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 2020
Results for announcement to the market
(corresponding period: year ended 30 June 2019)
Total revenues and other income
Net profit after income tax expense attributable to
stapled security holders
Funds from operations ("FFO") (1)
down
down
down
27%
58%
4%
to
to
to
$284.3m
$84.7m
$124.6m
(1) 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 investments derecognised and held at balance date, impairment of
inventory and non-FFO tax benefit/expense to statutory profit.
Basic earnings per security (cents)
Basic funds from operations per security (cents)
Distribution per security (cents - including proposed distribution)
Weighted average securities on issue (million)
Distributions
June 2020 half year
13.18
19.38
34.95
22.28
18.50
643.0
18.50
580.0
per stapled security
9.05 cents
This distribution was declared on 1 June 2020 and will be paid on 31 August 2020.
Record date for determining entitlement to the distributions
30 June 2020
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 2020.
Details of individual and total distribution payments
per stapled security
Half December 2019 distribution
paid 28 February 2020
9.45
Total
$61.0m
The distribution was paid in full by Abacus Trust, Abacus Income Trust and Abacus Storage Property Trust which do not pay tax, hence there
were no franking credits attached.
Net tangible assets per security (2)
30 June 2020
30 June 2019
$3.32
$3.33
(2) Net tangible assets per security excludes the external non-controlling interest and includes right-of-use property assets of $2.3 million
(2019: nil).
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 2020
ABACUS PROPERTY GROUP
ANNUAL FINANCIAL REPORT
30 June 2020
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:
Myra Salkinder, Chair
Steven Sewell, Managing Director
Trent Alston
Mark Haberlin
Holly Kramer
Jingmin Qian
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
29
30
31
32
34
35
36
90
91
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 2020. 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 2020
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 2020.
PRINCIPAL ACTIVITIES
The principal activities of Abacus Property Group during the year were investment in commercial (office and
other) and self storage properties, along with managing the legacy investments in property developments.
Abacus Property Group is a strong asset backed, annuity style business where capital is directed towards assets
that provide potential for enhanced income growth to generate increased total returns and create value.
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 included in this report prepared in accordance with Australian Accounting
Standards and International Financial Reporting Standards (“IFRS”), as issued by the AASB and IASB
respectively. It should be read in conjunction with the financial statements and accompanying notes.
Listed Structure / Entities
The listed Abacus Property Group is a property group that operates predominantly in Australia. It comprises
AGHL, AT, AGPL, AIT, ASPT and ASOL and its securities trade on the Australian Securities Exchange (“ASX”)
as ABP. Abacus is included in the S&P/ASX 200 A-REIT index (ASX:XPJ), a sub-index of the S&P/ASX 200
index that contains the listed vehicles classified as A-REITs. Abacus Property Group was listed on the ASX in
November 2002 and its market capitalisation was $1.8 billion at 30 June 2020.
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 Property Group securities. An Abacus
Property Group 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.
The application of AASB 10 results in the consolidation of Abacus Wodonga Land Fund (collectively “Abacus” or
the “Group”). Abacus Wodonga Land Fund owns the residential estate known as White Box Rise located in
Wodonga, Victoria. During the year 41 lots were settled for combined proceeds of $6.7 million. The remaining 35
lots are exchanged and due to settle by September 2020.
AGHL has been identified as the parent entity of the Group. The financial reports of the Group for the year ended
30 June 2020 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 and Abacus Wodonga Land Fund.
The principal activities of Abacus that contributed to its earnings during the year ended 30 June 2020 included:
investment in commercial (office and other) and self storage properties to derive rental and management and
other fee income; and
to a lesser degree, participation in property developments including lending to derive interest income and
development profits.
These activities are reported in the segment information note.
2
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
OPERATING AND FINANCIAL REVIEW (continued)
GROUP STRATEGY
Abacus has transitioned to a more consistent annuity style, strong asset backed business with key investment
sectors of 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. The Group’s investment objective is to provide its investors with reliable and
increasing returns. Abacus looks for property assets that can provide strong and stable cash-backed distributions
from a portfolio that provides genuine potential for enhanced capital and income growth. Abacus does this
through the acquisition, development and diligent active management of property assets. In particular:
Use of specialised knowledge, track record and market positioning.
Continuing to invest in 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 the Group’s investment success is from assets mainly in
major city centres or suburban areas, typically on the eastern seaboard of Australia.
Experience has shown that strict adherence to the Group’s fundamental investment criteria enables it to buy
assets well and provide opportunities for outperformance while minimising downside risk to equity.
The Board monitors a range of financial information and operating performance indicators to measure
performance over time. Funds from operations (“FFO”) is the key measure that Abacus uses to monitor the
financial success of its overall strategy.
Revenue ($ million)
Total income ($ million)
Statutory net profit excluding non-controlling interests ($ million)
Funds from operations ($ million)
Funds from operations per security (cents)
Distributions per security (cents)
Interest cover ratio
Weighted securities on issue (million)
2020
262.3
284.3
84.7
124.6
19.38
18.50
7.6x
643.0
2019
270.4
388.2
202.7
129.2
22.28
18.50
6.6x
580.0
The Group earned a statutory net profit excluding non-controlling interests of $84.7 million for the year ended 30
June 2020 (2019: $202.7 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 $124.6 million (2019: $129.2 million).
FFO is derived from the statutory profit and presents the results of the ongoing business activities in a way that
reflects the Group’s underlying performance. FFO is 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.
3
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
OPERATING AND FINANCIAL REVIEW (continued)
GROUP RESULTS SUMMARY (continued)
The reconciliation between the Group’s statutory profit excluding non-controlling interests 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
Adjust for:
Net change in fair value of investment properties and property, plant and equipment derecognised
Net change in fair value of investment properties and property, plant and equipment held at balance
date
Net change in fair value of investments and financial instruments held at balance date
Net change in fair value of property, plant and equipment and investment properties included in equity
accounted investments
Impairment (reversal) / charges
Depreciation on owner occupied property, plant and equipment
Net change in fair value of derivatives
Amortisation of rent abatement incentives
Amortisation of other tenant incentives
Straightline of rental income
Movement in lease liabilities
Net tax (benefit) / expense on non-FFO Items
Abacus funds from operations ("FFO")
Basic earnings per security (cents)
Basic FFO per security (cents)
Distribution per security (cents - including proposed distribution)
Weighted average securities on issue (million)
2020
2019
$'000
84,727
$'000
202,723
- (9,614)
84,727
193,109
115 (13,532)
41,175 (69,640)
(3,629)
2,332
(1,152) (1,278)
(1,213)
7,771
3,000
1,081
3,579
6,750
5,275
2,836
1,865
1,827
(3,867) (4,220)
(725)
-
(4,556)
2,190
124,594
129,226
2020
13.18
19.38
2019
34.95
22.28
18.50
18.50
643.0
580.0
During the year, Abacus continued to focus its investment capital on acquisitions across the commercial office
and self storage sectors in line with its capital allocation strategy as these sectors, in Abacus’ view, represented
the best risk adjusted returns over the investment period. This strategy is focused on growing the contribution to
recurring earnings. In the year ended 30 June 2020, Abacus’ net property income increased by 12.5% to $129.2
million (2019: $114.8 million).
Abacus continued to expand its commercial office portfolio investment thematic that focuses on CBD and select
fringe markets. During the year, Abacus invested a total of $462.5 million into two commercial properties in
Sydney and North Sydney CBDs significantly enhancing and strengthening the Group’s commercial office
investment portfolio.
4
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
OPERATING AND FINANCIAL REVIEW (continued)
GROUP RESULTS SUMMARY (continued)
Abacus also expanded its self storage portfolio investment thematic with acquisitions sourced from on market as
well as off market transactions via the Storage King relationship. During the year, Abacus acquired and
committed to investments of $301.6 million across the self storage sector which further cemented its standing as
a high conviction investor in the self storage property market. The investment amount comprised of $184.3 million
of acquisitions across 18 properties in Australia and New Zealand including contracts exchanged for seven
properties for $48.9 million. The balance $117.3 million was invested in the acquisition of a stake in National
Storage REIT.
The last quarter of the year ended 30 June 2020 has been impacted by the outbreak of the COVID-19 pandemic.
With the Australian National Cabinet’s introduction of the National Cabinet Mandatory Code of Conduct for SME
Commercial Leasing Principles during COVID-19 and the decisions to limit gatherings and restrict business
operations, these have specifically impacted the property sector and resulted in concerns surrounding security of
rental income, uncertainty around both leasing assumptions and property valuations, and a slowdown in
investment activities.
The decrease in the Group’s statutory net profit excluding non-controlling interests compared to the prior period
was principally due to:
reduction in the fair value of the commercial property portfolio as a result of uncertainties; and
reduction in sale of inventory as the Group continues to the wind down the development division.
Key operating metrics of the Group are:
Total assets ($ million)
Gearing^ (%)
Net assets* ($ million)
Net tangible assets* ($ million)
NTA per security ($)
^ Gearing calculated as bank debt minus cash divided by total assets minus cash
2020
3,342.0
26.5
2,201.7
2,171.2
3.32
2019
2,827.7
24.1
1,960.7
1,933.6
3.33
* Excluding external non-controlling interests of $5.0 million (2019: $4.7 million) and including right-of-use property assets of $2.3 million
The increase in net assets of the Group by 12.3% primarily reflects the capital raised during the year.
Capital management
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”) was also offered to eligible securityholders to apply for up to $15,000 of new securities at $3.95 per
stapled security which raised $4.3 million.
During these uncertain times caused by the COVID-19 pandemic, the Group remains well supported by its
lenders. In May 2020, Abacus negotiated and agreed terms to extend $111 million of syndicated and bilateral
banking facility tranches by a further 12 months. Facility pricing was unchanged and was below the Group's
weighted average cost of debt.
The Group is well positioned to manage the challenges in the coming year with a strong defensive commercial
office and self storage property portfolio. The Abacus balance sheet remains strong with gearing levels at 26.5%,
well within the Board’s target gearing limit of 35%.
It is anticipated that the weighted average cost of debt over the next year should be no greater than 3.5% as
current capacity is utilised.
5
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
OPERATING AND FINANCIAL REVIEW (continued)
KEY 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 (office and other)
Abacus’ commercial portfolio delivered a segment result of a $4.0 million loss for the year ended 30 June 2020
(2019: $91.6 million gain) mainly due to the fair value loss of $69.1 million (4.5%) on the revaluation of investment
properties (2019: $18.2 million gain). The commercial portfolio consists of 30 assets (2019: 34 assets) and had a
total value of $1.7 billion at year end (2019: $1.4 billion).
Portfolio value
$1,728.4 million
Commercial
No. of assets
30
Occupancy (% by area)
92.6%
WALE (yrs by income)
3.8yrs
WACR1
5.7%
1. WACR: Weighted Average Capitalisation Rate
During the year Abacus was able to secure several commercial properties that met the Group’s investment
criteria, including:
99 Walker Street for $311.3 million (Abacus interest 100%), settled in January 2020; and
201 Elizabeth Street for $630.0 million (Abacus interest 32%), with the 24% interest worth $151.2 million
settled in November 2019 and the remaining 8% settling in the year ending June 2021.
Abacus divested several non-core properties at various stages during the year which included:
Mudjimba Land, QLD for $11.0 million, settled in October 2019;
Liverpool Plaza, NSW for $46.0 million, settled in December 2019;
169 Varsity Parade, Varsity Lakes QLD for $6.8 million settled in February 2020; and
Commercial land located in Wodonga, VIC for $2.3 million, settled in two tranches being in July 2019 and
April 2020.
As a result of changes in the portfolio from acquisitions and divestments and a mixed leasing environment across
regions, the portfolio occupancy increased from 91.9% at 30 June 2019 to 92.6% at 30 June 2020. Like for like
rental growth remained stable for the existing portfolio.
Impact of the COVID-19 pandemic
In March 2020, Abacus implemented a detailed tenant engagement program. All tenants in the portfolio have
been communicated with on more than one occasion in an attempt to understand the potential impacts of the
COVID-19 pandemic on their business and how this might influence their ability to meet their lease obligations
and impact their future leasing decisions. The information obtained from tenants has been used in determining
forecast cash flows for each of the properties and in determining the fair value assessment.
