
6,045
8,949
3,270
-
-
429
18,693
(6,011)
12,682
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
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 Interpretation 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.
48
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
5.
INVESTMENT PROPERTIES
Leasehold investment properties 1
Freehold investment properties
Total investment properties
ABACUS PROPERTY GROUP
2019
2018
$'000
12,824
$'000
12,690
2,049,670
1,923,310
2,062,494
1,936,000
1. The carrying amount of the leasehold property is presented gross of the finance liability of $2.7 million (2018: $2.7 million).
Investment properties held for sale
Office
Other
Total investment properties held for sale
Investment properties
Office
Storage
Other
Total investment properties
2019
$'000
2018
$'000
22,310
-
56,540
209,606
78,850
209,606
938,992
809,284
841,509
661,953
203,143
255,157
1,983,644
1,726,394
Total investment properties including held for sale
2,062,494
1,936,000
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
Capital expenditure
Net change in fair value as at balance date
Carrying amount at end of the year
Freehold investment properties
Carrying amount at beginning of the financial year
Additions
Capital expenditure
Net change in fair value as at balance date
Net change in fair value derecognised
Disposals
Effect of movements in foreign exchange
Transfer to inventory
Properties transferred to / from held for sale
Straightlining
Non-current
2019
2018
$'000
12,690
$'000
13,592
3
-
131 (902)
12,824
12,690
Held for sale
Non-current
2019
2018
2019
2018
$'000
209,606 8,000
$'000
$'000
1,713,704
$'000
1,549,931
- - 247,197
297,000
3,374
- 48,060
54,126
- - 69,509
61,627
3,028
- 10,524
15,265
(216,008)
- (48,250) (57,956)
- - 5,580 (4,683)
- - (874)
201,606 (78,850)
78,850
-
(201,606)
- - 4,220
-
Carrying amount at end of the year
78,850
209,606
1,970,820
1,713,704
49
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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
Rate per unit
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
Increase
Decrease
Increase
Decrease
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 cash flow has a strong interrelationship in deriving 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 in-house certified
professional valuers who are experienced in valuing the types of properties in the applicable locations.
Investment properties are independently valued on a staggered basis every two years unless the underlying
financing requires a different valuation cycle.
The majority of the investment properties are used as security for secured bank debt outlined in Note 11.
Abacus*
The weighted average capitalisation rate for Abacus is 6.31% (2018: 6.62%) and for each significant category
above is as follows:
- Office – 5.92% (2018: 6.29%)
- Storage – 6.91% (2018: 7.45%)
- Other – 5.82% (2018: 5.99%)
The optimal occupancy rate utilised in the valuation process ranged from 80.0% to 100.0% (2018: 80.0% to
95.0%). The current occupancy rate for the principal portfolio excluding development and self storage assets is
91.9% (2018: 91.3%). The current occupancy rate for self storage assets is 88.5% (2018: 89.4%).
During the year ended 30 June 2019, 56% (2018: 56%) of the number of investment properties in the portfolio
were subject to external valuations, the remaining 44% (2018: 44%) were subject to internal valuation.
* Excludes Abacus Hospitality Fund.
50
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
5.
INVESTMENT PROPERTIES (continued)
ABACUS PROPERTY GROUP
Ownership
Interest
%
Fair Value
2019
$'000
Capitalisation
Rate
2019
%
Fair Value
2018
$'000
Capitalisation
Rate
2018
%
Office
51 Allara Street, Canberra ACT
11 Bowden Street, Alexandria NSW
14 Martin Place, Sydney NSW
324 Queen Street, Brisbane QLD
Kingsgate, Fortitude Valley QLD 1
Westpac House, Adelaide SA
452 Johnston Street, Abbotsford VIC
710 Collins Street, Melbourne VIC
464 St Kilda Road, Melbourne VIC
100 55,000
100 56,250
50 115,000
50 79,250
50 80,750
50 83,825
100 103,000
100 107,500
50 51,000
Other Office (11 assets; 2018: 11 assets)
50-100 229,727
8.00 57,500
5.50 52,000
4.88 106,250
6.00 70,000
5.75
-
6.75 90,000
5.63 100,000
5.13 99,500
5.25 50,168
6.43 183,866
7.50
5.75
5.00
6.50
-
7.00
5.75
5.25
5.72
7.39
Total Office
961,302 5.92 809,284
6.29
Self Storage
ACT (8 facilities; 2018: 6 facilities)
NSW (17 facilities; 2018: 15 facilities)
QLD (13 facilities; 2018: 11 facilities)
VIC (19 facilities; 2018: 18 facilities)
WA (1 facilities; 2018: nil facilities) 2
NZ (12 facilities; 2018: 12 facilities)
Total Self Storage
Other
Ashfield Shopping Centre, Ashfield NSW 3
Lutwyche City Centre, Lutwyche QLD 4
The Village, Bacchus Marsh VIC 5
Liverpool Plaza and adjoining sites, NSW 6
Other properties (5 assets; 2018: 6 assets)
100 141,955
100 209,758
100 128,349
100 199,253
100 16,000
100 146,194
6.84 101,164
7.05 156,926
6.73 94,921
6.79 178,247
7.29
7.61
7.31
7.32
6.75
-
-
7.12 130,695
7.70
841,509 6.91 661,953
7.45
50 102,500
50 64,943
-
-
100 45,740
100 46,500
5.50 204,595
5.75 94,288
-
60,650
6.00 44,900
6.45 60,330
5.50
5.75
6.50
6.00
7.51
Total Other
259,683
5.82 464,763
5.99
1. In August 2018 Abacus acquired a 50% interest in Kingsgate, Fortitude Valley.
2.
In December 2018 Abacus acquired a property in Midland, WA.
3. In July 2018 Abacus divested a 50% interest in Ashfield Mall.
4. In October 2018 Abacus divested a 50% interest in Lutwyche City Shopping Centre and subsequently progressed redevelopment spend.
5. In July 2018 Abacus divested its 100% interest in The Village, Bacchus Marsh.
6. In March 2019 Abacus exchanged contracts on the divestment of the Liverpool Plaza and adjoining sites with settlement due in December
2019.
51
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
ABACUS PROPERTY GROUP
6.
INVENTORY
(a) Current
Hotel supplies
Property developments1
- purchase consideration
- development costs
- provision
(b) Non-current
Property developments1
- purchase consideration
- development costs
Total inventory
1.
Inventories are held at the lower of cost and net realisable value.
