Abacus Property Group
Annual Report 2022

Plain-text annual report

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 2022 Results for announcement to the market (corresponding period: year ended 30 June 2021) (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. (2) Net tangible assets per security excludes external non-controlling interest. 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. Total revenues and other incomeup42%to $740.8mNet profit after income tax expense attributable to stapled security holdersup40%to$517.2mFunds from operations ("FFO") (1)up18.0%to$160.9m30 June 202230 June 2021Basic earnings per security (cents)61.1149.84Basic funds from operations per security (cents) 19.01 18.40 Distribution per security (cents - including proposed distribution)18.0017.50Weighted average securities on issue (million) 846.3 741.1 DistributionJune 2022 half yearThis distribution was declared on 27 June 2022 will be paid on 31 August 2022.per stapled security9.25 cents1 July 2022Record date for determining entitlement to the distributionRefer to the attached announcement for a detailed discussion of the Abacus Property Group's results and the above figures for theyear ended 30 June 2022.TotalHalf December 2021 distribution$72.8mThe 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.per stapled securitypaid 28 February 2022Details of individual and total distribution payments8.75Net tangible assets per security (2)30 June 2022$3.43$3.8530 June 2021  ANNUAL FINANCIAL REPORT 30 June 2022 ABACUS PROPERTY GROUP Directors of Responsible Entities and Abacus Group Holdings Limited: Myra Salkinder, Chair Steven Sewell, Managing Director Trent Alston Mark Bloom Mark Haberlin Holly Kramer Jingmin Qian Company Secretary: Rebecca Pierro Auditor (Financial and Compliance Plan): 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 Directory Abacus Group Holdings Limited ABN: 31 080 604 619 Abacus Group Projects Limited ABN: 11 104 066 104 Abacus Storage Operations Limited ABN: 37 112 457 075 Abacus Funds Management Limited ABN: 66 007 415 590 Abacus Storage Funds Management Limited ABN: 41 109 324 834 Registered Office: Level 34, Australia Square 264-278 George Street SYDNEY NSW 2000 Tel: (02) 9253 8600 Fax: (02) 9253 8616 Website: www.abacusproperty.com.au Custodian: Perpetual Trustee Company Limited Level 12 Angel Place 123 Pitt Street SYDNEY NSW 2000 CONTENTS DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF 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 AUDITOR’S REPORT 2 38 39 40 41 43 44 46 100 101 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 2022. 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 2022 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 2022. PRINCIPAL ACTIVITIES The principal activities of Abacus Property Group during the year were investment in and operation of self storage and investment in commercial properties, along with completing the wind down of 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 Australian Accounting Standards Board (“AASB”) and the International Accounting Standards Board (“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 & NZ. 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 $2.3 billion at 30 June 2022. 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. AGHL has been identified as the parent entity of the Group. The financial reports of the Group for the year ended 30 June 2022 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 and ASPT. The principal activities of Abacus that contributed to its earnings during the year ended 30 June 2022 were investment in self storage and commercial properties to derive rental and management and other fee income. These activities are reported in the segment information note. 2 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 OPERATING AND FINANCIAL REVIEW (continued) GROUP STRATEGY Abacus (or the “Group”), is positioned as a strong asset backed business with key investment concentrated in self storage and commercial property sectors. The Group invests its capital in assets that are forecasted to drive long term total returns and securityholder value, with an investment objective to provide its investors with reliable asset backing, and increasing returns over the medium to longer term. The Group looks for investments in the self storage and commercial sectors that can provide strong and stable cash-backed distributions, with potential for capital and income growth, In particular we: • Focus on our specialised knowledge, repositioning capability and market insight. • Continue to strategically invest in assets in major markets with a clear path to sustainable income growth. • Drive value through active management of the asset portfolio. Abacus has a track record of acquiring property-based assets and actively managing those assets to enhance income and thereby driving capital growth. This track record has facilitated strategic partnering and joint ventures with a number of sophisticated third party owners and major groups. 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 value. 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 average securities on issue (million) 2022 319.6 740.8 517.2 160.9 19.01 18.00 6.1x 846.3 2021 257.6 532.5 369.4 136.4 18.40 17.50 8.8x 741.1 The Group earned a statutory net profit excluding non-controlling interests of $517.2 million for the year ended 30 June 2022 (2021: $369.4 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 the Group’s FFO of $160.9 million (2021: $136.4 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 2022 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. During the year, the Group continued to focus its investment capital on acquisitions across the self storage and commercial property sectors in line with its capital allocation strategy. This strategy is focused on growing recurring earnings. In the year ended 30 June 2022, the Group’s net property income increased by 34.5% to $221.4 million (2021: $164.6 million). In the self storage sector, the Group expanded its portfolio of investments with acquisitions sourced from on market campaigns, as well as successfully completing various off market transactions via the broader Storage King third party licensee and industry relationships. In total, for the year, the Group acquired an additional 26 self storage sites for $466.8 million, being: • NSW (18 sites): Artarmon, two sites in Chatswood, Cromer, Gladesville, Gregory Hills, Kings Park, Leppington, Marsden Park, Mascot, Mittagong, Morisset, North Wyong, Pymble, Raymond Terrace, South Windsor, St Leonards, Wollongong • QLD (6 sites): Brendale, Burleigh Heads, Helensvale, Hope Island, Kunda Park, Upper Coomera • VIC (1 site): Knoxfield • WA (1 site): Osborne Park The Group also committed to purchase five additional self storage properties, yet to settle, for $46.7 million, further cementing our standing as a high conviction investor in the self storage property market. In the commercial property sector, the Group added to its portfolio of investments in selected CBD and near CBD/fringe markets. During the year, the Group acquired the office building known as 77 Castlereagh Street, in the Sydney CBD for $252 million and a 33% interest in the property known as “Myer Melbourne”, at 314-336 Bourke Street, in the Melbourne CBD for $135.2 million. Both investments are considered long term high quality locations, with strong tenant appeal. 4 20222021$'000$'000Consolidated statutory net profit after tax attributable to members of the Group 517,165 369,409 Adjust for:Net change in fair value of investment properties and property, plant and equipment derecognised 1,035 (2,562)Net change in fair value of investment properties and property, plant and equipment held at balance date (345,550) (237,433)Net change in fair value of investments and financial instruments held at balance date (17,907) (2,749)Net change in fair value of property, plant and equipment and investment properties included in equity accounted investments (4,321) (9,401)Impairment charge 4,903 - Depreciation on owner occupied property, plant and equipment 4,307 3,682 Net change in fair value of derivatives (28,101) 4,571 Amortisation of rent abatement incentives 9,687 7,265 Amortisation of other tenant incentives and finance costs 5,562 631 Straightline of rental income (1,881) (939)Movement in lease liabilities (1,478) (1,056)Net tax (benefit) / expense on non-FFO Items 17,455 4,953 Abacus funds from operations ("FFO") 160,876 136,371 20222021Basic earnings per security (cents) 61.11 49.84 Basic FFO per security (cents) 19.01 18.40 Distribution per security (cents - including proposed distribution) 18.00 17.50 Weighted average securities on issue (million) 846.3 741.1 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 OPERATING AND FINANCIAL REVIEW (continued) GROUP RESULTS SUMMARY (continued) The increase in the Group’s statutory net profit excluding non-controlling interests compared to the prior period was principally due to: • • increase in the fair value of mainly the self storage property portfolio by $305.2m due to both improved performance and capitalisation rate compression; and increased rental income due primarily to acquisitions during the year and the full ownership of prior year acquisitions. Key capital metrics of the Group are: Total assets ($ 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 2022 5,407.1 28.7 3,501.1 3,432.4 3.85 2021 4,059.1 22.5 2,901.9 2,810.9 3.43 The increase in total assets of the Group by 33.2% reflects the increase in both the net acquisitions and revaluation gains of the self storage and commercial investment property portfolios during the period. The increase in net assets of the Group by 20.6% reflects the capital raised during the period and an increase in retained earnings mainly driven by revaluation gains for the Group’s investment properties. Capital management In March 2022, Abacus completed a fully underwritten institutional placement of 59.2 million new ordinary stapled securities at an issue price of $3.38 per stapled security which raised $200.0 million. A Security Purchase Plan (“SPP”) was also offered to eligible securityholders to apply for up to $30,000 of new securities at $3.38 per stapled security which raised a further $3.3 million. In April 2022, the Group successfully negotiated and agreed terms on over $2 billion of syndicated and bilateral banking facilities as well as extending all facility tranches by a further 12 months. Facility pricing was further improved and below the Group's weighted average cost of debt. At 30 June 2022 the Group’s balance sheet remains strong with gearing levels at 28.7%, well within the Board’s target gearing limit of 35%, with approximately $400 million of available liquidity that provides capacity to take advantage of accretive opportunities as they arise. With broader market volatility, it is expected that both the lag effects of inflationary pressures and higher interest rates will continue through the 2023 financial year. The Group is well positioned to manage the challenges in the coming year with a strong defensive self storage and commercial property portfolio and being 76.1% hedged at 30 June 2022 (2021: 46.5%). It is anticipated that the weighted average cost of debt over the next year should be approximately 2.75% as current capacity is utilised. 5 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 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 Self storage portfolio The Group’s self storage portfolio delivered a segment result of $429.2 million for the year ended 30 June 2022. This represents a 36.1% increase on FY21’s result of $315.3 million and can be mainly attributed to increases in self storage fair value gains. The self storage portfolio equated to $2,591.8 million which is made up of 119 assets (trading and development sites) – an increase of 26 facilities during the period, plus a number of other investments. Valuations As part of the 2022 valuation process, 71 self storage facilities out of 119 or 60% by number were independently valued during the year to 30 June 2022. The remaining facilities were subject to internal valuations and, where appropriate, their values were adjusted. The valuation process resulted in a net full year revaluation gain of $305.2 million (2021: $227.9 million gain). The self storage portfolio is well diversified in Australia and New Zealand. 1. Established 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 17 operating stores as well as 9 development sites, that are expected to deliver income and capital value returns to the portfolio over the medium to longer term. The Group has determined a strategic priority to growing its presence in main metropolitan areas of Brisbane, Sydney and Melbourne. The self storage portfolio’s established assets are the key contributor to underlying growth across the portfolio. The self storage portfolio continued to perform well, generally across both the Australian and New Zealand markets. Over the period, the established portfolio’s (62 assets that have been owned/operated for 24 months or longer) occupancy increased from 91.0% to 93.2% and the average rental rate increased from $285/m2 to $323/m2. This increased the portfolio’s revenue per available metre (RevPAM) from $260/m2 to $301/m2. RevPAM measures the profitability and efficiency of the portfolio. 6 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 OPERATING AND FINANCIAL REVIEW (continued) KEY SEGMENT RESULTS SUMMARY (continued) In addition, with an increased focus and capital allocation, the development pipeline of planned self storage assets currently numbers 14 assets, with a combined carrying value of $169.7 million. These assets are at various stages of development and are anticipated to be delivered to the established portfolio over the next few years as they are completed and commence trading, to reach forecast optimum 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 maintained full control of the self storage management business of Storage King. The Group also maintained its investment in a listed self storage A-REIT, a stake that is intended to be held as a long term investment in one of the Group’s key sectors. Commercial portfolio The Group’s commercial portfolio delivered a segment result of a $127.9 million profit for the year ended 30 June 2022. This represents a 32.4% increase on FY21’s result of $96.6 million and can be mainly attributed to increases in investment properties fair value gains of $40.3 million. The commercial portfolio consists of 24 assets (2021: 28 assets) and had a total value of $2.5 billion at year end (2021: $2.0 billion). 1. WACR: Weighted Average Capitalisation Rate During the year Abacus acquired commercial properties that met the Group’s investment criteria: • Acquisition of a 33% interest in the CBD Department store property known as “Myer Melbourne”, 314-336 Bourke Street, Melbourne VIC for $135.2 million settled in July 2021. • Purchase of a 100% interest in the CBD Office building, 77 Castlereagh Street, Sydney NSW, for $252 million which settled in February 2022. • Abacus acquired future development sites at 181 James Ruse Drive, Camellia NSW and 56 Prescot Parade, Milperra NSW which settled in in May 2022, converting its interest from lender to owner. Abacus divested eight non-core properties during the year, and sold a 50% interest in 710 Collins Street, Docklands VIC, to form a new strategic partnership with the Walker Corporation. After all the changes in the portfolio from acquisitions and divestments, in the context of a mixed leasing environment, the overall portfolio occupancy increased from 94.7% at 30 June 2021 to 95.0% at 30 June 2022. Like for like rental growth increased 4.9% for the existing portfolio which excludes development affected assets. Impact of the COVID-19 pandemic The Group continues to monitor, in each relevant sub-market, the enduring impacts of the last two years of COVID-19 impacts. As a general comment, the impacts to cashflows at all assets is substantially reduced, and in some markets, negligible, however with the latest outbreak numbers and Government instructions of “work from home”, it remains a watching brief. 7 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 OPERATING AND FINANCIAL REVIEW (continued) KEY SEGMENT RESULTS SUMMARY (continued) Following the success of the Group’s tenant engagement program implemented in March 2020, the Group continues to communicate with all tenants, particularly the tenants which businesses have been severely impacted by the COVID-19 pandemic. In assessing requests for any future rental support, at all times, 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 in return for extension of leases where possible, in order to assist in the retention of these tenants considered worthy over the medium term. During the year ended 30 June 2022, the amount of rent concessions provided to tenants was $1.6 million (2021: $2.8 million) with 75% (2021: 72%) or $1.2 million (2021: $2.0 million) provided in the form of a rent waiver. The total amount of rent concessions provided to tenants since March 2020 to 30 June 2022 is $8.4 million with 67% or $5.6 million provided in the form of a rent waiver. The rent concessions represent 1% of rental income (2021: 2%) and $1.5 million has been amortised in the year ended 30 June 2022 (2021: $1.7 million), with the remaining rent waivers amortised over the life of the leases as lease incentives. The balance 25% (2021: 28%) 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 $1.5 million of rebates from the state governments during the year (2021: $1.3 million). 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. The nature of the assets and tenant customers for the Group, being predominantly SME (small and medium sized enterprises), 65% by number, is considered to be a mitigant to any major exposure for negative impacts going forward. 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 2022 portfolio valuation process, 12 out of 20 of the commercial properties (excluding equity accounted properties) or 60% by number were independently valued during the year to 30 June 2022. 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, given the majority of the Group’s investments are: • Well located in CBD or suburban locations with low and often below market average rent levels; • Limited exposure to full floor or multi-floor tenants; and • Managed to better than average quality sustainability standards and usually offer contemporary building facilities. As a result of these features, the Group’s building tenants are usually strongly connected to the property’s location, and so have a positive predisposition to remain. 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. Property Development The Property Development business delivered a segment result of $0.9 million (2021: $0.9 million) and during the FY22 year, completed the wind down of all legacy investments. 8 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 OPERATING AND FINANCIAL REVIEW (continued) ABACUS FUTURE PROSPECTS The Group confirms 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 upon continuing to increase its exposure to the self storage and commercial property sectors. This strategy will target acquiring well-located properties that will be held for the long term. Increasing exposure to these asset classes will enhance Abacus’ ability to grow recurring revenue. Abacus continues to hold appropriate levels of liquidity to enable it to pursue its strategy and to take advantage of any short-term volatility in the market which is anticipated in this fluctuating macro-economic environment. This liquidity can also potentially be further leveraged to invest in a larger number of projects through joint venture arrangements. Funds from operations should continue to increase. 