6
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
OPERATING AND FINANCIAL REVIEW (continued)
KEY SEGMENT RESULTS SUMMARY (continued)
The Group continues to communicate with all tenants, particularly the tenants whose businesses have been
severely impacted the COVID-19 pandemic. In assessing requests for rental support, Abacus has complied with
the National Cabinet Mandatory Code of Conduct for SME Commercial Leasing Principles during COVID-19
(“Code”). In addition, rental support has been provided to tenants who do not qualify under the Code.
At 30 June 2020 across the commercial property portfolio, the Group has received requests for rent concessions
from 41% of the total tenants of which 62% are SME tenants who qualified under the Code. The total amount of
rent concessions provided to tenants to 30 June 2020 is $4.0 million with 61% or $2.5 million provided in the form
of a rent waiver. The rent concessions represent 14% of rental income for the three month period and $0.7 million
has been expensed in the year ended 30 June 2020, with the remaining rent waivers amortised over the life of the
leases as lease incentives. The balance 39% of the rent concessions has been provided to tenants in the form of
a rent deferral recoverable under the Code over a minimum of two years or the life of the lease whichever is
longer. In support of the rent waivers, the Group received $0.7 million of rebates from the Queensland
Government during the year. Since the balance date, there has been no material change to the amount of rent
concessions provided to tenants.
Due to the COVID-19 pandemic, it is expected that short to medium term downside risks to demand and rental
growth will emerge. Going forward, some businesses may reassess their future workspace needs and an
extensive work from home period may accelerate changes in the use and demand for some office space.
Whether that translates to less shared workspaces (such as hot-desking), an increase in flexible work
arrangements or a demand for more space to comply with physical distancing requirements, remains to be seen.
Valuations
The COVID-19 pandemic has created unprecedented uncertainty in the short to medium term economic
environment, in particular, the continued lack of market transactions, which are ordinarily a strong source of
evidence for valuations of investment properties. Further considerations in relation to the COVID-19 pandemic
and impact on property valuations are detailed in note 5 of the financial statements.
As part of the 2020 portfolio valuation process, 14 out of 26 of the commercial properties (excluding equity
accounted properties) or 54% by number were independently valued during the year to 30 June 2020. The
remaining properties were subject to internal valuation and, where appropriate, their values were adjusted.
Abacus believes that its portfolio remains robust in the current conditions. The majority of Abacus’ offices:
are well located in CBD or suburban locations with low and often below market average rent levels;
have limited exposure to full floor or multi-floor tenants; and
have ample car parking spaces.
The potential cost for a tenant (financial and time) of relocating to another property in the same location often
outweighs the benefit of a cheaper rent elsewhere. The Group’s tenants are strongly connected to the property’s
location, which is traditionally the reason they initially leased the property and this results in a positive
predisposition to remain. Due to the multi-tenanted floor structure, Abacus has the ability to work proactively with
its tenants to contract or expand and adjust their space requirements as needed.
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 the Group’s drive to improve recurring earnings.
Self storage portfolio
Abacus’ self storage portfolio delivered a segment result of $110.4 million for the year ended 30 June 2020. This
represents a 9.9% increase on FY19’s result of $100.5 million and can be attributed to increases in self storage
EBITDA. Portfolio assets equated to $1,207.4 million across a total portfolio of 81 assets, an increase of 11
facilities during the period.
Valuations
As part of the 2020 valuation process, 50 self storage facilities out of 81 or 62% by number were independently
valued during the year to 30 June 2020. 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 $27.9
million (2019: $51.4 million gain) or 2.8% of investment properties.
7
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
OPERATING AND FINANCIAL REVIEW (continued)
KEY SEGMENT RESULTS SUMMARY (continued)
The self storage portfolio is well diversified in Australia and New Zealand.
Portfolio value
$1,207.4 million
Self Storage
No. of assets
81
Occupancy1 (% by area)
88.1%
WACR1 ,2
RevPAM1 ,3
Average rate1 ,4
6.6%
$248 psqm
$281 psqm
1. Stabilised portfolio
2. WACR: Weighted Average Capitalisation Rate
3. Revenue per available square metre
4. Average over last 12 months (by area)
The Group has continued with its stated strategy of allocating investment capital to growing exposure to the self
storage sector. The Group acquired 8 operating stores as well as 3 sites for development into a self storage
facility that should begin to deliver returns to the portfolio in the next few years. Abacus remains committed to
growing its presence in metropolitan areas.
The storage portfolio’s established assets are the key contributor to underlying growth across the portfolio. The
storage portfolio continued to perform well across both the Australian and New Zealand markets.
Over the period, the established portfolio’s occupancy reduced from 88.5% to 88.1% and the average rental rate
increased from $280/m2 to $281/m2. This kept the portfolio’s revenue per available metre (RevPAM) flat at
$248/m2. RevPAM measures the profitability and efficiency of the portfolio.
The portfolio’s development pipeline of non-self storage or non-established assets currently numbers 24 assets
valued at $309.0 million. These assets are at various stages of development or occupancy/rate stabilisation and
are anticipated to be delivered to the established portfolio over the next few years as they reach established
occupancy levels. It is anticipated that these assets will enhance the average rental rate and RevPAM across the
established portfolio over time.
During the period, the Group was also able to make an investment of $117.3 million in National Storage REIT at
very competitive pricing. This stake is intended to be held as a long term investment in one of the Group’s key
sectors.
Impact of the COVID-19 pandemic
While storage does not strictly fall within the Code, tenants have been offered rent relief. The relief is being
structured as rent waivers with no rent deferrals being offered to tenants.
To 30 June 2020 there have been 607 tenants eligible and seeking COVID-19 related abatement through the
dedicated Storage King hotline. These are weighted equally by number between commercial and residential
tenants. Abatements for the year were $0.3 million which equates to 2% of rent roll.
Property Development
The Property Development business delivered a reduced segment result of $22.2 million (2019: $51.8 million) as
the Group continues to wind down this part of the business. Abacus has total assets of $182.7 million invested
primarily across the Metropolitan Sydney area, most undergoing some process of local or state government
rezoning. The timeframe to work through the rezoning of the various parcels of land is uncertain and complex.
8
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
OPERATING AND FINANCIAL REVIEW (continued)
FUTURE PROSPECTS AND RISKS
Abacus has continued its strategic direction giving prominence to key sectors where the Group believes it has a
clear competitive advantage. Abacus’ future capital allocation framework will focus heavily upon continuing to
increase its exposure to the commercial office and self storage sectors. This strategy will target acquiring well-
located office assets that will be held for the longer term. Increasing exposure to these asset classes will
enhance Abacus’ ability to grow recurring revenue.
Abacus continues to hold elevated levels of liquidity at 30 June 2020. This provides an excellent opportunity to
take advantage of prospects in the commercial office and self storage sectors as markets move into the next
stage of the cycle as well as any short term volatility. This liquidity can also potentially be further leveraged to
invest in a larger number of projects through joint venture arrangements.
Abacus is continuing to explore opportunities to realise its legacy investments in the projects in the near term to
reduce its 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.
Provided the current management regimes of COVID-19 are maintained and future lockdowns are restricted to
affected locations, recurring underlying earnings should continue to increase albeit at a reduced rate. Growth in
revenue through further acquisitions will be driven or limited by Abacus’ ability to access new opportunities that
deliver the Group’s required equity returns in desired markets. The different characteristics of each leasing
market, particularly the commercial office sectors across different states, have the potential to increase volatility in
rental revenue especially in this COVID-19 environment.
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 risks and other factors.
Risk and opportunity
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 the Group’s assets and 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.
How Abacus manages this risk
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
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
Insurance
9
DIRECTORS’ REPORT
30 June 2020
OPERATING AND FINANCIAL REVIEW (continued)
FUTURE PROSPECTS AND RISKS (continued)
ABACUS PROPERTY GROUP
Risk and opportunity
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.
Capital markets and treasury risk
Changing debt and equity market conditions can
affect the Group’s ability to obtain timely and
appropriately priced capital which may prevent
Abacus achieving its business and investment
objectives.
How Abacus manages this risk
Abacus recognises in its Sustainability and Environmental Policy that
integrating sustainability issues, including environment and climate
change, 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. This includes our
focus on energy efficiency upgrades, as well as solar photovoltaic
installations across our portfolio and developing targets and strategies
to enhance the environmental performance of our assets including
energy and water efficiency, greenhouse gas emissions reduction and
waste to landfill reduction.
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.
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.
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
Treasury policy and operational procedure documents
External treasury advisor
Effective relationships with a range of banks and access to
alternate funders
Health and safety
Maintaining the health, safety and wellbeing of its
people is of paramount importance to Abacus.
The Group recognises the fundamental right of all
workers and those affected by Abacus’ 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.
Abacus aims to achieve and sustain zero harm in the workplace
through the application of risk management principles, effective
stakeholder engagement and continuously improving the Group’s
systems of work and organisational practice to empower all to work
safely.
Abacus focuses on maintaining a safety-aware culture and ensuring
proper standards of workplace health and safety for its employees
and other key stakeholders visiting or working at its properties.
People and culture
Attracting, engaging and retaining talented people
is fundamental to delivering the Group’s 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 its strategic business
objectives.
The initiatives include:
A commitment to diversity and inclusion ensuring collective
perspectives are valued
Recognising the benefits of creating an inclusive workplace
Encouraging flexible work practices that are supported by
necessary systems and processes
Code of conduct and whistle-blower program
Performance appraisal and training programs
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.
10
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
DIRECTORS AND SECRETARY
Board renewal
The Abacus Board has completed its renewal process, with the appointment of four new non-executive
independent directors in the past three years.
The qualifications, experience and special responsibilities of the Directors and Company Secretary are as follows:
Myra Salkinder MBA, BA
Chair (non-executive)
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, Audit & Risk and Compliance & Sustainability Committees.
Tenure: 9 years
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: 2 years
Trent Alston B. Build. (Hons), GMQ - AGSM, AMP – Insead, GAICD
Trent is a Non-Executive Director and joined the Board in September 2019. Trent has over 30 years of
experience in the real estate and funds management industry with the last 13 years as Head of Real Estate for
Challenger Limited. With past experience in direct and wholesale property roles at Colonial First State Property
and LendLease.
Trent is Chair of the People Performance Committee and a member of the Audit & Risk Committee.
Tenure: 9 months
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 24 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 and a member of the People Performance Committee.
Tenure: 19 months
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, including executive leadership, business strategy/operations/technology management and
customer centric marketing and sales. She was CEO of apparel retailer Best & Less and held executive roles at
Pacific Brands, Telstra and Ford Motor Company. Holly also has substantial governance experience: Holly is
currently Deputy Chair of Australia Post (term ends 26 June 2020), a non-executive director of Woolworths Group
Ltd, Western Sydney University, Fonterra Co-operative Group Limited and the GO Foundation. She is also Chair
of unlisted fintech, Lendi. Previously a director of AMP (October 2015 to May 2018), Nine Entertainment
Corporation (May 2015 to February 2017) and 2XU.
Holly is a member of the People Performance and Compliance & Sustainability Committees.
Tenure: 18 months
11
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
DIRECTORS AND SECRETARY (continued)
Jingmin Qian CFA, MBA, FAICD
Ms Qian is a Non-Executive Director and has significant expertise in the property, infrastructure and investment
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, a
director of the Australia China Business Council and Foundation for Australian Studies in China.
Ms Qian is Chair of the Compliance & Sustainability Committee and a member of the Audit & Risk Committee.
Tenure: 3 years
Robert Baulderstone BA, CA, FCIS Company Secretary and Chief Financial Officer
Mr Baulderstone has been the Company Secretary since February 2017. He has been a chartered accountant
for over 25 years.
Directors’ Meetings
The number of meetings of directors (including meetings of committees of directors) of AGHL, AFML (the
Responsible Entity of AT and AIT), AGPL, ASFML (the Responsible Entity of ASPT) and ASOL, held during the
year and the number of meetings attended by each director were as follows:
Board
Audit &
Risk
Committee
People
Performance
Committee
Compliance &
Sustainability
Committee
Eligible
Attended
Eligible
Attended
Eligible
Attended
Eligible
Attended
15
15
10
15
15
15
4
15
15
10
15
13
15
4
4
-
3
4
-
4
1
4
-
3
4
-
4
0
4
-
3
3
4
-
1
4
-
3
3
4
-
0
4
-
-
-
3
4
1
4
-
-
-
3
4
0
M Salkinder
S Sewell
T Alston
M Haberlin
H Kramer
J Qian
J Thame*
*Retired 30 August 2019
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.