7. PROPERTY LOANS AND OTHER FINANCIAL ASSETS
(a) Current property loans
Secured loans - amortised cost1
Interest receivable on secured loans - amortised cost
Provision for secured loans - amortised cost
Secured loans - fair value2
Interest receivable on secured loans - fair value
(b) Non-current property loans
Secured loans - amortised cost1
Interest receivable on secured loans - amortised cost
Provision for secured loans - amortised cost
Secured loans - fair value2
Interest receivable on secured loans - fair value
(c) Non-current other financial assets
Investment in securities - listed - fair value
Investment in securities and options - unlisted - fair value
Derivatives - projects - fair value
2019
$'000
2018
$'000
- 237
7,713
50,112
5,287
19,161
(200) (40,962)
12,800
28,548
44,812
72,803
997
3,354
45,809
76,157
58,609
104,705
2019
$'000
2018
$'000
57,674
92,927
3,410
47,140
(153)
-
53,982
65,524
7,796
10,668
122,709
216,259
93,836
66,473
58,358
2,719
(15,249)
-
39,065
45,034
12,313
4,579
188,323
118,805
46,978
-
1,277
1,329
- 1,885
48,255
3,214
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 2020 and the non-current facilities will mature between 1 July 2020 and 1 July 2021.
2. The Group has adopted AASB 9 Financial Instruments and the classification of the balances for the year ended 30 June 2018 have been
restated for comparative purposes by the amount of secured loans – fair value.
52
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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
Oasis JV Unit Trust
Other Joint Ventures
Total
2019
$'000
2018
$'000
2019
$'000
2018
$'000
2019
$'000
2018
$'000
2019
$'000
2018
$'000
2019
$'000
2018
$'000
Revenue
Expenses
12,104 23,722 50,110 192,389 17,950 13,451 133,170 736,931 213,334
966,493
(10,749) (10,699) (46,220) (161,082) (8,163) (12,420) (107,429) (630,958) (172,561) (815,159)
Net profit / (loss)
1,355 13,023 3,890 31,307 9,787 1,031 25,741 105,973 40,773
151,334
Share of net profit / (loss)
678 8,659 1,945 15,403 3,915 412 8,130 49,275 14,668
73,749
* Included in the net profit of Fordtrans Pty Ltd for the year ended 30 June 2019: interest income $1.4 million (2018: $1.4 million) and
interest expense $3.0 million (2018: $2.9 million).
(b) Extract from joint ventures’ balance sheets
Fordtrans Pty Ltd*
Merivale Pty Ltd
Oasis JV Unit Trust
Other Joint Ventures
Total
2019
$'000
2018
$'000
2019
$'000
2018
$'000
2019
$'000
2018
$'000
2019
$'000
2018
$'000
2019
$'000
2018
$'000
Current assets
5,014 1,073 12,943 95,677 9,416 4,628 48,802 66,172 76,175
167,550
Non-current assets
208,318 215,214
-
- 159,000 146,281 149,709 97,047 517,027
458,542
213,332 216,287 12,943 95,677 168,416 150,909 198,511 163,219 593,202
626,092
Current liabilities
(13,151) (18,128) (91) (1,745) (2,795) (88,046) (48,065) (68,101) (64,102) (176,020)
Non-current liabilities
(64,313) (64,800)
-
- (92,971)
- (17,360) (22,372) (174,644) (87,172)
Net assets
135,868 133,359 12,852 93,932 72,650 62,863 133,086 72,746 354,456
362,900
Share of net assets
67,477 66,679 6,222 45,625 29,060 25,145 65,341 17,441 168,100
154,890
* Included in the net assets of Fordtrans Pty Ltd as at 30 June 2019: cash and cash equivalents $0.3 million (2018: $0.7 million), current
interest bearing loans and borrowings $Nil (2018: $Nil) and non-current interest bearing loans and borrowings $64.3 million (2018: $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 2019 was $4.4 million
(2018: $7.2 million).
2. Merivale Pty Ltd (Ivy & Eve)
Abacus has a 49.2% interest in the ownership and voting rights of Merivale Pty Ltd. Merivale Pty Ltd’s principal
place of business is in South Brisbane.
Merivale Pty Ltd developed a residential development in Merivale Street, South Brisbane, Queensland. 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. At the year end, the joint venture owned 20
apartments which are for sale. 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 received $42.8 million of cash distributions (including capital distributions) during the year ended 30 June
2019 (2018: $Nil).
53
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
8.
INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (continued)
(c) Extract from joint ventures’ balance sheets (continued)
3. Oasis JV Unit Trust (Oasis Shopping Centre)
Abacus has a 40.0% interest in the ownership of Oasis JV Unit Trust. Oasis JV Unit Trust’s principal place of
business is in Broadbeach, Queensland.
Oasis JV Unit Trust owns a sub-regional shopping centre at Broadbeach, Queensland. 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’ received nominal distributions for years ended 30 June 2019 and 30 June 2018.
9. CASH AND CASH EQUIVALENTS
Reconciliation to Statement of Cash Flow
For the purposes of the Statement of Cash Flow, cash and cash equivalents comprise the following at 30 June 2019
Cash at bank and in hand1
89,028
103,256
1. Cash at bank earns interest at floating rates. The carrying amounts of cash and cash equivalents represent fair value.
2019
$'000
2018
$'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
194,447
246,958
2,911
6,750
(69,640)
2,332
(13,436)
(18,037)
301
(14,668)
(37,995)
45,429
10,698
109,092
5,179
(730)
(60,724)
6,363
(15,265)
(9,004)
(2,039)
(73,749)
23,476
1,524
72,277
194,266
Non-cash financing activities include capital raised pursuant to the Abacus distribution reinvestment plan. During the year 1.19 million (2018:
3.79 million) stapled securities were issued with a cash equivalent of $4.2 million (2018: $12.1 million).
54
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
10. CAPITAL MANAGEMENT
Abacus
Abacus 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.
During the year, Abacus extended its bank loan facilities including its $480 million Headstock syndicated facility
by a further year to maintain its longest-date tranche as a 6-year loan facility. Abacus also increased and
extended its self storage syndicated facility to $510 million with the longest-dated tranche expiring in July 2024.
Abacus has no bank debt expiring in FY2020.
Abacus has a total gearing covenant as a condition of the current $480m Headstock 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.
In July 2019 Abacus completed a fully underwritten institutional placement of 63.3 million new ordinary stapled
securities at an issue price of $3.95 per stapled security which raised $250 million. A Security Purchase Plan
(“SPP”) has also been offered to eligible securityholders to apply for up to $15,000 of new securities at $3.95 per
stapled security.
Consolidated Funds
The Capital Management approach and strategies employed by the Group are also deployed for AWLF which is
consolidated in these accounts.
AWLF via its responsible entity complies with capital and distribution requirements of its constitution and/or deed,
the capital requirements of relevant regulatory authorities and continue to operate as a going concern.