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 Office sectors across different states, have the potential to increase volatility in rental revenue especially in this post COVID-19 environment. ABACUS RISK MANAGEMENT APPROACH Abacus has a structured approach to the management of its risks and opportunities, where: • Risk management principles and techniques are incorporated into all business processes. • Decisions are made within a defined and approved risk appetite that do not expose Abacus to unacceptable levels of risk that may adversely impact its strategic growth plan while allowing it to maximise opportunities in a structured way. • Abacus’ resources, people, financial and capital resources, knowledge, and reputation are safeguarded. • A risk culture is embedded where all employees accept responsibility for risk management. All risks are assessed and managed on a continual basis, where risks are measured, escalated, and reported in accordance with Abacus’ Risk Management Framework. This Risk Management Framework is applied across all business activities, so as to identify material risks, and to apply effective controls that are designed and operated to prevent risks from materialising. These controls are evaluated and tested on a periodic basis so as to assess their effectiveness in mitigating risks. Risk Management Three Lines of Accountability Abacus has adopted a Three Lines of Accountability model. Each of these three lines has a distinct role in the governance and oversight of Risk Management. Front Line Staff and Operational Management Risk and Compliance Internal Audit 1st Line of Accountability 2nd Line of Accountability 3rd Line of Accountability Front line staff and operational management when they follow policies and procedures. They own and manage risks and controls. Responsible for identifying and controlling risks and implementing internal processes for adequate controls. Risk and Compliance function responsible for providing independent review of risks and controls. They monitor, support, and escalate risks and controls in support of management. Internal audit conducts internal audit and provide independent assurance. Internal audit provides an independent assessment of the risks and reviews the effectiveness of the controls in managing risk. 9 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 OPERATING AND FINANCIAL REVIEW (continued) ABACUS RISK MANAGEMENT APPROACH (continued) Risk Appetite Abacus has a defined Board approved Risk Appetite that is responsive to changing operational conditions and opportunities. It is designed to guide management when making material business decisions and monitoring risks. Abacus’ Risk Appetite defines the risks it is prepared to take and the circumstances in which they will be taken. It articulates qualitatively the tolerance to relevant Risk Categories. ABACUS KEY RISK AREAS The table below outlines some of Abacus’ key risk areas. The outline is not exhaustive, and performance may be affected adversely by any of these risks and other factors. The table also describes some of the key management actions being taken to ensure such risks are brought within appetite. Risk Area Strategic Risk Abacus has a defined strategy that focuses on opportunities across key sectors where the Group believes it has a clear competitive advantage. Abacus activities and transactions are aligned with the approved strategy so to ensure that financial and operational results are within expected and planned outcomes. Governance Risk Abacus’ success in its business model is reliant on an effective and balanced governance approach to people, conduct, and processes through oversight, controls, checks, and subject matter experts. This ensures that Abacus can effectively respond to market opportunities when they present. Regulatory and Compliance Risk Abacus is responsive to regulatory change and strives to operate in accordance with its regulatory and legal obligations. Abacus develops responsive strategies to ensure ongoing compliance of its activities. How Abacus manages this risk Abacus has a number of processes and controls to ensure the strategic direction of the Group is maintained. Some of the key aspects include active Committees that review and approve significant transactions, and where appropriate external reviews utilising appointed specialists. Abacus also has asset performance evaluation processes embedded with reporting lines in place. Abacus has a number of governance controls and processes implemented across the Group, with some aspects including monitoring, reporting, and training in respect of conduct, staff skills, and processes. Abacus also has controls and processes in place over key decisions, transactions, acquisitions, and disposals of assets. Abacus has a number of controls and arrangements in place to ensure compliance with its legal and regulatory obligations. Some aspects include monitoring, testing, and reviewing through dedicated compliance plans, which are also subject to external review. Abacus promotes awareness and delivers training to all employees in respect of key obligations so to instil a proactive risk and compliance culture. Operational Risk – operational systems Abacus’ operational systems are developed and implemented with operational controls embedded to ensure best practice and the opportunity for ongoing success. Abacus has a number of controls and processes in place to ensure assets and tenancies are maintained to the required standard and in accordance with documented asset management protocols. Abacus also maintains adequate insurance coverage across all assets. 10 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 OPERATING AND FINANCIAL REVIEW (continued) ABACUS KEY RISK AREAS (continued) Risk area How Abacus manages this risk Operational Risk – Cyber and Information Technology Technology is rapidly changing, and Abacus aims to leverage technology and innovation to enhance the customer experience while developing responsive strategies to prevent cyber incidents and attacks. Operational Risk – Health and Safety Ensuring the health, safety and wellbeing of Abacus’ people is of utmost importance to the success of its strategy. Operational Risk – People and Culture The motivation, high-performance and capability of Abacus’ people are integral to the success of its business outcomes. Environmental and Sustainability Risk Climate change is expected to affect Abacus’ assets while also presenting an opportunity to prepare for and build resilience across its portfolio. Abacus is responding to climate change while also aiming to meet the expectations of its present and future customers as well as communities. Market and Investment Risk Abacus incorporates appropriate oversight and controls over key decisions in acquisitions, disposals, capital management, and valuations so to ensure the best risk adjusted returns are achieved. Liquidity, Capital Management, and Financial Performance and Reporting Risk Abacus maintains a diversified capital structure to support stable investor returns as well as appropriate access to equity and debt funding. Abacus has a number of controls, arrangements, and recovery plans in place over information and technology assets, as well as active monitoring of its digital footprint. Abacus also develops strategies to continue to incorporate technological innovations into assets. Abacus has a number of controls and processes in place to achieve a safe workplace through the implementation of its Work, Health and Safety Strategy. Abacus has arrangements and controls in place to ensure that safety risks, hazards, and incidents are reported and addressed, and that assets have embedded systems and processes to ensure safe operation. Abacus has a number of controls, processes, and strategies in place to ensure people recruited are aligned to Abacus’ culture and are continually developed. Abacus also regularly monitors and maintains a positive workplace culture in line with its values. Abacus has developed and implemented a number of controls and strategies to ensure that environmental issues are incorporated into decision-making process when acquiring assets and as part of the ongoing management of each asset. Abacus has established sustainability targets and metrics that are actively monitored as part of Abacus’ commitment to a sustainable future. Abacus has developed strategies to enhance the environmental performance of assets including energy and water efficiency, greenhouse gas emissions reduction and waste to landfill reduction. Abacus has a number of controls and processes in place that reviews and approves significant transactions. In addition, other aspects include controls in place over capital planning, forecasting, budgeting, and development activities. Abacus has a number of controls and processes in place over capital management to monitor, manage and stress test interest rate, funding, liquidity, and credit risk with regular reporting to the Board and internal Committees. Abacus has documented policies and operational procedures with controls embedded over material risks as well as external advisory in place over treasury activities. Abacus also maintains effective relationships with a range of banks and access to alternate funders. 11 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 DIRECTORS AND SECRETARY 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 Independent, 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 Sustainability & WHS Committee. Tenure: 11 years Steven Sewell BSc Managing Director Steven joined Abacus in October 2017 bringing over 20 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: 4 years 2 months Trent Alston B. Build. (Hons), GMQ - AGSM, AMP – Insead, GAICD Trent is a Non-Executive Director and 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. His past experience includes direct and wholesale property roles at Colonial First State Property and Lendlease. Trent is also a Non-Executive Director of Landcom and Stone & Chalk. Trent is Chair of the People Performance Committee and a member of the Audit & Risk Committee. Tenure: 2 year 9 months Mark Bloom BCom, B.Acc, CA Mark is a Non Independent, Non-Executive Director and joined the Board on 1 July 2021. Mark had an extensive 36 year career as a Finance Executive in Australia, Canada and South Africa, with his most recent role as Chief Financial Officer at Scentre Group up until April 2019, having previously served as Deputy Group CFO at Westfield Group. He acts as a consultant to Calculator Australia Pty Limited. Mark is also a Non-Executive Director of AGL Energy Limited and Pacific Smiles Group Limited. Mark is engaged as an adviser to the Kirsh Group in Australia. Mark is a member of the People Performance and Audit & Risk Committees. Tenure: 1 year Mark Haberlin BSc (Eng) Hons, FCA Mark is a Non-Executive Director and is the Lead Independent Director. 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 Chair. Mark is also a Non-Executive Director of Laybuy Holdings Limited and Australian Clinical Labs. Mark is Chair of the Audit and Risk Committee and a member of the People Performance Committee. Tenure: 3 years 7 months Holly Kramer BA (Hons) Econ/Political Science, MBA Holly is a Non-Executive Director and brings a significant range of skills and expertise, including executive leadership and management positions in product, marketing and sales. 12 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 DIRECTORS AND SECRETARY (continued) Holly was CEO of apparel retailer Best & Less and held executive roles at Pacific Brands, Telstra and Ford Motor Company (in Australia and the US). Holly is currently a Non-Executive Director of the Woolworths Group, Fonterra Co-operative Group, Endeavour Group, The Ethics Centre and the GO (Goodes-O’Loughlin) Foundation. Holly is also a Pro Chancellor at Western Sydney University and a member of the Bain Advisory Council. Previous roles include Deputy Chair at Australia Post (November 2015 to June 2020) and Non-Executive Director at AMP Limited (October 2015 to May 2018). Holly is a member of the People Performance and Sustainability & WHS Committees. Tenure: 3 years 6 months Jingmin Qian CFA, BEc, MBA, FAICD Jingmin, is a Non-Executive Director and has significant expertise in the property, infrastructure and investment sectors as well as rich experience in Asia, a director of Jing Meridian and specialises in advising boards and senior management on investment, strategic management and cross-cultural management. Jingmin has served as a member of the business liaison program of the Reserve Bank of Australia. Jingmin is a Non-Executive Director of IPH Limited, a director of Club Plus Super, a member of Macquarie University Council, a director of the Australia China Business Council and Chair of the Foundation for Australian Studies in China. Jingmin is Chair of the Sustainability & WHS Committee and a member of the Audit & Risk Committee. Tenure: 5 years Robert Baulderstone BA, CA, FCIS Company Secretary (resigned October 2021) and Chief Financial Officer Mr Baulderstone has held the role of Company Secretary since February 2017 to October 2021. He has been a chartered accountant for over 30 years. Rebecca Pierro BCom, FGIA Company Secretary (effective October 2021) Ms Pierro was appointed as Company Secretary, effective from 20 October 2021. She has been a Company Secretary for over 10 years. She holds a Bachelor of Commerce and is a Fellow of the Governance Institute of Australia. 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: Audit & Risk People Performance Sustainability & WHS Nomination Board Committee Committee Committee Committee Eligible Attended Eligible Attended Eligible Attended Eligible Attended Eligible Attended M Salkinder S Sewell T Alston M Bloom M Haberlin H Kramer J Qian 10 10 10 10 10 10 10 10 10 10 10 9 10 10 2 - 4 2 4 - 4 2 - 4 1 4 - 4 2 - 3 1 3 3 - 2 - 3 1 3 3 - 4 - - - - 4 4 4 - - - - 4 4 1 1 1 - 1 1 1 1 1 1 - 1 1 1 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. 13 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 DIRECTORS AND SECRETARY (continued) 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. 14 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) Letter from the Chair of the People Performance Committee On behalf of the People Performance Committee and the Board, I am pleased to present the Remuneration Report for FY22. This report highlights the new Abacus Performance and Reward framework, which promotes further alignment between the incentives of executive KMP with the interests of securityholders. The framework aims to reward, engage, and develop our people focusing on value creation for our customers and community. We are mindful that our framework may need to evolve as we make further progress with our strategy, and we continue to monitor market trends to ensure that it remains fit for purpose. FY22 performance Abacus is positioned as a strong asset backed, annuity style A-REIT focused on the ownership and management of Commercial and Self Storage real estate and operation of storage locations. FY22 has been a significant year, as we have collectively delivered strong results. The Group is substantially larger, with de-risked assets and income streams and most importantly, we are positioned for an exciting future, with prospects in both Commercial and Self Storage real estate. Abacus’ Funds from Operations (“FFO”) profit result exceeded target and the team has made significant progress during FY22 on delivery of our business priorities. This was an FY22 key performance indicator (KPI) set by the Board. Of note, the Group: • undertook strategic capital transactions investing over $1 billion in Commercial and Self Storage assets; • had strong performance in its established Self Storage portfolio with growth in RevPAM of 16%; • maintained high levels of Commercial occupancy at 95%; • • • completed the wind down of its non-core legacy residential mortgage business; refinanced over $2 billion of debt and increased its fixed hedging profile; remains well supported by both our equity and debt investors, raising c.$1 billion in capital throughout the year; • while the market was challenging for all A-REITs, Abacus made great progress on our strategy and business fundamentals; • implemented new information technology and core financial systems; and • achieved high level of employee engagement. FY22 KMP changes Mark Bloom joined the Board in July 2021 as a non-independent Director and has brought an extensive range of listed real estate skills and expertise relevant to the Board. The Abacus Board has overseen a leadership transition through planned succession during the year: • Gavin Lechem was appointed to the Chief Investment Officer (CIO) and Executive KMP position in October 2021 to oversee the development and deployment of specialist property funds. • Our long serving Chief Financial Officer (CFO), Rob Baulderstone stepped down from his CFO and KMP position, effective 30 June 2022. The Board would like to take this opportunity to thank Rob for his invaluable contribution to the success of the Group. • Evan Goodridge, General Manager, Finance was promoted to the role of Chief Financial Officer and Executive KMP effective from 1 July 2022. There have been no other changes. 15 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) FY22 Remuneration Key outcomes for the year included: • Executive Key Management Personnel fixed pay was adjusted only for the CFO, with a 2% increase. • The FFO profit result in FY22 exceeded maximum requirements against a 40% weighting within the STI balanced scorecard for Executive KMP. • STI awards for Executive KMP correlated with annual performance outcomes against expectations, with payments averaging 91.1% of maximum STI. In FY22, a 25% STI deferral was introduced and further details on the STI Plan can be found on page 25. • The legacy Deferred Variable Incentive Plan (“Security Acquisition Rights” or “SARs”) are expected to vest in September 2022 as a result of sustained performance since grant. This plan has now been replaced by the Long Term Incentive (“LTI”) Plan. Securityholders approved the LTI Plan in November 2021 and offers were made to all KMP executives. The Plan rewards performance that exceeds an FFO per security growth benchmark. Details are on page 27. • Following an independent market review, NED fees were increased. The fees were last increased in July 2017. Details can be found on page 33. Minimum Securityholding The Board recognises the importance of aligning the interests of its KMP with the long term interests of Abacus’ securityholders. With this in mind I am pleased to advise that the Board approved the introduction of a minimum security holding policy. Further information can be found in sections 5 & 6. On behalf of the Board, I wish to extend our thanks to the Executive leadership team and employees across the Group. Trent Alston Chair – People Performance Committee 16 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) The Board presents the FY22 Remuneration Report for Abacus in accordance with the Corporations Act 2001 and its regulations. This report outlines the key remuneration policies and practices for the year ended 30 June 2022. It highlights the link between remuneration and corporate performance and provides detailed information on the remuneration for Key Management Personnel (KMP). This remuneration report is set out under the following headings: Section What it covers 1 2 3 4 5 6 7 Who is covered by this report Remuneration snapshot FY22 FY22 How did we perform Executive KMP remuneration Remuneration governance and framework Non-Executive Director remuneration Additional required disclosures Page 17 18 20 21 24 33 36 1. Who is covered by this report – Key Management Personnel For the purposes of this report, the KMP are those persons who for the purposes of the accounting standards are considered to have authority and responsibility for planning, directing, and controlling the major activities of the Group in Tables 1 and 2 below. Table 1 –Non-Executive Directors (NED) Name Myra Salkinder Mark Bloom Mark Haberlin Holly Kramer Jingmin Qian Trent Alston Role Chair of the Board Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Table 2 – Executive Key Management Personnel (Executive KMP) Name Role Date Appointed KMP Date Ceased KMP Steven Sewell Gavin Lechem Managing Director (MD) October 2017 Chief Investment Officer (CIO) October 2021 - - Rob Baulderstone Chief Financial Officer (CFO) November 2012 30 June 2022 Changes to the Executive KMP FY22 In October 2021, Gavin Lechem was appointed to the newly created position of Chief Investment Officer. This key role is crucial to the operating model of Abacus and reflects the significance and prominence of our growth and investment strategy. This promotion is in recognition of Gavin’s contribution throughout the strategy transition, his high standards, professional integrity, and his support of key transactions. Rob Baulderstone stepped down from his position of Chief Financial Officer and Executive KMP from 30 June 2022. 