12
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
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
M. Salkinder
Chair
M. Haberlin
H. Kramer
J. Qian
T. Alston
J. Thame
Director
Director
Director
Director (appointed 18 September 2019)
Director (retired 30 August 2019)
(ii) Executive Director
S. Sewell
Managing Director
(iii) Executives
R. Baulderstone
Chief Financial Officer
Board oversight of remuneration
People Performance Committee
The People Performance Committee is responsible for making recommendations to the Board on the
remuneration arrangements for non-executive directors and executives. Further details about the Committee’s
membership and functions are contained in the Corporate Governance Report.
13
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
Abacus’ strategy
Overview
Abacus Property Group has, over the past two years, refocused its strategy to become a high conviction owner
and manager of an investment portfolio concentrated in the Commercial Office and Self-Storage sectors. This
transition has required a significant reallocation of capital from legacy investments toward these two prioritised
sectors, along with a considerable reinvestment in people, culture, processes, and systems.
It is important to the Board that the company’s executive remuneration framework is aligned to achievement of
this strategic repositioning, which will be in the best interest of all stakeholders and underpin long term growth in
shareholder value. This will require us to reward both short and long term delivery of strong business
performance, while at the same time executing on a significant program of portfolio reconstruction and business
transformation.
The primary objective of the Abacus remuneration framework is to align the incentives of management with the
interests of shareholders. In doing so, we benchmark ourselves against comparable organisations to ensure that
we are able to attract and retain the best talent. We strive to set a series of financial and non-financial targets
that are appropriately ambitious in the context of our repositioning, and which drive the right long term behaviours.
We are mindful that our framework may need to evolve as we make further progress with our transition, and we
are continually monitoring market trends and context to ensure that we remain fit for purpose.
FY20 Performance and the COVID-19 pandemic context
Notwithstanding the extraordinary impact of the pandemic on every facet of the business environment, Abacus
has achieved underlying profit and FFO results which exceeded target. The team has also made significant
progress during FY20 on delivery of our business priorities.
Of note, we have:
• delivered high quality office and storage asset acquisitions of $743.8m;
• exited $65.4m of legacy retail and non-strategic office assets;
• achieved repayment of over $150m of legacy loans;
• maintained high levels of occupancy;
•
implemented new talent, compliance and core financial systems and maintained a high level of employee
engagement; and
• maintained strong balance sheet and distributions.
In the 2nd Half, these results were secured against the backdrop of the dynamic and unpredictable events arising
from COVID-19 and the subsequent lockdowns. We are especially proud of the team’s achievements in
maintaining a safe and effective remote working environment and supporting the needs of our tenants where
appropriate. Further, Abacus has not required any government financial support, has not needed to raise
additional capital, nor have we needed to reduce positions or salaries.
FY20 Remuneration outcomes and FY21 outlook
As a result of a solid performance in FY20 and continued progress on the business repositioning, especially
within the context of the challenging business environment, the Board has decided to make variable remuneration
payments in accordance with our short and long term incentive programs. It’s important for Abacus to reward and
retain its strong leadership team in order to ensure we continue to successfully deliver on our strategy.
14
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
Abacus’ strategy (continued)
For FY21, our reward framework remains unchanged. In this environment, however, in the majority of cases, we
have decided to hold fixed remuneration at current levels, with the exception of those individuals who have had a
change of role or increased responsibilities.
Abacus performance
Abacus’ performance over the last 5 years is illustrated below.
Table 1: 5 year performance
FFO earnings per security (cents)*
Distributions paid and proposed (cents)
Closing security price (30 June)
Net tangible assets per security**
Weighted average securities on issue
FFO profit***
2016
22.10
17.00
$3.15
$2.66
554.7m
122.6m
2017
27.38
17.50
$3.24
$2.93
571.2m
156.4m
2018
29.39
18.00
$3.77
$3.18
577.8m
169.8m
2019
22.28
18.50
$4.10
$3.33
580.0m
129.2m
2020
19.47
18.50
$2.68
$3.32
643.0m
125.2m
* FFO earnings are unaudited.
** Net tangible assets per security include the impact of the fair value movements.
***The Board approved FFO budget for FY20, in consideration of the ongoing significant program of portfolio reconstruction and business
transformation.
15
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
Remuneration 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 the 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
nil vesting in year 1 and one
third vesting in the years 2 - 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.
(generally capped at 75% of
fixed remuneration for the
Managing Director and at
60% for other executives).
Deferred variable
component
(generally 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 and 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 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 CFO
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, with any
variations highlighted and justified on a case by case basis.
As a reference point, 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. Whilst remuneration recommendations were not
received, independent benchmarking was undertaken by a third party and data utilised. No external adviser
provided any remuneration recommendations in relation to any member of the KMP during the year.
Fixed remuneration is benchmarked against data for the property industry as well as data from the stock market
to determine an appropriate market-competitive level of pay. Stock market data covers listed industry companies
of comparable size and, within that, A-REITs of comparable size.
Base salaries paid to executives increased by an average of 2% in the year ended 30 June 2020.
16
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
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 2020 financial year current variable remuneration awards of $1,117,053 have been accrued
for KMP and will be paid in September 2020.
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 2020 financial year was $111m to $117m.
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 2020 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%
-
-
-
-
-
Transaction and
project management
Key growth activities
Risk management
Other performance
measures focused on
achieving business
imperatives
People, culture and
engagement
Account is also taken of qualitative indicators of effectiveness, performance and behaviour.
Why were these measures
chosen?
An underlying profit target range was chosen because, of several financial performance measures
considered by the Board, underlying profit demonstrated the closest correlation to security-holder
value creation (measured by total security-holder return). Underlying profit reflects the statutory profit
as adjusted in order to present a figure that reflects the Directors’ assessment of the result for the
ongoing business activities of Abacus, in accordance with the AICD/Finsia principles for reporting
underlying profit.
The other financial and non-financial KPIs were chosen as they represent the key drivers for the
short-term success of the business and provide a framework for long term securityholder value.
17
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
Current variable remuneration (continued)
How is the total current
variable remuneration pool
determined?
How is performance
assessed?
The current variable remuneration pool is linked directly to, and contingent on, the achievement of
the underlying profit gateway for the assessment year.
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 FY20?
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.
18
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
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 2020 (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 (Table to be updated)
Category
Weighting Result
Performance Detail
Financial performance – measured by
Funds from Operations
Distribution Rate – measured by payment
of the target amount
Occupancy rate, Commercial Office –
measured by above target occupancy %
rate
Commercial Office – as measured by
target acquisition metric.
Self -Storage - as measured by target
acquisition metric.
Development as measured by
achievement of loan repayment target
Talent Management
30%
10%
10%
10%
10%
10%
10%
Target
exceeded
Abacus achieved a an FFO of $124.6m against a target of
$117m.
Target
partially
achieved
Abacus has paid a distribution of 18.5 cents per security which is
in line with the FY19 distribution of 18.5 cents per security.
Distribution was equivalent to last year and remained flat in
terms of growth.
Target
exceeded
Commercial Office occupancy % rate achieved at 92.6% against
target of 90%.
Target
exceeded
Target
exceeded
Target
exceeded
Target
exceeded
Budgeted target acquisition metric achieved over 1.5 times
above the target across Commercial Office and Self Storage.
Exceeded loan repayment 2.0 times the target.
Talent mapping and succession planning completed. Emergency
Succession Plan for all roles established and approved by
Board. Individual learning and development plans in place for all
employees.
Culture and engagement
10%
Target
achieved
Employee feedback survey undertaken in second half FY20.
Employee participation was 93% and feedback and sentiment
both very positive.
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
The following table sets out the awards made to each executive based on their performance during the year
ended 30 June 2020.
Table 6: Current variable awards
S Sewell
R Baulderstone
Fixed salary
1,071,000
561,000
Target STI as
per the plan
803,250
336,600
Current
variable
remuneration
award
787,185
329,868
% of maximum
possible current
award earned
98%
98%
19
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
Deferred variable remuneration
Table 7: Summary of the Deferred Variable Incentive Plan
What is deferred variable
incentive?
A 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 three equal annual tranches on the 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 18.5c. 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.
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.
20
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
Deferred variable remuneration (continued)
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 across 4 years, with nil vesting in the
first year and one third vesting in each of the second, third and fourth years on the 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 2021
Looking forward, the Board will be undertaking a review of our remuneration framework to ensure that it remains
competitive and aligned to long term value creation.
21
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
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 and Risk Committee
Audit and Risk Committee
Compliance and Sustainability Committee
Compliance and Sustainability Committee
People Performance Committee
People Performance Committee
Role
Chair*
Member
Chair
Member
Chair
Member
Chair
Member
Fee
$232,142
$105,000
$27,300
$10,500
$14,700
$10,500
$15,750
$10,500
* The Chair 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.
22
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
Table 9: Remuneration of Key Management Personnel
2020
Short-term benefits
Salary & fees
Current
variable
incentive
Non-
monetary
benefits
Post
employment
Long-term
benefits
Total cash
payments
and short
term benefits Superannuation
Long service
leave*
Security-
based
payment
Security
acquisition
rights
(SARs)*
Total
Performance
related
ABACUS PROPERTY GROUP
$
$
$
$
$
$
$
$
195,050
89,352
127,457
122,603
118,904
35,333
688,699
-
-
-
-
-
-
-
-
-
-
-
-
-
-
195,050
89,352
127,457
122,603
118,904
35,333
688,699
19,165
8,488
12,108
5,412
11,295
3,356
59,824
-
-
-
-
-
-
-
-
-
-
-
-
-
-
214,215
97,840
139,565
128,015
130,199
38,689
748,523
%
-
-
-
-
-
-
1,049,997
787,185
6,898
1,844,080
21,003
47,958
316,597
2,229,638
50%
536,000
329,868
1,585,997
1,117,053
2,274,696
1,117,053
-
6,898
6,898
865,868
2,709,948
3,398,647
25,000
46,003
105,827
10,924
58,882
58,882
175,917
492,514
492,514
1,077,709
3,307,347
4,055,870
47%
Non-executive directors
M Salkinder - Chair #
T Alston ##
M Haberlin
H Kramer
J Qian
J Thame ###
Sub-total non-executive directors
Executive Directors
S Sewell - Managing Director
Other key management personnel
R Baulderstone - Chief Financial Officer
Sub-total executive KMP
Total
* Accrued but not presently entitled
# Appointed as Chair on 30 August 2019
## Appointed on 18 September 2019
### Retired on 30 August 2019
23
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
Table 9: Remuneration of Key Management Personnel
2019
Short-term benefits
Salary & fees
Current
variable
incentive
Non-
monetary
benefits
Post
employment
Long-term
benefits
Total cash
payments
and short
term benefits Superannuation
Long service
leave*
Security-
based
payment
Security
acquisition
rights
(SARs)*
Total
Performance
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 Sewell - Managing Director
Other key management personnel
R Baulderstone - Chief Financial Officer
P Strain - Group General Manager Property^
Sub-total executive KMP
Total
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%
* Accrued but not presently entitled
# Retired on 15 November 2018
## Appointed on 15 November 2018
### Appointed on 13 December 2018
^ Ceased to meet the definition of a key management person on 1 July 2019
24
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
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.
Director
S Sewell
Executives
R Baulderstone
Year
Grant date
SARs
granted
Fair
value per
right at
grant
date
Vesting date
No. vested
during the
year
No.
lapsed
during
the year
2020
2019
15/11/2019
15/11/2018
177,666
$3.426
69,798
$3.426
2020
2019
2018
2017
2016
15/11/2019
15/11/2018
14/11/2017
14/11/2016
21/11/2015
13/09/2021
to 2023
13/09/2019
13/09/2021
to 2023
13/09/2019
13/09/2019
13/09/2019
13/09/2019
-
41,499
-
17,888
12,217
14,391
13,324
-
-
-
-
-
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
608,684
239,128
169,444
255,931
-
-
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.
