Abacus Property Group
Annual Report 2023

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 Group Projects Limited and its controlled entities, Abacus Income Trust 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 2023 Results for announcement to the market (corresponding period: year ended 30 June 2022) Total revenues and other income up 12.2% to $371.2m Net profit after income tax expense attributable to stapled security holders Funds from operations ("FFO") (1) (1) FFO has been determined with reference to the updated Property Council of Australia’s voluntary disclosure guidelines to help investors and $175.0m 8.8% up to down 95.1% to $25.5m 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, 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), other non-recurring adjustments deemed significant on account of their nature and non-FFO tax benefit/expense. Basic earnings per security (cents) Basic funds from operations per security (cents) Distribution per security (cents - including proposed distribution) Weighted average securities on issue (million) 30 June 2023 30 June 2022 2.85 19.58 61.11 19.01 18.40 893.5 18.00 846.3 Distribution June 2023 half year This distribution was declared on 19 June 2023 and will be paid on 31 August 2023. Record date for determining entitlement to the distribution per stapled security 9.40 cents 3 July 2023 Refer to the attached announcement for a detailed discussion of the Abacus Property Group's results and the above figures for the year ended 30 June 2023. Details of individual and total distribution payments per stapled security Half December 2022 distribution paid 28 February 2023 9.00 Total $72.8m The distribution was paid in full by Abacus Trust and Abacus Storage Property Trust which do not pay tax, hence there were no franking credits attached. Net tangible assets per security (2) (2) Net tangible assets per security excludes external non-controlling interest. Distribution Reinvestment Plan (DRP) 30 June 2023 30 June 2022 $3.70 $3.85 The Group’s Distribution Reinvestment Plan (DRP) will not apply to the final distribution. Information on the terms of the DRP is available from our website www.abacusgroup.com.au.  ANNUAL FINANCIAL REPORT 30 JUNE 2023 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 13, 77 Castlereagh Street SYDNEY NSW 2000 Tel: (02) 9253 8600 Fax: (02) 9253 8616 Website: www.abacusgroup.com.au Custodian: Perpetual Trustee Company Limited Level 12 Angel Place 123 Pitt Street SYDNEY NSW 2000 Directors of Abacus Group Holdings Limited: Myra Salkinder, Chair Steven Sewell, Managing Director Trent Alston Mark Haberlin Sally Herman Jingmin Qian Company Secretary: Belinda Cleminson Auditor (Financial and Compliance Plan): Ernst & Young 200 George Street SYDNEY NSW 2000 Share Registry: Boardroom Pty Ltd Level 8, 210 George St SYDNEY NSW 2000 Tel: 1300 737 760 Fax: 1300 653 459 CONTENTS DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CASH FLOW CONSOLIDATED STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT 2 49 50 51 52 54 55 57 113 114 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 2023. 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 DIRECTORS’ REPORT 30 JUNE 2023 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 2023. PRINCIPAL ACTIVITIES AND STRUCTURE The principal activities of Abacus Property Group during the year were investment in and operation of Self Storage and investment in Commercial properties (office and other). 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. 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 diversified property group that operates predominantly in Australia. It comprises AGHL, AT, AGPL, AIT, ASPT and ASOL (collectively “Abacus” or “the Group”) and its securities trade on the Australian Securities Exchange (“ASX”) as ABP. Abacus was listed on the ASX in November 2002 and its market capitalisation was over $2.4 billion at 30 June 2023. Abacus is included in the S&P/ASX 200 A-REIT index (ASX:XPJ), a sub-index of the S&P/ASX 200 index that contains the listed vehicles classified as A-REITs. Abacus is also included in the FTSE EPRA NAREIT Global Real Estate Index Series. Shares in AGHL, AGPL and ASOL and units in AT, AIT and ASPT have been stapled together so that none can be dealt with without the others and are traded together on the ASX as Abacus securities. An Abacus security consists of one share in AGHL, one unit in AT, one share in AGPL, one unit in AIT, one share in ASOL and one unit in ASPT. A transfer, issue or reorganisation of a share or unit in any of the component parts requires, while they continue to be stapled, a corresponding transfer, issue or reorganisation of a share or unit in each of the other component parts. AGHL, AGPL and ASOL are companies that are incorporated and domiciled in Australia. AT, AIT and ASPT are Australian registered managed investment schemes. AFML is the Responsible Entity of AT and AIT and ASFML is the Responsible Entity of ASPT. Both AFML and ASFML are incorporated and domiciled in Australia and are wholly- owned subsidiaries of AGHL. Abacus Property Group Consolidation AGHL has been identified as the parent entity of the Group. The financial report of the Group for the year ended 30 June 2023 comprises the consolidated financial reports of AGHL and its controlled entities, AT and its controlled entities, AGPL and its controlled entities, AIT and its controlled entities, ASOL and its controlled entities, ASPT and its controlled entities. Post Balance Date De-Stapling On 27 July 2023, securityholders voted to de-staple Abacus to create two listed separate groups: • Abacus Group (which trades under ASX:ABG) comprising AGHL, AT, AGPL and AIT; and • Abacus Storage King (which trades under ASX:ASK) comprising ASOL and ASPT. 2 DIRECTORS’ REPORT 30 JUNE 2023 Post Balance Date De-Stapling (continued) Abacus Group and Abacus Storage King structures post de-stapling These two groups are reported in the segment information note on page 60. As a result of the de-stapling, each existing Abacus Property Group securityholder hold one stapled security in Abacus Group and one stapled security in Abacus Storage King for each Abacus Property Group security held on 2 August 2023. The de-stapling allows for the creation of Abacus Storage King as a dedicated Self Storage operating platform and real estate investment group. It will also provide Abacus Property Group Securityholders with sector specific exposure to the Storage King operating platform and to a $3.1 billion Investment Portfolio including 131 Self Storage Properties and Other Investments. Refer to the diagram on page 3 for an overview of Abacus Group and Abacus Storage King structures post de-stapling. Additionally, the de-stapling allows for a focused strategy for Abacus Group which will continue to own and manage its high quality, eastern seaboard focused $2.5 billion Commercial portfolio. Abacus Group’s Commercial portfolio remains diversified by market, asset grade, asset life cycle, customer industry and customer profile. Abacus Group will also provide management services to and initially own 19.9% of Abacus Storage King. OPERATING AND FINANCIAL REVIEW GROUP STRATEGY Abacus is positioned as a strong asset backed business with key investments concentrated in the 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. 3 DIRECTORS’ REPORT 30 JUNE 2023 GROUP STRATEGY (continued) 4 DIRECTORS’ REPORT 30 JUNE 2023 GROUP STRATEGY (continued) The Group looks for investments in the Commercial and Self Storage sectors that can provide strong and stable cash- backed distributions, with potential for capital and income growth. Despite a more challenging economic outlook, we remain confident that the Group is positioned to leverage our key enablers, being: • Our people and culture, repositioning capability and market insight. • Strategic investment in assets in major markets with a clear path to sustainable income growth. • Driving 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. 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. Abacus Group is positioned to provide stable FFO growth over the medium to long term by using its active asset management capabilities, strong relationships with customers and our ability to capitalise on value-accretive investment opportunities. The current economic environment is being driven by high inflation and rising interest rates. This may provide Abacus opportunities to acquire core assets with medium to long term growth prospects. Despite the challenging economic conditions, we believe our Commercial Office portfolio remains robust, given that the majority of the Group’s investments: • Are well located in CBD or suburban locations with low and often below market average rent levels; • Have limited exposure to full floor or multi-floor tenants; and • Focus on the responsible and sustainable evolution of core business practices. 5 DIRECTORS’ REPORT 30 JUNE 2023 GROUP RESULTS SUMMARY 2023 was a period of volatility. We transitioned into an environment of higher inflation, driving a significant increase in the cost of living. To combat the higher inflation, the RBA cash rate rose 325 basis points throughout the financial year to 4.10%, becoming the fastest RBA hiking cycle on record. The rising cost of capital and changing macroeconomic environment increased capitalisation rates throughout the Commercial property sector. Abacus’ diversified Commercial portfolio of high quality assets has enabled us to maintain occupancy rates over the period with our principal Commercial portfolio recording 95.1% (2022: 95.0%). In a more challenged economic environment, we remain focused and disciplined on directing capital towards assets that provide potential for enhanced income growth to generate increased total returns and create medium to long term value. Revenue ($ million) Total income ($ million) Statutory net profit ($ million) Funds from operations ($ million) Funds from operations per security (cents) Underlying EBIT ($ million) Underlying EBIT per security (cents) Distributions per security (cents) Interest cover ratio 2023 359.7 371.2 25.5 175.0 19.58 210.0 24.82 18.40 3.9x 2022 319.6 330.9 517.2 160.9 19.01 235.5 26.36 18.00 6.1x Weighted average securities on issue (million) 893.5 846.3 The above table includes income from discontinued operations. The Group earned a statutory net profit after tax of $25.5 million for the year ended 30 June 2023 (2022: $517.2 million). This profit has been calculated in accordance with Australian Accounting Standards. The decrease in the Group’s statutory net profit compared to the prior period was principally due to: • • a decrease in the fair value of the Commercial investment property portfolio by $247.6 million (2022: gain of $40.3 million) with capitalisation rates expanding 38bps to 5.71%; as well as reduced fair value gains of $150.3 million (2022: gain of $305.2 million) across the Self Storage investment portfolio. Despite the above economic headwinds, Abacus’ portfolio remained resilient recording FFO growth of 8.8% and a full year distribution per security, in line with guidance, of 18.4cps (2022: 18.0cps). FFO is derived from the statutory profit and presents the results of the ongoing business activities in a way that reflects our underlying performance. FFO is the basis on which distributions are determined. 