17 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 2. Remuneration snapshot FY22 Fixed Remuneration (FR) STI Outcome cash STI Outcome Deferral NED Remuneration There were no changes to MD FR for FY22. The MD received 90.8% of his maximum STI 25% of the STI has been deferred for 12 months. The CFO received a 2% increase effective 1 July 2021. The average STI outcome for FY22 for Executive KMP was 91.1% of the maximum based on their balanced scorecard. The Chair of the Board’s remuneration fee increased by 8.6%. NED remuneration board base fees increased by 7.6%. The fees were last increased in July 2017. I. Maximum Remuneration Mix Abacus aims to ensure the split of fixed and variable (at risk) remuneration is appropriate for the type of business it operates, namely a cyclical and established business that seeks to provide stable distributions to securityholders. This remuneration strategy aligns with the Board's desired positioning of Abacus within the A- REIT industry. The graph below sets out the remuneration structure and mix at maximum, for the MD and other Executive KMP at Abacus for FY22. Managing Director maximum pay mix Other Executive KMP maximum pay mix (average) 18 Fixed Remuneration Max STI Cash Max STI Deferred Max LTI ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 2. Remuneration snapshot FY22 (continued) ii FY22 Remuneration outcome vs financial performance Element Purpose Link to Performance Fixed Remuneration Fixed Remuneration (FR) To attract, engage and retain individuals with capability, diversity of thought and experience to continue delivering on our strategy. At Risk Remuneration Short Term Incentive (STI) To focus performance on key annual financial and non- financial KPIs, including FFO profit. STI for Executive KMP is delivered through cash with a potential portion of 25% that can be deferred to be settled in the form of rights. A deferred STI was introduced to aid retention, align with securityholders’ interests, and provide for a “consequence management” governance mechanism for misconduct, fraud, malfeasance or financial misstatement. Long Term Incentive (LTI) The LTI Plan is aimed at attracting, rewarding and retaining high performing Executives and other nominated participants for delivering sustained long term growth and aligning them with securityholder interests. Appropriately compensating our employees so that we remain competitive. Changes to FR are linked to a combination of incumbent skills and experience, and market rates informed by benchmarking. The following factors are among those considered by the People & Performance Committee (PPC) in making its assessment on the achievement of the STI opportunity: Unifying Financial performance Strategic Objectives Unifying People performance The STI is measured over a one-year performance period and paid in cash with 25% subject to deferral paid in the form of rights. The rights will have a deferral period of 12 months. Please refer to section 5. II page 26 for further information on the deferral. LTI granted are in the form of performance rights. The value of LTI awards offered in FY22 was up to a maximum of 100% of Fixed Remuneration for the MD, 60% for the CFO and 50% for the CIO. FY22 Changes and Outcomes There was no change to FR for the MD. There was a 2% FR change to the CFO. New STI plan with deferral of 25% of the outcome for 1 year in rights for Executive KMP For FY22 Executive KMP STI outcome was on average 91.1% of maximum of which 22.8% was deferred. For further details of the plan refer to section 5. II page 25. For further details of FY22 STI outcomes refer to table 5 page 23. An LTI framework was introduced for FY22 in line with ASX market practice. This replaces the Deferred Variable Incentive Plan (SARs). For further details of the LTI Plan please refer to section 5.II page 27. Performance targets will be based on growth in FFO ps (Funds from Operations per Security) over the performance periods, with stretch performance required for full vesting. 19 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 3. FY22 How did we perform? One of the key principles of the Group’s remuneration framework is the alignment of interests to securityholders to focus on long term sustainable value creation. This section provides a summary of both FY22 performance and the Company’s five year financial performance outcomes. Abacus’ FFO result exceeded target and the team has made significant process during FY22 on delivery of our business priorities. Of note, the Group: • • • • • • • • undertook strategic capital transactions investing over $1 billion in Commercial and Self Storage assets; had strong performance in its established Self Storage portfolio with growth in RevPAM of 16%; maintained high levels of commercial occupancy at 95%; completed the wind down of its non-core legacy residential mortgage business; refinanced over $2 billion of debt and increased its hedging profile; remains well supported by both our equity and debt investors, raising c.$1 billion in capital throughout the year; implemented new information technology and core financial systems; and achieved high level of employee engagement. Per security performance was diluted by the capital raising in March 2022 to take advantage of opportunities in line with our strategy. We expect that this will correct as capital is deployed into new opportunities meeting our portfolio criteria, and an appropriate balance of debt and equity applied to provide a sound yield that equals or exceeds risk adjusted return requirements. Five year FFO Performance Relationship between remuneration and Abacus performance Abacus’ performance over the last 5 years is illustrated below in Table 4. Table 3 – Key financial performance indicators Key financial performance indicators 2018 2019 2020 2021 2022 FFO (Continuing operations) per security (cents)* FFO (total earnings) per security (cents)* FFO Profit Distributions paid and proposed (cents) Closing security price (30 June) Net tangible assets per security** Weighted average securities on issue 13.79 29.39 169.8m 18.00 $3.77 $3.18 577.8m 11.59 22.28 129.2m 18.50 $4.10 $3.33 580.0m 13.34 19.38 125.2m 18.50 $2.68 $3.32 643.0m 16.21 18.40 136.4m 17.50 $3.15 $3.43 741.1m 18.44 19.01 160.9m 18.00 $2.57 $3.85 846.3m * FFO earnings are unaudited. ** Net tangible assets per security include the impact of the fair value movements 20 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 4. Executive KMP Remuneration I. MD FY22 Remuneration details a) Target, maximum and actual remuneration in FY22 The target remuneration of the MD aims to ensure that the split of fixed and variable remuneration is appropriate for the type of business it operates, namely, a cyclical and established business that seeks to provide stable distributions to securityholders. This at-risk portion aligns both the Group’s performance and the MD’s personal influence and contribution to the Group’s performance. The total maximum and target for the MD for the full year is summarised in the graph below. Maximum remuneration represents total potential remuneration of FR, maximum STI and face value of LTI (assuming 100% vesting subject to performance and employment conditions to be met). For STI, the amount is based on 120% achievement of performance targets. Target remuneration represents total potential remuneration of FR, target STI (amount based on 100% achievement of performance targets) and face value of LTI. Fixed Remuneration At Risk Remuneration Fixed Remuneration STI Cash STI Deferred LTI The following sets out the awards made to the Managing Director based on his performance during the year ended 30 June 2022. Fixed Remuneration (FR) FR of $1,250,000 per annum Maximum STI of $1,500,000 (120% of FR) The balanced scorecard was based on the following: Short Term Incentive (STI) • Financials 60% • Strategy 30% • People 10% The Managing Director received 90.8% of his maximum STI for FY22. 75% or $1,021,449 of this was received in cash and 25% or $340,483 has been received in rights and deferred for one year. Maximum LTI of $1,250,000 (100% of FR) 100% of the LTI is granted as performance rights. 50% of the rights will be tested against performance requirements in FY25. 50% of the rights will be tested against performance requirements in FY26. Long term Incentive (LTI) 21 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 4. Executive KMP Remuneration (continued) b) FY22 Managing Director STI Outcome The following table sets out the performance of the MD against his KPI’s for the year ended 30 June 2022 (scorecard) which were 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 4: Managing Director’s performance against KPIs Component FY22 KPI’s Weighting % of max Performance Detail Funds from Operations (FFO) 40% 100.0% Financial Performance Capital utilisation, acquisition, and deployment. 20% 100.0% Storage King platform integration and enhancement 10% 83.0% ABP non-core investment and design enhancement. 10% 79.5% ABP Brand 10% 83.0% Exceeded FFO Target, achieving $160.9m or 19.0 cps which was above FY21. A DPS of 18.0 cps which was in line with the target rate. Exceeded target, achieving over $1bn in capital utilisation, acquisition and deployment. Implemented institutional grade financial systems, and sustainable processes. Finalisation of key non-core assets and significant capital acquisitions in Self storage asset class. Significant progress made during challenging covid period in embedding key strategic partnerships. Culture and engagement – measured by engagement pulse survey results 10% 62.5% Achieved a 99% participation rate and engagement pulse survey score of 80%. The balanced scorecards for other Executive KMPs during FY22 are similar to that of the MD, in that both the Financial and People components and weightings are the same, but with strategic KPIs applicable to their individual roles. The People Performance Committee and the Board reviewed these outcomes and the targets set against A-REIT competitor performance and the property market overall. While the targets were set within the continuing uncertainty and changes arising from the pandemic, it was concluded on the basis of this review that they were appropriate, and the performance against these targets a valid reflection of underlying and comparative performance. Hence, no discretion to adjust outcomes was necessary. 22 Strategic People ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 4. Executive KMP Remuneration (continued) c) Executive KMP FY22 STI Outcomes Table 5 below provides details of each Executive KMP’s performance targets and the achievements and financial outcomes during the financial year ended 30 June 2022. Table 5 – Executive KMP performance targets and achievements Executive KMP Key Performance Indicator Weighting Max STI Potential $ Actual STI awarded as a % of Max STI potential % 100.0% Actual Full STI awarded $ Actual STI deferred $ 900,000 225,000 STI forfeited as a % of Max STI potential 0.0% 81.8% 62.5% 368,182 93,750 92,046 23,438 60% 30% 10% 900,000 450,000 150,000 Steven Sewell Rob Baulderstone Gavin Lechem1 Financial Strategic People Total Financial Strategic People Total Financial Strategic People Total 100% 1,500,000 90.8% 1,361,932 340,484 60% 30% 10% 100% 60% 30% 10% 100% 343,333 171,666 57,222 572,221 223,810 111,906 37,302 373,018 85,833 35,114 8,583 100.0% 343,333 81.8% 60.0% 90.5% 140,454 34,333 518,120 129,530 100.0% 223,811 84.8% 66.7% 92.1% 94,950 24,868 343,629 55,953 23,738 6,217 85,908 18.2% 37.5% 9.2% 0.0% 18.2% 40.0% 9.5% 0.0% 15.2% 33.3% 7.9% 1 Mr Lechem’s STI is pro-rated based on his commencement into the role of Chief Investment Officer d) Executive KMP remuneration details – statutory table Table 6 – Executive KMP remuneration Table 6 below discloses the remuneration for Executive KMP calculated in accordance with statutory requirements and accounting standards. Name Year Base Pay Short Term Benefits Short Term Incentive (STI) Non- monetary benefits Total cash payments and short- term benefits FY22 1,226,433 1,024,449 5,015 2,252,897 Steven Sewell FY21 1,228,306 937,500 Rob Baulderstone2 FY22 544,721 388,590 FY21 536,000 333,235 Gavin Lechem3 FY22 377,097 257,722 FY21 - - 5,560 5,015 3,430 - - 2,171,366 938,326 872,665 634,819 - Post- Employment Long Term benefits Security based payment Total Super 23,567 21,694 27,500 25,000 17,676 - Long Service Leave Deferred STI Rights1 Rights1 $ 20,423 170,242 769,688 3,236,817 28,491 - 517,093 2,738,644 11,099 64,765 282,954 1,324,644 8,851 9,671 - - 227,927 1,134,443 42,954 152,052 857,172 - - - 1Accrued not presently entitled. Includes both LTI and deferred variable incentive plan. 2Stepped down as CFO on 30 June 2022. 3Appointed 1 October 2021. Remuneration reflects Mr Lechem’s period of service as Executive KMP. 23 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 5. Remuneration Governance and Framework The Abacus Performance and Reward framework aims to reward, engage, and develop our people focusing on, value creation for our customers and community. I. The Group’s remuneration governance framework The People Performance Committee is responsible for making recommendations to the Board on the remuneration arrangements for Non-Executive directors and executives. 24 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 5. Remuneration Governance and Framework (continued) II. Remuneration framework Fixed Remuneration (FR) What is fixed remuneration? Paid mainly as cash salary – comprises base salary, superannuation contributions and other non-monetary benefits. How is FR determined? Base salary is set in reference to each Executive’s position, performance, experience, and market rates. Short Term incentive (STI) What is the purpose of the short-term incentive (STI) plan? The STI provides an incentive to deliver annual business plans that will lead to sustainable superior returns for securityholders. We strive to set a series of financial and non-financial targets that are appropriately ambitious in the context of our strategy, and which drive the right long term behaviours. This year we have introduced a deferral element for any STI awarded to Executive KMP for retention, increased alignment with securityholders and better governance. What is the performance period? 1 July 2021 to 30 June 2022. For FY22 the target and maximum STI opportunity for Executive KMP as a percentage of FR were: What is the award opportunity? % of FR Target MD 75% Maximum 120% CFO 60% 100% CIO 50% 75% What key performance indicators are measured for STI to be paid? The following factors are among those considered by the People & Performance Committee (PPC) in making its assessment on the achievement of the STI opportunity: • Unifying Financial performance • Strategic Objectives • Unifying People performance Why were these measures chosen? An FFO profit target range was chosen by the Board because FFO demonstrates the closest correlation to securityholder value creation (measured by total securityholder return). FFO profit reflects the statutory profit as adjusted 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. This measure, although underlying, is consistent with the Property Council of Australia guidelines, is derived from financial disclosures and is hence transparent. It reflects the Directors’ assessment of the result for the ongoing business activities of Abacus, in accordance with the Property Council guidelines for reporting FFO 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. 25 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 5. Remuneration Governance and Framework (continued) II. Remuneration framework (continued) How is performance assessed? The People Performance Committee considers the performance of the Executive KMP against their KPIs and other applicable measures and has regard to then recommends independent benchmarking current variable remuneration payments, if any, to the Board for its approval. information. The Committee What is the relationship between performance scales and outcomes? Performance Scales STI Outcome Below threshold 0% paid Between threshold and maximum 25% - 100% of maximum incentive paid Maximum 100% of maximum incentive paid Are any STI awards deferred? 25% of STI awarded to Executive KMP is delivered in the form of rights with a one year deferral period. How is the number of rights determined? The number of rights to be granted will be calculated by dividing the deferred STI amount by the 10-day volume-weighted average price of the ABP securities on the ASX for the period commencing on the second trading day after the full year’s financial results announcement for the year in which the STI award is made were released to the market, rounded to the nearest whole number. Are distributions paid on deferred STI awards? No distributions are paid to participants during the vesting period. Participants receive an entitlement to rights equal to accrued and reinvested distributions only on performance rights that vest and are exercised. Are there any disqualification provisions? All STI incentive payouts are subject to annual ‘good behaviour’ and conduct checks, as determined by the Board (or its delegate) in its absolute discretion. Failure to demonstrate good behaviour and conduct may result in a reduction to or forfeiture of the STI payment for the Performance Period. Examples include: • • • the participant resigns; the participant has breached the Company Code of Conduct or core company policies; and the participant’s action/s led to a material WHS incident, material compliance issue, material Corporate Social Responsibility (CSR) issue and material reputation issue. The Board has discretion to delay the payment dates set out above, for example to allow time for it to determine the appropriate outcome if there is an investigation underway by the Group or an external third party. The Company reserves the right to suspend or alter STI payments to any participant due to any action which has caused the Group loss or reputational damage. This includes any deferred STI (in the form of rights) in the event of fraud, malfeasance, dismissal for cause, or other misconduct. How is STI treated on cessation of employment? Unless the board determines otherwise, an Executive will forfeit their STI award and unvested deferred awards if they resign or if their employment is terminated with cause. 