25
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
Table 12: Securities acquired on exercise of options
Securities
acquired
No.
Paid per
security
$
S Sewell
R Baulderstone
43,448
65,625
3.89
3.89
The number of securities acquired is based on the SARs that vested in the year and the distributions that would
have been paid on that number of securities from the grant date to the allocation date.
Table 13: Movements in SARs holdings of key management personnel during the year
Balance
1 July 2019
Granted as
remuneration
SARs
Vested
Balance
exercised 30 June 2020 30 June 2020
Director
S Sewell
Executives
R Baulderstone
Total
165,996
177,666
(41,499)
302,163
150,309
316,305
69,798
247,464
(57,820)
(99,319)
162,287
464,450
-
-
-
Table 14: Security holdings of key management personnel
Balance
1 July 2019
Vesting of
SARs
Purchases
Retired
Balance
30 June 2020
Directors
M Salkinder
J Thame
S Sewell
T Alston
M Haberlin
H Kramer
J Qian
Executives
R Baulderstone
Total
-
84,590
-
-
-
13,679
-
-
-
43,448
-
-
-
-
165,800
-
76,787
30,000
35,000
6,402
20,000
321,092
419,361
65,625
109,073
-
168,189
-
(84,590)
-
-
-
-
-
-
(84,590)
165,800
-
120,235
30,000
35,000
20,081
20,000
386,717
612,033
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 2020 or in the prior
year.
26
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
REMUNERATION REPORT (audited)
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.
27
ABACUS PROPERTY GROUP
DIRECTORS’ REPORT
30 June 2020
EVENTS AFTER BALANCE SHEET DATE
In August 2020, Abacus increased its banking facility limits by an additional $246.6 million. Facility pricing is
relatively unchanged and is below the Group’s weighted average cost of debt.
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 and there are systems in
place for the management of the Group’s environmental responsibilities, and compliance with relevant licence
requirements and regulations. No material breaches of requirements or any environmental issues have been
identified during the year.
AUDITORS INDEPENDENCE DECLARATION
We have obtained an independence declaration from our auditor, Ernst & Young, and such declaration is shown
on page 29.
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.
Signed in accordance with a resolution of the directors.
Abacus Group Holdings Limited (ABN 31 080 604 619)
Myra Salkinder
Chair
Sydney, 18 August 2020
Steven Sewell
Managing Director
28
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 the financial report of Abacus Group Holdings Limited for the financial
year ended 30 June 2020, 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
Anthony Ewan
Partner
18 August 2020
CONSOLIDATED INCOME STATEMENT
YEAR ENDED 30 JUNE 2020
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 investments and financial instruments derecognised
Net change in fair value of investments 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 investment properties and property, plant and equipment
derecognised
Net change in fair value of investment properties and property, plant & equipment 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
2020
$'000
2019
$'000
195,029 175,207
1(a)
46,818 42,580
4,997 4,783
15,418 47,843
262,262 270,413
1(b)
8(a)
4,871 18,037
3,629 (2,332)
10,827 14,668
2,710 1,885
284,299 302,671
(65,917) (60,539)
3(a)
(5,165) (2,911)
(12,329) (36,650)
(115)
13,532
(41,175)
69,640
(3,579) (6,750)
(5,060) (7,771)
3(b)
3(c)
(22,965) (28,616)
(25,889) (33,886)
102,105 208,720
Income tax expense
NET PROFIT AFTER TAX FROM CONTINUING OPERATIONS
4(a)
(17,081) (16,113)
85,024 192,607
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
85,024 194,447
(4,035)
43,752
(4,867)
71,517
892 (663)
3,218 12,400
37,404 29,795
52,115 45,922
84,727 202,723
297 (8,276)
85,024 194,447
Basic and diluted earnings per stapled security (cents)
Basic and diluted earnings per stapled security from continuing operations (cents)
2
2
13.18
13.18
34.95
32.77
30
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 30 JUNE 2020
ABACUS PROPERTY GROUP
NET PROFIT AFTER TAX
85,024 194,447
2020
$'000
2019
$'000
OTHER COMPREHENSIVE INCOME
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
(1,991)
2,625
83,033 197,072
82,736 205,348
297 (8,276)
83,033 197,072
(4,035)
43,752
(4,867)
71,517
892 (663)
3,218 12,400
35,498 32,407
52,030 45,935
82,736 205,348
31
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
ABACUS PROPERTY GROUP
CURRENT ASSETS
Investment properties held for sale
Inventory
Property loans
Cash and cash equivalents
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
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
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
Notes
5
6(a)
7(a)
9
2020
$'000
2019
$'000
- 78,850
2,241 12,800
73,163 122,709
127,313 89,028
39,427 26,030
3,695 3,874
245,839 333,291
5
6(b)
7(b)
8
4(c)
16
7(c)
21
2,652,916 1,983,644
45,763 45,809
63,221 188,323
123,429 168,100
18,512 12,682
18,429 10,548
141,508 48,255
32,394 32,394
25 4,615
3,096,197 2,494,370
3,342,036 2,827,661
80,990 73,475
123
-
11,581 178
4,642 5,750
97,336 79,403
11
1,009,760 744,535
1,543 16,692
4(c)
20,347 17,976
6,336 3,651
1,037,986 782,854
1,135,322 862,257
2,206,714 1,965,404
2,206,714 1,965,404
32
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)
AS AT 30 JUNE 2020
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
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
2020
$'000
2019
$'000
411,422 349,226
2,336 4,020
175,997 180,032
589,755 533,278
1,079,576 944,808
(171,628) (67,892)
907,948 876,916
32,910 27,500
21,796 20,904
54,706 48,404
148,013 131,538
(92,837) (89,800)
55,176 41,738
172,891 124,804
876 2,782
59,564 37,695
233,331 165,281
34,953 21,269
58 143
325,817 273,702
360,828 295,114
16,445 24,805
(11,475) (20,132)
4,970 4,673
2,206,714 1,965,404
13
1,879,765 1,599,145
3,270 6,945
318,709 354,641
2,201,744 1,960,731
4,970 4,673
2,206,714 1,965,404
33
CONSOLIDATED STATEMENT OF CASH FLOW
YEAR ENDED 30 JUNE 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Income receipts
Interest received
Distributions received
Income tax paid
Finance costs paid
Operating payments
Payments for inventory costs
ABACUS PROPERTY GROUP
Notes
2020
$'000
2019
$'000
324,082 267,856
812 1,414
1,444
-
(9,159) (30,865)
(18,776) (28,892)
(89,725) (90,457)
(3,282) (9,964)
NET CASH FLOWS FROM OPERATING ACTIVITIES
9
205,396 109,092
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
(26,488) (70,964)
207,290 139,972
(7,794) (7,081)
- 83,660
(699,026) (303,819)
64,897 263,997
(117,549) (54,799)
NET CASH FLOWS (USED IN) / FROM INVESTING ACTIVITIES
(578,670)
50,966
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of stapled securities
Return of capital
Payment of issue / finance costs
Payment of principal portion of lease liabilities
Repayment of borrowings
Proceeds from borrowings
Distributions paid
254,313
-
- (36,298)
(6,457) (3,335)
(1,280)
-
(27,364) (103,605)
285,084 73,168
(92,785) (104,249)
NET CASH FLOWS FROM / (USED IN) FINANCING ACTIVITIES
411,511 (174,319)
NET INCREASE IN CASH AND CASH EQUIVALENTS
Net foreign exchange differences
Cash and cash equivalents at beginning of year
38,237 (14,261)
48 33
89,028 103,256
CASH AND CASH EQUIVALENTS AT END OF YEAR
9
127,313 89,028
34
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 30 JUNE 2020
ABACUS PROPERTY GROUP
CONSOLIDATED
Attributable to the stapled security holder
Asset
Foreign
Employee
External
Non-
Issued
revaluation
currency
equity
Retained
controlling
capital
$'000
reserve
translation
benefits
earnings
interest
$'000
$'000
$'000
$'000
$'000
Total
Equity
$'000
At 1 July 2019
1,599,145
- 2,925 4,020
354,641 4,673
1,965,404
Other comprehensive income
-
- (1,991)
- -
- (1,991)
Net income for the year
-
-
-
- 84,727 297
85,024
Total comprehensive income for
the year
Equity raisings
Issue costs
-
- (1,991)
- 84,727 297
83,033
254,313
-
-
- -
- 254,313
(5,575)
(5,575)
Distribution reinvestment plan
31,882
-
-
- -
- 31,882
Security acquisition rights
-
-
- (1,684)
-
- (1,684)
Distribution to security holders
-
-
-
- (120,659)
- (120,659)
At 30 June 2020
1,879,765
- 934 2,336
318,709 4,970
2,206,714
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 2018
1,594,987 17,926 300 4,014
252,838 46,637
1,916,702
Impact of changes in accounting
standards
-
-
-
- (11,150)
- (11,150)
Adjusted balance at 1 July 2018
1,594,987 17,926 300 4,014
241,688 46,637
1,905,552
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
The Group has adopted AASB 9 Financial Instruments and 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).
35
CONTENTS
30 JUNE 2020
ABACUS PROPERTY GROUP
Notes to
the financial
statements
About this report
Segment information
Page 37
Page 40
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 90
Page 91
36
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS – About this Report
30 JUNE 2020
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 2020 was authorised for issue in accordance with a
resolution of the directors on 18 August 2020.
The nature of the operations and principal activities of the Group are described in the Directors’ Report.
SIGNIFICANT ACCOUNTING JUDGEMENTS, 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 values 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. These judgements,
assumptions and estimates have also been applied to investment properties held through investments accounted
for using the equity method.
As at 30 June 2020 there is significant valuation uncertainty arising from the COVID-19 pandemic and the
response of Governments to it. This means that the property values may change significantly and unexpectedly
over a relatively short period of time.
Given the market conditions at balance date, the valuations are prepared on the basis of the existence of
‘material valuation uncertainty’, noting that less certainty, and a higher degree of caution, should be attached to
the valuations than would normally be the case. The current response to the COVID-19 pandemic means that the
Group has faced an unprecedented set of circumstances on which to base a judgement.
The key assumptions and estimates used in these valuation approaches which have been impacted by COVID-19
include:
forecast future rental income, based on the location, type and quality of the property, which are supported by
the terms of any existing leases, other contracts or external evidence such as current market rents for similar
properties adjusted to recognise the COVID-19 impact
lease assumptions based on current and expected future market conditions after expiry of any current lease
the capitalisation rate and discount rate derived from recent comparable market transactions adjusted for
COVID-19 to reflect the uncertainty in the amount and timing of cash flows
the impact of government support on tenants and rental schemes giving rise to rental deferrals, rental
forgiveness, and eviction moratoriums.
37
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS – About this Report (continued)
30 JUNE 2020
The property valuations have been prepared based on the information that is available at 30 June 2020. In the
event that the circumstances are more material or prolonged than anticipated, this may further impact the fair
value of the Group’s investment property portfolio in the future.
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. This incorporates any COVID-19 impacts on outstanding balances.
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.
Due to the COVID-19 pandemic, the key assumptions and estimates used in the valuation approaches for
investment property that have been impacted by the pandemic, are also applicable to valuations of the underlying
security of the property loans at fair value.
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.
Due to the COVID-19 pandemic, the key assumptions and estimates used in the valuation approaches for
investment property that have been impacted by the pandemic, are also applicable to valuations for the net
realisation value of inventory.
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.
38
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS – About this Report (continued)
30 JUNE 2020
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.
39
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS – Segment Information
30 JUNE 2020
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 Wodonga Land Fund. The performance of the fund which is operated as
an externally managed investment scheme is considered to be in the other segment and is reviewed separately to
that of the performance of the Group’s business segments.
* The operating segments reported by the Group have changed from the prior period. Accordingly, prior period
comparatives have been restated to reflect the change.