6 DIRECTORS’ REPORT 30 JUNE 2023 GROUP RESULTS SUMMARY (continued) 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), other non-recurring adjustments deemed significant on account of their nature and non-FFO tax benefit/expense. The reconciliation between the Group’s statutory profit and FFO is as follows: Consolidated statutory net profit after tax attributable to members of the Group 25,495 517,165 2023 $'000 2022 $'000 Adjust for: Net change in fair value of investment properties derecognised Net change in fair value of investment properties held at balance date Net change in fair value of investments and financial instruments held at balance date Net change in fair value of investment properties included in equity accounted investments Impairment charges Depreciation on owner occupied property, plant and equipment Net change in fair value of derivatives Amortisation of rent abatement incentives Amortisation of other tenant incentives, finance costs and other Straightline of rental income Movement in lease liabilities Net tax expense on non-FFO items Abacus Funds From Operations (“FFO”) Basic earnings per security (cents) Basic FFO per security (cents) Distribution per security (cents - including proposed distribution) Weighted average securities on issue (million) This reconciliation has not been reviewed by the Group’s auditor. Capital management and allocation 9,157 97,313 1,035 (345,550) (15,631) (17,907) 16,610 (4,321) - 4,213 6,661 13,480 12,497 (2,127) (591) 7,905 174,982 2.85 19.58 18.40 893.5 4,903 4,307 (28,101) 9,687 5,562 (1,881) (1,478) 17,455 160,876 61.11 19.01 18.00 846.3 During the year, Abacus extended the earliest dated tranches of both its Headstock syndicated facility and Self Storage syndicated facility by one year to July 2024. Abacus has no bank debt expiring in the financial year ending 30 June 2024, with the majority of debt expiring from the financial year ending 30 June 2025 onwards. In conjunction with the de-stapling, Abacus completed a fully underwritten 1-for-5.6 pro rata security offer in Abacus Storage King at an issue price of $1.41 per stapled Abacus Storage King security which raised $225 million. The $225 million was received in August 2023. 7 DIRECTORS’ REPORT 30 JUNE 2023 GROUP RESULTS SUMMARY (continued) The $225 million raising, as well as the completed de-stapling, allow for optimisation of the capital structure for both Abacus Group and Abacus Storage King, as each entity now has the flexibility to further differentiate their capital structures and distribution policies to appropriately reflect their financial, operational and strategic objectives. 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 2023, the Group’s net property income increased by 14.2% to $252.9 million (2022: $221.4 million). In the Commercial sector, the Group purchased the remaining 50% interest in 324 Queen Street, Brisbane QLD for $93.8 million, settling in August 2022. During the year Abacus divested three non-core properties for a total consideration of $97.9 million. The divested properties are listed below: • 33 Queen Street, Brisbane QLD • 247 Adelaide Street, Brisbane QLD • 187 Todd Road, Port Melbourne VIC 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 invested $159.1 million including an additional 12 Self Storage sites, being: • NSW: Chatswood, Campbelltown, Carlton, Croydon, Kogarah • QLD: Loganholme, Capalaba, Currumbin • VIC: Dandenong, Mulgrave, Glen Iris • SA: Darlington The Group has also committed to purchase five additional Self Storage properties (not pictured above) for $37.5 million which further cements our standing as a high conviction investor in the Self Storage property market. Key capital metrics of the Group are: Total assets ($ million) Gearing (%) Net assets ($ million) Net tangible assets ($ million) NTA per security ($) 2023 2022 $5,606.2 $5,407.1 33.2% 28.7% $3,361.7 $3,501.1 $3,302.3 $3,432.4 $3.70 $3.85 The increase in total assets of the Group by 3.7% reflects the increase in the net acquisitions during the year. The decrease in net assets of the Group by 4.0% primarily reflects the revaluation loss of the Commercial property portfolio during the year. The de-stapling referenced in the Group Strategy section, enables the optimisation of Abacus Group’s capital structure. As a result, Abacus Group’s balance sheet remains strong with gearing post de-stapling within the Board’s target gearing limit of 35%. The de-stapling is expected to provide balance sheet capacity to Abacus Group to fund growth initiatives including acquisitions and developments. 8 DIRECTORS’ REPORT 30 JUNE 2023 KEY SEGMENT RESULTS SUMMARY Business activities that specifically contributed to the Abacus’ operating performance and financial condition for 2023 were the continuing Commercial and discontinuing Self Storage portfolios and are reported in the segment information note. Commercial The Commercial portfolio consists of 21 assets (2022: 24 assets) and had a total value of $2.5 billion at year end (2022: $2.7 billion). Commercial Portfolio Value ($ million) $2,533.8 Number of assets Occupancy1 (% by area) WALE1 WACR2 1. Excludes development affected assets 2. WACR: Weighted Average Capitalisation Rate 21 95.1% 4.3 years 5.71% The Office sector continued to face challenges throughout 2023 as the future role of ‘office space’ and ‘work from home’ continues to develop and bond yields continued to rise during the period, negatively impacting valuations. In the second half of 2023 in particular, we saw these factors contribute to capitalisation rate expansion throughout the Office sector. Pleasingly, our Office portfolio of 15 assets (2022: 18 assets) was relatively resilient to the market challenges, with occupancy holding steady at 95.0% (2022: 94.7%). The resilience in our occupancy and income growth levels were supported by our diversified lease profile with WALE of 3.7 years (2022: 3.8 years) and high-grade Office buildings. Key Office Portfolio attributes: 9 DIRECTORS’ REPORT 30 JUNE 2023 KEY SEGMENT RESULTS SUMMARY (continued) The Retail sector saw strong momentum during 2023, with high occupancies throughout our portfolio of four assets. Abacus’ 2023 Retail occupancy rate was high at 95.2% (2022: 95.6%), with a weighted average lease expiry of 5.8 years (2022: 6.2 years). Strong retail sales throughout the majority of 2023, despite increasing cost of living pressures on consumers supported occupancy and rents. Overall, Abacus’ Commercial portfolio delivered a segment result of $202.5 million loss for the year ended 30 June 2023 (2022: $119.5 million gain) which can be mainly attributed to fair value loss of investment properties $247.6 million (2022: $40.3 million gain). The Commercial portfolio has a stable income growth profile, supported by high occupancy of 95.1% and a diversified lease profile of 4.3 years. Commercial Valuations The Commercial investment property portfolio was revalued at year end which resulted in a loss of $247.6 million. The investment property portfolio’s overall weighted average capitalisation rate expanded 38 basis points from 5.33% in 2022 to 5.71% in 2023. The Commercial portfolio (excluding equity accounted properties) was valued at $2.1 billion at 2023 year-end across 18 assets (2022: $2.3 billion across 20 assets). As part of the portfolio valuation process for the year ended 30 June 2023, all investment properties (excluding equity accounted properties) were independently valued (2022: 60%). As a result of current market conditions and a shift in future expectations in the Office sector, Abacus has targeted assets that offer more stabilised income streams with longer dated value enhancing strategies. This capital allocation strategy supports the Group’s drive to improve recurring earnings. Self Storage The Self Storage portfolio is well diversified in Australia and New Zealand across attractive metropolitan locations that are easily accessible and are close to large population centres. Self Storage Portfolio Value ($ million) $3,072.4 Number of assets Occupancy1,4 (% by area) WACR2 RevPAM1,3,4 Average rate1,4 1. Established portfolio 2. WACR: Weighted Average Capitalisation Rate 3. Revenue per available square metre 4. Average over last 12 months (by area) 131 91.3% 5.57% $319 psqm $349 psqm 2023 demonstrated both the resilience and diversification of our Self Storage portfolio and the strength of Storage King’s brand. The Group’s Self Storage portfolio delivered a segment result of $304.0 million for the year ended 30 June 2023, down 30.5% on 2022 which can be mainly attributed to lower Self Storage fair value gains. As a result of the de- stapling the Self Storage portfolio has been classified as discontinued operations in the financial statements. As at 30 June 2023 the Self Storage portfolio equated to $3,072.4 million which is made up of 131 assets (trading and development sites), reflecting an increase of 12 facilities during the period. 