There is currently no Distribution Reinvestment Plan for AWLF.
55
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
11. INTEREST BEARING LOANS AND BORROWINGS
ABACUS PROPERTY GROUP
Current
Loan from related party - A$
(a) Total current
Non-current
Bank loans - A$
Bank loans - A$ value of NZ$ denominated loan
Loan from related party - A$
Less: Unamortised borrowing costs
(b) Total non-current
(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
2019
$'000
2018
$'000
- 38,765
- 38,765
2019
$'000
2018
$'000
638,050
624,636
73,299
70,334
36,801
-
(3,615) (1,228)
744,535
693,742
2019
$'000
2018
$'000
- 38,765
204,332
413,742
540,203
280,000
744,535
732,507
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 2020 to August 2025. The bank loans
are secured by charges over the investment properties, certain inventory and certain property, plant and
equipment.
Approximately 50.2% (2018: 41.7%) of bank debt drawn was subject to fixed rate hedges and the drawn bank
debt has a weighted average term to maturity of 5.3 years (2018: 3.8 years). Hedge cover as a percentage of
available facilities at 30 June 2019 is 34.1% (2018: 32.6%).
Abacus’ weighted average interest rate as at 30 June 2019 was 4.02% (2018: 4.27%). Line fees on undrawn
facilities contributed to 0.34% of the weighted average interest rate at 30 June 2019 (2018: 0.40%). Abacus’
weighted average interest rate excluding the undrawn facilities line fees as at 30 June 2019 was 3.68% (2018:
3.87%).
56
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
11. INTEREST BEARING LOANS AND BORROWINGS (continued)
(d) Assets pledged as security
The carrying amounts of assets pledged as security for current and non-current interest bearing liabilities are:
Current
First mortgage
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
2019
$'000
2018
$'000
68,050
162,948
68,050
162,948
- 12,481
1,896,955
1,636,334
1,896,955
1,648,815
Total assets pledged as security
1,965,005
1,811,763
57
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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 23
to the financial statements.
(a) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from the Group’s receivables from customers, investment in
securities and options, secured property loans and interest bearing loans and derivatives with banks.
The Group manages its exposure to risk by:
-
-
-
-
-
-
derivative counterparties and cash transactions are limited to high credit quality financial institutions;
policy which limits the amount of credit exposure to any one financial institution;
providing loans as an investment into joint ventures, associates, related parties and third parties where it is
satisfied with the underlying property exposure within that entity;
regularly monitoring loans and receivables balances on an ongoing basis;
regularly monitoring the performance of its associates, joint ventures, related parties and third parties on an
ongoing basis; and
obtaining collateral as security (where required or appropriate).
The Group’s credit risk is predominately driven by its Property Developments business which provides loans to
third parties, those using the funds for property development and / or investment. The Group mitigates the
exposure to this risk by evaluation of the application before acceptance. The analysis will specifically focus on:
the Loan Valuation Ratio (LVR) at drawdown;
-
- mortgage ranking;
-
-
-
-
- market analysis of the completed development being used to service drawdown.
background of the developer (borrower) including previous developments;
background of the owner (borrower) including previous investment track record;
that the terms and conditions of higher ranking mortgages are acceptable to the Group;
appropriate property insurances are in place with a copy provided to the Group; and
The Group also mitigates this risk by ensuring adequate security is obtained and timely monitoring of the financial
instrument to identify any potential adverse changes in the credit quality.
58
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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 - amortised cost
Secured property loans - fair value
Other financial assets
Cash and cash equivalents
ABACUS PROPERTY GROUP
Carrying Amount
2019
2018
$'000
30,645
$'000
21,145
213,278
209,260
113,156
125,804
48,255
3,214
89,028
103,256
494,362
462,679
As at 30 June 2019, 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 68% (2018: 56%) of the
portfolio.
Secured property loans
The Group has a total investment of $326.4 million in secured property loans as at 30 June 2019 (2018: $335.0
million). Of these loans $155.6 million has been renewed / extended beyond the original term on commercial
terms (2018: $76.0 million).
In accordance with the adoption of the accounting standard AASB 9, an expected credit loss (ECL) provision for
the secured loans at amortised cost of $14.3 million was recognised and a further $1.1 million was recognised
during the year. The total collateral value for secured loans with 12 month ECL is $87.9 million against a
maximum credit risk exposure of $62.5 million and the total collateral value for secured loans with lifetime ECL is
$170.1 million against a maximum credit risk exposure of $172.2 million. The credit risk grades of the secured
property loans are below investment grade.
There is no credit impairment in respect of the secured property loans at amortised cost and receivables during
the year. $90.1 million loans are past due at 30 June 2019 (2018: $Nil).
59
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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 2019
Liabilities
Trade and other payables
Carrying
Amount
Contractual
cash flows
1 Year or
less
Over 1 year
to 5 years
Over
5 years
$'000
$'000
$'000
$'000
$'000
73,475
73,475
73,475
-
-
Interest bearing loans and borrowings incl derivatives#
761,227 902,742
34,344 290,230
578,168
Total liabilities
834,702 976,217 107,819 290,230
578,168
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
# 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 into 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 2019, after taking into account the effect of interest rate swaps, approximately 50.2% (2018:
41.7%) of the Group’s drawn debt is subject to fixed rate hedges. Hedge cover as a percentage of available
facilities at 30 June 2019 is 34.1% (2018: 32.6%). 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.
60
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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 2019
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
88,703
- - - - 88,703
Receivables
Secured loans
- - - - 30,116
21,190
- 305,243
30,116
- - 326,433
Total financial assets
88,703
305,243
21,190
- 30,116
445,252
Weighted average interest rate*
1.35%
9.94%
17.77%
Financial liabilities
Interest bearing liabilities - bank
Interest bearing liabilities - other
Derivatives
Payables
663,969
- - 46,750
- 710,719
- - 36,801
- - 36,801
- - - - 16,692
16,692
- - - - 73,222
73,222
Total financial liabilities
663,969
- 36,801
46,750 89,914
837,434
Notional principal swap balance
maturities*
Weighted average interest rate on
drawn bank debt*
30 June 2018
Financial Assets
-
-
310,000
-
-
310,000
4.02%
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
Derivatives
- - - - 20,133
20,133
- 266,725
68,339
- - 335,064
- - - - -
-
Total financial assets
73,262
266,725
68,339
- 20,133
428,459
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*
-
110,000
180,000
-
-
290,000
Weighted average interest rate on
drawn bank debt*
4.27%
calculated at 30 June
*
^ excludes Abacus Hospitality Fund and Abacus Wodonga Land Fund
61
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
12. FINANCIAL INSTRUMENTS (continued)
(c) Market Risk (continued)
Interest rate risk / Fair value interest rate risk (continued)
Other^
30 June 2019
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
325
- - - - 325
Receivables
Total financial assets
- - - - 529
529
325
- - - 529
854
Weighted average interest rate*
1.35%
Financial liabilities
Payables
- - - - 253
253
Total financial liabilities
- - - - 253
253
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
* calculated at 30 June
^
Includes Abacus Hospitality Fund and Abacus Wodonga Land Fund
62
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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 2019
Financial assets
Financial liabilities
30 June 2018
Financial assets
Financial liabilities
AUD
Carrying amount
-1%
Floating
$'000
Profit
$'000
Equity
$'000
+1%
Profit
$'000
Equity
$'000
89,028 (890)
- 890
-
680,662 (4,711)
- 2,953
-
AUD
Carrying amount
-1%
Floating
$'000
Profit
$'000
Equity
$'000
+1%
Profit
$'000
Equity
$'000
103,256 (1,033)
- 1,033
-
707,878 (1,400)
- 1,294
-
The analysis for the interest rate sensitivity of financial liabilities includes derivatives.