26 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 5. Remuneration Governance and Framework (continued) II. Remuneration framework (continued) Long Term Incentive (LTI) The LTI Plan is aimed at attracting, rewarding, and retaining high performing Executives and other nominated participants for delivering sustained long term growth and aligning them with securityholder interests. The below diagram reflects the KMP Executive performance conditions. Grant of performance rights September post FY results Tranche One vests 50% based on performance hurdle results Tranche Two vests 50% based on performance hurdle results Performance Period Tranche Two Performance Period Tranche One FY21 Initial Performance Period baseline results FY21 FY22 FY23 FY24 FY25 FY26 July June July Sept June July June July June July Aug June July Aug June Who participates in the LTI plan Participation is limited to Executive KMP and selected senior management positions by invitation and as approved by the Board. What size of award is granted The maximum opportunity for the MD is 100% of FR and for other Executive KMP it ranges from 50% - 60% of FR. How are the grants calculated? The number of performance rights is calculated at the date of issue by dividing the value of LTI to be awarded in the form of performance rights by the face value of an Abacus security. The face value is based on the ten-day VWAP for Abacus securities starting from the second trading day after the full year results announcement for the year ended 30 June 2021 were released to the market. Plan Features The LTI awards are in the form of performance rights subject to vesting conditions. What are the performance and vesting periods? The Rights will be tested against the relevant Performance Conditions following release of audited financial results for the final year of the relevant Performance Period. For the Executive KMP, half of the performance rights are tested on the third and half on the fourth anniversary of their grant. Performance is measured per the following: Tranche One – 50% vest in year three Tranche Two – 50% vest in year four Do we allow for re- testing? No. 27 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 5. Remuneration Governance and Framework (continued) II. Remuneration framework (continued) The Performance Conditions require the average annual growth rate (AAGR) in the Group’s FFO ps over the relevant Performance Period to exceed a certain level. 100% on FFO per security (FFO ps) average annual growth rate 2 – 5% results in LTI of 50% to 100% vesting on a sliding scale. What are the performance conditions? FFOPs AAGR Less than 2% At 2% % of Rights that vest 0% 50% Between 2% and 5% Pro rata vesting from 50% to 100% At or above 5% 100% Are there distributions or voting rights? Rights do not carry any voting rights. No distributions are paid to Participants during the vesting period. Participants receive an entitlement to securities equal to accrued and reinvested distributions only on performance rights that vest and are exercised. Why was this measure chosen? FFO growth per security was chosen by the Board because this closely correlates to securityholder value creation and assists investors and analysts to compare Australian real estate organisations. AAGR will reward stable annual growth and can provide better alignment with Abacus’ annuity style strategy and business model. What happens on cessation of employment? Unless the Board determines otherwise: if the participant’s employment is terminated for cause or they resign (or give notice of their resignation) prior to their Rights vesting, all of their unvested Rights will lapse; or if the participant ceases employment for any other reason prior to their Rights vesting, all of their unvested Rights will remain on foot and be tested in the ordinary course. What happens if a change in control occurs? The Board may in its absolute discretion, accelerate vesting on some or all of any unvested securities taking into consideration service and performance prior to a change in control. Forfeiture for Fraud, Dishonesty or Misstatement The Board has discretion to determine that a participants Rights lapse in certain circumstances, including where they act fraudulently or dishonestly, or they are in breach of their obligations of the Group. When is Board discretion used? Discretion can be applied to the proportion that may vest, taking into account behaviour inconsistent with our Code of Conduct, reputational damage, and having regard to any matters that it considers relevant (including any adjustments for unusual or non-recurring items that the Board considers appropriate). The extent and reasons for any discretion will be disclosed. Abacus Security Trading Policy In accordance with Abacus’ Trading Policy, no director, employee, or associate may trade in APG securities at any time if they are in possession of unpublished information which, if generally available, might materially affect the price or value of APG securities. They may only trade within specified trading windows. 28 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 5. Remuneration Governance and Framework (continued) III. Security based payments In FY22 Abacus introduced a new Long Term Incentive Plan. The below outlines the FY22 LTI grant and then moves on to the Deferred Variable Incentive Plan (Legacy Plan) as shown from table 10. Performance Long term Incentive Plan Grants Grant Tranche Performance Hurdle Vesting date FY22 Grant Tranche One – 50% of Grant 50% vesting at 2% FFO ps AAGR1 100% vesting at 5% FFO ps AAGR Pro rata vesting between 2% and 5% 0% if less than 2% FFO ps AAGR Tranche Two – 50% of Grant September 2024 September 2025 1FFO ps AAGR is Funds from Operations Per Security Annual Average Growth Rate The table below provides the grant date fair value and the maximum potential value of all outstanding LTI grants at grant date for the Executive KMP. If the performance conditions are not met, the minimum value of the LTI will be nil. Table 7 – Grant date fair value and maximum value for LTI grants Executive KMP Year Grant Date Grant Date Fair Value $ Number of LTI granted Performance Period Maximum grant date face value $ Steven Sewell 2021 22/11/2021 3.40 Rob Baulderstone 2021 22/11/2021 3.40 183,824 1 July 2021 to 30 June 2024 183,824 1 July 2021 to 30 June 2025 50,490 1 July 2021 to 30 June 2024 50,490 1 July 2021 to 30 June 2025 25,995 1 July 2021 to 30 June 2023 1,250,000 343,333 Gavin Lechem1 2021 22/11/2021 3.40 25,995 1 July 2021 to 30 June 2024 265,148 1Mr Lechem was granted LTI as an Executive with three tranches for 2021. 25,995 1 July 2021 to 30 June 2024 29 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 5. Remuneration Governance and Framework (continued) III. Security based payments (continued) Table 8 – Movements in LTI holdings of key management personnel during the year The table below provides the movement of all security-based payments granted to the Executive KMP. KMP Steven Sewell (Managing Director) Rob Baulderstone Gavin Lechem Total Balance 1 July 2021 Granted as remuneration LTIs exercised Balance 30 June 2022 - - - - 367,648 100,980 77,985 546,613 - - - - 367,648 100,980 77,985 546,613 IV. Minimum securityholding requirement for Executive KMP FY23 To align the interests of the Board with securityholders, the Board has introduced a minimum securityholding requirement for Executive KMP. • The MD is required to maintain a minimum holding of securities equivalent to 100% of his fixed remuneration. Executive KMP are required to maintain a minimum holding of securities that is equivalent to 50% of their fixed remuneration. • Executive KMP have until the fourth anniversary of the later of 27 June 2022 or the date they become an Executive KMP, to meet the minimum holding requirement. V. Executive KMP securityholdings details Executive KMP are required to maintain a minimum holding of securities. Table 9 – Securityholdings of Executive KMP KMP Steven Sewell (Managing Director) Balance 1 July 2021 Vesting of Rights Purchases Balance 30 June 2022 233,756 114,729 54,087 402,572 Rob Baulderstone 473,573 62,129 - 535,702 Gavin Lechem 177,148 49,111 10,500 236,759 Total 884,477 225,969 64,587 1,175,033 Unvested rights are not included in the calculation of the minimum holding of securities. 30 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 5. Remuneration Governance and Framework (continued) Deferred Variable Incentive Plan (Legacy Plan) The deferred variable incentive plan ceased in the year ending 30 June 2021 and has been replaced by a more contemporary and market aligned Long Term Incentive Plan. The deferred variable incentive plan was delivered in the form of an annual grant of security acquisition rights (SARs) under the deferred security acquisition rights plan (SARs Plan). The SARs will continue to vest under this plan until September 2024. 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 were entitled before any tranche of SARs vests, to extend the vesting date for that tranche by 12 months. The table below discloses the number of SARs that vested or lapsed during the year. No further grants have been made under this Plan for FY22. Table 10 – Grants under the Deferred Security Acquisition Rights Plan (SARs) Executive KMP Year Grant Date Vesting date No. vested during the year No. lapsed during the year Steven Sewell Rob Baulderstone Gavin Lechem 2020 2019 2020 2019 2018 2020 2019 2018 15/11/2019 15/11/2018 15/11/2019 15/11/2018 14/11/2017 15/11/2019 15/11/2018 14/11/2017 09 / 2021 09 / 2021 09 / 2021 09 / 2021 09 / 2021 09 / 2021 09 / 2021 09 / 2021 59,222 41,499 23,266 17,888 12,217 16,920 14,310 10,821 - - - - - - - - Table 11 – The value of SARs granted, exercised, and lapsed during the year Executive KMP Steven Sewell Rob Baulderstone Gavin Lechem Value of SARs granted during the year $ Value of SARs exercised during the year $ Value of SARs lapsed during the year $ - - - 408,736 221,345 174,966 - - - There were no alterations to the terms and conditions of the SARs since their grant date. Refer to Note 20 for details on the valuation of the Long Term and Deferred Variable Incentive Plan, including models and assumptions used. 31 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 5. Remuneration Governance and Framework (continued) Table 12 – Securities acquired on exercise of SARs Executive KMP Securities acquired (number) Paid per security $ Steven Sewell (Managing Director) Rob Baulderstone Gavin Lechem 114,729 62,129 49,111 $3.55 $3.55 $3.55 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. No amount was paid by participants for securities acquired above. Table 13 – Movements in SARs holdings of key management personnel during the year The table below provides the movement of all security-based payments granted to the Executive KMP. Executive KMP Balance 1 July 2021 Granted as remuneration SARs exercised Balance 30 June 2022 Steven Sewell (Managing Director) 551,139 Rob Baulderstone 239,516 Gavin Lechem Total 171,384 962,039 - - - - (100,721) 450,418 (53,371) 186,145 (42,051) 129,333 (196,143) 765,896 All equity transactions with Executive KMP 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. There have been no movements in holdings since 30 June 2022. 32 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 6. Non-executive Director remuneration Objective The Committee assesses the appropriateness of the nature and amount of remuneration of Non-Executive Directors (NEDs) 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. I. Fee Structure and Policy The following table outlines the Non-Executive Directors (NEDs) fee policy and any changes introduced for FY22. Maximum aggregate fees approved by securityholders 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. Contracts Upon appointment to the Board, all NEDs receive a letter of appointment which summarises the Board policies and terms, including compensation, relevant to the office of Director. The Board reviews NED fees on an annual basis in line with general industry practice. This ensures fees are appropriately positioned in the market to attract and retain high calibre individuals. The fees were last increased in July 2017. NEDs are entitled to be reimbursed for all reasonable costs and expenses incurred by them in performing their duties. NED fee changes FY22 To maintain market equity, the Board determined an increase of 8.6% to the base fee from 1 July 2021 to the Chairman and 7.6% for the other NEDs. In recognition of the additional workloads for Chairs of committees and to reflect of market practice, the People, Performance Committee and the Compliance and Sustainability committee Chair fees were increased to $23,000 (FY21: $15,750) and $21,000 (FY21: $14,700) respectively. Non-Executive Director fees reviews The Committee fees for the Audit and Risk, and People Performance were increased (FY21: $10,500) respectively. Further detail of the increases can be found in table 14. (FY21: $10,500) and $11,250 to $12,285 NED fee changes FY23 There are no changes to the Board base fees and committee in FY23. Refer to Table 14 for details of FY23 fees. The aggregation of all Board and committee fees for FY22 and FY23, respectively, remains below the current pool limit. Superannuation The fees set out above include superannuation contributions in accordance with relevant statutory requirements. Post-employment benefits The Non-Executive directors do not receive retirement benefits. Nor do they participate in any incentive programs. 33 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 6. Non-executive Director remuneration (continued) II. Minimum securityholding requirement for Non-Executive Directors FY23 The Board of Abacus Property Group (Abacus) recognises the importance of aligning the interests of its senior executives and directors with the long term interests of Abacus’ securityholders. To further align this interest, the Board has introduced a minimum securityholding requirement for NEDs. Each Non-Executive Director must accumulate and retain a minimum securityholding in Abacus securities equivalent to their annual director’s fee inclusive of base fee, superannuation contributions and before any tax deductions. The minimum securityholding is to be achieved progressively by the 4th anniversary of the later of 27 June 2022 or the date of their appointment, to meet the minimum holding requirement Non-Executive Directors are bound by Abacus’s Securities Trading Policy. No additional remuneration is provided to Non-Executive Directors to purchase these stapled securities. Table 14: Non-Executive Director fee levels (inclusive of superannuation) Board/Committee Board Role Chair FY21 Effective 1 July 2021 for FY221 Per role $ Total $ Per role $ Total $232,050 $232,050 $252,000 $252,000 Audit and Risk Committee Work, Health Safety and Sustainability Committee Non-Executive Director $105,000 $420,000 $113,000 $565,000 Chair $27,300 $27,300 $27,300 $27,300 Non-Executive Director $10,500 $21,000 $12,285 $36,855 Chair $14,700 $14,700 $21,000 $21,000 Non-Executive Director $10,500 $10,500 $10,500 $10,500 People Performance Committee Chair $15,750 $15,750 $23,000 $23,000 Non-Executive Director $10,500 $21,000 $11,250 $33,750 Total $762,300 $969,405 1FY21 numbers reflect the addition of Mark Bloom. 34 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 6. Non-executive Director remuneration (continued) III. Non-Executive Director’s remuneration details Short Term Benefits Post- Employment Total Non-Executive Director Year Base Fees Non- monetary benefits Total cash payments and short-term benefits Superannuation $ Myra Salkinder (Chair) Trent Alston Mark Bloom1 Mark Haberlin Holly Kramer Jingmin Qian 1Appointed 1 July 2021. FY22 238,636 FY21 211,048 FY22 134,804 FY21 119,863 FY22 124,123 FY21 - FY22 137,773 FY21 130,411 FY22 131,688 FY21 123,267 FY22 132,986 FY21 118,904 - - - - - - - - - - - - 238,636 211,048 134,804 119,863 124,123 - 137,773 130,411 131,688 123,267 132,986 118,904 13,364 21,002 13,481 11,387 12,412 - 13,777 12,389 3,062 2,733 13,299 11,296 252,000 232,050 148,285 131,250 136,535 - 151,550 142,800 134,750 126,000 146,285 130,200 IV. Non-Executive Director’s security holdings details Non-Executive Director Balance 1 July 2021 Purchases Balance 30 June 2022 Myra Salkinder (Chair) 197,925 Trent Alston Mark Bloom Mark Haberlin Holly Kramer Jingmin Qian 36,250 - 42,292 25,089 24,167 - - 37,000 - 2,137 9,000 197,925 36,250 37,000 42,292 27,226 33,167 All equity transactions with Non-Executive Directors have been entered into under terms and conditions no more favourable than those that Abacus would have adopted if dealing at arm’s length. There have been no movements in holdings since 30 June 2022. 35 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 REMUNERATION REPORT (audited) 7. Additional required disclosures Executive KMP employment terms The total remuneration package is reviewed annually, and the key terms are summarised below: Role Term of agreement Notice Period (by company or by employee) Post- employment restraints Termination benefits Steven Sewell No expiry date 9 months 12 months No redundancy payment entitlements. If there are any termination entitlements to be paid, they will be limited by the current Corporations Act 2001 (Cth) or the ASX Listing Rules or both. 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 KMP’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. Use of Remuneration advisors The People and Performance Committee engages external remuneration consultants from time to time to provide independent benchmarking data and information on best practice. This ensures the Company continually reviews assesses and adapts the remuneration governance functions to assist the Board and Committee in making informed remuneration decisions. No remuneration recommendations as defined under the Corporations Act 2001 (Cth) were provided to the Committee by remuneration consultants in FY22. Loans to Key Management Personnel There were no loans to key management personnel and their related parties at any time in 2022 or in the prior year. Other transactions with Key Management Personnel During the year, transactions occurred between Abacus and key management personnel which were within normal employee and investor relationships. 36 ABACUS PROPERTY GROUP DIRECTORS’ REPORT 30 June 2022 EVENTS AFTER BALANCE SHEET DATE Subsequent to the financial year end: • In August 2022, the Group acquired the remaining 50% interest in 324 Queen Street, Brisbane QLD for $93.75m, reflecting an initial yield of 6.4%. 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. AUDITOR’S INDEPENDENCE DECLARATION We have obtained an independence declaration from our auditor, Ernst & Young, and such declaration is shown on page 38. ROUNDING The amounts contained in this report and in the half-year financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the group under ASIC Corporations Instrument 2016/191. The Group is an entity to which the instrument applies. Signed in accordance with a resolution of the directors. Abacus Group Holdings Limited (ABN 31 080 604 619) Myra Salkinder Chair Sydney, 16 August 2022 Steven Sewell Managing Director 37 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor’s independence declaration to the directors of Abacus Group Holdings Limited As lead auditor for the audit of the financial report of Abacus Group Holdings Limited for the financial year ended 30 June 2022, I declare to the best of my knowledge and belief, there have been: a. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit, b. No contraventions of any applicable code of professional conduct in relation to the audit; and c. No non-audit services provided that contravene any applicable code of professional conduct in relation to the audit. This declaration is in respect of Abacus Group Holdings Limited and the entities it controlled during the financial year. Ernst & Young Anthony Ewan Partner Sydney 16 August 2022 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation CONSOLIDATED INCOME STATEMENT YEAR ENDED 30 JUNE 2022 ABACUS PROPERTY GROUP 39 20222021Notes$'000$'000REVENUERental income 291,077 226,344 Finance income1(a) 11,234 15,145 Management and other fee income 17,311 13,155 Sale of inventory - 2,944 Total Revenue 319,622 257,588 OTHER INCOMENet change in fair value of investments and financial instruments derecognised 4,919 3,477 Net change in fair value of investment properties held at balance date 345,550 237,433 Net change in fair value of investments held at balance date1(b) 17,907 2,749 Share of profit from equity accounted investments8(a) 13,429 16,861 Net change in fair value of derivatives 28,101 (4,571)Other income 11,285 8,243 Total Revenue and Other Income 740,813 521,780 Net change in fair value of investment properties and property, plant and equipment derecognised (1,027) 2,562 Property expenses and outgoings (69,647) (61,702)Depreciation and amortisation expenses3(a) (9,002) (7,906)Cost of inventory sales - (2,709)Impairment (charges) / reversal (4,903) 3,636 Finance costs3(b) (38,560) (23,279)Administrative and other expenses3(c) (70,042) (47,150)PROFIT BEFORE TAX 547,632 385,232 Income tax expense4(a) (30,467) (15,611)NET PROFIT AFTER TAX 517,165 369,621 PROFIT / (LOSS) ATTRIBUTABLE TO:Equity holders of the parent entity (AGHL) (25,486) (22,311)Equity holders of other stapled entitiesAT members 148,031 71,082 AGPL members 19,882 22,952 AIT members (4,084) 10,814 ASPT members 264,008 205,705 ASOL members 114,814 81,167 Stapled security holders 517,165 369,409 Net profit attributable to external non-controlling interests - 212 NET PROFIT 517,165 369,621 Basic and diluted earnings per stapled security (cents)261.11 49.84 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME YEAR ENDED 30 JUNE 2022 ABACUS PROPERTY GROUP 40 20222021$'000$'000NET PROFIT AFTER TAX 517,165 369,621 OTHER COMPREHENSIVE INCOMEItems that may be reclassified subsequently to the income statementForeign exchange translation adjustments, net of tax (1,623) (1,008)TOTAL COMPREHENSIVE INCOME FOR THE YEAR 515,542 368,613 Total comprehensive income attributable to:Members of the APG Group 515,542 368,401 External non-controlling interests - 212 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 515,542 368,613 Total comprehensive income attributable to members of the Group analysed by amounts attributable to:AGHL members (25,486) (22,311)AT members 148,031 71,082 AGPL members 19,882 22,952 AIT members (4,084) 10,814 ASPT members 262,683 204,808 ASOL members 114,516 81,056 TOTAL COMPREHENSIVE INCOME AFTER TAX ATTRIBUTABLETO MEMBERS OF THE GROUP 515,542 368,401 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2022 ABACUS PROPERTY GROUP 41 20222021Notes$'000$'000CURRENT ASSETSInvestment properties held for sale5 - 161,571 Property loans7(a) - 20,716 Cash and cash equivalents9 176,505 57,992 Trade and other receivables 43,472 33,653 Derivatives at fair value 20,869 - Other 7,281 4,685 TOTAL CURRENT ASSETS 248,127 278,617 NON-CURRENT ASSETSInvestment properties5 4,500,582 3,188,371 Inventory6 - 48,064 Property loans7(b) 53,144 47,230 Equity accounted investments8 172,961 110,414 Deferred tax assets4(c) 15,998 22,434 Property, plant and equipment16 21,668 21,664 Other financial assets7(c) 244,334 234,485 Intangible assets and goodwill21 105,626 106,312 Derivatives at fair value 38,072 673 Other 6,547 793 TOTAL NON-CURRENT ASSETS 5,158,932 3,780,440 TOTAL ASSETS 5,407,059 4,059,057 CURRENT LIABILITIESTrade and other payables 127,030 112,135 Derivatives at fair value - 678 Income tax payable 1,732 4,788 Other 9,188 6,581 TOTAL CURRENT LIABILITIES 137,950 124,182 NON-CURRENT LIABILITIESInterest-bearing loans and borrowings11 1,709,241 988,525 Derivatives at fair value - 280 Deferred tax liabilities4(c) 52,906 37,727 Other 5,853 6,464 1,768,000 1,032,996 TOTAL LIABILITIES 1,905,950 1,157,178 NET ASSETS 3,501,109 2,901,879 TOTAL NON-CURRENT LIABILITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued) AS AT 30 JUNE 2022 ABACUS PROPERTY GROUP 42 20222021Notes$'000$'000Equity attributable to members of AGHL:Contributed equity 568,221 519,663 Reserves 2,941 2,705 Retained earnings 128,200 153,686 Total equity attributable to members of AGHL: 699,362 676,054 Equity attributable to unitholders of AT:Contributed equity 1,372,070 1,285,378 Accumulated losses (107,236) (186,555)Total equity attributable to unitholders of AT: 1,264,834 1,098,823 Equity attributable to members of AGPL:Contributed equity 46,983 41,425 Retained earnings 64,630 44,748 Total equity attributable to members of AGPL: 111,613 86,173 Equity attributable to unitholders of AIT:Contributed equity 188,330 175,994 Accumulated losses (113,047) (101,726)Total equity attributable to unitholders of AIT: 75,283 74,268 Equity attributable to members of ASPT:Contributed equity 333,683 266,230 Reserves (1,346) (21)Retained earnings 412,174 232,320 Total equity attributable to members of ASPT: 744,511 498,529 Equity attributable to members of ASOL:Contributed equity 84,059 61,101 Reserves (351) (53)Retained earnings 521,798 406,984 Total equity attributable to members of ASOL: 605,506 468,032 TOTAL EQUITY 3,501,109 2,901,879 Contributed equity13 2,593,346 2,349,791 Reserves 1,244 2,631 Retained earnings 906,519 549,457 Total stapled security holders' interest in equity 3,501,109 2,901,879 TOTAL EQUITY 3,501,109 2,901,879 CONSOLIDATED STATEMENT OF CASH FLOW YEAR ENDED 30 JUNE 2022 ABACUS PROPERTY GROUP 43 20222021Notes$'000$'000CASH FLOWS FROM OPERATING ACTIVITIESIncome receipts 326,560 276,139 Interest received 111 81 Distributions received 10,136 5,916 Income tax paid (11,503) (18,628)Finance costs paid (31,626) (24,221)Operating payments (134,477) (105,213)Payments for inventory costs (938) (2,473)NET CASH FLOWS FROM OPERATING ACTIVITIES9 158,263 131,601 CASH FLOWS FROM INVESTING ACTIVITIESPayments for investments and funds advanced (326,823) (256,864)Proceeds from sale and settlement of investments and funds repaid 142,502 71,518 Purchase of property, plant and equipment (3,745) (6,823)Disposal of property, plant and equipment 8 5 Purchase of investment properties (805,497) (291,983)Disposal of investment properties 170,054 18,879 Acquisition of subsidiary, net of cash acquired - (46,395)NET CASH FLOWS USED IN INVESTING ACTIVITIES (823,501) (511,663)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of stapled securities 203,290 402,208 Payment of issue costs (4,485) (4,322)Payment of finance costs (3,962) (3,229)Payment of principal portion of lease liabilities (1,371) (1,316)Repayment of borrowings and financial instruments (65,665) (219,600)Proceeds from borrowings 758,934 198,438 Distributions paid (102,818) (61,420)NET CASH FLOWS FROM FINANCING ACTIVITIES 783,923 310,759 NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 118,685 (69,303)Net foreign exchange differences (172) (18)Cash and cash equivalents at beginning of year 57,992 127,313 CASH AND CASH EQUIVALENTS AT END OF YEAR9 176,505 57,992 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 30 JUNE 2022 ABACUS PROPERTY GROUP 44 ExternalForeignEmployeeNon-IssuedcurrencyequityRetainedcontrollingTotalcapitaltranslationbenefitsearningsinterestEquityCONSOLIDATED$'000$'000$'000$'000$'000$'000At 1 July 2021 2,349,791 (74) 2,705 549,457 - 2,901,879 Other comprehensive income - (1,623) - - - (1,623)Net income for the year - - - 517,165 - 517,165 Total comprehensive income for the year - (1,623) - 517,165 - 515,542 Equity raisings 203,290 - - - - 203,290 Issue costs (4,051) - - - - (4,051)Distribution reinvestment plan 44,316 - - - - 44,316 Performance rights - - 236 - - 236 Distribution to security holders - - - (160,103) - (160,103)At 30 June 2022 2,593,346 (1,697) 2,941 906,519 - 3,501,109 ExternalForeignEmployeeNon-IssuedcurrencyequityRetainedcontrollingTotalcapitaltranslationbenefitsearningsinterestEquityCONSOLIDATED$'000$'000$'000$'000$'000$'000At 1 July 2020 1,879,765 934 2,336 318,709 4,970 2,206,714 Other comprehensive income - (1,008) - - - (1,008)Net income for the year - - - 369,409 212 369,621 Total comprehensive income for the year - (1,008) - 369,409 212 368,613 Equity raisings 402,208 - - - - 402,208 Return of capital - - - - (5,182) (5,182)Issue costs (3,458) - - - - (3,458)Distribution reinvestment plan 71,276 - - - - 71,276 Performance rights - - 369 - - 369 Distribution to security holders - - - (138,661) - (138,661)At 30 June 2021 2,349,791 (74) 2,705 549,457 - 2,901,879 Attributable to the stapled security holderAttributable to the stapled security holder CONTENTS 30 JUNE 2022 ABACUS PROPERTY GROUP Notes to the financial statements About this report Segment information Page 46 Page 48 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 financial information 16. Property, plant and equipment 2. Earnings per 6. Inventory 10. Capital stapled security management 3. Expenses 7. Property loans and other financial assets 11. Interest bearing loans and borrowings 4. Income tax 8. Investments 12. Financial accounted for using the equity method instruments 13. Contributed equity 14. Distributions paid and proposed Signed reports Directors’ declaration Independent auditor’s report 17. Commitments and contingencies 18. Related party disclosures 19. Key management personnel 20. Security based payments 21. Intangible assets and goodwill 22. Summary of significant accounting policies 23. Auditor’s remuneration 24. Events after balance date Page 100 Page 101 45 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS – About this Report 30 JUNE 2022 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 2022 was authorised for issue in accordance with a resolution of the directors on 16 August 2022. 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 (Note 22(n)) and property, plant and equipment (Note 22(m)). 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. 46 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS – About this Report (continued) 30 JUNE 2022 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued) Expected credit loss (ECL) provision and impairment of property loans and trade receivables The Group has applied the simplified approach and recorded lifetime expected losses on trade receivables 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. Fair value of derivatives The fair value of derivatives is determined using closing quoted market prices based on discounted cash flow analysis using assumptions supported by observable market rates adjusted for counterparty creditworthiness. Fair value of financial assets The Group holds investments in listed and unlisted securities which are held at fair value based on quoted securities and valuation of underlying asset values. Impairment of goodwill, intangible assets and other non-financial assets The Group determines whether goodwill, intangible assets and other non-financial assets 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 intangible assets are allocated. For goodwill and intangible assets 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 intangible assets are discussed in Note 21. Taxes Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. This requires management judgement to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies. Further details on taxes are disclosed in Note 4. 47 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS – Segment Information 30 JUNE 2022 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) Self Storage Investments: the segment is responsible for the investment in and operation of self storage properties; (b) Commercial Investments: the segment is responsible for the investment in and ownership of commercial (office and retail) properties. This segment also includes the equity accounting of co-investments in property entities not engaged in development projects; and (c) Property Development: the Group has historically provided 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. The FY21 segment balance sheet has been restated to split the Self Storage and Commercial Investments into separate segments. The segment result includes transactions between operating segments which are then eliminated. 48 NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued) 30 JUNE 2022 ABACUS PROPERTY GROUP ^ includes fair value gain of $4.9 million 49 PropertyCommercialStorageDevelopmentsOtherConsolidatedYear ended 30 June 2022$'000$'000$'000$'000$'000RevenueRental income 130,539 160,538 - - 291,077 Finance income 2,924 - 8,199 111 11,234 Management and other fee income 2,075 15,228 8 - 17,311 Sale of inventory - - - - - Net change in fair value of investments and financial instruments derecognised (107) 5,026 - - 4,919 Net change in fair value of investment properties held at balance date 40,308 305,242 - - 345,550 Net change in fair value of investments held at balance date 621 17,286 - - 17,907 Share of profit from equity accounted investments ^ 13,441 - (12) - 13,429 Other income 324 10,961 - - 11,285 Total consolidated revenue and other income 190,125 514,281 8,195 111 712,712 Net change in fair value of investment properties and property, plant and equipment derecognised (992) (35) - - (1,027)Property expenses and outgoings (33,370) (36,277) - - (69,647)Depreciation and amortisation expense (6,096) (2,906) - - (9,002)Cost of inventory sales - - - - - Impairment (charges) / reversal (1,028) - (3,875) - (4,903)Administrative and other expenses (20,713) (45,877) (3,452) - (70,042)Segment result 127,926 429,186 868 111 558,091 Net change in fair value of derivatives 28,101 Finance costs (38,560)Profit before tax 547,632 Income tax expense (30,467) 517,165 Property InvestmentsNet profit for the year attributable to members of the Group NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued) 30 JUNE 2022 ABACUS PROPERTY GROUP ^ includes fair value gain of $9.4 million 50 PropertyCommercialStorageDevelopmentsOtherConsolidatedYear ended 30 June 2021$'000$'000$'000$'000$'000RevenueRental income 115,072 111,272 - - 226,344 Finance income - - 15,070 75 15,145 Management and other fee income 3,516 9,639 - - 13,155 Sale of inventory - - - 2,944 2,944 Net change in fair value of investment properties and property, plant and equipment derecognised 506 2,056 - - 2,562 Net change in fair value of investments and financial instruments derecognised 3,481 - (4) - 3,477 Net change in fair value of investment properties held at balance date 9,560 227,873 - - 237,433 Net change in fair value of investments held at balance date (2) 18,008 (15,257) - 2,749 Share of profit from equity accounted investments ^ 16,838 48 (25) - 16,861 Impairment reversal / (charges) - (164) 3,800 - 3,636 Other income 40 8,203 - - 8,243 Total consolidated revenue and other income 149,011 376,935 3,584 3,019 532,549 Property expenses and outgoings (30,103) (31,599) - - (61,702)Depreciation and amortisation expense (5,669) (2,237) - - (7,906)Cost of inventory sales - - - (2,709) (2,709)Administrative and other expenses (16,633) (27,810) (2,662) (45) (47,150)Segment result 96,606 315,289 922 265 413,082 Net change in fair value of derivatives (4,571)Finance costs (23,279)Profit before tax 385,232 Income tax expense (15,611)Net profit for the year 369,621 Less non-controlling interest (212) 369,409 Property InvestmentsNet profit for the year attributable to members of the Group NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued) 30 JUNE 2022 ABACUS PROPERTY GROUP 51 PropertyCommercialStorageDevelopmentUnallocatedTotalAs at 30 June 2022$'000$'000$'000$'000$'000Current assets 20,233 17,331 - 210,563 248,127 Non-current assets 2,496,703 2,574,488 - 87,741 5,158,932 Total assets 2,516,936 2,591,819 - 298,304 5,407,059 Current liabilities 22,528 27,534 - 87,888 137,950 Non-current liabilities - 3,909 - 1,764,091 1,768,000 Total liabilities 22,528 31,443 - 1,851,979 1,905,950 Net assets 2,494,408 2,560,376 - (1,553,675) 3,501,109 Total facilities - bank loans 2,057,750 Facilities used at reporting date - bank loans (1,677,011)Facilities unused at reporting date - bank loans 380,739 PropertyCommercialStorageDevelopmentUnallocatedTotalAs at 30 June 2021$'000$'000$'000$'000$'000Current assets 161,571 - 20,716 96,330 278,617 Non-current assets 1,873,478 1,755,374 95,294 56,294 3,780,440 Total assets 2,035,049 1,755,374 116,010 152,624 4,059,057 Current liabilities 16,417 18,103 14,259 75,403 124,182 Non-current liabilities 905 906 776 1,030,409 1,032,996 Total liabilities 17,322 19,009 15,035 1,105,812 1,157,178 Net assets 2,017,727 1,736,365 100,975 (953,188) 2,901,879 Total facilities - bank loans 1,359,930 Facilities used at reporting date - bank loans (959,894)Facilities unused at reporting date - bank loans 400,036 Property Investments Property Investments NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 1. REVENUE ABACUS PROPERTY GROUP 2. EARNINGS PER STAPLED SECURITY 3. EXPENSES ^ includes administrative and other expenses of the Storage King Group which was acquired in December 2020. 52 20222021$'000$'000(a) Finance incomeInterest and fee income on secured loans - amortised cost 2,924 2,897 Interest and fee income on secured loans - fair value 8,199 12,173 Bank interest 111 75 Total finance income 11,234 15,145 (b) Net change in fair value of investments held at balance dateNet change in fair value of listed and unlisted property securities held at balance date17,953 18,017 Net change in fair value of property loans held at balance date- (15,268) Net change in fair value of other investments held at balance date(46) - Total change in fair value of investments held at balance date17,907 2,749 20222021Basic and diluted earnings per stapled security (cents) 61.11 49.84 Reconciliation of earnings used in calculating earnings per stapled securityBasic and diluted earnings per stapled securityNet profit ($'000) 517,165 369,409 Weighted average number of securities:Weighted average number of stapled securities for basic earnings per security ('000) 846,260 741,130 20222021$'000$'000(a) Depreciation and amortisation expensesDepreciation and amortisation of property, plant and equipment and intangible assets4,307 3,682 Amortisation - leasing costs4,695 4,224 Total depreciation and amortisation expenses9,002 7,906 (b) Finance costsInterest on loans32,496 19,255 Amortisation of finance costs6,064 4,024 Total finance costs38,560 23,279 20222021$'000$'000(c) Administrative and other expenses ^Wages and salaries52,512 31,005 Contributions to defined contribution plans3,482 2,140 Other expenses14,048 14,005 Total administrative and other expenses70,042 47,150 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 4. INCOME TAX ABACUS PROPERTY GROUP 53 20222021$'000$'000(a) Income tax expenseThe major components of income tax expense are:Income StatementCurrent income taxCurrent income tax charge(1,280) 10,426 Adjustments in respect of current income tax of previous years654 (2) Deferred income taxRelating to origination and reversal of temporary differences31,093 5,187 Income tax expense reported in the income statement30,467 15,611 calculated per the statutory income tax rateapplicable income tax rate is as follows:Profit before income tax expense547,632 385,232 Prima facie income tax expense calculated at 30% (AU)163,218 114,646 Prima facie income tax expense calculated at 28% (NZ)1,000 862 Less prima facie income tax expense on profit from Trusts(135,853) (96,326) Prima Facie income tax of entities subject to income tax28,365 19,182 Adjustment of prior year tax applied654 (2) Unrecognised tax benefit1,614 - Share of results of joint ventures and associates(418) (1,938) Security acquisition rights71 (163) Other items (net)181 (1,468) Income tax expense reported in the income statement30,467 15,611 (b) Numerical reconciliation between aggregate tax expense recognised in the income statement and tax expenseA reconciliation between tax expense and the product of the accounting profit before income tax multiplied by the Group's NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 4. INCOME TAX (continued) ABACUS PROPERTY GROUP Tax consolidation 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. 