10 DIRECTORS’ REPORT 30 JUNE 2023 KEY SEGMENT RESULTS SUMMARY (continued) We saw a continuation of macroeconomic tailwinds supporting Self Storage sector growth in 2023. These include: • Limited supply for Self Storage space: there is only 2.16sqft of Self Storage per capita available in Australia and 2.61sqft in New Zealand, compared to the more mature US market of 7.21sqft. • • Densification of residential property and changes in consumer preferences: with a greater focus on increasing utilisation in the home - rising housing density results in a higher concentration of dwellings and less available space per household, increasing demand for offsite storage. Changes in consumer preferences towards apartment living and a higher proportion of adults renting further supports housing turnover, mobility and therefore demand for offsite storage. Increased awareness and take-up: Self Storage usage in Australia and New Zealand increased to 9.4% of the total adult population in 2021, up from 8.6% in 2020 and 5.0% in 2013. Further, Storage King is the most recognised Self Storage brand across Australia and New Zealand, which may be leveraged to further acquire assets as industry consolidation continues. The rise of e-commerce leading to increased business usage: The way people are using Self Storage is changing, with business usage on the rise. Supply chain challenges, the structural uplift in online sales penetration post- COVID and the growing importance of last-mile distribution all present opportunities for Self Storage. • Self Storage Development With an increased focus on capital allocation, the development pipeline of planned Self Storage assets currently numbers 15 assets, with a combined carrying value of $182 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 to commence trading, and 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. Looking forward we see ongoing momentum, albeit at a more normalised pace, in the Self Storage industry given a range of demand drivers in a fragmented industry with relatively high barriers to entry from a supply perspective. Self Storage Valuations As part of the 2023 valuation process, 131 Self Storage facilities out of 131 or 100% by number were independently valued during the year to 30 June 2023. The valuation process resulted in a net full year revaluation gain of $150.3 million (2022: $305.2 million gain). The Group has continued with its strategy of allocating investment capital to growing exposure to the Self Storage sector. The Group acquired 3 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. FUTURE PROSPECTS The de-stapling process will enable more optimised capital structures for both Abacus Group and Abacus Storage King, with both entities expected to have reduced Adjusted Gearing at the lower end of their respective target ranges. This is expected to provide balance sheet capacity to fund growth initiatives for both entities. The strategy for continuing operations, Abacus Group, will be to continue targeting the acquisition of well-located Commercial properties that will be held for the long term. Increasing exposure to this asset class is expected to enhance Abacus Groups’ ability to grow recurring revenue over the longer term. Abacus Group’s forecast level of gearing and liquidity post de-stapling will 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. Abacus Group’s liquidity can potentially be further leveraged, to invest in a larger number of projects through joint venture arrangements. 11 DIRECTORS’ REPORT 30 JUNE 2023 KEY RISKS Key Risk Areas In the last year there has been notable change in the material and relevant risks affecting Abacus: • WHS: Workplace health and safety remains a key priority and ongoing risk for Abacus to ensure that our staff, customers and contractors are safe. Areas of particular focus are the operational and capital works at our office buildings, retail customers at our shopping centres and operational activities within the Storage King Self Storage portfolio. Significant improvement to our processes and systems has been made in the year to help mitigate this risk. • Cybersecurity: During the year there have been a number of cyber attacks on Australian companies that has caused loss of customer data and disruption to businesses. Abacus remains vigilant to ongoing cyber-attacks with improvements to our processes and systems and ongoing training for our staff. • Interest rates and inflation: Higher inflation and the consequent increase to interest rates creates an increase in the cost of operating the business and higher bank interest on our borrowings, to the extent that they are not hedged. Higher interest rates may also have the result of reducing the value of our property assets. • Office and storage demand: Subdued consumer and business sentiment has the potential to reduce the demand for office space and demand for Self Storage space at our properties. The demand for office space is also affected by changes ways of working with increased working from home. The table below outlines some of Abacus’ key risk areas. The list is not exhaustive, and Abacus’ 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 taken in line with the Risk Appetite Statement. Key Risk Strategic Risk 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 is reliant on an effective and balanced governance approach to people, conduct, and processes through oversight, controls, checks, and subject matter experts. Regulatory, Compliance & Legal Risk Abacus is responsive to regulatory change and strives to operate in accordance with its regulatory and legal obligations. Impact of risk • Lower than expected return on capital • Reduced investor sentiment • Loss of income or asset values • Financial performance of assets • Financial damage • Increased compliance costs • Regulatory restrictions impacting on business operations How Abacus manages it The Abacus Board and management review and confirm Abacus strategy and risk profile on a periodic basis and has a number of processes and controls to ensure the strategic direction of Abacus is maintained. Abacus has a number of governance controls and processes implemented across Abacus, with some aspects including monitoring, reporting, and training in respect of conduct, staff skills, and processes. 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. 12 DIRECTORS’ REPORT 30 JUNE 2023 KEY RISKS (continued) Key Risk Operational Risk – Asset and Development Management, Acquisition and Capital Investment Abacus’ operational systems are developed and implemented with operational controls embedded to ensure best practice and the opportunity for ongoing success. Operational Risk – Cyber and Information Technology Abacus aims to leverage technology and innovation to enhance the customer experience while developing responsive strategies to prevent cyber incidents and attacks. Impact of risk • Financial performance of assets • Reduced investor sentiment • Financial damage • Lost productivity as a result from a material critical technology disruption • Reduced market competitiveness from a failure to adapt to changes in advancements in technology • Regulatory restrictions impacting on business operations Operational Risk – Health and Safety Ensuring the health, safety and wellbeing of Abacus’ people is of utmost importance to the success of its strategy. • Material harm to people • Reputational impact • Civil and criminal penalties and regulatory restrictions imposed • Costs and effort to remediate Operational Risk – People and Culture The motivation, high-performance and capability of Abacus’ people are integral to the success of its business outcomes. • Workforce costs • Workforce productivity • Loss of corporate knowledge • Ability to attract and retain talent How Abacus manages it Abacus has a number of controls and processes in place to ensure assets are maintained to the required standard and in accordance with documented asset management protocols. Abacus has documented processes for the assessment of capital expenditure, development activities and property acquisitions and disposals. 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. Regular training is provided to staff to ensure continued awareness of cyber risks. 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. The Board has a Sustainability and WHS sub-committee to monitor these risks. Abacus has a number of controls, processes, and strategies in place to ensure people recruited are aligned to Abacus’ culture and are continually developed to meet the needs of the business and ensure appropriate succession planning. Abacus also regularly monitors and maintains a positive workplace culture in line with its values. All staff are required to adhere to the Code of Conduct. 13 DIRECTORS’ REPORT 30 JUNE 2023 KEY RISKS (continued) Key Risk Operational Risk – Strategic Partnerships and Management Arrangements Maintaining professional relationships with like minded property groups, licensees and service providers is critical to the success and growth of the business. Impact of risk • Reputational damage • Financial damage • Inability to attract new partnerships 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. • Higher operating costs or requiring remedial capital costs, leading to a potential devaluation • Reputational damage • Reduced investor sentiment 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. • Lowered expected returns on investment • Reduced investor sentiment • Limited capacity to execute strategy • Increased cost of funding • Reduced availability of debt financing How Abacus manages it Abacus has periodic meetings to ensure strategic alignment with our property co-owners and foster a collaborative approach to growth opportunities. Abacus has controls, processes and strategies in place to ensure that obligations to be provided by third parties to Abacus and obligations to be provided by Abacus to others are appropriately discharged. 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. Active strategies are in place to ensure that insurance cover is optimised for climate risk affected properties. Abacus has a number of controls and processes in place that reviews and approves significant transactions and assesses their alignment with the strategy. In addition, other aspects include controls 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 property valuations, interest rate changes, funding requirements, liquidity buffers, 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 including interest rate hedging. 