63
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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")
Direct comparison
Income capitalisation method
Property, plant and
equipment
Property loans - fair
value
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)
Inputs used to measure fair value
Discount rate
Net operating income
Adopted capitalisation rate
Rate per unit
Optimal occupancy
Adopted discount rate
Net market EBITDA
Optimal occupancy
Adopted capitalisation rate
Property loan cash flow forecast
Property loan payment priorities
Security price
Underlying net asset
Property valuations
Interest rates
Consumer Price Index ("CPI")
Volatility
Securities and options
- listed
Level 1
Quoted prices (unadjusted) in active
market for identical assets or liabilities
Quoted security price
Level 1
Quoted prices (unadjusted) in active market for identical assets or liabilities;
Level 2
Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3
Inputs for the asset or liability that are not based on observable market data.
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.
Direct comparison
This method directly compares and analyses sales evidence on a rate per unit.
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.
64
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
12. FINANCIAL INSTRUMENTS (continued)
(d) Fair values (continued)
The following table is a reconciliation of the movements in secured loans,
derivatives (projects), unlisted securities and options classified as Level 3 for the year ended 30 June 2019.
Opening balance as at 30 June 2018
Fair value movement through the income statement
Additions
Disposals
Closing balance as at 30 June 2019
Secured
loans
Derivatives -
projects
$'000
$'000
Unlisted
securities/
options
$'000
Total
$'000
125,805 1,885
1,329
129,019
(529) (1,885) (52) (2,466)
10,797
-
(22,917)
-
10,797
(22,917)
113,156
- 1,277
114,433
Secured
loans
Derivatives -
projects
Unlisted
securities/
options
Total
$'000
$'000
$'000
$'000
Opening balance as at 30 June 2017
Fair value movement through the income statement
Disposals
- 13,263
6,792
20,055
- (6,605) (29) (6,634)
- - (5,434) (5,434)
Reclassify secured loans - amortised costs to secured loans - fair value
125,805 (4,773)
- 121,032
Closing balance as at 30 June 2018
125,805 1,885
1,329
129,019
Sensitivity of Level 3 – secured loans
The fair values of the secured loans are impacted by the underlying property development valuations and returns.
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 $0.4 million (2018:
$0.3 million) or increase the fair value by $0.4 million (2018: $0.3 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 (2018: $0.1 million) or
increase the fair value by $0.1 million (2018: $0.1 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
- distribution reinvestment plan
Securities on issue at end of financial year
2019
2018
$'000
1,639,203
$'000
1,635,046
(40,058) (40,058)
1,599,145
1,594,988
Stapled securities
Number
Number
2019
'000
2018
'000
579,363
575,570
1,192
3,793
580,555
579,363
65
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
14. DISTRIBUTIONS PAID AND PROPOSED
ABACUS PROPERTY GROUP
Abacus
(a) Distributions paid during the year
2019
$'000
2018
$'000
June 2018 half: 9.00 cents per stapled security (2017: 8.75 cents)
December 2018 half: 9.25 cents per stapled security (2017: 9.00 cents)
52,143
50,362
53,631
51,975
(b) Distributions proposed and recognised as a liability^
June 2019 half: 9.25 cents per stapled security (2018: 9.00 cents)
53,701
52,143
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 9.25 cents per stapled security was declared on 21 June 2019. The distribution being paid on or around 30 August
2019 will be approximately $53.7 million.
Non-core funds
(a) Distributions paid during the year
Abacus Hospitality Fund
(b) Distributions proposed
Abacus Hospitality Fund - not recognised
2019
$'000
2018
$'000
1,105
1,471
- 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 $71 million (2018: $62 million).
66
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
15. PARENT ENTITY FINANCIAL INFORMATION
Results of the parent entity
Profit 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
ABACUS PROPERTY GROUP
2019
$'000
2018
$'000
8,069
6,388
8,069
6,388
14,527
35,551
389,403
92
353,113
29,931
98,007
74,256
291,396
278,857
349,226
348,331
(61,850) (73,488)
4,020
4,014
291,396
278,857
As at 30 June 2019, 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 $6.6 million
(30 June 2018: $3.5 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 2019 (2018: Nil).
67
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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 2019.
ABACUS PROPERTY GROUP
Property, plant and equipment held for sale
Current
Hotel property
Total current property, plant and equipment held for sale
Non-current
Storage properties
Office equipment / furniture and fittings
Total non-current property, plant and equipment
2019
$'000
2018
$'000
- 88,500
- 88,500
8,802
3,848
1,746
952
10,548
4,800
Total property, plant and equipment including held for sale
10,548
93,300
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
2019
$'000
81,068
-
-
(81,068)
-
-
-
-
-
18,586
(8,038)
10,548
2018
$'000
71,828
109
10,052
-
(921)
81,068
91,300
(10,232)
81,068
33,155
(20,923)
12,232
Total
10,548
93,300
If property, plant and equipment was carried under the cost model, the carrying amount would be $10.5 million
(2018: $63.5 million).