54 20222021$'000$'000(c) Recognised deferred tax assets and liabilitiesDeferred income tax relates to the following:Deferred tax liabilitiesRevaluation of investment properties at fair value36,551 22,524 Revaluation of investments and financial instruments at fair value1,775 - Capital allowances2,140 2,027 Brand9,489 9,489 Other8,968 6,522 Gross deferred income tax liabilities58,923 40,562 Set off against deferred tax assets(6,017) (2,835) Net deferred income tax liabilities52,906 37,727 Deferred tax assetsRevaluation of investments and financial instruments at fair value65 6,066 Provisions - other- 13,755 Provisions - employee entitlements4,126 3,313 Losses available for offset against future taxable income16,885 1,022 Other939 1,113 Gross deferred income tax assets22,015 25,269 Set off of deferred tax liabilities(6,017) (2,835) Net deferred income tax assets15,998 22,434 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 5. INVESTMENT PROPERTIES ABACUS PROPERTY GROUP 1. The carrying amount of the leasehold property is presented gross of the finance liability of $2.5 million (2021: $2.5 million). 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): * includes $2.5m of borrowing costs capitalised during the year (2021: $1.7 million). 55 20222021$'000$'000Leasehold investment properties 1 13,272 11,613 Freehold investment properties 4,487,310 3,338,329 Total investment properties 4,500,582 3,349,942 20222021$'000$'000Investment properties held for saleCommercial - 161,571 Total investment properties held for sale - 161,571 Investment propertiesSelf Storage 2,239,949 1,430,205 Commercial 2,260,633 1,758,166 Total investment properties 4,500,582 3,188,371 Total investment properties including held for sale 4,500,582 3,349,942 20222021Leasehold investment properties$'000$'000Carrying amount at beginning of the financial year 11,613 12,300 Capital expenditure 27 489 Net change in fair value as at balance date 1,632 (1,176)Carrying amount at end of the year 13,272 11,613 2022202120222021Freehold investment properties$'000$'000$'000$'000Carrying amount at beginning of the financial year 161,571 - 3,176,758 2,640,616 Additions - - 975,760 312,311 Capital expenditure* 511 - 118,705 163,128 Net change in fair value as at balance date - - 343,918 238,609 Net change in fair value derecognised (685) - (351) 2,558 Disposals (161,397) - (120,651) (18,831)Effect of movements in foreign exchange - - (8,710) (1,001)Properties transferred to / from held for sale - 161,571 - (161,571)Straightlining - - 1,881 939 Carrying amount at end of the year - 161,571 4,487,310 3,176,758 Non-currentHeld for saleNon-current ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 Chief Investment Officer who is also responsible for the Group’s internal valuation process. He is assisted by in-house certified professional valuer who is experienced in valuing the types of properties in the applicable locations. Investment properties are independently valued on a staggered basis every two years unless the underlying financing requires a more frequent independent 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 5.39% (2021: 5.65%) and for each significant category above is as follows: - Self Storage – 5.45% (2021: 5.74%) - Commercial – 5.33% (2021: 5.54%) The optimal occupancy rate utilised in the valuation process ranged from 80.0% to 100.0% (2021: 80.0% to 100.0%). The current occupancy rate for the principal portfolio excluding development and self storage assets is 95.0% (2021: 94.7%). The occupancy rate for the established self storage portfolio is 93.2% (2021: 91.0%). 56 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 5. INVESTMENT PROPERTIES (continued) The key assumptions and estimates used in the valuations which considered the impact of COVID-19 include: 1. 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; 2. lease assumptions based on current and expected future market conditions after expiry of any current lease; 3. 4. 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; and 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 2022. 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. The potential effect of a decrease / increase in weighted average capitalisation rate of 25 bps on property valuation would have the effect of increasing the fair value by up to $218.9 million (2021: $155.1 million) or decrease the fair value by $199.5 million (2021: $141.9 million) respectively. During the year ended 30 June 2022, 60% (2021: 46%) of the number of investment properties in the portfolio were subject to external valuations, the remaining 40% (2021: 54%) were subject to internal valuation. 57 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 5. INVESTMENT PROPERTIES (continued) ABACUS PROPERTY GROUP 1. In February 2022, Abacus acquired 100% interest in 77 Castlereagh Street, Sydney NSW. 2. Abacus has converted its interest in 181 James Ruse Drive, Camellia from inventory to investment property in May 2022. 3. Abacus divested 50% of interest in Abacus 710 Collins St Trust in July 2021. The Trust has become a Joint Venture and was renamed as AW 710 Collins St Trust. 4. Abacus has divested its interest in 464 St Kilda Melbourne VIC in March 2022. 5. Abacus has divested seven properties being Eagle Farm and Brendale in July 2021, Southport in August 2021, 444 Queen Street Brisbane in October 2021, Campellfield November 2021, and Potts Point and Port Macquarie in June 2022. Abacus has also converted its interest in 56 Prescot, Milperra from lender to owner. 6. Abacus acquired 18 properties in NSW being Artarmon, 2 sites in Chatswood, Cromer, Gladesville, Gregory Hills, Kings Park, Leppington, Marsden Park, Mascot, Mittagong, Morisset, North Wyong, Pymble, Raymond Terrace, South Windsor, St Leonards and Wollongong NSW. 7. Abacus acquired one property in Victoria being Knoxfield in April 2022. 8. Abacus acquired six properties in Queensland being Helensvale and Upper Coomera in July 2021, Brendale in September 2021, Burleigh Heads in October 2021, Hope Island in December 2021 and Kunda Park in February 2022. 9. Abacus acquired one property in Western Australia being Osborne Park in September 2021. 58 OwnershipInterest%Fair Value2022$'000Capitalisation Rate2022%Fair Value2021$'000Capitalisation Rate2021%Commercial99 Walker Street, North Sydney NSW100 308,000 5.00 300,000 5.0077 Castlereagh St, Sydney NSW 1100 250,000 4.63 - -201 Elizabeth Street, Sydney NSW32 227,200 4.63 203,200 5.00The Oasis, Broadbeach QLD100 178,000 6.75 174,000 7.00314-336 Bourke Street, Melbourne VIC33 153,333 5.50 - -452 Johnston Street, Abbotsford VIC100 140,000 5.25 105,000 5.5014 Martin Place, Sydney NSW50 121,500 4.75 120,000 4.88Industry Lanes, Richmond, VIC50 110,850 4.75 71,241 -Westpac House, Adelaide SA50 91,250 6.50 88,000 6.50324 Queen Street, Brisbane QLD50 91,250 5.63 82,500 5.75Ashfield Shopping Centre, Ashfield NSW50 88,000 5.50 97,500 5.50Kingsgate, Fortitude Valley QLD 50 82,000 5.75 81,875 5.75181 James Ruse Drive, Camellia NSW 2100 77,500 N/A - -51 Allara Street, Canberra ACT100 72,500 6.25 67,500 6.75Market Central, Lutwyche QLD50 70,350 5.75 71,350 6.0011 Bowden Street, Alexandria NSW100 55,500 5.25 56,000 5.25710 Collins Street, Melbourne VIC 3- - - 112,000 5.25464 St Kilda Road, Melbourne VIC 4- - - 48,500 5.25Other (4 assets; 2021: 10 assets) 550-100 143,400 4.91 241,071 5.33Total Commercial 2,260,633 5.33 1,919,737 5.54 Self StorageNSW (42 facilities; 2021: 24 facilities) 6100 829,914 5.06 367,678 5.63VIC (23 facilities; 2021: 22 facilities) 7100 378,239 5.57 300,833 5.55QLD (21 facilities; 2021: 15 facilities) 8100 326,365 5.53 198,754 5.80ACT (6 facilities; 2021: 6 facilities)100 249,162 5.28 187,547 5.75WA (10 facilities; 2021: 9 facilities) 9100 149,132 6.42 97,099 6.58SA (2 facilities; 2021: 2 facilities)100 23,308 5.87 18,977 5.87NZ (15 facilities; 2021: 15 facilities) 100 283,829 5.82 259,317 5.76Total Self Storage 2,239,949 5.45 1,430,205 5.74 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 6. INVENTORY ABACUS PROPERTY GROUP 1. Inventories are held at the lower of cost and net realisable value. The inventories have been converted to investment property during the year. 7. PROPERTY LOANS AND OTHER FINANCIAL ASSETS 59 20222021$'000$'000Non-currentProperty developments1 - purchase consideration - 48,064 - 48,064 Total inventory - 48,064 20222021$'000$'000(a) Current property loansSecured loans - fair value - 17,847 Interest receivable on secured loans - fair value - 2,869 - 20,716 (b) Non-current property loansSecured loans - amortised cost 53,148 - Provision for secured loans - amortised cost (4) - Secured loans - fair value - 41,726 Interest receivable on secured loans - fair value - 5,504 53,144 47,230 (c) Non-current other financial assetsInvestment in securities - listed - fair value 240,469 231,895 Investment in securities and options - unlisted - fair value 3,865 2,590 244,334 234,485 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 8. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (a) Extract from joint ventures’ profit and loss statements ABACUS PROPERTY GROUP * Included in the net profit of Fordtrans Pty Ltd for the year ended 30 June 2022: interest income $1.5 million (2021: $1.6 million) and interest expense $1.5 million (2021: $1.5 million). ^ Included in the net profit of AW 710 Collins St Trust for the year end 30 June 2022: interest income $Nil and interest expense $Nil. (b) Extract from joint ventures’ balance sheets * Included in the net assets of Fordtrans Pty Ltd as at 30 June 2022: cash and cash equivalents $4.1 million (2021: $1.1 million), current interest bearing loans and borrowings $Nil (2021: $Nil) and non-current interest bearing loans and borrowings $65.0 million (2021: $61.0 million). ^ Included in the net assets of AW 710 Collins St Trust as at 30 June 2022: current interest bearing loans and borrowings $Nil and non- current interest bearing loans and borrowings $Nil. 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 2022 was $2.3 million (2021: $2.1 million). 2. AW 710 Collins Street Trust (“710 Collins”) Abacus had divested 50% interest in the AW 710 Collins Street Trust which owns the office building at 710 Collins Street Melbourne, VIC and it was completed for $55.9 million in July 2021. Abacus’ share of distributions (including capital distributions) for the year ended 30 June 2022 was $2.0 million (2021: $Nil). 60 20222021202220212022202120222021$'000$'000$'000$'000$'000$'000$'000$'000Revenue 12,032 34,090 10,112 - 16,984 26,288 39,128 60,378 Expenses (4,446) (4,305) (1,776) - (5,254) (23,030) (11,476) (27,335)Net profit 7,586 29,785 8,336 - 11,730 3,258 27,652 33,043 Share of net profit 3,621 14,892 3,886 - 5,922 1,969 13,429 16,861 Total Other Joint VenturesFordtrans Pty Ltd*AW 710 Collins St Trust^20222021202220212022202120222021$'000$'000$'000$'000$'000$'000$'000$'000Current assets 5,824 5,909 772 - 3,939 8,191 10,535 14,100 Non-current assets 245,859 232,403 117,000 - 108,467 99,365 471,326 331,768 251,683 238,312 117,772 - 112,406 107,556 481,861 345,868 Current liabilities (5,911) (10,305) (3,548) - (12,562) (16,674) (22,021) (26,979)Non-current liabilities (79,554) (64,711) - - (34,825) (35,692) (114,379) (100,403)Net assets 166,218 163,296 114,224 - 65,019 55,190 345,461 218,486 Share of net assets 83,109 81,648 57,112 - 32,740 28,766 172,961 110,414 Fordtrans Pty Ltd* Other Joint VenturesTotalAW 710 Collins St Trust^ NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 9. CASH AND CASH EQUIVALENTS ABACUS PROPERTY GROUP 1. Cash at bank earns interest at floating rates. The carrying amounts of cash and cash equivalents represent fair value. (a) Disclosure of financing facilities Refer to Note 11. (b) Disclosure of non-cash financing facilities Non-cash financing activities include capital raised pursuant to the Abacus distribution reinvestment plan. During the year 13.7 million (2021: 26.4 million) stapled securities were issued with a cash equivalent of $44.3 million (2021: $71.3 million). 61 20222021$'000$'000Reconciliation to Statement of Cash FlowFor the purposes of the Statement of Cash Flow, cash and cash equivalents comprise the following:Cash at bank and in hand1176,505 57,992 Net profit517,165 369,621 Adjustments for:Depreciation and amortisation of non-current assets9,002 7,906 Net change in fair value of derivatives(28,101) 4,571 Net change in fair value of investment properties held at balance date(345,550) (237,433) Net change in fair value of investments held at balance date(17,907) (2,749) Net change in fair value of investment properties derecognised1,035 (2,558) Net change in fair value of investment and financial instruments derecognised(4,919) (3,477) Net (gain) / loss on disposal of property, plant and equipment(8) (4) Share of profit from equity accounted investments(13,429) (16,861) Increase / (decrease) in payables24,986 16,494 (Increase) / decrease in inventories- 2,709 (Increase) / decrease in receivables and other assets15,989 (6,618) Net cash from operating activities158,263 131,601 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 funds from operations). 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 from joint ventures, or (where practical) recalibrating the timing of transactions and capital expenditure so as to avoid a concentration of net cash outflows. During the year, Abacus refinanced and increased its bank loan facilities including its Headstock syndicated facility to $1 billion with the longest-dated tranche expiring in July 2028. Abacus also increased and refinanced its Self Storage syndicated facility to $1 billion with the longest-dated tranche expiring in July 2027. Abacus has no bank debt expiring in financial year ending 30 June 2023 with the majority of debt expiring from the financial year ending 30 June 2025 onwards. Abacus has a total gearing covenant as a condition of the current $1 billion Headstock syndicated facility and the $11 million 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 March 2022, Abacus completed a fully underwritten institutional placement of 59.2 million new ordinary stapled securities at an issue price of $3.38 per stapled security which raised $200.0 million. A Security Purchase Plan (“SPP”) was also offered to eligible securityholders to apply for up to $30,000 of new securities at $3.38 per stapled security which raised a further $3.3 million. 62 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 11. INTEREST BEARING LOANS AND BORROWINGS ABACUS PROPERTY GROUP 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 $NZ denominated and are provided by several banks at interest rates which are set periodically on a floating basis. The loans term to maturity varies from July 2023 to July 2028. The bank loans are secured by charges over the investment properties, certain inventory and certain property, plant and equipment. Approximately 76.1% (2021: 46.5%) of bank debt drawn was subject to fixed rate hedges and the drawn bank debt had a weighted average term to maturity of 4.7 years (2021: 4.8 years). Hedge cover as a percentage of available facilities at 30 June 2022 was 62.1% (2021: 32.9%). Abacus’ weighted average interest rate for bank debt as at 30 June 2022 was 2.07% (2021: 1.95%). Line fees on undrawn facilities contributed to 0.18% of the weighted average interest rate at 30 June 2022 (2021: 0.37%). Abacus’ weighted average interest rate excluding the undrawn facilities line fees as at 30 June 2022 was 1.89% (2021: 1.58%). Assets pledged as security The carrying amounts of assets pledged as security for current and non-current interest bearing liabilities are: 63 20222021$'000$'000(a) Non-currentBank loans - A$ 1,492,137 822,805 Bank loans - A$ value of NZ$ denominated loan 184,885 137,099 Loan from related party - A$ 32,654 31,158 Less: Unamortised borrowing costs (435) (2,537)(a) Total non-current 1,709,241 988,525 20222021$'000$'000(b) Maturity profile of current and non-current interest bearing loansDue within one year - - Due between one and five years 883,172 481,512 Due after five years 826,069 507,013 1,709,241 988,525 20222021$'000$'000CurrentFirst mortgageInvestment properties held for sale - 27,969 Total current assets pledged as security - 27,969 Non-currentFirst mortgageInvestment properties 4,062,149 3,007,437 Total non-current assets pledged as security 4,062,149 3,007,437 Total assets pledged as security 4,062,149 3,035,406 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 12. FINANCIAL INSTRUMENTS Financial Risk Management The risks arising from the use of the Group’s financial instruments are credit risk, liquidity risk and market risk (interest rate risk, price risk and foreign currency risk). The Group’s financial risk management focuses on mitigating the unpredictability of the financial markets and its impact on the financial performance of the Group. The Board reviews and agrees policies for managing each of these risks, which are summarised below. Primary responsibility for identification and control of financial risks rests with the Treasury Management Committee under the authority of the Board. The Board reviews and agrees policies for managing each of the risks identified below, including the setting of limits for trading in derivatives, hedging cover of interest rate risks and cash flow forecast projections. The main purpose of the financial instruments used by the Group is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The Group also enters into derivative transactions principally interest rate derivatives. The purpose is to manage the interest rate exposure arising from the Group’s operations and its sources of finance. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instruments are disclosed in the section about this report and Note 22 to the financial statements. (a) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations 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). 64 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 12. FINANCIAL INSTRUMENTS (continued) (a) Credit risk (continued) Credit risk exposures The Group’s maximum exposure to credit risk at the reporting date was: * The secured property loan is with one borrower. 