14 DIRECTORS’ REPORT 30 JUNE 2023 KEY RISKS (continued) Environmental, Social and Governance Risks Abacus continues to progress its governance policies and procedures regarding Environmental, Social and Governance (‘ESG’) risks across the business. We recognise the growing importance of ESG across all facets of the business and as such it remains a key focus area for our Executive Committee, Board and Sustainability Committee. We continue to progress with our net zero emissions target by 2030 currently, with climate related risks being a consideration in all investment decisions across the business. We continue to progress our understanding of the operating and capital costs for each of our properties that may be impacted by climate change. Being a good corporate citizen underpins our social responsibilities and we adhere by relevant laws and Abacus policies to mitigate social risks, with modern slavery representing a major risk in this area. Abacus also practices strong governance throughout the business, with robust governance policies in place that provide the framework for decision-making within the Group. DIRECTORS AND SECRETARY The qualifications, experience and special responsibilities of the Directors and Company Secretary are as follows: Chair (non-executive) Myra Salkinder MBA, BA 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 Kirsh Group’s property and other investments, both in South Africa, Australia and internationally. Myra is a director of various companies associated with Kirsh Group worldwide. Myra is a member of the Abacus Property Group Sustainability and WHS Committee and Nomination Committee. Tenure: 12 years 3 months Managing Director Steven Sewell BSc Steven joined Abacus Property Group 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 in listed and unlisted real estate funds management businesses, across various real estate sectors, providing Commercial experience and insight in relation to institutional investors, the whole Abacus Property Group’s business and sector specialised investment strategies, capital allocation and developing third party capital relationships. Steven was appointed Abacus Property Group’s Managing Director in April 2018, and is a member of Property Champions of Change and a member and past Chairman of the Shopping Centre Council of Australia. Steven is a member of the Abacus Property Group Nomination Committee. Tenure: 5 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 experience includes direct and wholesale property roles at Colonial First State Property and Lendlease. Trent is also a Non-Executive Director of Landcom. Trent is Chair of the Abacus Property Group People and Performance Committee and a member of the Abacus Property Group Audit and Risk Committee and Nomination Committee. Tenure: 3 year 9 months 15 DIRECTORS’ REPORT 30 JUNE 2023 DIRECTORS AND SECRETARY (continued) Mark Haberlin BSc (Eng) Hons 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 Australian Clinical Labs. Mark is Chair of the Abacus Property Group Audit and Risk Committee and a member of the Abacus Property Group People and Performance Committee and Nomination Committee. Tenure: 4 years 7 months Sally Herman BA, GAICD (appointed December 2022) Sally is a Non-Executive Director and joined the Abacus Property Group Board on 16 December 2022. Sally brings a wealth of expertise across property, financial services, retail and manufacturing sectors as a Non-Executive Director. Prior to that she had a successful executive career over 25 years, including 16 years with the Westpac Group in both Australia and the United States of America, running various operating divisions. Sally sits on both listed and not-for- profit boards, including Suncorp Group Limited, Premier Investments Limited, Breville Group Limited, Art Gallery of NSW Trust and Sydney Film Festival. She is also a member of Chief Executive Women. Sally is a member of the Abacus Property Group People and Performance Committee, Sustainability and WHS Committee and Nomination Committee. Tenure: 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, cross-cultural management and governance. 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 trustee of HMC Capital Partner Fund, a member of Macquarie University Council, and Vice President of the Australia China Business Council. Jingmin is a member of Chief Executive Women. Jingmin is Chair of the Abacus Property Group Sustainability and WHS Committee and a member of the Abacus Property Group Audit and Risk Committee and Nomination Committee. Tenure: 6 years Mark Bloom BCom, B.Acc, CA (retired 3 August 2023) Mark is a 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 a member of the People Performance Committee. Tenure: 2 years 16 DIRECTORS’ REPORT 30 JUNE 2023 DIRECTORS AND SECRETARY (continued) Holly Kramer BA (Hons) Econ/Political Science, MBA (retired on 23 November 2022) Holly was a Non-Executive Director and a member of the People Performance and Sustainability & WHS Committees. Company Secretary (effective 14 October 2022) Belinda Cleminson Belinda has over 20 years’ experience as a Company Secretary of Australian listed and unlisted companies including ASX 200 clients. Belinda is the company secretary of various public and private companies, including ASX, NZX and OTC listed companies across a range of industries. Belinda is a member of the Governance Institute of Australia, and a Member of the Australian Institute of Company Directors. Rebecca Pierro Company Secretary (resigned 14 October 2022) 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 Nomination & WHS Board Committee Committee Committee Committee Eligible Attended Eligible Attended Eligible Attended Eligible Attended Eligible Attended M Salkinder T Alston M Haberlin J Qian S Sewell M Bloom S Herman H Kramer 11 11 11 11 11 11 7 3 11 11 10 11 11 11 7 3 - 4 4 4 - 4 - - - 4 4 4 - 4 - - - 4 4 - - 4 2 2 - 4 4 - - 4 2 2 4 - - 4 - - 2 4 4 - - 4 - - 1 4 2 2 2 2 2 2 1 1 2 2 2 2 2 2 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. Indemnification of Auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount) – except for any loss in respect of any matters which are finally determined to have resulted from Ernst & Young’s negligent, wrongful or wilful acts or omissions. No payment has been made to indemnify Ernst & Young during or since the financial year. 17 DIRECTORS’ REPORT 30 JUNE 2023 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 FY23. The report summarises Abacus’s performance and remuneration outcomes for FY23, the executive remuneration framework for FY23 and beyond, and any increases to executive and non-executive remuneration for FY23. Last year we said that we were mindful that our framework may need to evolve as we make further progress with our strategy and evolution, to ensure that it remains fit for purpose. At the 27 July Extraordinary General Meeting (EGM), securityholders approved Abacus Group (ASX:ABG) (Abacus) de-stapling proposal to establish a new ASX listed Self Storage REIT now known as Abacus Storage King REIT (ASK). ASK is an externally managed REIT with a majority independent Board of Directors. Abacus is the manager of ASK and retains a minority interest of up to 19.9% of the stapled securities in ASK. Abacus’s growth in its Self Storage portfolio has been a result of effectively managing and enhancing the Storage King platform to become Australia’s most recognised Self Storage brand. Abacus has deployed over $1.4bn into Self Storage assets over the last five years and determined that this was the right time for the portfolio to be separately listed with its own capital structure. Post de-stapling, Abacus is positioned to provide stable earnings and opportunities for growth for securityholders. Abacus continues to own and manage its high quality, eastern seaboard focused $2.5bn Commercial property portfolio, which is diversified by market, asset grade, asset life cycle, customer industry and customer profile. FY23 Performance Abacus is a strong asset backed, annuity style business model where capital is directed towards assets that provide potential for enhanced income growth to create value. Our people, market insight and repositioning capability together with strategic partnering are key enablers of our strategy. In the last 12 months Abacus has been in a high inflationary environment and had a record RBA pace of rate rises to combat this, which will adversely impact borrowing rates going forward. This means that the cost of capital (including debt) has increased. As such there has and will be future headwinds to Funds from Operations per security which cannot be fully offset by Management’s operating performance despite the Group being well hedged at rates substantially below current market levels. Post de-stapling Abacus Group has prudent levels of gearing, well below the Board's maximum target of 35%. 18 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) FY23 Remuneration Executive Key Management Personnel fixed pay was adjusted only for the Chief Investment Officer and General Counsel (CIO), with an 18.8% increase. This adjustment reflected his increased accountability in the new role. The Funds from Operations profit result in FY23 was above target 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 83.6% of maximum STI. Twenty-five percent of Executive KMP STI is deferred for a further twelve months. Further details on the STI Plan can be found on page 29. 69.3% of the FY22 LTI grant’s first tranche will vest in August 2023 based on FFOPS AAGR. Both the CIO and the CFO are recipients as they were both non KMP at the time of grant. The legacy Executive Incentive Plan (“Security Acquisition Rights” or “SARs”) is expected to vest in September 2023 as a result of sustained performance since grant. This plan has been replaced by the LTI Plan. FY23 KMP Changes From 1 July 2022, Evan Goodridge was promoted to the role of Chief Financial Officer (CFO). In November 2022, Holly Kramer stepped down from her position on the Board. Holly has served on our board for the last four years and I, along with my fellow directors, would like to sincerely thank Holly for her valuable contribution and leadership during her time on the Board. In December 2022, Sally Herman was appointed to the Board. Sally joins the Board bringing a wealth of expertise across property, financial services, retail, and manufacturing sectors as a non-executive director. In anticipation of the de-staple, in June 2023, John O’Sullivan, Stephanie Lai and Karen Robbins were appointed to the Boards of Abacus Storage Funds Management Limited and Abacus Storage Operations Limited. See Table One: Non-Executive Directors (NED). From 4 August 2023, Nikki Lawson became Fund Manager of ASK. Impact of de–stapling on incentive awards on foot Abacus has various unvested incentive awards on foot which will be impacted by the de-stapling. The Board has determined the treatment of unvested awards on foot with the objective of preserving the overall value of awards following de-stapling, ensuring that participants do not receive a benefit or are disadvantaged by the de-stapling. This treatment applies for employees who either continue to be employed by Abacus Group or by Abacus Storage King while continuing to hold relevant Abacus Property Group Incentive Awards. Details of the treatment for each unvested award on foot impacted by the de-stapling are set out in section 5 of the Remuneration Governance and Framework. FY24 Changes to remuneration Following a review of the LTI framework the Board has resolved to replace the FFO per security growth measure with performance measures based on Relative TSR and EBIT per security CAGR for the FY24 LTI grant. More details of the new arrangements will be provided in this year’s notice of Annual General Meeting on 17 November 2023. 