40
NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued)
30 JUNE 2020
ABACUS PROPERTY GROUP
Year ended 30 June 2020
Revenue
Rental income
Finance income
Management and other fee income
Sale of inventory
Property Investments
Commercial
$'000
Storage
$'000
Property
Developments
$'000
Other
$'000
Consolidated
$'000
106,370
88,646
- 13
195,029
- - 46,547
271
46,818
4,997
- - - 4,997
- - 8,749
6,669
15,418
Net change in fair value of investments and financial instruments derecognised
1,540
2,356
975
- 4,871
Net change in fair value of investments 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
(2,052)
23,169 (17,488)
- 3,629
7,668
^
73
812
2,347
- 10,827
2,592
45
- 2,710
118,596
117,575
41,175
6,953
284,299
(31,655) (34,173)
- (89) (65,917)
(3,630) (1,526)
- (9) (5,165)
- - (7,414) (4,915) (12,329)
Net change in fair value of investment properties and property, plant and equipment derecognised
(115)
- - - (115)
Net change in fair value of investment properties and property, plant & equipment held at balance
date
Impairment charges
Administrative and other expenses
Segment result
Net change in fair value of derivatives
Finance costs
Profit before tax
Income tax expense
Net profit for the year
Less non-controlling interest
Net profit for the year attributable to members of the Group
^ includes fair value gain of $1.2 million
(69,076)
27,901
- - (41,175)
- - (3,800) (1,260) (5,060)
(18,105)
- (7,727) (57) (25,889)
(3,985)
109,777
22,234
623
128,649
(3,579)
(22,965)
102,105
(17,081)
85,024
(297)
84,727
41
NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued)
30 JUNE 2020
ABACUS PROPERTY GROUP
Year ended 30 June 2019
Revenue
Rental income
Finance income
Core Segments
Property Investments
Commercial
$'000
Storage
$'000
Property
Developments
$'000
Other
$'000
Total Core
Segments
$'000
Eliminations /
Discontinued
Operations
Consolidated
$'000
$'000
98,737 76,455
- 15 175,207
- 175,207
- - 42,152
428 42,580
- 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 11,184 47,843
- 47,843
13,532
- - - 13,532
- 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 11,627 391,737 (3,562)
388,175
(31,341) (29,016)
- (182) (60,539)
- (60,539)
(2,151) (757)
- (3) (2,911)
- (2,911)
- - (29,090) (7,560) (36,650)
- (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) (57) (33,886)
- (33,886)
91,550 100,470 51,803 (2,925)
240,898 (3,562)
237,336
(28,270) (346) (28,616)
212,628 (3,908)
208,720
(16,113)
- (16,113)
196,515 (3,908)
192,607
- 1,840
1,840
196,515 (2,068)
194,447
(2,573)
10,849
8,276
193,942
8,781 202,723
42
NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued)
30 JUNE 2020
ABACUS PROPERTY GROUP
As at 30 June 2020
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Property
Property
Investment
Development
Unallocated
$'000
$'000
$'000
Total
$'000
- 73,163
172,676 245,839
2,935,779
109,487 50,931
3,096,797
2,935,779
182,650
223,607
3,342,636
18,271 7,706 71,359 97,336
992 425
1,036,569
1,037,986
19,263 8,131
1,107,928
1,135,322
2,916,516
174,519 (884,321)
2,206,714
Total facilities - bank loans
Facilities used at reporting date - bank loans
Facilities unused at reporting date - bank loans
1,113,325
(974,119)
139,206
As at 30 June 2019
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Property
Property
Investment
Development
Unallocated
$'000
$'000
$'000
Total
$'000
117,459 91,682
124,150
333,291
2,201,219
242,225 50,926
2,494,370
2,318,678
333,907
175,076
2,827,661
17,465 7,434 54,504 79,403
928 398
781,528
782,854
18,393 7,832
836,032
862,257
2,300,285
326,075 (660,956)
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
43
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
1. REVENUE
(a) 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
(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
2. EARNINGS PER STAPLED SECURITY
ABACUS PROPERTY GROUP
2020
$'000
2019
$'000
5,357 21,692
41,190 20,460
271 428
46,818 42,580
21,067
(17,438)
3,629
(81)
2,413
2,332
2020
2019
Basic and diluted earnings per stapled security (cents)
Basic and diluted earnings per stapled security for continuing operations (cents)
13.18
34.95
13.18
32.77
Reconciliation of earnings used in calculating earnings per stapled security
Basic and diluted earnings per stapled security
Continuing operations
Discontinued operations
Net profit ($'000)
Weighted average number of shares:
84,727
190,034
- 12,689
84,727
202,723
Weighted average number of stapled securities for basic earning per security ('000)
643,014
579,979
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) Finance costs
Interest on loans
Amortisation of finance costs
Total finance costs
(c) Administrative and other expenses
Wages and salaries
Contributions to defined contribution plans
Provisions
Other expenses
Total administrative and other expenses
$'000
$'000
3,009
2,156
5,165
21,801
1,164
22,965
15,928
954
-
9,007
25,889
1,084
1,827
2,911
27,666
950
28,616
17,319
938
4,647
10,982
33,886
44
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
4.
INCOME TAX
(a) Income tax expense
The major components of income tax expense are:
Income Statement
Current income tax
Current income tax charge
Adjustments in respect of current income tax of previous years
Deferred income tax
Relating to origination and reversal of temporary differences
Income tax expense reported in the income statement
ABACUS PROPERTY GROUP
2020
$'000
2019
$'000
19,801
1,095
(3,815)
17,081
10,740
(970)
6,343
16,113
(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
102,705
-
102,705
30,158
610
(12,031)
18,737
1,095
(29)
(1,751)
(195)
(776)
17,081
208,720
1,840
210,560
62,305
805
(40,767)
22,343
(970)
(69)
(3,471)
(999)
(721)
16,113
45
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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
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
2020
$'000
2019
$'000
15,375
1,842
4,867
22,084
(1,737)
20,347
6,066
10,847
2,398
420
518
20,249
(1,737)
18,512
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
AGHL and its 100% owned Australian resident subsidiaries, and ASOL and its 100% owned Australian resident
subsidiaries have formed separate tax consolidated groups. AGHL and ASOL 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.
46
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
5.
INVESTMENT PROPERTIES
Leasehold investment properties 1
Freehold investment properties
Total investment properties
ABACUS PROPERTY GROUP
2020
$'000
2019
$'000
12,300
12,824
2,640,616
2,049,670
2,652,916
2,062,494
1. The carrying amount of the leasehold property is presented gross of the finance liability of $2.6 million (2019: $2.7 million).
Investment properties held for sale
Office
Other
Total investment properties held for sale
Investment properties
Office
Storage
Other
Total investment properties
2020
$'000
2019
$'000
- 22,310
- 56,540
- 78,850
1,414,556
938,992
1,040,669
841,509
197,691
203,143
2,652,916
1,983,644
Total investment properties including held for sale
2,652,916
2,062,494
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
2020
2019
$'000
12,824
$'000
12,690
57 3
(581)
131
12,300
12,824
Held for sale
Non-current
2020
2019
2020
2019
$'000
78,850
$'000
209,606
$'000
1,970,820
$'000
1,713,704
- - 626,500
247,197
52 3,374
71,040
48,060
- - (40,594)
69,509
(106)
3,028 (9)
10,524
(63,111) (216,008) (2,291) (48,250)
- - (4,406)
5,580
- - - (874)
15,685 (78,850)
78,850
(15,685)
- - 3,871 4,220
Carrying amount at end of the year
- 78,850
2,640,616
1,970,820
47
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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 Head 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.
The weighted average capitalisation rate for Abacus is 6.00% (2019: 6.31%) and for each significant category
above is as follows:
- Office – 5.61% (2019: 5.92%)
- Storage – 6.58% (2019: 6.91%)
- Other – 5.96% (2019: 5.82%)
The optimal occupancy rate utilised in the valuation process ranged from 80.0% to 100.0% (2019: 80.0% to
100.0%). The current occupancy rate for the principal portfolio excluding development and self storage assets is
92.6% (2019: 91.9%). The occupancy rate for the established storage portfolio is 88.1% (2019: 88.4%).
As at 30 June 2020 there is significant valuation uncertainty arising from the COVID-19 pandemic and the
response of Governments to it. This means that the property values may change significantly and unexpectedly
over a relatively short period of time.
Given the market conditions at balance date, the valuations are prepared on the basis of the existence of
‘material valuation uncertainty’, noting that less certainty, and a higher degree of caution, should be attached to
the valuations than would normally be the case. The current response to the COVID-19 pandemic means that the
Group has faced an unprecedented set of circumstances on which to base a judgement.
48
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
5.
INVESTMENT PROPERTIES (continued)
The key assumptions and estimates used in these valuation approaches which have been impacted by COVID-19
include:
forecast future rental income, based on the location, type and quality of the property, which are supported by
the terms of any existing leases, other contracts or external evidence such as current market rents for similar
properties adjusted to recognise the COVID-19 impact
lease assumptions based on current and expected future market conditions after expiry of any current lease
the capitalisation rate and discount rate derived from recent comparable market transactions adjusted for
COVID-19 to reflect the uncertainty in the amount and timing of cash flows
the impact of government support on tenants and rental schemes giving rise to rental deferrals, rental
forgiveness, and eviction moratoriums.
The property valuations have been prepared based on the information that is available at 30 June 2020.
In the event that the circumstances are more material or prolonged than anticipated, this may further impact the
fair value of the Group’s investment property portfolio, and the future price achieved if a property is divested.
During the year ended 30 June 2020, 60% (2019: 56%) of the number of investment properties in the portfolio
were subject to external valuations, the remaining 40% (2019: 44%) were subject to internal valuation.
49
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
5.
INVESTMENT PROPERTIES (continued)
ABACUS PROPERTY GROUP
Office
51 Allara Street, Canberra ACT
11 Bowden Street, Alexandria NSW
99 Walker Street, North Sydney NSW 1
201 Elizabeth Street, Sydney NSW 2
14 Martin Place, Sydney NSW
324 Queen Street, Brisbane QLD
Kingsgate, Fortitude Valley QLD
Westpac House, Adelaide SA
452 Johnston Street, Abbotsford VIC
710 Collins Street, Melbourne VIC
464 St Kilda Road, Melbourne VIC
Other Office (10 assets; 2019: 11 assets) 3
Total Office
Self Storage
ACT (8 facilities; 2019: 8 facilities)
NSW (20 facilities; 2019: 17 facilities) 4
QLD (14 facilities; 2019: 13 facilities) 5
VIC (19 facilities; 2019: 19 facilities)
WA (5 facilities; 2019: 1 facility) 6
NZ (15 facilities; 2019: 12 facilities) 7
Total Self Storage
Other
Ashfield Shopping Centre, Ashfield NSW
Lutwyche City Centre, Lutwyche QLD
Liverpool Plaza and adjoining sites, NSW 8
Other properties (3 assets; 2019: 5 assets) 9
Total Other
Ownership
Interest
%
Fair Value
2020
$'000
Capitalisation
Rate
2020
%
Fair Value
2019
$'000
Capitalisation
Rate
2019
%
100 57,250
100 55,500
100 305,000
24 151,200
50 116,500
50 79,000
50 80,500
50 78,750
100 102,000
100 112,000
50 50,000
50-100 226,856
7.75 55,000
5.50 56,250
8.00
5.50
5.00
5.00
- -
- -
4.88 115,000
6.00 79,250
5.75 80,750
6.75 83,825
5.75 103,000
5.25 107,500
5.25 51,000
6.31 229,727
4.88
6.00
5.75
6.75
5.63
5.13
5.25
6.43
1,414,556
5.61 961,302
5.92
100 152,850
100 258,666
100 139,011
100 216,342
100 57,519
100 216,281
6.53 141,955
6.69 209,758
6.51 128,349
6.45 199,253
6.93 16,000
6.57 146,194
6.84
7.05
6.73
6.79
6.75
7.12
1,040,669
6.58 841,509
6.91
50 96,250
50 69,341
5.75 102,500
6.00 64,943
100
- - 45,740
100 32,100
6.50 46,500
5.50
5.75
6.00
6.45
197,691
5.96 259,683
5.82
1.
2.
In January 2020 Abacus acquired a 100% interest in 99 Walker Street, North Sydney
In November 2019 Abacus acquired a 24% interest in 201 Elizabeth Street, Sydney with an option to further acquire another 8% interest
in financial year ending 30 June 2021
3.