65 20222021$'000$'000Receivables 43,472 33,653 Listed and unlisted property securities 244,334 234,485 Cash and cash equivalents 176,505 57,992 Derivatives 58,941 673 Cash and other financial assets 523,252 326,803 Secured property loans - amortised cost * 53,144 - Secured property loans - fair value - 67,946 Secured property loans 53,144 67,946 Total credit risk exposure 576,396 394,749 Carrying Amount ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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. # 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 2022, after taking into account the effect of interest rate swaps, approximately 76.1% (2021: 46.5%) of the Group’s drawn debt is subject to fixed rate hedges. Hedge cover as a percentage of available facilities at 30 June 2022 is 62.1% (2021: 32.9%). 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. 66 Carrying AmountContractual cash flows1 Year or less Over 1 year to 5 years Over5 years 30 June 2022$'000$'000$'000$'000$'000LiabilitiesTrade and other payables 127,030 127,030 127,030 - - Interest bearing loans and borrowings incl derivatives# 1,709,241 2,079,133 53,073 1,177,306 848,754 Total liabilities 1,836,271 2,206,163 180,103 1,177,306 848,754 Carrying AmountContractual cash flows1 Year or less Over 1 year to 5 years Over5 years 30 June 2021$'000$'000$'000$'000$'000LiabilitiesTrade and other payables 112,135 112,135 112,135 - - Interest bearing loans and borrowings incl derivatives# 989,483 1,124,601 24,019 585,469 515,113 Total liabilities 1,101,618 1,236,736 136,154 585,469 515,113 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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: calculated at 30 June * ^ weighted average interest rate excludes the impact of derivatives 67 Floating interest rateFixed interest less than1 year Fixed interest1 to 5 yearsFixed interestover 5 yearsNon interest bearingTotal30 June 2022$'000$'000$'000$'000$'000$'000Financial AssetsCash and cash equivalents 176,505 - - - - 176,505 Receivables - - - - 43,472 43,472 Secured loans - - 53,144 - - 53,144 Derivatives - 20,869 38,072 - - 58,941 Other financial assets - - - - 244,334 244,334 Total financial assets 176,505 20,869 91,216 - 287,806 576,396 Weighted average interest rate*^0.85%5.50%Financial liabilitiesInterest bearing liabilities - bank 1,630,261 - 46,750 (424) 1,676,587 Interest bearing liabilities - other - - 32,654 - - 32,654 Payables - - - - 127,030 127,030 Total financial liabilities 1,630,261 - 79,404 - 126,606 1,836,271 Notional principal swap balance maturities*- 780,000 1,175,000 - - 1,955,000 Weighted average interest rate on drawn bank debt*2.07%Floating interest rateFixed interest less than1 year Fixed interest1 to 5 yearsFixed interestover 5 yearsNon interest bearingTotal30 June 2021$'000$'000$'000$'000$'000$'000Financial AssetsCash and cash equivalents 57,992 - - - - 57,992 Receivables - - - - 33,653 33,653 Secured loans - 20,716 47,230 - - 67,946 Derivatives - - 673 - - 673 Other financial assets - - - - 234,485 234,485 Total financial assets 57,992 20,716 47,903 - 268,138 394,749 Weighted average interest rate*^0.10%10.00%10.00%Financial liabilitiesInterest bearing liabilities - bank 913,144 - - 46,750 (2,527) 957,367 Interest bearing liabilities - other - - 31,158 - - 31,158 Derivatives - 678 280 - - 958 Payables - - - - 112,135 112,135 Total financial liabilities 913,144 678 31,438 46,750 109,608 1,101,618 Notional principal swap balance maturities*- 170,000 230,000 - - 400,000 Weighted average interest rate on drawn bank debt*1.95% ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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: The analysis for the interest rate sensitivity of financial liabilities includes derivatives. 68 FloatingProfitEquityProfitEquity30 June 2022$'000$'000$'000$'000$'000Financial assets 176,505 (1,765) - 1,765 - Financial liabilities 1,630,261 3,611 - 14,623 - FloatingProfitEquityProfitEquity30 June 2021$'000$'000$'000$'000$'000Financial assets 57,992 (580) - 580 - Financial liabilities 913,144 639 - (1,963) - Carrying amount-1%+1%AUDCarrying amount-1%+1%AUD ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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. 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. 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. 69 Class of assets / liabilitiesFair value hierarchyValuation techniqueInputs used to measure fair valueInvestment propertiesLevel 3Discounted Cash Flow ("DCF")Direct comparisonIncome capitalisation methodDiscount rateNet operating incomeAdopted capitalisation rateRate per unitOptimal occupancyAdopted discount rateSecurities and options- unlistedLevel 3Pricing modelsSecurity priceUnderlying net assetProperty valuationsDerivative - financial instrumentsLevel 2DCF (adjusted for counterparty credit worthiness)Interest ratesConsumer Price Index ("CPI")VolatilitySecurities and options- listedLevel 1Quoted prices (unadjusted) in active market for identical assets or liabilitiesQuoted security price ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 12. FINANCIAL INSTRUMENTS (continued) (d) Fair values (continued) The following table is a reconciliation of the movements in secured loans, unlisted securities and options classified as Level 3 for the year ended 30 June 2022. 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 (2021: $0.1 million) or increase the fair value by $0.1 million (2021: $0.1 million) respectively. 13. CONTRIBUTED EQUITY 70 Secured loansUnlisted securities/ optionsTotal$'000$'000$'000Opening balance as at 30 June 2021 67,946 2,590 70,536 Fair value movement through the income statement - 629 629 Additions - 646 646 Disposals (67,946) - (67,946)Closing balance as at 30 June 2022 - 3,865 3,865 Secured loansUnlisted securities/ optionsTotal$'000$'000$'000Opening balance as at 30 June 2020 115,802 839 116,641 Fair value movement through the income statement (15,257) 44 (15,213)Additions 21,256 1,707 22,963 Disposals (53,855) - (53,855)Closing balance as at 30 June 2021 67,946 2,590 70,536 20222021(a) Issued stapled securities$'000$'000Stapled securities 2,646,488 2,398,882 Issue costs (53,142) (49,091)Total contributed equity 2,593,346 2,349,791 NumberNumber20222021(b) Movement in stapled securities on issue'000'000At beginning of financial year 818,591 653,502 - equity raisings 60,145 138,692 - distribution reinvestment plan 13,693 26,397 Securities on issue at end of financial year 892,429 818,591 Stapled securities NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 14. DISTRIBUTIONS PAID AND PROPOSED ABACUS PROPERTY GROUP * The final distribution of 9.00 cents per stapled security comprised of a distribution of 8.50 cents paid on 31 August 2021 and additional distribution of 0.5 cents paid on 30 September 2021. ^ The final distribution of 9.25 cents per stapled security declared on 27 June 2022. The distribution being paid on or around 31 August 2022 will be approximately $83.2 million. 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 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 $103 million (2021: $103 million). 71 20222021$'000$'000(a) Distributions paid during the yearJune 2021 half: 9.00 cents per stapled security (2020: 9.05 cents)* 73,673 59,142 December 2021 half: 8.75 cents per stapled security (2020: 8.50 cents) 72,784 68,374 (b) Distributions proposed and recognised as a liability^June 2022 half: 9.25 cents per stapled security (2021: 8.50 cents) 82,550 69,580 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 15. PARENT ENTITY FINANCIAL INFORMATION ABACUS PROPERTY GROUP (a) Parent entity contingencies There are no contingencies of the parent entity as at 30 June 2022 (2021: $19.0 million) due to the completion of Industry Lanes, Richmond, VIC and repayment of the associated construction loan. (b) Parent entity capital commitments There are no capital commitments of the parent entity as at 30 June 2022 (2021: Nil). 72 20222021$'000$'000Results of the parent entityProfit for the year 4,890 3,942 Total comprehensive expense for the year 4,890 3,942 Financial position of the parent entity at year endCurrent assets 4,291 1,653 Total assets 757,280 542,756 Current liabilities 225 88 Total liabilities 260,362 99,521 Net assets 496,918 443,235 Total equity of the parent entity comprising of:Issued capital 568,221 519,663 Accumulated losses (74,244) (79,133)Employee options reserve 2,941 2,705 Total equity 496,918 443,235 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 16. PROPERTY, PLANT AND EQUIPMENT ABACUS PROPERTY GROUP The following table is a reconciliation of the movements of property, plant and equipment for the year ended 30 June 2022. 73 20222021$'000$'000Non-currentRight of use property asset 453 1,360 Self Storage properties 20,670 19,711 Office equipment / furniture and fittings 545 593 Total non-current property, plant and equipment 21,668 21,664 Total property, plant and equipment including held for sale 21,668 21,664 20222021$'000$'000Right of use property assetAt the beginning of the period net of accumulated depreciation1,360 2,266 Depreciation charge for the period(907) (906) At the end of the period net of accumulated depreciation453 1,360 Gross value3,173 3,173 Accumulated depreciation(2,720) (1,813) Net carrying amount at end of the year453 1,360 Plant and equipmentAt the beginning of the period net of accumulated depreciation20,304 16,163 Additions3,607 7,078 Disposal- (597) Exchange differences(225) (63) Depreciation charge for the period(2,471) (2,277) At the end of the period net of accumulated depreciation21,215 20,304 Gross value34,678 31,284 Accumulated depreciation(13,463) (10,980) Net carrying amount at end of the year21,215 20,304 Total21,668 21,664 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 2022 are as follows: 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 2022 the Group had numerous commitments 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: (c) Contingencies At 30 June 2022 the Group had a $10.0 million bank guarantee facility which expires in July 2025 (2021: Nil) and $7.5 million of bank guarantees had been issued from the facility (2021: Nil). Bank guarantees issued at reporting date but not recognised as liabilities are as follows: 74 20222021$'000$'000Within one year 106,998 84,561 Within two years 94,576 73,013 Within three years 81,837 54,673 Within four years 69,193 44,268 Within five years 53,164 32,102 More than five years 134,657 84,513 540,425 373,130 20222021$'000$'000Within one year - gross settlement of property and investment acquisitions 48,526 159,018 - property refurbishment costs 24,621 14,570 - property development costs 81,636 69,880 - unused portion of loan facilities to outside parties - 27,801 154,783 271,269 20222021$'000$'000Bank guarantees - Australian Financial Service Licences 7,500 - - redevelopment of investment properties 1,502 1,502 - lease of office premises 564 564 9,566 2,066 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 18. RELATED PARTY DISCLOSURES (a) Subsidiaries The consolidated financial statements include the financial statements of the following entities: * These entities are wholly owned by Abacus 75 20222021Entity%%Abacus Group Holdings Limited and its subsidiariesAbacus Castle Hill Trust100100Abacus Finance Pty Limited100100Abacus Funds Management Limited100100Abacus Investment Pty Ltd100100Abacus Mortgage Fund100100Abacus Nominee Services Pty Limited100100Abacus Nominees (No 5) Pty Limited100100Abacus Nominees (No 7) Pty Limited100100Abacus Nominees (No 9) Pty Limited100100Abacus Nominees (No 11) Pty Limited100100Abacus Note Facilities Pty Ltd100100Abacus Property Services Pty Ltd100100Abacus SP Note Facility Pty Ltd100100Abacus Storage Funds Management Limited100100Abacus Camellia Investments Pty Limited100-Abacus Riverlands Investments Pty Limited100-Abacus Hobart Growth Trust-100Abacus Melbat Trust-100Hurstbat Pty Limited-100Villemel Pty Limited-100Abacus Group Projects Limited and its subsidiariesAbacus Property Pty Ltd100100Abacus Allara Street Trust*7474Abacus Repository Trust*7474Abacus Ventures Trust*5151Equity interest NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 18. RELATED PARTY DISCLOSURES (continued) (a) Subsidiaries (continued) ABACUS PROPERTY GROUP * This entity has become a Joint Venture and was renamed as AW 710 Collins Street Trust. 76 20222021Entity%%Abacus Trust and its subsidiaries:Abacus 1769 Hume Highway Trust-100Abacus Abbotsford Trust100100Abacus Ann Street Trust100100Abacus Ashfield Mall Property Trust100100Abacus Bowden Street Trust100100Abacus Jetstream Trust-100Abacus K1 Property Trust100100Abacus Lutwyche Trust100100Abacus Oasis Trust100100Abacus Potts Point Trust100100Abacus Richmond Trust100100Abacus Shopping Centre Trust100100Abacus Short Street Trust-100Abacus Virginia Trust100100Abacus Westpac House Trust100100Abacus Westpac House No. 2 Trust100100Abacus 14 Martin Place Trust 100100Abacus 33 Queen Street Trust100100Abacus 324 Queen Street Trust100100Abacus 464 St Kilda Road Trust100100Abacus 710 Collins Street Trust*50100444 Queen Street Trust100100Lutwyche City Shopping Centre Unit Trust100100Oasis JV Unit Trust100100Abacus Income Trust and its subsidiaries:Abacus Brendale Trust-100Abacus Eagle Farm Trust-100Abacus Grant Street Trust100100Abacus Todd Road Trust100100Castlereagh Sub 1 Trust100-Castlereagh FH Sub 1 Trust100-Equity interest NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 18. RELATED PARTY DISCLOSURES (continued) (a) Subsidiaries (continued) ABACUS PROPERTY GROUP (b) Ultimate parent AGHL has been designated as the parent entity of the Group. (c) Key management personnel Details of payments are disclosed in Note 19. 77 20222021Entity%%Abacus Storage Operations Limited and its subsidiaries:Abacus Storage NZ Operations Pty Limited100100Abacus Storage Solutions Pty Limited100100Abacus Storage Solutions NZ Pty Limited100100Abacus USI C Trust100100Abacus U Stow It A1 Trust100100Abacus U Stow It B1 Trust100100Abacus U Stow It A2 Trust100100Abacus U Stow It B2 Trust100100U Stow It Holdings Limited100100U Stow It Pty Limited100100Abacus SK Pty Limited100100Storage King Corporate Holdings Pty Limited100100Storage King Services Pty Limited100100SK Licensing Pty Limited100100SK (Licensees) Pty Limited100100Storage King Management Pty Limited100100Storage King Store Management Pty Limited100100Storage King Management NZ Limited100100Storage King (Singapore) Pte Limited100100Storage King International Limited100100Storage King Pty Limited100100Storage King NZ Limited100100A.A1 Storage King Pty Limited100100Abacus Storage Property Trust and its subsidiary:Abacus Storage NZ Property Trust100100Equity interest NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 18. RELATED PARTY DISCLOSURES (continued) (d) Transactions with related parties ABACUS PROPERTY GROUP Terms and conditions of transactions 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 54% of the ordinary securities of the Group (2021: 54%). 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 2022 $ 277,531 268,093 2021 $ 231,294 239,052 Mrs Myra Salkinder is the Chair of the Group and is a senior executive of Kirsh. Mr Mark Bloom is a Non- Executive Director of the Group and is a consultant to Kirsh. 78 20222021$'000$'000Transactions with related parties other than associates and joint venturesRevenuesProperty management fees received / receivable 268 239 Transactions with associates and joint venturesRevenuesManagement fees received / receivable from joint ventures 1,195 2,602 Revenue received / receivable from joint ventures 13,429 18,076 Other transactionsLoan advanced to joint ventures - (8)Loan repayments from joint ventures - 999 Loan advanced from joint ventures 1,496 1,640 Loan repayments to joint ventures - (9,055) NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 19. KEY MANAGEMENT PERSONNEL (a) Compensation for key management personnel ABACUS PROPERTY GROUP (b) Loans to key management personnel There were no loans to key management personnel and their related parties at any time in 2022 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. 20. SECURITY BASED PAYMENTS (a) Recognised security payment expenses The expense recognised for employee services received during the year is as follows: Type of security – based payment plan Long Term Incentives (LTI) In FY22 Abacus introduced a new Long Term Incentive (“LTI”) Plan. The LTI 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 funds from operations (“FFO”), covering the distribution level implicit in the Group’s security price. Key executives have been allocated LTIs in the current financial year. 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 for the purpose of providing LTIs. 79 20222021$$Short-term employee benefits 4,726,052 3,747,524 Post-employment benefits 138,138 105,501 Other long-term benefits 319,154 37,342 Security-based payments 1,204,694 745,020 6,388,038 4,635,387 20222021$'000$'000Expense arising from equity-settled payment transactions 2,388 1,932 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 20. SECURITY BASED PAYMENTS (continued) (a) Recognised security payment expenses (continued) The LTIs granted during the year vest as follows: KMP (MD and CFO only) Other Executives Security Acquisition Rights (SARs) The deferred variable incentive plan ceased in the year ending 30 June 2021 and has been replaced by the LTI plan. The deferred variable incentive plan was delivered in the form of an annual grant of security acquisition rights (SARs) under the deferred security acquisition rights plan (SARs Plan). The SARs will continue to vest under this plan until September 2024. 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. 80 GrantTrancheVesting datePotential number to vest234,314FY22 GrantTranche One – 50% of GrantSeptember 2024234,314Tranche Two – 50% of GrantSeptember 2025GrantTrancheVesting datePotential number to vestTranche One – 33% of GrantSeptember 2023150,637Tranche Two – 33% of GrantSeptember 2024150,637Tranche Three – 33% of GrantSeptember 2025150,637FY22 Grant ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 20. SECURITY BASED PAYMENTS (continued) (b) Summary of Performance Rights granted Long Term Incentives (LTI) The following table illustrates movements in LTI during this year: The weighted average fair value of LTIs granted during the year was $3.39 (2021: $Nil). Security Acquisition Rights (SARs) The following table illustrates movements in SARs during this year: The weighted average remaining life of the performance rights (both LTIs and SARs) at 30 June 2022 was 1.5 years (2021: 1.5 years). The following table lists the inputs to the model used for the performance rights’ plans for the years ended 30 June 2022 and 30 June 2021: The expected life of the performance rights 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 performance rights is indicative of future trends, which may not necessarily be the actual outcome. 