19 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) Concluding remarks It has been a significant year for Abacus Group and the Board acknowledges the strategic conviction and dedication of the Management team. There are exciting times ahead for the Group and the Board and Management are confident in our readiness to deliver the next phase of growth in our Commercial Property and Abacus Self Storage portfolios. Trent Alston Chair – People Performance Committee 20 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) The Board presents the FY23 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 2023. 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 CONTENTS 1. 2. 3. 4. 5. 6. 7. Who is covered in this report – KMP Remuneration Snapshot FY23 FY23: How did we perform? Executive KMP remuneration Remuneration governance and framework Non-Executive Director remuneration Additional required disclosures PAGE 21 22 25 26 30 43 47 1. WHO IS COVERED IN THIS REPORT – KMP 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) NON- EXECUTIVE DIRCTOR ROLE BOARDS COMMENCEMENT DATE RESIGNED Myra Salkinder1 Chair of the Board Trent Alston1 Non-Executive Director Mark Haberlin1 Non-Executive Director Sally Herman1 Non-Executive Director Jingmin Qian1 Non-Executive Director Holly Kramer Non-Executive Director Mark Bloom2 Non-Executive Director AGHL, AT, AGPL, AIT, ASOL & ASPT AGHL, AT, AGPL, AIT, ASOL & ASPT AGHL, AT, AGPL, AIT, ASOL & ASPT AGHL, AT, AGPL, AIT, ASOL & ASPT AGHL, AT, AGPL, AIT, ASOL & ASPT AGHL, AT, AGPL, AIT, ASOL & ASPT AGHL, AT, AGPL, AIT, ASOL & ASPT 16 December 2022 23 November 2022 21 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) NON-EXECUTIVE DIRCTOR ROLE BOARDS COMMENCEMENT DATE RESIGNED John O’Sullivan Non-Executive Director ASK Chair ASOL & ASPT3 13 June 2023 Stephanie Lai Non-Executive Director ASOL & ASPT3 13 June 2023 Karen Robbins Non-Executive Director ASOL & ASPT3 13 June 2023 1 Resigned as director from ASOL & ASPT on 3 August 2023. 2 Resigned as director from AGHL, AT, AGPL & AIT on 3 August 2023. 3 ASOL & ASPT formed ASK on 3 August 2023, and the directors subsequently become members of the ASK board. Table 2 – Executive KMP EXECUTIVE KMP ROLE Steven Sewell Managing Director (MD) DATE APPOINTED Evan Goodridge Chief Financial Officer (CFO) 1 July 2022 Gavin Lechem Chief Investment Officer and General Counsel (CIO) 2. REMUNERATION SNAPSHOT FY23 The Abacus Performance and Reward framework aims to reward, engage, and develop our people focusing on, value creation for our customers and community. Fixed Remuneration Short term Incentives Long Term Incentives Outcomes Outcomes There were no changes to MD Fixed Remuneration for FY23. The CIO and General Counsel received a 18.8% increase effective 1 July 2022. The MD received 82.7% of his maximum STI. The average STI outcome for FY23 for Executive KMP was 84% of the maximum based on their balanced scorecard. 25% of the STI has been deferred for 12 months for all KMP. No LTI vested for the MD. The CIO and CFO each received 69.3% of a third of the FY22 grant.1 The MD and CIO have met the minimum security holding requirement (MSH). The CFO is currently at 98% of the MSH with at least 100% being required by June 2026. 1The CIO and CFO were granted LTI in 2021 as non KMP with three tranches. 22 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) 2.1. 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 FY23. The remuneration mix is weighted towards variable remuneration. Managing Director maximum pay mix. Other Executive KMP maximum pay mix. 31% 31% 10% 28% 23% 8% 23% 46% Fixed Remuneration STI Cash STI Deferral LTI 2.2. Our Remuneration Principles Our people are key to our success, providing a wealth of market insight, industry experience and strategic partnering that enables our growth and evolution. The more we nurture and invest in our people, the more we achieve. The Abacus Performance and Reward strategy is guided by the following principles: Reward Balance Alignment Reward and promote the results and behaviours consistent with the Abacus purpose, objectives, and values. Balanced between financial performance, strategic priorities and continued focus on increasing engagement of our people. Alignment of interests to stakeholders to focus on long term sustainable value creation. 23 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) 2.3. FY23 Remuneration Framework ELEMENT PURPOSE LINK TO PERFORMANCE Fixed Remuneration (FR) To attract, engage and retain individuals with capability, diversity of thought and experience to continue delivering on our strategy. 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. FY23 CHANGES / OUTCOMES The CIO and General Counsel received a 18.8% increase to fixed remuneration. Short Term Incentive (STI) Long Term Incentive (LTI) 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. 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 following factors are among those considered by the People & Performance Committee (PPC) in making its assessment on the achievement of the STI opportunity: For FY23 Executive KMP STI outcome was on average 84% of maximum of which 25% was deferred. ­ 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. For further details of the plan refer to section 5.2 page 31. For further details of FY23 STI outcomes refer to section 4.2 table 4 page 28. No LTI vests for the MD. The CIO and CFO each received 69% of a third of the FY22 grant. LTI granted are in the form of performance rights. The value of LTI awards offered in FY23 was up to a maximum of 100% of FR for the MD, and 50% for the CFO and the CIO. To align the interests of the Board with securityholders, 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. 24 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) FY23: HOW DID WE PERFORM? 3. 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 FY23 performance and the Company’s five year financial performance outcomes. Abacus’ FFO result exceeded target and the team has made significant progress during FY23 on delivery of our business priorities. Of note, the Group: - - - announced its intention to create a new ASX listed Self Storage REIT known as Abacus Storage King (ASK), which was successfully de-stapled post year end; successfully completed a pro rata equity raising in ASK raising proceeds of approximately $225 million; undertook strategic capital transactions investing over $450 million in Commercial and Self Storage assets during the period, and additionally exchanging on an additional four Self Storage sites yet to settle; - divested approximately $100m of non-core assets; - achieved strong performance in its established Self Storage portfolio with growth in RevPAM of 9%; - continued the rollout of solar panels across its Self Storage facilities; - maintained high levels across its Commercial portfolio occupancy at 95%; - - delivered 100% of FFO from its core operations; relocated both Abacus and Storage King’s head offices including a strong brand refresh of the organisation; and achieved high level of employee engagement. - Five year FFO performance y t i r u c e s r e p s t n e C 35 30 25 20 15 10 5 0 2019 2020 2021 2022 2023 FFO (total earnings)* FFO (Core operations)* *FFO earnings are unaudited. 25 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) 3.1. Relationship between remuneration and Abacus performance Abacus performance over the last five years is illustrated below in table 3. Table 3 – Key financial performance indicators Key financial performance Indicators FFO (core operations) per security (cents)* FFO (total earnings) per security (cents)* FFO Profit $m 2019 11.59 22.28 129.2 2020 13.34 19.38 125.2 Distributions paid and proposed (cents) 18.50 18.50 2021 16.21 2022 18.44 18.40 19.01 160.9 136.4 17.50 2023 19.58 19.58 175.0 18.00 18.40 Closing security price (30 June) $4.10 $2.68 $3.15 $2.57 $2.69 Net Tangible assets per security** $3.33 $3.32 $3.43 $3.85 $3.70 Weighted average securities on issue 580.0m 643.0m 741.1m 846.3m 893.5m *FFO earnings are unaudited **Net tangible assets per security include the impact of the fair value movements 4. 4.1. EXECUTIVE KMP REMUNERATION MD FY23 Remuneration details – Target and maximum remuneration in FY23 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 MD at Target MD at Maximum 1,250,000 - 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 Fixed Remuneration STI Cash STI Deferral LTI $0,000 26 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) The following sets out the awards made to the Managing Director based on his performance during the year ended 30 June 2023. FIXED REMUNERATION 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 82.7% of his maximum STI for FY23. 75% or $929,940 of this was received in cash and 25% or $309,980 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. LONG TERM INCENTIVE (LTI) • 50% of the rights will be tested against performance requirements in FY25. • 50% of the rights will be tested against performance requirements in FY26. 4.2. FY23 Managing Director STI Outcome The following table sets out the performance of the MD against his KPI’s for the year ended 30 June 2023 (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. The People Performance Committee and the Board reviewed these outcomes and the targets set against A-REIT competitor performance and the property market overall. The Board has exercised its discretion in relation to the achievement of the capital utilisation KPI and rating. This KPI was set prior to the de-stapling transaction proposal which was announced in early H2 FY23. Taking this into consideration, the Board believes it was warranted to apply the capital utilisation KPI to the first half only and apply a de-stapling transaction KPI for the second half FY23. 27 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) Table 4 – Managing Director’s performance against KPI’s. COMPONENT FY23 KPI’S WEIGHT % OF MAX PERFORMANCE DETAIL Funds from Operations (FFO) 40% 75.7% Above FFO Target, achieving $175m or 19.5 cps which was above FY22. A DPS of 18.4 cps which was in line with the target rate. Financial Performance Strategic People Capital utilisation, acquisition, and deployment – H1 Abacus Storage King (ASK) De-stapling transaction H2 SK Platform Integration and enhancement ABP commercial, WHS and Sustainability enhancement 10% 90.2% Above target, achieving over $274m in capital utilisation, acquisition, and deployment in the first half. 10% 100% 99.97% of Securityholders voted recommending unanimously in favour of all resolutions. 