68
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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 2019 are as follows:
Within one year
After one year but not more than five years
2019
2018
$'000
1,075
$'000
1,034
2,875
3,950
3,950
4,984
(b) Operating lease commitments – Group as lessor
Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2019 are as follows:
Within one year
After one year but not more than five years
More than five years
2019
2018
$'000
53,462
$'000
65,911
131,330
163,353
30,357
62,749
215,149
292,013
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 2019 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
2019
$'000
2018
$'000
4,680
15,750
5,426
6,574
22,141
19,546
32,315
35,694
64,562
77,564
6,572
6,572
3,520
3,520
69
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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 Ltd
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
2019
%
2018
%
100
-
100
100
-
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
50
50
51
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
70
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
18. RELATED PARTY DISCLOSURES (continued)
(a) Subsidiaries (continued)
Entity
Abacus Trust and its subsidiaries:
Abacus 1769 Hume Highway Trust
Abacus Abbotsford Trust
Abacus AGOF 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 Bowden Street Trust
Abacus Browns Road Trust
Abacus Jetstream Trust
Abacus K1 Property 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 Potts Point Trust
Abacus Premier Parking Trust
Abacus Richmond Trust
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 33 Queen Street Trust
Abacus 324 Queen Street 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 Retail Property Trust
Abacus Todd Road Trust
* These entities are wholly owned by Abacus
ABACUS PROPERTY GROUP
equity interest
2019
%
2018
%
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
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
71
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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
2019
%
2018
%
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
100
10
15
30 June 2019
Abacus Hospitality Fund
Abacus Wodonga Land Fund
30 June 2018
Abacus Hospitality Fund
Abacus Wodonga Land Fund
(b) Ultimate parent
Principal
place of
business
Australia
Australia
Australia
Australia
(Profit)/loss
allocated to
Accumulated
NCI
$'000
NCI
$'000
% held by
NCI
90
85
90
85
11,953
-
(2,572)
4,673
(5,017)
44,536
(2,101)
2,101
AGHL has been designated as the parent entity of the Group.
(c) Key management personnel
Details of payments are disclosed in Note 19.
72
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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
222
206
2019
$'000
2018
$'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
Loan repayments to joint ventures
Terms and conditions of transactions
2,940
3,510
15,793
82,743
(2,643) (13,158)
19,998
48,735
346
785
(18,242)
-
Fees to and purchases and fees charged from related parties are made in accordance with commercial terms in the management
agreements.
Outstanding balances at year-end are unsecured and settlement occurs in cash.
There are no provisions 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
45% of the ordinary securities of the Group (2018: 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
2019
$
203,135
222,481
2018
$
181,422
206,237
Mrs Myra Salkinder is a non-executive director of the Group and is a senior executive of Kirsh.
73
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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
2019
$
2018
$
3,999,974
5,699,461
134,426
170,009
31,502
58,562
523,277
1,842,125
4,689,179
7,770,157
(b) Loans to key management personnel
There were no loans to key management personnel and their related parties at any time in 2019 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.
74
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
20. SECURITY BASED PAYMENTS
(a) Recognised security payment expenses
The expense recognised for employee services received during the year is as follows:
Expense arising from equity-settled payment transactions
2,049
3,296
2019
$'000
2018
$'000
(b) Type of security – based payment plan
Security Acquisition Rights (SARs)
The deferred variable incentive plan has been designed to align the interests of executives with those of
securityholders by providing for a significant portion of the remuneration of participating executives to be linked to
the delivery of sustainable underlying profit that covers the distribution level implicit in the Group’s security price.
Key executives have been allocated SARs in the current financial year generally equal to the last current variable
incentive paid. Allocations were based on the performance assessment completed in determining current
variable incentive awards for the prior financial year, adjusted to take into account other factors that the Board
considers specifically relevant to the purpose of providing deferred variable incentives.
The SARs granted during the year vest as follows:
Vesting date
Amount Vested*
Potential number to vest
September 2019
September 2020
September 2021
September 2022
One quarter of the initial issue
One quarter of the initial issue
One quarter of the initial issue
One quarter of the initial issue
189,254
189,254
189,254
189,254
* 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.
75
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
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
2019
No.
2018
No.
1,424,537
2,098,316
757,016
730,244
-
-
(578,485) (1,404,023)
1,603,068
1,424,537
Exercisable at the end of the year
-
-
The weighted average remaining life of the instrument at 30 June 2019 was 1.2 years (2018: 1.2 years) and the
weighted average fair value of the SARs granted during the year was $2.89 (2018: $3.57).
The following table lists the inputs to the model used for the SARs plan for the years ended 30 June 2019 and 30
June 2018:
Expected volatility (%)
Risk-free interest rate (%)
Life of instrument (years)
Model used
2019
2018
20
19
1.52 - 2.27
1.53 - 2.04
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.
76
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
21. INTANGIBLE ASSETS AND GOODWILL
Description of the Group’s intangible assets
ABACUS PROPERTY GROUP
Goodwill
Balance at 1 July
Balance at 30 June
2019
$'000
2018
$'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 2019 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% (2018: 9.40%) and a terminal growth rate of 2.7% (2018: 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 2019 has significant
head room thus no reasonable changes in the assumptions would cause or give rise to an impairment.
77
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
22. DISCONTINUED OPERATIONS
At 30 June 2019, Abacus Hospitality Fund is classified as a discontinued operation as the Fund is in process of
being wound up. Abacus Hospitality Fund is presented in the segment note within the non core segment. The
results of Abacus Hospitality Limited for the year are presented as follows:
Hotel income
Finance income
Other income
Total Revenue and Other Income
Hotel expenses
Depreciation and amortisation expenses
2019
$'000
2018
$'000
5,565
26,211
979
637
25
32
6,569
26,880
(4,144)
(20,491)
- (2,440)
Net change in fair value of investment properties and property, plant and equipment derecognised
(397)
-
Administrative and other expenses
PROFIT BEFORE TAX FROM DISCONTINUED OPERATIONS
Income tax expense
NET PROFIT AFTER TAX FROM DISCONTINUED OPERATIONS
(188) (361)
1,840
3,588
-
-
1,840
3,588
At 30 June 2019, Abacus Hospitality Fund has no assets or liabilities.
The net cash flow incurred by Abacus Hospitality Fund are as follows:
Operating
Investing
Financing
Net cash (outflow) / inflow
2019
$'000
2018
$'000
(9,636)
3,409
83,405 (888)
(102,856) (1,471)
(29,087)
1,050
Basic and diluted earnings per stapled security from discontinued operations (cents)
2.19
0.42
78
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Preparation
The financial report is a general-purpose financial report, which has been prepared in accordance with the
requirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has also
been prepared on a historical cost basis, except for investment properties and derivative financial instruments
which have been measured at fair value, interests in joint ventures and associates which are accounted for using
the equity method, and certain investments and financial assets measured at fair value.
The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars
($'000) unless otherwise stated under the option available to the Group under ASIC Corporations Instrument
2016/191. The Group is an entity to which the instrument 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 2018.
The Group has adopted the following new or amended standards which became applicable on 1 July 2018:
- AASB 15 Revenue from Contracts with Customers
AASB 15 replaces the 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 AASB 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.