81 20222021No.No.Opening balance - - Granted during the year 920,539 - Forfeited during the year - - Vested during the year - - Outstanding at the end of the year 920,539 - Exercisable at the end of the year - - 20222021No.No.Opening balance 2,025,528 1,580,715 Granted during the year - 919,587 Forfeited during the year - - Vested during the year (517,369) (474,774)Outstanding at the end of the year 1,508,159 2,025,528 Exercisable at the end of the year - - 20222021Expected volatility (%) 32 30 Risk-free interest rate (%) 0.04 - 0.19 0.04 - 0.19 Life of instrument (years) 1.8 - 3.8 1.8 - 3.8 Model used Trinomial Trinomial ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 21. INTANGIBLE ASSETS AND GOODWILL Description of the Group’s intangible assets Abacus Funds Management Limited Storage King Corporate Holdings Pty Limited Impairment tests for goodwill and intangible assets (i) Description of the cash generating units and other relevant information Goodwill and intangible assets acquired through business combinations for the purposes of impairment testing are allocated to the respective Group’s property / asset management businesses or cash generating units 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 2022 covering a five year period. (ii) Key assumptions used in valuation calculations Goodwill and intangible assets – 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 revenue / funds under management within the financial year. 82 20222021Notes$'000$'000GoodwillBalance at 1 July 32,394 32,394 At the end of the year 32,394 32,394 20222021Notes$'000$'000GoodwillBalance at 1 July 33,132 - Additions - 33,132 At the end of the year 33,132 33,132 Brand and trademarks with indefinite livesBalance at 1 July 31,629 - Additions - 31,629 At the end of the year 31,629 31,629 Licences and management rightsBalance at 1 July 7,906 - Additions 1 8,218 Amortisation charge for the year (531) (312)At the end of the year, net of accumulated amortisation 7,376 7,906 SoftwareAt 1 July, net of accumulated amortisation 1,251 597 Additions 165 1,126 Amortisation charge for the year (321) (472)At the end of the year, net of accumulated amortisation 1,095 1,251 Total goodwill and intangibles 105,626 106,312 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 21. INTANGIBLE ASSETS AND GOODWILL (continued) 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 for Abacus Funds Management Limited: based on the fair value of properties d. Selling costs: management’s estimate of costs to sell the funds / properties under management e. For Abacus Funds Management Limited, a pre-tax discount rate of 7.5% (2021: 8.6%) and a terminal growth rate of 2.0% (2021: 1.9%) have been applied to the cash flow projections for goodwill to reflect the current risk-free rate. f. For Storage King Corporate Holdings Pty Limited, a pre-tax discount rate of 7.5% (2021: 8.4%) and a terminal growth rate of 2.0% (2021: 2.0%) have been applied to the cash flow projections for goodwill and all intangible assets to reflect the current 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 2022 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 and terminal growth rate remaining unchanged. The rates reflect current market conditions which include the current risk free rate and the impact of COVID-19. 83 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has also been prepared on a historical cost basis, except for investment properties and derivative financial instruments which have been measured at fair value, interests in joint ventures and associates which are accounted for using the equity method, and certain investments and financial assets measured at fair value. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($'000) unless otherwise stated under the option available to the Group under ASIC Corporations Instrument 2016/191. The Group is an entity to which the 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 2021. There are several amendments and interpretations apply for the first time on 1 July 2021 as follows, but they do not have an impact on the consolidated financial statements of the Group. - AASB 2020-8 Amendments to Australian Accounting Standards - Interest Rate Benchmark Reform – Phase 2 This amends the requirements in AASB 9 Financial Instruments, AASB 139 Financial Instruments: Recognition and Measurement, AASB 7 Financial Instruments: Disclosures, AASB 4 Insurance Contracts and AASB 16 Leases. The objective of the amendments is to minimise financial reporting consequences of a change in benchmark interest rates that Australian Accounting Standards may otherwise require, such as the derecognition or remeasurement of financial instruments, and the discontinuation of hedge accounting. - AASB 2021-3 Amendments to Australian Accounting Standards - COVID-19-Related Rent Concessions beyond 30 June 2021. In light of many other challenges lessees faced during the COVID-19 pandemic, AASB 16 was amended to extend the practical expedient to not account for COVID-19-related rent concessions as lease modifications by one year. This amendment had no impact on the consolidated financial statements of the Group. 84 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (c) New accounting standards and interpretations (continued) (ii) Accounting Standards and Interpretation issued but not yet effective Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June 2022. The significant new standards or amendments are outlined below: - AASB 2020-1, AASB 2020-6 Amendments to Australian Accounting Standards - Classification of Liabilities as Current or Non-current (effective for annual reporting periods from 1 January 2023) The amendments to paragraphs 69 to 76 of AASB 101 specify the requirements for classifying liabilities as current or non-current. The amendments clarify: • What is meant by a right to defer settlement • That a right to defer must exist at the end of the reporting period • That classification is unaffected by the likelihood that an entity will exercise its deferral right • That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and must be applied retrospectively. The Group is currently assessing the impact the amendments will have on current practice and whether existing loan agreements may require amendments. - AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018–2020 and Other Amendments (effective for annual reporting periods from 1 January 2022) The amending standard made amendments to the following standards and conceptual framework: Reference to the Conceptual Framework – Amendments to AASB 3 The amendments are intended to replace a reference to the Framework for the Preparation and Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018 without significantly changing its requirements. The Board also added an exception to the recognition principle of AASB 3 to avoid the issue of potential ‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be within the scope of AASB 137 or Interpretation 21 Levies, if incurred separately. At the same time, the Board decided to clarify existing guidance in AASB 3 for contingent assets that would not be affected by replacing the reference to the Framework for the Preparation and Presentation of Financial Statements. The amendments apply prospectively. Property, Plant and Equipment: Proceeds before Intended Use – Amendments to AASB 16 The amendments prohibit entities deducting from the cost of an item of property, plant and equipment, any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the costs of producing those items, in profit or loss. The amendment must be applied retrospectively to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment. The amendments are not expected to have a material impact on the Group. 85 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (c) New accounting standards and interpretations (continued) (ii) Accounting Standards and Interpretation issued but not yet effective (continued) Onerous Contracts – Costs of Fulfilling a Contract – Amendments to AASB 137 The amendments specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a “directly related cost approach”. The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract activities. General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The Group will apply these amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments. Fees in the ’10 per cent’ test for derecognition of financial liabilities (part of annual improvements 2018-2020 cycle) – Amendment to AASB9 The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The Group will apply the amendments to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendments are not expected to have a material impact on the Group - AASB 2021-2 Amendments to Disclosure of Accounting Policies, Definition of Accounting Estimates and Other Amendments (effective for annual reporting periods from 1 January 2023) The amending standard made amendments to the following standards: Making Materiality Judgements – Disclosure of Accounting Policies – Amendments to AASB 7, AASB 101, AASB 134 Interim Financial Reporting and AASB Practices Statement 2 The amendments to AASB 101 require disclosure of material accounting policy information, instead of significant accounting policies. Unlike ‘material’, ‘significant’ was not defined in the Australian Accounting Standards. The amendments to AASB Practice Statement 2 supplement the amendments to AASB 101 by illustrating how the four-step materiality process can identify material accounting policy information. Definition of Accounting Estimates – Amendments to AASB 108 The amendments to AASB 108 clarify the definition of an accounting estimate, making it easier to differentiate it from an accounting policy. The distinction is necessary as their treatment and disclosure requirements are different. Critically, a change in an accounting estimate is applied prospectively whereas a change in an accounting policy is generally applied retrospectively. The new definition provides that ‘Accounting estimates are monetary amounts in financial statements that are subject to measurement uncertainty.’ The amendments explain that a change in an input or a measurement technique used to develop an accounting estimate is considered a change in an accounting estimate unless it is correcting a prior period error. The amendments are applied prospectively and are not expected to have a material impact on the Group. 86 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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 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. (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. 87 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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. 88 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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. 89 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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 Property, 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: 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. 90 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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 near completion (70%- 80% complete) 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. 91 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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. 92 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (p) Goodwill and intangibles (continued) Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash- generating units), to which the goodwill relates. When the recoverable amount of the cash-generating unit (group of cash-generating units) is less that the carrying amount, an impairment loss is recognised. When goodwill forms part of a cash-generating unit (group of cash-generating units) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Impairment losses recognised for goodwill are not subsequently reversed. Intangibles assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates and adjusted on a prospective basis. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss as the expense category that is consistent with the function of the intangible assets. Intangible assets with indefinite useful lives, such as goodwill, are not amortised but are tested for impairment at each reporting period, either individually or at the CGU level. The assessment of indefinite life is reviewed at each reporting period to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of profit or loss when the asset is derecognised. Brand and trademarks The Group acquired the Storage King brand and trademarks as part of the acquisition of the Storage King Group in November 2020. The brand and trademarks have been registered with the relevant government agency. In a licencing and management business, brand and trademarks are the most valuable intangible assets and may be renewed at little or no cost to the Group. As a result, the brand and trademarks are assessed as having an indefinite useful life. Licencing and management agreements The Group acquired Storage King’s licencing and management agreements as part of the acquisition of the Storage King Group in November 2020. Storage King enters into licencing agreements with all its licensees which licensed the brand and trademarks to its licensees and provides specialist management services pursuant to a separate management agreement. In turn Storage King generates licencing and management fees income from these agreements. 93 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (p) Goodwill and intangibles (continued) Software The Group acquired Storage King’s software as part of the acquisition of the Storage King Group in November 2020. Storage King has invested in the development of software systems known as the Storage King User Dashboard (“SKUD”) which transforms data into actionable insights for the licensees, and an e-commerce platform which is fully integrated with the website and available self storage units in real time to provide an enhanced customer experience. A summary of the policies applied to the Group’s intangible assets is as follows: Brand and trademarks Licencing and Software Useful lives Amortisation method used Indefinite No amortisation Internally generated or acquired Acquired management agreements Finite (15 years) Amortised on a straightline basis over the period of the agreements Acquired Finite (2-10 years) Amortised on a straightline basis over the useful life Acquired (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 non-financial 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 than 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. 94 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (s) ii) Provisions and employee leave benefits (continued) Long service leave The liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. (t) Distributions and dividends Trusts generally distribute their distributable assessable income to their unitholders. Such distributions are determined by reference to the taxable income of the respective trusts. Distributable income may include capital gains arising from the disposal of investments and tax-deferred income. Unrealised gains and losses on investments that are recognised as income are usually retained and are generally not assessable or distributable until realised. Capital losses are not distributed to securityholders 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. 95 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (w) 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. (x) 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 and ASPT are not liable to Australian income tax provided securityholders 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 and ASOL and its Australian resident wholly-owned subsidiaries have formed separate tax consolidation groups. AGHL and ASOL 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 96 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (x) Taxation (continued) - when the deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences, except: - when the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or - when the taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. New Zealand The trusts that operate in New Zealand (“NZ”) are treated as a company for NZ income tax purposes and are taxed at the corporate tax rate of 28% (2021: 28%). NZ income tax paid by the Trusts can be claimed as foreign tax credits to offset against foreign income and distributable to securityholders. 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% (2021: 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. 97 ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (x) Taxation (continued) Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (y) Earnings per stapled security (EPSS) Basic EPSS is calculated as net profit attributable to stapled securityholders, 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 securityholders, 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. (z) 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. 98 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 23. AUDITOR’S REMUNERATION ABACUS PROPERTY GROUP 24. EVENTS AFTER BALANCE SHEET DATE Subsequent to the financial year end: • In August 2022, the Group acquired the remaining 50% interest in 324 Queen Street, Brisbane QLD for $93.75m, reflecting an initial yield of 6.4%. 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. 99 20222021$$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 1,075,000 1,100,000 - Services required by legislation to be provided by the auditor - compliance services 53,400 39,150 - 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 102,000 71,470 - Other services - due dilligence services - 46,350 Total 1,230,400 1,256,970 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 2022 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including Australian Accounting Interpretations) and the Corporations Regulations 2001; b. c. the financial report also complies with International Financial Reporting Standards as disclosed in Note 22(b); and there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. This declaration has been made after receiving the declarations required to be made to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial year ended 30 June 2022. On behalf of the Board. Myra Salkinder Chair Sydney, 16 August 2022 Steven Sewell Managing Director 100 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 2022, 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 2022 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 was 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 given there are alternative assumptions and valuation methods that may result in a range of values. 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. 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 5 in assessing the property valuations at 30 June 2022. 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 including tenancy matters and development status; • 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 the adopted capitalisation rate and a number of leasing assumptions including 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 accuracy of tenancy reports which are used as source data in the property valuations by testing a sample of leases to the tenancy reports. • Tested the mathematical accuracy of • valuations. Involved our real estate valuation specialists to assist with the assessment of the valuation assumptions and methodologies. • Where relevant we compared the valuation against comparable transactions utilised in the valuation process. • Evaluated the suitability of the valuation methodology based on the type of asset. • Assessed the qualifications, competence and objectivity of the valuers. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 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 2022 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. ► 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ► 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Report on the audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 15 to 36 of the Directors' Report for the year ended 30 June 2022. In our opinion, the Remuneration Report of Abacus Group Holdings Limited for the year ended 30 June 2022, 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 16 August 2022 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation  

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