10% 93.2% 10% 83.0% Substantial steps taken during the period to successfully position the ASK business as a standalone listed A-REIT achieved through refinement of organisational design, clear delineation of roles and responsibilities, systems, and process. The commercial asset portfolio has been managed efficiently and effectively despite challenging conditions and market sentiment. WHS and Sustainability deliverables were met. Proactive and positive engagement of all stakeholders, wholesale brand refresh and website delivered. ABP Brand 10% 91.5% Culture and engagement 10% 65.9% Achieved a 96% participation rate and engagement pulse survey score of 83%. The balanced scorecards for other Executive KMPs during FY23 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. 28 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) 4.3. 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 2023. Table 5 – Executive KMP performance targets and achievements Executive KMP Key Performance Indicator Weighting Max STI Potential $ Actual STI awarded on a % of Max STI potential Actual Full STI awarded $ Actual STI deferred $ STI forfeited as a % of Max STI potential Steven Sewell Evan Goodridge Gavin Lechem Financial Strategic People Total Financial Strategic People Total Financial Strategic People Total 60% 30% 10% 900,000 82.2% 739,636 184,909 450,000 89.2% 401,420 100,355 150,000 65.9% 98,864 24,716 100% 1,500,000 82.7% 1,239,920 309,980 60% 30% 10% 225,000 84.2% 189,364 47,341 112,500 90.9% 102,273 25,568 37,500 69.7% 26,136 6,534 100% 375,000 84.7% 317,773 79,443 60% 30% 10% 283,500 84.2% 238,598 59,650 141,750 93.4% 132,443 47,250 69.7% 32,932 33,111 8,233 100% 472,500 85.5% 403,973 100,993 17.8% 10.8% 34.1% 17.3% 15.8% 9.1% 30.3% 15.3% 15.8% 6.6% 30.3% 14.5% 4.4. Executive KMP remuneration details – statutory table Table 6 – Executive KMP remuneration Name Year Base Pay Short term benefits Short Term Incentive (STI) Non- monetary benefits Total cash payments and short-term benefits Post- Employment Super Long term benefits Long Service Leave Security based payment Total Deferred STI Rights2 Rights2 $ Steven Sewell Evan Goodridge1 Gavin Lechem1 Rob Baulderstone1 FY23 1,224,708 929,940 9,455 2,164,103 25,292 20,261 348,097 937,292 3,495,045 FY22 1,226,433 1,024,44 9 5,015 2,252,897 23,567 20,423 170,242 769,688 3,236,817 FY23 FY22 FY23 FY22 FY23 FY22 472,500 238,329 - - 602,500 302,980 377,097 257,722 - - - - - - - 710,829 27,500 26,377 39,722 116,822 921,250 - - - - - - 905,480 27,500 29,551 99,219 227,230 1,288,980 634,819 17,676 9,671 42,954 152,052 857,172 - - - - - - 544,721 388,590 5,015 938,326 27,500 11,099 64,765 282,954 1,324,644 1Remuneration reflects period of service as Executive KMP. 2Accrued not presently entitled. Includes both LTI and Executive Incentive plan (SAR’s). 29 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) 5. REWARD 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. The Group’s remuneration governance 5.1. The People Performance Committee is responsible for making recommendations to the Board on the remuneration arrangements for non-Executive directors and executives. 30 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) 5.2. 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? What is the performance period? 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. In FY22 we introduced a deferral element for any STI awarded to Executive KMP for retention, increased alignment with securityholders and better governance. Under the Short Term Incentive Plan (STI), Abacus Property Group has issued to participants Rights which are subject to a 12 month service vesting condition. On vesting of the STI Rights, and subject to receipt of a valid exercise notice, the Abacus Property Group Board may in its absolute discretion provide Abacus Property Group Securities to the relevant participant. 1 July 2022 to 30 June 2023. For FY23 the target and maximum STI opportunity for Executive KMP as a percentage of FR were: What is the award opportunity? % of FR Target Maximum MD 75% 120% CFO 50% 75% 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 31 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) Short Term Incentive (STI) 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. 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 independent benchmarking information. The Committee then recommends current variable remuneration payments, if any, to the Board for its approval. 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. 32 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) Short Term Incentive (STI) 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: • • • Are there any disqualification provisions? 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 or 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 Group 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. 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. ⎯ Under the Long Term Incentive Plan (LTI), Abacus Property Group has issued to participants Rights which are subject to performance-based vesting conditions. ⎯ Each of the rights granted under the LTI (LTI Rights) are subject to a hurdle based on growth in FFO per security (FFOPS) over a specified performance period. Depending on the average annual growth rate in the Abacus Property Group FFOPS, the relevant LTI Rights will vest at a level between 0% (for below threshold performance) and 100% (for maximum performance where the FFOPS average annual growth rate exceeds a certain level). ⎯ On vesting of LTI Rights, and subject to receipt of a valid exercise notice, the Board of Abacus Group may in its absolute discretion provide Abacus Property Group Securities to the relevant participant. 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 is 50% of FR. 33 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) Long Term Incentive (LTI) 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 2022 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. What are the performance conditions (FY22 Grant Tranche One only)? The Performance Conditions require the average annual growth rate (AAGR) in the Group’s FFOPS over the relevant Performance Period to exceed a certain level. 100% vests on FFO per security (FFOPS) achieving an AAGR at or above 5%. At 2 – 5%, this results in 50% to 100% vesting on a sliding scale. FFOps AAGR Less than 2% At 2% Between 2% and 5% At or above 5% % of Rights that vest 0% 50% Pro rata vesting from 50% to 100% 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? At the time 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 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. 34 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) Long Term Incentive (LTI) 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? Abacus Security Trading Policy 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. 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 ABG securities. They may only trade within specified trading windows. 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 YEAR2 GRANT DATE SECURITY VALUE $ NUMBER OF LTI GRANTED PERFORMANCE PERIOD Steven Sewell FY23 2.74 FY22 3.40 Evan Goodridge1 FY23 2.74 FY23 2.74 Gavin Lechem 228,102 1 July 2022 to 30 June 2025 228,102 1 July 2022 to 30 June 2026 183,824 1 July 2021 to 30 June 2024 183,824 1 July 2021 to 30 June 2025 45,621 1 July 2022 to 30 June 2025 45,620 1 July 2022 to 30 June 2026 57,482 1 July 2022 to 30 June 2025 57,482 1 July 2022 to 30 June 2026 25,995 1 July 2021 to 30 June 2023 MAXIMUM GRANT DATE FACE VALUE $ 1,250,000 1,250,000 250,000 315,000 FY22 3.40 25,995 1 July 2021 to 30 June 2024 265,148 25,995 1 July 2021 to 30 June 2025 1 Remuneration reflects period of service as Executive KMP. 2 The FY23 grant was issued on 23 December 2022 (FY22: 22 November 2021). *The fair value of the securities granted in FY23 was $2.61 35 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) 5.3. Transitional changes to Abacus Property Group Incentive Awards This Section outlines the proposed treatment of the Abacus Property Group Incentive Awards on foot for employees that will, on de-stapling implementation, either continue to be employed by Abacus Group or be employed by Abacus Storage King but continue to hold relevant Abacus Property Group Incentive Awards. The Abacus Property Group Board has determined the treatments set out in the following table in order to preserve the overall value of the Abacus Property Group Incentive Awards following the de-stapling, and to ensure that participants do not receive a benefit that they would not have received before the de-stapling and are not disadvantaged by the de-stapling. AWARD AWARD TYPE SCHEDULED VESTING DATE TREATMENT OF DE-STAPLING IMPLEMENTATION (IN ADDITION TO GENERAL AMENDMENTS) LTI Rights set to vest in July 2023 Rights to Abacus Property Group Securities or cash equivalent Remain the same as these existing LTI Rights, being July 2023 The vesting hurdles will remain unchanged and these awards will be tested against the relevant FFOPS hurdle for Abacus Property Group. LTI Rights set to vest after July 2023 Rights to Abacus Property Group securities or cash equivalent Remain the same as the relevant existing LTI Rights, being either July 2024, July 2025 or July 2026 The vesting hurdles for these LTI Rights will be adjusted so vesting is tested against the compound annual growth rate in Earnings Before Interest and Tax (EBIT Growth) and relative Total Securityholder Return (TSR), rather than the FFOPS hurdle. The performance period for testing the relevant LTI Rights against the EBIT Growth hurdle will remain the same as the performance period which applied to those LTI Rights prior to De-stapling Implementation. The performance period for testing the relevant LTI Rights against the TSR hurdle will be adjusted and reset to commence on the De-stapling Implementation Date. 50% of the LTI Rights scheduled to vest in each year will be subject to the TSR hurdle. TSR measures the growth in the price of securities plus cash distributions notionally reinvested in securities. The TSR outcome will be based on the combined performance of Abacus Group Securities and Abacus Storage King Securities (Combined TSR Growth Outcome). In order for the LTI Rights subject to the TSR hurdle to vest, the Combined TSR Growth Outcome must exceed a minimum of the 50th percentile of the comparator peer group of ASX listed entities over the relevant performance period. Vesting will range between 50% (at 50th percentile achievement) to 100% (at 75th percentile or higher achievement) with straight line vesting between 50th percentile achievement and 75th percentile achievement. 