In February 2020 Abacus divested its 100% interest in 1 Bellevue Drive, Varsity Lakes
4. Abacus acquired three properties being Woonona in July 2019, and Narellan and Prestons in December 2019
5.
In June 2020, Abacus acquired a property in Deagon
6. Abacus acquired four properties being Joondalup in September 2019, Ellenbrook in November 2019, Canning Vale in December 2019
and Cockburn in April 2020.
7. Abacus acquired three properties being Onehunga and Panmure in September 2019 and Grey Lynn in February 2020
8.
In December 2019 Abacus divested its 100% interest in the Liverpool Plaza and adjoining sites
9. Abacus divested its 100% interest in two properties being Mudjimba Land in October 2019 and Wodonga in April 2020
50
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
ABACUS PROPERTY GROUP
6.
INVENTORY
(a) Current
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 value
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 value
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
2020
$'000
2019
$'000
532 7,713
1,709 5,287
- (200)
2,241 12,800
45,763 44,812
- 997
45,763 45,809
48,004 58,609
2020
$'000
2019
$'000
22,236 57,674
2,256 3,410
(3,910) (153)
46,106 53,982
6,475 7,796
73,163 122,709
- 93,836
- 58,358
- (15,249)
54,578 39,065
8,643 12,313
63,221 188,323
140,669 46,978
839 1,277
141,508 48,255
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 2021.
51
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
8.
INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
(a) Extract from joint ventures’ profit and loss statements
ABACUS PROPERTY GROUP
Fordtrans Pty Ltd*
Oasis JV Unit Trust^
Other Joint Ventures
Total
2020
$'000
2019
$'000
2020
$'000
2019
$'000
2020
$'000
2019
$'000
2020
$'000
2019
$'000
Revenue
Expenses
Net profit
11,925 12,104 17,652 17,950 68,394 183,280 97,971 213,334
(5,876) (10,749) (8,133) (8,163) (62,329) (153,649) (76,338) (172,561)
6,049 1,355 9,519 9,787 6,065 29,631 21,633 40,773
Share of net profit
3,024 678 3,808 3,915 3,995 10,075 10,827 14,668
* Included in the net profit of Fordtrans Pty Ltd for the year ended 30 June 2020: interest income $1.8 million (2019: $1.4 million) and
interest expense $2.1 million (2019: $3.0 million).
^ Included in the net profit of Oasis JV Unit Trust for the year ended 30 June 2020: nominal interest income (for both years) and interest
expense $2.5 million (2019: $2.8 million).
(b) Extract from joint ventures’ balance sheets
Fordtrans Pty Ltd*
Oasis JV Unit Trust^
Other Joint Ventures
Total
2020
$'000
2019
$'000
2020
$'000
2019
$'000
2020
$'000
2019
$'000
2020
$'000
2019
$'000
Current assets
9,004 5,014 5,957 9,416 12,671 61,745 27,632 76,175
Non-current assets
209,624 208,318 172,500 159,000 76,708 149,709 458,832 517,027
218,628 213,332 178,457 168,416 89,379 211,454 486,464 593,202
Current liabilities
(17,982) (13,151) (96,288) (2,795) (10,930) (48,156) (125,200) (64,102)
Non-current liabilities
(62,992) (64,313)
- (92,971) (17,626) (17,360) (80,618) (174,644)
Net assets
137,654 135,868 82,169 72,650 60,823 145,938 280,646 354,456
Share of net assets
68,827 67,477 32,868 29,060 21,734 71,563 123,429 168,100
* Included in the net assets of Fordtrans Pty Ltd as at 30 June 2020: cash and cash equivalents $0.4 million (2019: $0.3 million), current
interest bearing loans and borrowings $Nil (2019: $Nil) and non-current interest bearing loans and borrowings $63.0 million (2019: $64.3
million).
^ Included in the net assets of Oasis JV Unit Trust as at 30 June 2020: cash and cash equivalents $3.7 million (2019: $7.6 million), current
interest bearing loans and borrowings $92.9 million (2019: $Nil) and non-current interest bearing loans and borrowings $Nil (2019: $92.7
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, childcare 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 2020 was $2.1 million
(2019: $4.4 million).
2. 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 2020 and 30 June 2019.
52
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
9. CASH AND CASH EQUIVALENTS
ABACUS PROPERTY GROUP
Reconciliation to Statement of Cash Flow
For the purposes of the Statement of Cash Flow, cash and cash equivalents comprise the following at 30 June 2020
Cash at bank and in hand1
127,313
89,028
1. Cash at bank earns interest at floating rates. The carrying amounts of cash and cash equivalents represent fair value.
2020
$'000
2019
$'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
85,024
194,447
5,165
3,579
41,175
(3,629)
115
(4,871)
-
(10,827)
17,410
11,674
60,581
205,396
2,911
6,750
(69,640)
2,332
(13,436)
(18,037)
301
(14,668)
(37,995)
45,429
10,698
109,092
Non-cash financing activities include capital raised pursuant to the Abacus distribution reinvestment plan. During the year 8.56 million (2019:
1.19 million) stapled securities were issued with a cash equivalent of $31.9 million (2019: $4.2 million).
53
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
10. CAPITAL MANAGEMENT
Group entities comply with capital and distribution requirements of their constitutions and/or trust deeds, the
capital requirements of relevant regulatory authorities and continue to operate as a going concern. Abacus also
protects its equity in assets by taking out insurance.
Abacus assesses the adequacy of its capital requirements, cost of capital and gearing (i.e. debt/equity mix) as
part of its broader strategic plan. In addition to tracking actual against budgeted performance, Abacus reviews its
capital structure to ensure sufficient funds and financing facilities (on a cost effective basis) are available to
implement its strategy, that adequate financing facilities are maintained and distributions to members are made
within the stated distribution guidance (i.e. paid out of underlying profits).
The following strategies are available to the Group to manage its capital: issuing new stapled securities, its
distribution reinvestment plan, electing to have the distribution reinvestment plan underwritten, adjusting the
amount of distributions paid to members, activating a security buyback program, divesting assets, active
management of its fixed rate swaps and collars, directly purchasing assets in managed funds and joint ventures,
or (where practical) recalibrating the timing of transactions and capital expenditure so as to avoid a concentration
of net cash outflows.
Abacus has no bank debt expiring in financial year ending 30 June 2021 with the majority of debt expiring from
the financial year ending 30 June 2024 onwards.
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”) was also been offered to eligible securityholders to apply for up to $15,000 of new securities at $3.95 per
stapled security which raised $4.3 million.
In August 2020, Abacus increased its banking facility limits by an additional $246.6 million. Facility pricing is
relatively unchanged and is below the Group’s weighted average cost of debt.
54
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
11. INTEREST BEARING LOANS AND BORROWINGS
Non-current
Bank loans - A$
Bank loans - A$ value of NZ$ denominated loan
Loan from related party - A$
Less: Unamortised borrowing costs
(a) Total non-current
(b) Maturity profile of current and non-current interest bearing loans
Due within one year
Due between one and five years
Due after five years
ABACUS PROPERTY GROUP
2020
$'000
2019
$'000
867,072 638,050
107,447 73,299
38,573 36,801
(3,332) (3,615)
1,009,760 744,535
2020
$'000
2019
$'000
-
-
833,010 204,332
176,750 540,203
1,009,760 744,535
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 2021 to August 2025. The bank loans
are secured by charges over the investment properties, certain inventory and certain property, plant and
equipment.
Approximately 47.9% (2019: 50.2%) of bank debt drawn was subject to fixed rate hedges and the drawn bank
debt had a weighted average term to maturity of 3.9 years (2019: 5.3 years). Hedge cover as a percentage of
available facilities at 30 June 2020 was 41.9% (2019: 34.1%).
Abacus’ weighted average interest rate as at 30 June 2020 was 3.01% (2019: 4.02%). Line fees on undrawn
facilities contributed to 0.45% of the weighted average interest rate at 30 June 2020 (2019: 0.34%). Abacus’
weighted average interest rate excluding the undrawn facilities line fees as at 30 June 2020 was 2.56% (2019:
3.68%).
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
Investment properties
Total non-current assets pledged as security
2020
$'000
2019
$'000
- 68,050
- 68,050
2,619,666 1,896,955
2,619,666 1,896,955
Total assets pledged as security
2,619,666 1,965,005
55
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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 including any adverse economic events such as the COVID-19 pandemic, 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.
56
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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
Listed and unlisted property securities
Cash and cash equivalents
Cash and other financial assets
Secured property loans - amortised cost
Secured property loans - fair value
Secured property loans
ABACUS PROPERTY GROUP
Carrying Amount
2020
2019
$'000
39,427 30,645
$'000
141,508 48,255
127,313 89,028
308,248 167,928
24,492 213,278
115,802 113,156
140,294 326,434
Total credit risk exposure
448,542 494,362
As at 30 June 2020, 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 66% (2019: 68%) of the
portfolio.
Secured property loans
The Group has a total investment of $140.3 million in secured property loans as at 30 June 2020 (2019: $326.4
million). Of these loans $100.5 million has been renewed / extended beyond the original term on commercial
terms (2019: $155.6 million).
The expected credit loss (ECL) provision for the secured loans at amortised cost at 30 June 2020 is $3.9 million
(2019: $15.4 million) of which $3.7 million (2019: $1.1 million) was recognised during the year. The total collateral
value for secured loans with 12 month ECL is $3.2 million (2019: $87.9 million) against a maximum credit risk
exposure of $1.0 million (2019: $62.5 million) and the total collateral value for secured loans with lifetime ECL is
$27.5 million (2019: $170.1 million) against a maximum credit risk exposure of $26.0 million (2019: $172.2
million). The credit risk grades of the secured property loans are below investment grade. $24.4 million loans are
past due at 30 June 2020 (2019: $90.1 million).
57
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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 2020
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
80,990
80,990
80,990
- -
Interest bearing loans and borrowings incl derivatives#
1,011,401 1,107,261
22,963 907,196 177,102
Total liabilities
1,092,391 1,188,251 103,953 907,196 177,102
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
# 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 2020, after taking into account the effect of interest rate swaps, approximately 47.9% (2019:
50.2%) of the Group’s drawn debt is subject to fixed rate hedges. Hedge cover as a percentage of available
facilities at 30 June 2020 is 41.9% (2019: 34.1%). 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.
58
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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:
30 June 2020
Financial Assets
Cash and cash equivalents
Receivables
Secured loans
Total financial assets
Floating
interest rate
Fixed interest
less than
1 year
Fixed interest
1 to 5 years
Fixed interest
over 5 years
Non interest
bearing
$'000
$'000
$'000
$'000
$'000
Total
$'000
127,313
- - - - 127,313
- - - - 39,427
15,396
- 124,898
39,427
- - 140,294
127,313
124,898
15,396
- 39,427 307,034
Weighted average interest rate*
0.35%
10.52%
20.00%
Financial liabilities
Interest bearing liabilities - bank
Interest bearing liabilities - other
Derivatives
Payables
927,369
- - 38,573
- - 46,750
- 974,119
- - 38,573
- - - - 1,666
1,666
- - - - 80,990
80,990
Total financial liabilities
927,369
- 38,573
46,750 82,656 1,095,348
Notional principal swap balance
maturities*
Weighted average interest rate on
drawn bank debt*
-
110,000
310,000
-
-
420,000
3.01%
30 June 2019
Financial Assets
Cash and cash equivalents
Receivables
Secured loans
Floating
interest rate
Fixed interest
less than
1 year
Fixed interest
1 to 5 years
Fixed interest
over 5 years
Non interest
bearing
$'000
$'000
$'000
$'000
$'000
Total
$'000
88,703
- - - - 88,703
- - - - 30,116
30,116
- 305,243
21,190
- - 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*
-
-
310,000
-
-
310,000
Weighted average interest rate on
drawn bank debt*
4.02%
*
calculated at 30 June
59
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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 2020
Financial assets
Financial liabilities
30 June 2019
Financial assets
Financial liabilities
AUD
Carrying amount
-1%
Floating
$'000
Profit
$'000
Equity
$'000
+1%
Profit
$'000
Equity
$'000
127,313 (1,273)
- 1,273
-
929,010
958
- (2,131)
-
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
-
The analysis for the interest rate sensitivity of financial liabilities includes derivatives.