The Group has undertaken an analysis to scope out its revenue streams to identify specific impacts of the
Standard. The majority of the Group’s revenue streams have application under other relevant standards and
therefore have no application under AASB 15 (for example rental income, finance income). Where the
Standard does apply, the Group has assessed that there will be no change to the recognition or measurement
of revenue upon application of the Standard other than the reclassification of certain comparatives in the
income statement for consistency with the current period’s revenue classification. Revenue from third parties
are recognised as goods are sold or as services are provided.
- AASB 9 Financial Instruments
Impact of adoption
This standard includes new requirements for classification and measurement, impairment and hedge
accounting of financial instruments compared with the requirements of AASB 139 Financial Instruments:
Recognition and Measurement.
The Group has adopted AASB 9 and related amendments from 1 July 2018. Comparative results are not
restated as permitted by the standard. The cumulative effect on initial application of AASB 9 is a net charge to
opening retained profits of $11.2 million as at 1 July 2018, represented by an increase in interest bearing loans
and borrowings of $1.2 million due to non-substantial modification of bank loans in prior years and a decrease
in property loan financial assets carried at amortised cost of $10.0 million (net of tax) from the increase in
expected credit loss (ECL) provision for these loans.
Property loan financial assets that have a profit sharing component that do not meet the solely payments of
principal and interest (SPPI) criterion under AASB 9 have been reclassified from property loans held at
amortised cost to property loans held at fair value through profit and loss (refer to Note 7).
79
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(c) New accounting standards and interpretations (continued)
(i) Classification and measurement
Financial assets previously held at fair value continue to be measured at fair value. Trade and other
receivables and certain property loans are held to collect contractual cash flows and these contractual cash
flows are SPPI. These receivables continue to be measured at amortised cost. Property loan financial assets
that have a certain level of profit sharing component that do not meet the SPPI criterion under AASB 9
previously held at amortised cost are now measured at fair value through profit and loss.
The Group has floating rate borrowing facilities that have been refinanced during previous financial periods.
Under AASB 9, the accounting for the modification of a financial liability that has not resulted in derecognition,
requires an adjustment to the amortised cost of the liability (due to discounting using the original effective
interest rate), with any gain or loss being recognised immediately in the income statement. Under the previous
standard AASB 139, the gain or loss was recognised over the remaining life of the borrowing by adjusting the
effective interest rate. The Group has assessed that the cumulative loss on initial application is $1.2 million.
(ii) Impairment
Under AASB 9, the Group's accounting for impairment losses for financial assets has changed, by replacing
AASB 139's incurred loss approach with a forward-looking ECL approach. The Group has applied the
simplified approach and recorded lifetime expected losses on trade and other receivables. The ECL on trade
and other receivables is immaterial.
For property loan financial assets, the ECL is based on the 12-month ECL. The 12-month ECL is the portion of
lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after
the reporting date. However, when there has been a significant increase in credit risk since origination, the
allowance will be based on the lifetime ECL. The Group has established a provision matrix which includes
assessing the credit rating of each borrower to determine the probability of default, loss given default and
exposure at default, taking into account sensitivity factors to work out the ECL provision for each property
loan. The revised methodology for calculation of impairment resulted in an ECL loss provision net of tax of
$10.0 million as at 1 July 2018.
(iii) Hedge accounting
As the Group did not have any hedge relationships that are designated as effective hedges in place as at 30
June 2018, there is no impact from the application of hedging requirements on the financial statements.
Accounting policies
AASB 9 replaces the provisions of AASB 139 that relate to the recognition, classification and measurement of
financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets
and hedge accounting. The impact of the standard on financial assets and liabilities is set out below.
(i) Classification
From 1 July 2018, the Group classifies its financial assets as follows:
a) cash, trade and other receivables and property loans held at amortised cost are measured at amortised
cost. These are held to collect contractual cash flows and these contractual cash flows are SPPI.
b) financial assets that do not meet the SPPI criterion are measured at fair value through the profit and loss
(FVTPL).
c) derivative assets are measured at FVTPL.
(ii) Measurement
At initial recognition, the Group measures a financial asset (other than trade receivables) at its fair value plus,
in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of
the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss. Trade
receivables at initial recognition are measured at their transaction price if they do not contain a significant
financing component.
80
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(c) New accounting standards and interpretations (continued)
Financial assets at FVTPL are subsequently measured at fair value. Gains and losses from changes in fair
value are recognised in the income statement unless they have been designated and qualify as cash flow or
net investment hedging instruments, where the effective portion of changes in fair value is recognised in either
a cash flow or foreign currency reserve within equity. Financial assets at amortised cost are subsequently
measured at amortised cost using the effective interest rate method. The amortised cost is reduced by
impairment losses (see below). Interest income, foreign exchange gains and losses and impairment are
recognised in the income statement. Any gain or loss on derecognition is also recognised in the income
statement.
Interest bearing liabilities are recognised initially at fair value and include transaction costs. Subsequent to
initial recognition, interest bearing liabilities are recognised at amortised cost using the effective interest rate
method. Fees paid in the establishment of interest bearing liabilities are included as part of the carrying
amount of interest bearing liability.
Interest bearing liabilities measured at amortised cost that are subsequently substantially modified result in
derecognition of the financial liability. For interest bearing liabilities that have not been substantially modified,
an adjustment to the amortised cost of the liability (due to discounting using the original effective interest rate)
is made, with any gain or loss recognised in the income statement.
(iii) Impairment
From 1 July 2018 the Group assesses on a forward-looking basis the ECL associated with its financial assets
carried at amortised cost. For trade and other receivables, the Group applies the simplified approach permitted
by the standard, which requires expected lifetime losses to be recognised from initial recognition of the
receivables.
For property loan financial assets, the ECL is based on the 12-month ECL. The 12-month ECL is the portion of
lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after
the reporting date. Events of default are when a borrower is unable to meet their requirements under loan
agreement such as the inability to meet interest and repayment requirements.
However, when there has been a significant increase in credit risk since origination, the allowance will be
based on the lifetime ECL. The Group determines the ECL using a provision matrix which includes assessing
the credit rating of each borrower to determine the probability of default, loss given default and exposure at
default, taking into account sensitivity factors to work out the ECL provision for each property loan. The ECL
provision is recognised on initial recognition of the property loan.
The financial asset is written off when there is objective evidence of the inability of the borrower to repay the
outstanding balance of the loan.
The adoption of these amended standards has no material impact on the financial statements of the Group.
- AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-
based Payment Transactions.
- AASB 2017-1 Amendments to Australian Accounting Standards – Transfers of Investment Property, Annual
Improvements 2014-2016 Cycle and Other Amendments.
- AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration.
81
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(c) New accounting standards and interpretations (continued)
(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 2019. The
significant new standards or amendments are outlined below:
-
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
- AASB 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
The Group will elect to use the exemptions proposed by the standard on lease contracts for which the lease
terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying
asset is of low value. The Group has leases of certain office equipment that are considered of low value.
The Group has reviewed terms of its lease agreement and has considered that the impact to the Group’s
results to be immaterial.
- AASB 2017-7 Amendments to Australian Accounting Standards – Long-term Interests in Associates and
Joint Ventures (effective 1 January 2019).
This amends AASB 128 Investments in Associates and Joint Ventures to clarify that an entity is required to
account for long-term interests in an associate or joint venture (which in substance form part of the net
investment in the associate or joint venture but to which the equity method is not applied), using AASB 9
Financial Instruments before applying the loss allocation and impairment requirements in AASB 128. This
amendment is not expected to have a significant impact on the financial statements on application.
- AASB 2018-1 Amendments to Australian Accounting Standards – Annual Improvements 2015-2017 Cycle
(effective 1 January 2019)
The amendments clarify certain requirements in:
(i) AASB 3 Business Combinations and AASB 11 Joint Arrangements – previously held interest in a joint
operation;
(ii) AASB 112 Income Taxes – income tax consequences of payments on financial instruments classified as
equity; and
(iii) AASB 123 Borrowing Costs – borrowing costs eligible for capitalisation.
82
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(c) New accounting standards and interpretations (continued)
These amendments are not expected to have a significant impact on the financial statements on application.
- AASB Interpretation 23 Uncertainty over Income Tax Treatments, and relevant amending standards
(effective 1 January 2019)
The Interpretation clarifies the application of the recognition and measurement criteria in AASB 112 Income
Taxes when there is uncertainty over income tax treatments. This standard is not expected to have a
significant impact on the financial statements on application.
- AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between
an Investor and its Associate or Joint Venture (effective from 1 January 2022)
This amends AASB 10 – Consolidated Financial Statements and AASB 128 – Investments in Associates and
Joint Ventures to address an inconsistency between the requirements of AASB 10 and AASB 128 in dealing
with the sale or contribution of assets between an investor and its associate or joint venture. This
amendment is not expected to have a significant impact on the financial statements on application.
(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 and Abacus Wodonga Land
Fund 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.
83
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. 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 when performance obligations have been met and is 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 or principal 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 performance obligations under the
terms and conditions of the service agreements and the accounting standards.
Dividends and distributions
Revenue is recognised when the Group’s right to receive the payment is established.
84
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(f) Revenue recognition (continued)
Net change in fair value of investments and financial instruments derecognised during the year
Revenue from sale of investments is recognised on settlement when all performance obligations under the
contract have been met. Performance obligations are generally considered to have been met 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 and the
performance obligations 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 performance obligations, 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 and other receivables, which generally have 30 day terms, are held to collect contractual cash flows and
these contractual cash flows are solely payments of principal and interest. At initial recognition, these are
measured at amortised cost at the transaction price.
Trade and other receivables are subsequently measured at amortised cost using the effective interest rate
method, reduced by impairment losses. Interest income and impairment losses are recognised in the income
statement. The receivable is written off when there is no reasonable expectation of recovering the contractual
cash flows. Any gain or loss on derecognition is also recognised in the income statement.
In assessing for impairment under AASB 9, the Group assesses on a forward-looking basis the expected credit
losses associated with its financial assets carried at amortised cost. For trade receivables, the Group applies the
simplified approach permitted by the standard, which requires lifetime expected losses to be recognised from
initial recognition of the receivables.
To measure the expected credit losses, trade debtors and other receivables have been grouped based on shared
credit risk characteristics and the days past due. The expected loss rates are based on outstanding balances,
days past their due date and the corresponding historical credit losses experienced. Historical loss rates are
adjusted to reflect current and forward looking information on macroeconomic factors (including GDP) affecting
the ability of customers to settle their debts.
85
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(i) Trade and other receivables (continued)
In assessing for impairment in prior years prior to the adoption of AASB 9, collectability of trade and other
receivables was reviewed on an ongoing basis. Individual debts that are determined to be uncollectible are written
off when identified. An impairment provision for doubtful debts is recognised when there is evidence that the
Group will not be able to collect the receivable.
(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 FVTPL.
The Group has set defined policies and implemented hedging policies to manage interest and exchange rate
risks. Derivative instruments are transacted in line with these policies to achieve the economic outcomes in line
with the Group’s treasury and hedging policy. They are not transacted for speculative purposes.
The Group does not employ hedge accounting and as such derivatives are recorded at fair value with gains or
losses arising from the movement in fair values recorded in the income statement.
(k)
Investments and other financial assets
All investments are initially recognised at cost, being the fair value of the consideration given.
Financial assets in the scope of AASB 9 Financial Instruments are classified as either financial assets at fair value
through profit or loss or financial assets at amortised cost. 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 at amortised
cost. Property loan financial assets that have a certain level of profit sharing component that do not meet the
solely payments of principal and interest (SPPI) criterion under AASB 9 are measured at fair value through profit
and loss.
Financial assets at fair value through profit or loss
The Group classifies its financial assets that do not meet the SPPI criterion and derivatives at fair value through
the profit and loss (FVTPL).
At initial recognition, the financial asset is measured at its fair value. Transaction costs are expensed in profit or
loss. Financial assets at FVTPL are subsequently measured at fair value. Gains and losses from changes in fair
value are recognised in the income statement unless they have been designated and qualify as cash flow or net
investment hedging instruments, where the effective portion of changes in fair value is recognised in either a cash
flow or foreign currency reserve within equity. Any gain or loss on derecognition is recognised in the income
statement.
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.
Loans and receivables
Loans and receivables are non-derivative financial assets that are not quoted in an active market with SPPI.
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.
Subsidiaries
Investment in subsidiaries are held at lower of cost or recoverable amount.
86
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. 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
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.
87
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(m) Property, plant and equipment (continued)
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. This includes investment properties under redevelopment because fair value can be
calculated based on estimated fair value on completion of redevelopment after allowing for the remaining
expected costs of completion plus an appropriate risk adjusted development margin. 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 cost until when the construction is complete on practical
completion because the fair value of an investment property under construction cannot be reliably measured.
Transfers are made to investment property when, and only when, there is a change in use, evidenced by
commencement of an operating lease to another party or ending of construction or development. Transfers are
made from investment property when, and only when, there is a change in use, evidenced by commencement of
development with a view to sale.