36 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) AWARD AWARD TYPE SCHEDULED VESTING DATE TREATMENT OF DE-STAPLING IMPLEMENTATION (IN ADDITION TO GENERAL AMENDMENTS) 50% of the LTI Rights scheduled to vest in each year will be subject to the EBIT Growth hurdle. The EBIT Growth outcome will be based on the combined performance of Abacus Group and Abacus Storage King (Combined EBIT Growth Outcome). In order for the LTI Rights subject to the EBIT Growth hurdle to vest, the Combined EBIT Growth Outcome must exceed 3% for the relevant performance period. Vesting will range between 50% (at 3% Combined EBIT Growth Outcome achievement) and 100% (at 8% Combined EBIT Growth Outcome achievement) with straight line vesting between 3% to 8% Combined EBIT Growth Outcome achievement. The service vesting condition will remain unchanged and these STI Rights will be tested against the same time-based service conditions as the existing STI Rights. The Distribution Condition Clawback will continue to apply. The Board of Abacus Group will continue to have the right (but not the obligation) to clawback unvested SARs if the Distribution Condition Clawback is triggered. Short Term Incentive Plan (STI) Rights to Abacus Property Group Securities or cash equivalent Remain the same as the existing STI Rights, being July 2023 SARs awards Rights to Abacus Property Group Securities or cash equivalent Remain the same as the existing SARs, being July 2023 and July 2024 5.4. Summary of unvested equity incentive changes SECURITIES PLANS ABACUS GROUP CHANGES PERFORMANCE PERIOD The prior performance measure is replaced by the introduction of two new performance measures: EBIT based on CAGR; and The performance period for RTSR will be adjusted (Transition period), resetting to the date of listing, which aligns to the new corporate structure post de-stapling. Remaining FY22 LTI Grant Relative TSR ⎯ Due to vest July 2024 – Tranche 2 (T2) ⎯ Due to vest July 2025 – Tranche 3 (T3) The performance period for the remaining tranches of the FY22 and FY23 LTI grants will be reset from [July/August] 2023, which aligns to the new corporate structure post – de stapling. While the performance period has been adjusted, the vesting dates remain the same. - - T2 changes from 1 July 2021 to 30 June 2024 (three years) to [August] 2023 to 30 June 2024 (circa one year). T3 changes from 1 July 2021 to 30 June 2025 (four years) to [July/August] 2023 to 30 June 2024 (circa two years). There is no change to the performance periods for EBIT CAGR This includes all KMP, MD, CIO. and CFO. 37 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) SECURITIES PLANS ABACUS GROUP CHANGES PERFORMANCE PERIOD Remaining FY22 LTI Grant ⎯ Due to vest July 2024 – Tranche 2 (T2) ⎯ Due to vest July 2025 – Tranche 3 (T3) The performance period for RTSR will be adjusted (Transition period), resetting to the date of listing, which aligns to the new corporate structure post de-stapling. - - T2 changes from 1 July 2021 to 30 June 2024 (three years) to [August] 2023 to 30 June 2024 (circa one year). T3 changes from 1 July 2021 to 30 June 2025 (four years) to [July/August] 2023 to 30 June 2024 (circa two years). There is no change to the performance periods for EBIT CAGR This includes all KMP, MD, CIO. and CFO. The nature of the right is varied, that is ABG and ASK Rights are provided upon vesting. The prior performance measure is replaced by the introduction of two new performance measures: EBIT based on CAGR; and Relative TSR The performance period for the remaining tranches of the FY22 and FY23 LTI grants will be reset from [July/August] 2023, which aligns to the new corporate structure post – de stapling. While the performance period has been adjusted, the vesting dates remain the same. The nature of the right is varied, that is ABG and ASK Rights are provided upon vesting. STI Deferral FY22 Due to vest July 2023 SAR’s FY20 & FY21 Due to vest August 2023 (FY20 T3, FY21 T2) Due to vest August 2024 (T3) Vary terms of rights such that each right vests as an Abacus Group Security and an Abacus Storage Group Security. No change Vary terms of rights such that each right vests as an Abacus Group Security and an Abacus Storage Group Security. No change. 38 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) 5.5. Security based payments The below outlines the FY23 LTI grant reflecting the two new performance hurdles and then moves on to the Executive Incentive Plan (Legacy Plan) as shown from table 10. Performance Long term Incentive Plan Grants Grant Tranche Performance hurdles each weighted 50% Vesting date Tranche One – 50% of Grant EBIT CAGR1 - 50% vesting at 3% EBIT CAGR - 100% vesting at 8% EBIT CAGR - Pro rata vesting between 3% and 8% - 0% if less than 3% EBIT CAGR Relative TSR2 FY23 Grant Tranche Two – 50% of Grant - 50% vesting is achieved when ranking at the - median. 100% vesting is achieved when our peer group ranking is at the 75th percentile or higher pro‑rata vesting is achieved between the median and the 75th percentile. - 0% if less than peer group ranking below the median. August 2025 August 2026 1EBIT CAGR is Underlying Earnings before Interest and Tax Compound Annual Growth Rate 2Relative TSR is Relative Total Shareholding Return 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. BALANCE 1 JULY 2022 GRANTED AS REMUNERATION NO. LAPSED DURING THE YEAR1 LTIS VESTED BALANCE 30 JUNE 2023 367,648 456,204 - Evan Goodridge 35,295 91,241 (4,074) Gavin Lechem 77,985 114,964 (9,001) Total 480,928 662,409 (13,075) - - - - 823,852 122,462 183,948 1,130,262 KMP Steven Sewell (Managing Director) 1The CIO and CFO were granted LTI in 2021 as non KMP with three tranches. 30.7% of the rights have lapsed as the FFOps average annual growth rate was less than 5%. 39 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) 5.6. Executive Incentive Plan (Legacy SAR’s Plan) The Executive 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 Executive 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. ⎯ Under the executive incentive plan, Abacus Property Group issued to participants rights (in the form of Security Acquisition Rights (SARs)) which are subject to time based vesting with the Abacus Property Group Board having the right (but not the obligation) to clawback unvested SARs if Abacus Property Group distributions fall below a certain threshold amount per Abacus Property Group Security in respect of any financial year (Distribution Condition Clawback). ⎯ On vesting of the SARs, the Abacus Group Board may in its absolute discretion provide securities to the relevant participant. 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 will be made under this Plan. Table 9 – Grants under the Deferred Security Acquisition Rights Plan (SARs) EXECUTIVE KMP YEAR VESTING DATE NO. VESTED DURING THE YEAR NO. LAPSED DURING THE YEAR Steven Sewell Evan Goodridge 2021 2020 2019 2021 2020 2019 09/2022 09/2022 09/2022 09/2022 09/2022 09/2022 2021 09/2022 Gavin Lechem 2020 09/2022 2019 09/2022 96,825 59,222 41,499 9,840 6,768 5,724 27,061 16,920 14,310 - - - - - - - - - 40 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) Table 10 – The value of SARs granted, exercised, and lapsed during the year. EXECUTIVE KMP Steven Sewell Evan Goodridge Gavin Lechem Total VALUE OF SARS GRANTED DURING THE YEAR $ VALUE OF SARS EXERCISED DURING THE YEAR $ VALUE OF SARS LAPSED DURING THE YEAR $ - - - - 634,809 72,106 187,870 894,785 - - - - There were no alterations to the terms and conditions of the SARs since their grant date. Refer to Note 19 for details on the valuation of the Long Term and Deferred Variable Incentive Plan, including models and assumptions used. Table 11 – Securities acquired on exercise of SARs. EXECUTIVE KMP SECURITIES ACQUIRED (NUMBER) PAID PER SECURITY $ Steven Sewell Evan Goodridge Gavin Lechem 229,516 26,070 67,924 2.76 2.76 2.76 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 12 – 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. KMP BALANCE 1 JULY 2022 GRANTED AS REMUNERATION SARS EXERCISED BALANCE 30 JUNE 2023 Steven Sewell 450,418 75,214 (229,516) Evan Goodridge Gavin Lechem 48,780 129,333 8,390 21,911 (26,070) (67,924) 296,116 31,100 83,320 Total 628,531 105,515 (323,510) 410,536 41 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) 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. Other than disclosed in the ASX market, there have been no movements in holdings since 30 June 2023. 5.7. Minimum security holding requirement for Executive KMP To align the interests of the Board with securityholders, the Board introduced a minimum security holding 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 had 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. • For FY24 this anniversary will be updated in respect of any KMP (including the Managing Director) to the later of the de-stapling of Abacus Group and Abacus Storage King or the date they become a member of the KMP. Table 13 – Executive KMP ownership – security holdings details as at 30 June 2023 SECURITIES EXECUTIVE KMP BALANCE 1 JULY 2022 VESTING OF RIGHTS PURCHASE / SALES BALANCE 30 JUNE 2023 Steven Sewell (MD) 402,572 362,449 101,104 Evan Goodridge 64,857 Gavin Lechem 236,759 26,070 101,465 - - 866,125 90,927 338,224 EXECUTIVE KMP Steven Sewell (MD) Evan Goodridge Gavin Lechem SECURITY PRICE 30 JUNE 2023 BALANCE 30 JUNE 2023 MSH REQUIREMENT MSHR ASSESSMENT DATE $2.69 $2.69 $2.69 $2,329,876 $1,250,000 $244,594 $250,000 $909,823 $315,000 June 2026 June 2026 June 2026 Unvested rights are not included in the calculation of the minimum holding of securities. 42 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) 6. 6.1. 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. 6.2. Fee Structure and Policy The following table outlines the Non-Executive Directors (NEDs) fee policy and any changes introduced for FY23. 