60
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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.
61
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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 2020.
Opening balance as at 30 June 2019
113,156
- 1,277
114,433
Fair value movement through the income statement
(17,488)
- (438) (17,926)
Secured
loans
Derivatives -
projects
$'000
$'000
Unlisted
securities/
options
$'000
Total
$'000
Additions
Disposals
Closing balance as at 30 June 2020
165,887
- - 165,887
(145,753)
- - (145,753)
115,802
- 839
116,641
Secured
loans
Derivatives -
projects
Unlisted
securities/
options
Total
$'000
$'000
$'000
$'000
Opening balance as at 30 June 2018
125,805
1,885
1,329
129,019
Fair value movement through the income statement
(529) (1,885) (52) (2,466)
Additions
Disposals
Closing balance as at 30 June 2019
Sensitivity of Level 3 – secured loans
10,797
- - 10,797
(22,917)
- - (22,917)
113,156
- 1,277
114,433
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 decrease / increase in the
underlying property developments’ returns by 10% would have the effect of reducing the fair value by $7.5 million
(2019: $0.8 million) or increase the fair value by $Nil (2019: $0.8 million) respectively.
Sensitivity of Level 3 – unlisted securities and options
The potential effect of using reasonable possible alternative assumptions based on a decrease / increase in the
property valuations by 5% would have the effect of reducing the fair value by up to $0.1 million (2019: $0.1
million) or increase the fair value by $0.1 million (2019: $0.1 million) respectively.
13. CONTRIBUTED EQUITY
(a) Issued stapled securities
Stapled securities
Issue costs
Total contributed equity
(b) Movement in stapled securities on issue
At beginning of financial year
- equity raisings
- distribution reinvestment plan
Securities on issue at end of financial year
2020
2019
$'000
1,925,398 1,639,203
$'000
(45,634) (40,058)
1,879,764 1,599,145
Stapled securities
Number
2020
Number
2019
'000
580,555 579,363
'000
64,382
-
8,565 1,192
653,502 580,555
62
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
14. DISTRIBUTIONS PAID AND PROPOSED
ABACUS PROPERTY GROUP
Abacus
(a) Distributions paid during the year
2020
$'000
2019
$'000
June 2019 half: 9.25 cents per stapled security (2018: 9.00 cents)
December 2019 half: 9.45 cents per stapled security (2018: 9.25 cents)
53,701
52,143
60,984
53,631
(b) Distributions proposed and recognised as a liability^
June 2020 half: 9.05 cents per stapled security (2019: 9.25 cents)
59,142
53,701
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 9.05 cents per stapled security was declared on 1 June 2020. The distribution being paid on or around 31 August
2020 will be approximately $59.1 million.
Non-core funds
Distributions paid during the year
Abacus Hospitality Fund
2020
$'000
2019
$'000
- 1,105
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 $92 million (2019: $71 million).
63
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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
2020
$'000
2019
$'000
852 8,069
852 8,069
2,094 14,527
434,441 389,403
56 92
98,940 98,007
335,501 291,396
411,423 349,226
(78,258) (61,850)
2,336 4,020
335,501 291,396
As at 30 June 2020, the parent entity has entered into, or still bound by, the following agreements:
- Act as guarantor for borrowings for a joint venture arrangement to a guarantee limit of $2.4 million (2019:
$6.6 million). No property security has been provided by the parent.
- Act as guarantor for borrowings for an intra-group co-ownership arrangement to a guarantee limit of
$19.0 million (2019: $Nil). No property security has been provided by the parent.
(b) Parent entity capital commitments
There are no capital commitments of the parent entity as at 30 June 2020 (2019: Nil).
64
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
16. PROPERTY, PLANT AND EQUIPMENT
Non-current
Right of use property asset
Storage properties
Office equipment / furniture and fittings
Total non-current property, plant and equipment
ABACUS PROPERTY GROUP
2020
$'000
2019
$'000
2,266
-
14,758 8,802
1,405 1,746
18,429 10,548
The following table is a reconciliation of the movements of property, plant and equipment for the year ended 30
June 2020.
Land and buildings
At the beginning of the year net of accumulated depreciation
Disposal
At the end of the year net of accumulated depreciation
Right of use property asset
Additions
Depreciation charge for the period
At the end of the period net of accumulated depreciation
Gross value
Accumulated depreciation
Net carrying amount at end of the year
Plant and equipment
Gross value
Accumulated depreciation
Net carrying amount at end of the year
Total
2020
$'000
-
-
-
3,173
(907)
2,266
3,173
(907)
2,266
2019
$'000
81,068
(81,068)
-
-
-
-
-
-
-
26,263
(10,100)
16,163
18,586
(8,038)
10,548
18,429
10,548
65
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
17. COMMITMENTS AND CONTINGENCIES
Abacus
(a) Operating lease commitments – Group as lessor
Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2020 are as follows:
Within one year
Within two years
Within three years
Within four years
Within five years
More than five years
2020
$'000
2019
$'000
72,289 53,462
60,024 45,829
46,309 38,245
32,156 28,818
21,425 18,438
63,047 30,357
295,250 215,149
These amounts do not include contingent rentals which may become receivable under certain leases on the basis
of retail sales in excess of stipulated minimums and, in addition, do not include recovery of outgoings.
(b) Capital and other commitments
At 30 June 2020 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
2020
$'000
2019
$'000
45,288 4,680
7,431 5,426
18,367 22,141
48,673 32,315
119,759 64,562
2,373
2,373
6,572
6,572
66
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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 Finance Pty Limited
Abacus Funds Management Limited
Abacus Hampstead Trust
Abacus Investment Pty Ltd
Abacus Mortgage Fund
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
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
2020
%
2019
%
100
100
100
-
100
100
-
100
100
100
100
100
100
100
100
100
100
-
-
100
100
100
100
100
100
50
50
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
50
51
67
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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 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 Todd Road Trust
* These entities are wholly owned by Abacus
ABACUS PROPERTY GROUP
Equity interest
2020
%
2019
%
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
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
68
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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
2020
%
2019
%
100
100
100
100
100
100
100
100
100
100
100
100
-
15
100
100
100
100
100
100
100
100
100
100
100
100
10
15
Principal
place of
business
% held by
NCI
(Profit)/loss
allocated to
Accumulated
NCI
$'000
NCI
$'000
Australia
85
(296)
4,969
Australia
Australia
90
85
11,953
-
(2,572)
4,673
30 June 2020
Abacus Wodonga Land Fund
30 June 2019
Abacus Hospitality Fund
Abacus Wodonga Land Fund
(b) Ultimate parent
AGHL has been designated as the parent entity of the Group.
(c) Key management personnel
Details of payments are disclosed in Note 19.
69
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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
219 222
2020
$'000
2019
$'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
3,188 2,940
12,056 15,793
(701) (2,643)
10,285 19,998
1,772 346
- (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 ECL provisions incurred with respect to amounts payable or receivable from related parties during the year.
Loan from related party is disclosed in note 11.
Ultimate controlling entity
Calculator Australia Pty Ltd (“Kirsh”) is the ultimate controlling securityholder in the Group with a holding of
approximately 50% of the ordinary securities of the Group (2019: 45%).
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
2020
$
205,733
218,546
2019
$
203,135
222,481
Mrs Myra Salkinder is the Chair of the Group and is a senior executive of Kirsh.
70
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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
2020
$
2019
$
3,398,647 3,999,974
105,827 134,426
58,882 31,502
492,514 523,277
4,055,870 4,689,179
(b) Loans to key management personnel
There were no loans to key management personnel and their related parties at any time in 2020 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.
71
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
20. SECURITY BASED PAYMENTS
(a) Recognised security payment expenses
The expense recognised for employee services received during the year is as follows:
2020
$'000
2019
$'000
Expense arising from equity-settled payment transactions
1,437 2,049
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 2021
September 2022
September 2023
One third of the initial issue
One third of the initial issue
One third of the initial issue
199,659
199,659
199,659
* 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 the
HoadleyESO4 model which uses a trinomial tree with 500 steps.
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.
72
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
20. SECURITY BASED PAYMENTS (continued)
(b) 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
2020
No.
2019
No.
1,603,068 1,424,537
598,977 757,016
-
-
(621,330) (578,485)
1,580,715 1,603,068
Exercisable at the end of the year
-
-
The weighted average remaining life of the instrument at 30 June 2020 was 1.4 years (2019: 1.2 years) and the
weighted average fair value of the SARs granted during the year was $3.43 (2019: $2.89).
The following table lists the inputs to the model used for the SARs plan for the years ended 30 June 2020 and 30
June 2019:
Expected volatility (%)
Risk-free interest rate (%)
Life of instrument (years)
Model used
2020
2019
19 20
0.60 - 0.82
1.52 - 2.27
1.8 - 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.
73
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
21. INTANGIBLE ASSETS AND GOODWILL
Description of the Group’s intangible assets
ABACUS PROPERTY GROUP
Goodwill
Balance at 1 July
Balance at 30 June
2020
$'000
2019
$'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 2020 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 8.60% (2019: 9.40%) and a terminal growth rate of 1.9% (2019: 2.7%) have been
applied to the cash flow projections as a result of reduction in the risk-free rate.
(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 2020 has significant
head room thus no reasonable changes in the assumptions would cause or give rise to an impairment.
(iv) Impact of the COVID-19 pandemic
The review of the rates to be used in Abacus’ impairment testing model resulted in the pre-tax discount rate of
8.6% (2019: 9.4%) and a terminal growth rate of 1.9% (2019: 2.7%). The reduction in rates reflects current market
conditions which includes the reduction of the risk free rate and the impact of COVID-19.
As an additional COVID-19 measure, an assessment of available evidence was undertaken to assess whether
there was any indication of a significant decline in the value of the underlying assets and property market. The
assessment concluded that there has been no material decline in asset values in the year.
74
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
22. DISCONTINUED OPERATIONS
During the year, the Abacus Hospitality Fund had been wound up and was classified as a discontinued operation.
The results of Abacus Hospitality Limited for the year were presented as follows:
Hotel income
Finance income
Other income
Total Revenue and Other Income
Hotel expenses
2020
$'000
2019
$'000
- 5,565
- 979
- 25
- 6,569
-
(4,144)
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)
- 1,840
-
-
- 1,840
At 30 June 2020 Abacus Hospitality Fund had no assets or liabilities (2019: Nil).
The net cash flow incurred by Abacus Hospitality Fund were as follows:
Operating
Investing
Financing
Net cash (outflow) / inflow
2020
$'000
2019
$'000
-
(9,636)
- 83,405
- (102,856)
- (29,087)
Basic and diluted earnings per stapled security from discontinued operations (cents)
-
2.19
75
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Preparation
The financial report is a general-purpose financial report, which has been prepared in accordance with the
requirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has also
been prepared on a historical cost basis, except for investment properties and derivative financial instruments
which have been measured at fair value, interests in joint ventures and associates which are accounted for using
the equity method, and certain investments and financial assets measured at fair value.
The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars
($'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 2019.
The Group has adopted the following new or amended standards which became applicable on 1 July 2019:
- AASB 16 Leases
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 has elected 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.
76
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(c) New accounting standards and interpretations (continued)
- AASB 2017-7 Amendments to Australian Accounting Standards – Long-term Interests in Associates and
Joint Ventures (effective 1 July 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. The
adoption of this amended standard has no material impact on the financial results of the Group.
- AASB 2018-1 Amendments to Australian Accounting Standards – Annual Improvements 2015-2017 Cycle
(effective 1 July 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.
The adoption of these amended standards has no material impact on the financial results of the Group.
- AASB Interpretation 23 Uncertainty over Income Tax Treatments, and relevant amending standards
(effective 1 July 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. The adoption of this interpretation has no
material impact on the financial results of the Group.
(ii) Accounting Standards and Interpretation issued but not yet effective
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
effective have not been adopted by the Group for the annual reporting period ended 30 June 2020. The
significant new standards or amendments are outlined below:
- AASB 2018-6 Amendments to Australian Accounting Standards - Definition of a Business (effective from 1
July 2020)
This amends AASB 3 - Business Combinations to clarify the definition of a business, assisting entities to
determine whether a transaction should be accounted for as a business combination or as an asset
acquisition. This amendment is not expected to have a significant impact on the financial statements on
application.