For a transfer from investment property to inventories, the deemed cost of property for subsequent accounting is
its fair value at the date of change in use. For a transfer from inventories to investment property, any difference
between the fair value of the property at that date and its previous carrying amount is recognised in profit or loss.
Land and buildings that meet the definition of investment property are considered to have the function of an
investment and are therefore regarded as a composite asset, the overall value of which is influenced by many
factors, the most prominent being income yield, rather than diminution in value of the building content due to the
passing of time. Accordingly, the buildings and all components thereof, including integral plant and equipment,
are not depreciated.
Investment properties are independently valued on a staggered basis every two years unless the underlying
financing requires a more frequent independent valuation cycle. In determining fair value, the capitalisation of net
income method and the discounting of future cashflows to their present value have been used.
88
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(n)
Investment properties (continued)
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.
89
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. 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.
90
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. 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 and discontinued operations
The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be
recovered principally through a sale transaction rather than through continuing use. 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 23(n).
Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for
sale.
Assets and liabilities classified as held for sale are presented separately as current items in the statement of
financial position.
A segment, entity or operation disposed of or wound up qualifies as discontinued operation if it is a component of
the Group that represents a separate major line of business or geographical area of operations.
Discontinued operations are excluded from the results of continuing operations and are presented as a single
amount as profit or loss after tax from discontinued operations in the statement of profit or loss.
Additional disclosures are provided in Note 22. All other notes to the financial statements include amounts for
continuing operations, unless indicated otherwise.
(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.
91
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. 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 and AHT 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.
92
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. 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% (2018: 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% (2018: 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.
93
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
23. 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.
94
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2019
24. AUDITOR’S REMUNERATION
ABACUS PROPERTY GROUP
2019
$
2018
$
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
1,156,450
1,037,571
- Other services in relation to the entity and any other entity in the consolidated group
- assurance services
- taxation services
- compliance services
103,493
95,895
6,744
-
38,800
38,200
1,305,487
1,171,666
25. EVENTS AFTER BALANCE SHEET DATE
In July 2019 Abacus completed a fully underwritten institutional placement of 63.3 million new ordinary stapled
securities at an issue price of $3.95 per stapled security which raised $250 million. A Security Purchase Plan
(“SPP”) has also been offered to eligible securityholders to apply for up to $15,000 of new securities at $3.95 per
stapled security.
On 9 August 2019, Abacus exchanged contracts for the acquisition of a 32% tenants-in-common interest in 201
Elizabeth Street, Sydney NSW for $201.6 million excluding transaction costs. The transaction will complete in two
tranches, with settlement of a 24% stake in November 2019 and the balance between July and October 2020.
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.
95
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 2019 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 23(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 2019.
On behalf of the Board
John Thame
Chairman
Sydney, 16 August 2019
Steven Sewell
Managing Director
96
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 2019, 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)
giving a true and fair view of the consolidated financial position of the Group as at 30 June
2019 and of its consolidated financial performance for the year ended on that date; and
(ii)
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.
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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 relating to investment properties and
the associated 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, forecast rent, 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 valuation specialists to assist with the
assessment of the valuation assumptions and
methodologies.
• Where relevant we evaluated the movement in
the capitalisation rates and forecast occupancy
and rent 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
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Property Loans
Why significant
The Group provides mortgage loans to external
parties for which the underlying security is either
investment property or development property
assets. These loans are carried at either fair value
or amortised cost, for which an expected credit
loss is assessed.
An assessment is undertaken to determine
whether loans are to be carried at fair value or
amortised cost with loans containing a profit share
component being carried at fair value.
The Group applies Australian Accounting Standard
AASB 9 Financial Instruments in calculating the
provision for expected credit loss. This involves
judgement as the expected credit losses reflect
information about past events, current conditions
and forecast conditions.
AASB 9 was adopted on a modified retrospective
basis at 1 July 2018. An expected credit loss
provision adjustment of $14.3m was recognised in
the retained earnings balance at 1 July 2018.
Management has reassessed the measurement of
the provision at 30 June 2019.
Property Loan accounting was considered a key
audit matter as the assessment of the valuation of
the loans, either directly through determination of
fair value or indirectly through consideration of
impairment, and the determination of the
provision for expected credit loss is subject to a
series of complex judgements. The assessment of
value is determined with reference to the value of
the underlying security or future performance of
the underlying development which is determined
through a feasibility assessment for each project.
The feasibility assessments estimate the revenue
and costs of the development over the assumed
life of the project.
Disclosure relating to property loans and the
associated significant judgements 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 assessed the classification of each mortgage
loan as either amortised cost or fair value under
AASB 9 based on the terms of the underlying
loan terms.
• For a sample of loans, we evaluated the value
assigned 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 loans where a valuation of the
underlying security was obtained by the Group
as an input to the loan value, we assessed the
valuation by performing procedures consistent
with those performed on Investment property
valuations referred to in the preceding key audit
matter.
• We re-performed the Group’s calculations of fair
value.
• We assessed the Group’s methodology in
calculating the expected credit loss provision
and re-performed the Group’s calculations.
• We assessed the key inputs into the provision
for expected credit loss including:
• Assessing completeness of the loans
included in the calculation,
• Determining the appropriateness of the
credit rating applied to individual loans with
reference to borrower specific and
macroeconomic factors,
• Verifying cross-collateralisation of
mortgage loans to loan documentation;
• Performed sensitivity analyses in relation
to the key forward looking assumptions
including timing of loan repayment.
• We evaluated the classification of loans between
current and non-current based on the status of
the underlying property supporting
recoverability, the expected timing of
settlement and the status of the underlying
developments.
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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. Net realisable value is determined
through a feasibility assessment for each project
that estimates the revenue and costs of the
development over the assumed 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 and associated
significant judgements 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.
• Where applicable we evaluated the assumptions
adopted in the feasibility assessments 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 or other
external cost estimates;
assessed contingency estimates for remaining
development risks.
• Where external valuations have been obtained as
part of the net realisable value assessment, we
assessed the qualifications, competence and
objectivity of the valuers.
• We tested the mathematical accuracy of the
feasibility assessments.
• For selected properties we involved our real
estate valuation specialists in the assessment of
the assumptions.
• Where relevant, we performed sensitivity
analyses in relation to the key forward looking
assumptions including number of lots developed,
sales price achieved, finance costs and time to
completion.
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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.
Disclosure of equity accounted investments and
the associated significant judgements are
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.
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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 2019 Annual Report, but does not include the financial report
and our auditor’s report thereon.
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.
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•
•
•
•
•
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.
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Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 18 to 31 of the Directors' Report for
the year ended 30 June 2019.
In our opinion, the Remuneration Report of Abacus Group Holdings Limited for the year ended 30
June 2019, 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
16 August 2019
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