- AASB 2018-7 Amendments to Australian Accounting Standards - Definition of Material (effective from 1 July
2020)
This amends AASB 101 Presentation of Financial Statements and AASB 108 Accounting Policies, Changes
in Accounting Estimates and Errors, to clarify the definition of material and its application by improving the
wording and aligning the definition across AASB Standards and other publications. This amendment 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 July 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.
77
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(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.
(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.
78
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(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.
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.
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 income statement.
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.
79
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(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.
(j) Derivative financial instruments and hedging
The Group utilises derivative financial instruments, both foreign exchange and interest rate derivatives to manage
the risk associated with foreign currency and interest rate fluctuations. Such derivative financial instruments are
recognised at fair value through profit or loss (“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 FVTPL.
80
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(k)
Investments and other financial assets (continued)
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 FVTPL.
At initial recognition, the financial asset is measured at its fair value and transaction costs are recognised in profit
or loss as incurred. Financial assets at FVTPL are subsequently measured at fair value. Any gains and losses
from changes in fair value are recognised through profit or loss 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 listed securities, 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.
(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
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
Right-of-use property – 5 years
Impairment
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely
independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset
belongs.
If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets
or cash-generating units are written down to their recoverable amount.
The recoverable amount of property (including land and buildings), plant and equipment is the greater of fair value
less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the assets.
81
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(m) Property, plant and equipment (continued)
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.
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.
82
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(n)
Investment properties (continued)
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
At the lease commencement date, a right-of-use asset and a corresponding lease liability is recognised.
The liabilities arising from the lease are initially measured on a present value basis. Lease liabilities include the
net present value of future lease payments, less any lease incentives receivable. When adjustments to lease
payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-
use asset. Lease payments are allocated between principal and finance cost.
Right-of-use assets are measured at cost comprising:
– the amount of the initial measurement of the lease liability;
– any lease payments made at or before the commencement date, less any lease incentives received;
– any initial direct costs incurred; and
– any restoration costs.
Right-of-use property assets are measured and classified as either investment property or property plant and
equipment in accordance with the policies above.
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.
The Group accounts for a modification to an operating lease either due to a change in scope or consideration of
the lease as a new lease from the effective date of the modification, considering any prepaid or accrued lease
payments relating to the original lease as part of the lease payments for the new lease.
(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.
83
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
24. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(p) Goodwill and intangibles (continued)
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.
(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.
84
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(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.
(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.
85
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(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.
(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.
86
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(y) Taxation (continued)
Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the
extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of
assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences, except:
- when the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; or
- when the taxable temporary differences associated with investments in subsidiaries, associates and interests
in joint ventures, and the timing of the reversal of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year
when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in the income
statement.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity
and the same taxation authority.
New Zealand
The trusts that operate in New Zealand (“NZ”) are treated as a company for NZ income tax purposes and are
taxed at the corporate tax rate of 28% (2019: 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% (2019: 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.
87
ABACUS PROPERTY GROUP
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
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.
88
NOTES TO THE FINANCIAL STATEMENTS
30 JUNE 2020
24. AUDITOR’S REMUNERATION
Amounts received or due and receivable by Ernst & Young Australia:
- Fees for auditing the statutory financial report of the parent covering the group and
auditing the statutory financial reports of any controlled entities
- Services required by legislation to be provided by the auditor
ABACUS PROPERTY GROUP
2020
$
2019
$
1,180,000 1,156,450
- compliance services
39,150 38,800
- Other assurance and agreed-upon-procedures services under other legislation or
contractual arrangements where there is discretion as to whether the service is provided
by the auditor or another firm
- Other services
- taxation services
176,300 103,493
- 6,744
1,395,450 1,305,487
25. EVENTS AFTER BALANCE SHEET DATE
In August 2020, Abacus increased its banking facility limits by an additional $246.6 million. Facility pricing is
relatively unchanged and is below the Group’s weighted average cost of debt.
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.
89
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 2020 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 2020.
On behalf of the Board.
Myra Salkinder
Chair
Sydney, 18 August 2020
Steven Sewell
Managing Director
90
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 2020, the consolidated statement of comprehensive income, consolidated
statement of changes in equity and 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:
a)
giving a true and fair view of the consolidated financial position of the Group as at 30 June
2020 and of its consolidated financial performance for the year ended on that date; and
b)
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 (including Independence Standards) (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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Investment Properties
Why significant
How our audit addressed the key audit matter
The Group’s total assets include investment
properties either held directly or through an
interest 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.
As disclosed in note 5, the valuation of
investment properties is inherently subjective. A
small difference in any one of the key market
input assumptions, when aggregated across all
the properties, could result in a significant
change to the valuation of investment
properties.
Two approaches are generally used: the Income
Capitalisation approach and the Discounted Cash
Flow approach to arrive at a range of valuation
outcomes, from which the valuers derive their
best estimate of the value at a point in time.
As at 30 June 2020 there is significant valuation
uncertainty arising from the COVID-19 pandemic
and the response of Governments to it. This
means that the property values may change
significantly and unexpectedly over a relatively
short period of time.
Given the market conditions at balance date, the
independent valuers have reported on the basis
of the existence of ‘material valuation
uncertainty’, noting that less certainty, and a
higher degree of caution, should be attached to
the valuations than would normally be the case.
In this situation the disclosures in the financial
statements provide particularly important
information about the assumptions made in the
property valuations and the market conditions at
30 June 2020.
We have, therefore, considered this a key audit
matter due to the number of judgments required
in determining fair value. For the same reasons
we consider it important that attention is drawn
to the information in Note 5 in assessing the
property valuations at 30 June 2020.
The valuation of investment properties is inherently
subjective given there are alternative assumptions
and valuation methods that may result in a range of
values. The impact of COVID-19 at 30 June 2020 has
resulted in a wider range of possible values than at
past valuation points.
Our audit procedures included the following:
• We discussed the following matters with
management:
• movements in the Group’s investment
property portfolio;
•
•
•
changes in the condition of each property;
controls in place relevant to the valuation
process; and
the impact that COVID-19 has had on the
Group’s investment property portfolio
including rent abatements offered to tenants
and tenant occupancy risk arising from
changes in the estimated lease renewals.
• On a sample basis, we performed the following
procedures for selected properties:
• Evaluated the key valuation assumptions and
agreed passing rental income 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. 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.
• Assessed whether COVID-19 relief provided
to tenants had been factored into the
valuations and that changes in tenant
occupancy risk were also considered.
• Tested the mathematical accuracy of internal
•
valuations.
Involved our real estate valuation specialists
to assist with the assessment of the valuation
assumptions and methodologies, in particular
changes made as a result of COVID-19.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Why significant
How our audit addressed the key audit matter
• Where relevant we compared the valuation
against comparable transactions utilised in
the valuation process.
• Evaluated the suitability of the valuation
methodology across the portfolio based on
the type of asset. We considered the reports
of the independent valuers and the impact
that COVID-19 has had on key assumptions
such as the capitalisation, discount or growth
rate and future forecast rentals. We have also
considered and responded to restrictions
imposed on the valuation process (if any) and
the market conditions at balance date.
• Assessed the qualifications, competence and
objectivity of the valuers.
• We have considered whether there have been any
in property
indicators of material changes
valuations from 30 June 2020 up to the date of
our opinion. We involved our real estate valuation
specialists to assist us in making this assessment.
identified have been
Any material matters
disclosed as a subsequent event in note 25.
• We have considered whether the financial report
disclosures and in particular those relating to
valuation uncertainty are appropriate.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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.
Calculating expected credit loss involves
judgement as it reflects information about past
events, current conditions and forecast
conditions.
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.
As at 30 June 2020 there is significant valuation
uncertainty arising from the COVID-19 pandemic
and the response of Governments to it. This
means that the property values, underpinning the
carrying value of the loans, may change
significantly and unexpectedly over a relatively
short period of time.
Given the market conditions at balance date, the
independent valuers have reported on the basis of
the existence of ‘material valuation uncertainty’,
noting that less certainty, and a higher degree of
caution, should be attached to the valuations than
would normally be the case. In this situation the
disclosures in the financial statements provide
particularly important information about the
assumptions made in the carrying value of loans
and the market conditions at 30 June 2020.
How our audit addressed the key audit matter
The valuation of property loans is inherently
subjective given its reliance on the value of the
underlying security. There are alternative
assumptions and valuation methods that may result
in a range of values for the security which may
ultimately impact either the fair value of the loans
or the determination of expected credit loss for
loans held at amortised cost. The impact of COVID-
19 at 30 June 2020 has resulted in a wider range
of possible values than at past valuation points.
Our audit procedures included the following:
• We assessed whether the classification of each
mortgage loan as either amortised cost or fair
value was in accordance with Australian
Accounting Standards based on the underlying
loan terms.
• We evaluated the value assigned by assessing
the feasibilities of the underlying development
asset. 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 or provision for
expected credit loss, we assessed the valuation
by performing procedures consistent with those
performed on Investment property valuations
referred to in the preceding key audit matter.
• We assessed the Group’s methodology in
determining the fair value of the loans and re-
performed the Group’s calculations.
• 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;
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Why significant
How our audit addressed the key audit matter
We have considered this a key audit matter due to
the number of judgments required in determining
fair value. For the same reasons we consider it
important that attention is drawn to the
information in Note 7 in assessing the valuation of
the loans at 30 June 2020.
Disclosure of accounting policy related to property
loans is included in Note 23(k) of the financial
report.
• 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.
• We have considered whether there have been
any indicators of material changes in valuations
of underlying security from 30 June 2020 up to
the date of our opinion. We involved our real
estate valuation specialists to assist us in
making this assessment. Any material matters
identified have been disclosed as a subsequent
event in Note 25.
• We have considered whether the financial
report disclosures and in particular those
relating to the valuation uncertainty are
appropriate.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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 and 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
or a property valuation.
As at 30 June 2020 there is significant valuation
uncertainty arising from the COVID-19 pandemic
and the response of Governments to it. This
means that the property values may change
significantly and unexpectedly over a relatively
short period of time.
Given the market conditions at balance date, the
independent valuers have reported on the basis
of the existence of ‘material valuation
uncertainty’, noting that less certainty, and a
higher degree of caution, should be attached to
the valuations than would normally be the case.
In this situation the disclosures in the financial
statements provide particularly important
information about the assumptions made in the
property valuations and the market conditions at
30 June 2020.
This was considered a key audit matter due to
the number of judgments made in determining
net realisable value. 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 23(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.
• We tested the mathematical accuracy of the
feasibility assessments.
• Where independent valuations have been
obtained as part of the net realisable value
assessment, we assessed the qualifications,
competence and objectivity of the valuers.
• We considered the reports of the independent
valuers and the impact that COVID-19 has had on
key assumptions such as the discount rate and
future forecast sales. We have also considered
and responded to restrictions imposed on the
valuation process (if any) and the market
conditions at balance date.
• For selected properties we involved our real
estate valuation specialists in the assessment of
the assumptions, in particular changes made as a
result of COVID-19.
• 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.
• We have considered whether there have been any
indicators of material changes in valuations of the
assets from 30 June 2020 up to the date of our
opinion. We involved our real estate valuation
specialists to assist us in making this assessment.
Any material matters identified have been
disclosed as a subsequent event in Note 25.
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Why significant
How our audit addressed the key audit matter
• We have considered whether the financial report
disclosures and in particular those relating to the
valuation uncertainty are appropriate.
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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 Company’s 2020 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 accordingly we do 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 the 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,
actions taken to eliminate threats or safeguards applied.
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 13 to 27 of the Directors' Report for
the year ended 30 June 2020.
In our opinion, the Remuneration Report of Abacus Group Holdings Limited for the year ended 30
June 2020, 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
Anthony Ewan
Partner
Sydney
18 August 2020
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Abacus Property Group
Level 34 Australia Square
264-278 George Street
Sydney NSW 2000
T +61 2 9253 8600
F +61 2 9253 8616
E enquiries@abacusproperty.com.au
www.abacusproperty.com.au