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 2022 when securityholders approved an aggregate remuneration limit of $1,250,000 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 2021. NEDs are entitled to be reimbursed for all reasonable costs and expenses incurred by them in performing their duties. NED fee changes FY23 Non-Executive Director fees reviews There are no changes to the Board base fees and committee in FY23. Refer to Table [14] for details of FY23 fees. NED fee changes FY24 There are no changes to the Board base fees and committee in FY24. Refer to Table 14 for details of FY24 fees. The aggregation of all Board and committee fees for FY23 and FY24, 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. 43 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) Table 14 –Non-Executive Director fee levels (inclusive of superannuation) – Abacus Group BOARD/COMMITTEE ROLE Board Chair Non-Executive Director Audit and Risk Committee Chair Non-Executive Director Chair Non-Executive Director Chair Non-Executive Director Work, Health Safety and Sustainability Committee People Performance Committee Total PER ROLE $ $252,000 $113,000 $27,300 $12,285 $21,000 $10,500 $23,000 $11,250 FY23 TOTAL $252,000 $565,000 $27,300 $36,855 $21,000 $10,500 $23,000 $33,750 $969,405 Table 15 –Non-Executive Directors’ remuneration details – Abacus Group Non-Executive Director Year Base Fees Non- monetary benefits Total cash payments and short-term benefits Superannuation $ Myra Salkinder (Chair)1 Trent Alston Mark Bloom2 Mark Haberlin Sally Herman3 Holly Kramer4 Jingmin Qian FY23 252,000 FY22 238,636 FY23 134,195 FY22 134,804 FY23 123,561 FY22 124,123 FY23 137,149 FY22 137,773 FY23 66,078 FY22 - FY23 53,594 FY22 131,688 FY23 132,384 FY22 132,986 - - - - - - - - - - - - - - 252,000 238,636 134,195 134,804 123,561 124,123 137,149 137,773 66,078 - 53,594 131,688 132,384 132,986 - 13,364 14,090 13,481 12,974 12,412 14,401 13,777 6,938 - - 3,062 13,901 13,299 252,000 252,000 148,285 148,285 136,535 136,535 151,550 151,550 73,016 - 53,594 134,750 146,285 146,285 1Myra Salkinder as Chair does not receive any fees for other sub-committees. 2Mark Bloom ceased as director of AGHL, AT, AGPL & AIT on 3 August 2023. Mark will continue as director for ASPT & ASOL. 3Sally Herman was appointed 16 December 2022. 4Holly Kramer resigned 23 November 2022. 44 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) Table 16 –Non-Executive Director fee levels (inclusive of superannuation) – Abacus Storage King in effect from 4 August 2023 BOARD/COMMITTEE ROLE Board Chair Non-Executive Director Audit and Risk Committee Chair Non-Executive Director Remuneration Committee Chair Non-Executive Director Total PER ROLE $ $252,000 $113,000 $27,300 $12,285 $12,000 $8,000 FY23 TOTAL $252,000 $339,000 $27,300 $24,570 $12,000 $16,000 $670,870 Table 17 – Non-Executive Director’s remuneration details – Abacus Storage Operations Limited and Abacus Storage Property Trust SHORT TERM BENEFITS POST- EMPLOYMENT TOTAL Non-Executive Director Year Base Fees Non- monetary benefits Total cash payments and short-term benefits Superannuation $ John O’Sullivan (Chair) 1 Stephanie Lai1 Karen Robbins1 FY23 12,094 FY22 - FY23 5,423 FY22 - FY23 5,423 FY22 - - - - - - - 12,094 - 5,423 - 5,423 - 1John O’Sullivan, Stephanie Lai and Karen Robbins were appointed 13 June 2023. 1,270 - 569 - 569 - 13,364 - 5,992 - 5,992 - 6.3. Minimum security holding 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 security holding requirement for NEDs. Each Non-Executive Director must accumulate and retain a minimum security holding in Abacus securities equivalent to their annual director’s fee inclusive of base fee, superannuation contributions and before any tax deductions. The minimum security holding was 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. 45 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) For FY24 the minimum security holding is to be achieved progressively by the 4th anniversary of: • • in respect of any Non Executive Director of Abacus Group, the later of the de-stapling of Abacus Group and Abacus Storage King or the date of their appointment as a Director; and in respect of any Non Executive Director of Abacus Storage King, the later of the de-stapling of Abacus Group and Abacus Storage King or the date of their appointment as a Director. 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 18 – Non-Executive Director’s security holdings details – Abacus Group NON-EXECUTIVE DIRECTOR BALANCE 1 JULY 2022 PURCHASE / SALE BALANCE 30 JUNE 2023 MSHR ASSESSMENT MSHR POLICY MSHR ASSESMENT DATE Myra Salkinder (Chair) 197,925 14,604,246 14,802,171 $39,817,840 $252,000 June 2026 Trent Alston 36,250 9,000 45,250 $121,723 $148,285 June 2026 Mark Bloom 37,000 36,600 73,600 $197,984 $136,535 June 2026 Mark Haberlin 42,292 - 42,292 $113,765 $151,550 June 2026 Sally Herman - 18,150 18,150 $48,824 $136,535 December 2026 Jingmin Qian 33,167 12,000 45,167 $121,499 $146,285 June 2026 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 2023. Table 19 –Non-Executive Director’s security holdings details – Abacus Storage King in effect from 4 August 2023 NON-EXECUTIVE DIRECTOR BALANCE 1 JULY 2022 PURCHASE / SALE John O’Sullivan (Chair) Stephanie Lai Karen Robbins - - - - - - BALANCE 30 JUNE 2023 - - - MSHR ASSESSMENT MSHR POLICY MSHR ASSESMENT DATE - - - $252,000 June 2027 $148,300 June 2027 $137,285 June 2027 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 2023. 46 DIRECTORS’ REPORT 30 JUNE 2023 REMUNERATION REPORT (audited) 7. 7.1. 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 Evan Goodridge No expiry date 6 months 6 months Gavin Lechem No expiry date 6 months 6 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. Covered by National Employment Standards (NES). Covered by National Employment Standards (NES). 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. 7.2. 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 FY23. 7.3. Loans to Key Management Personnel There were no loans to key management personnel or their related parties at any time in 2023 or in the prior year. 7.4. 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. 47 DIRECTORS’ REPORT 30 JUNE 2023 SIGNIFICANT EVENTS AFTER BALANCE DATE On 27 July 2023, securityholders voted to de-staple Abacus Storage King from Abacus Property Group with the de- stapling being completed on 4 August 2023. In conjunction with the de-stapling, a fully underwritten 1-for-5.6 pro rata security offer in Abacus Storage King was completed at an issue price of $1.41 per stapled Abacus Storage King security which raised $225 million. The $225 million was received in August 2023. Abacus acquired a minority investment of 19.9% of the Abacus Storage King Securities on issue. Other than as disclosed already in this report and to the knowledge of directors, there has been no 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 periods, the results of those operations or the Group’s state of affairs in future financial periods. 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. ROUNDING The amounts contained in this report and in the annual 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. AUDITOR’S INDEPENDENCE DECLARATION We have obtained an independence declaration from our auditor, Ernst & Young, and such declaration is set out on page 49. During the year, Ernst & Young provided non-audit services to the Group, as outlined in Note 23 of the financial statements. The directors are satisfied that the provision of non-audit services, during the year, by the auditor is compatible with the general standard of independence for auditors imposed by this Act. The Directors are satisfied that the provision of non-audit services by the auditor, as set out in Note 23, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: - all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor; and - none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. Signed in accordance with a resolution of the directors. Abacus Group Holdings Limited (ABN 31 080 604 619) Myra Salkinder Chair Sydney, 18 August 2023 Steven Sewell Managing Director 48 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 2023, 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 18 August 2023 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 2023 REVENUE Rental income Finance income Fee income Total Revenue OTHER INCOME Other income Total Revenue and Other Income Net change in fair value of investment properties derecognised Net change in fair value of investment and financial instruments derecognised Net change in fair value of investment properties held at balance date Share of (loss)/profit from equity accounted investments Net change in fair value of derivatives Net change in fair value of investments held at balance date Property expenses and outgoings Depreciation and amortisation expense Impairment charges Finance costs Administrative and other expenses PROFIT/(LOSS) BEFORE TAX FROM CONTUNUING OPERATIONS Income tax expense NET PROFIT/(LOSS) AFTER TAX FROM CONTINUING OPERATIONS Discontinued Operations Net profit after tax from discontinued operations NET PROFIT AFTER TAX PROFIT ATTRIBUTABLE TO: Equity holders of the parent entity (AGHL) Equity holders of other stapled entities AT members AGPL members AIT members ASPT members ASOL members NET PROFIT Notes 1 7(a) 3(a) 3(b) 3(c) 3(d) 4(a) 21 2023 $'000 2022 $'000 147,075 3,483 1,455 152,013 130,539 11,229 2,082 143,850 60 152,073 324 144,174 (9,097) (1,023) (247,617) (8,846) (20,220) (854) (41,880) (5,800) - (9,893) (39,458) (232,615) (992) (107) 40,308 13,429 28,101 622 (33,370) (6,070) (4,903) (19,217) (32,741) 129,234 (5,650) (238,265) (9,995) 119,239 263,760 25,495 397,926 517,165 (64,516) (25,486) (138,796) (2,377) (22,967) 143,641 110,510 25,495 148,031 19,882 (4,084) 264,008 114,814 517,165 50 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME YEAR ENDED 30 JUNE 2023 N ET PRO FIT AFTER TAX O THER C O M PREHEN S IVE IN C O M E Items that may be reclassified subsequently to the income statement Foreign exchang e translation adjustments associated with continuing operations Foreign exchang e translation adjustments, net of tax associated with discontinued operations TO TAL C O M PREHEN S IVE IN C O M E FO R THE PERIO D Total c ompre he ns ive inc ome attributable to: Members of the G roup TO TAL C O M PREHEN S IVE IN C O M E FO R THE PERIO D Total c ompre he ns ive inc ome / (los s ) attributable to membe rs of the G roup analys ed by amounts attributable to: AG HL members AT members AG PL members AIT members ASPT members ASO L members TO TAL C O M PREHEN S IVE IN C O M E AFTER TAX ATTRIB U TAB LE TO M EM B ERS O F THE G RO U P 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 25,49 5 517,16 5 - 1,9 25 2 7,42 0 - (1,6 23) 5 15 ,5 42 27,420 2 7,42 0 515,542 5 15 ,5 42 (6 4,516 ) (138,79 6 ) (2,377) (22,9 6 7) 145,510 110 ,56 6 (25,486 ) 148,0 31 19 ,882 (4,0 84) 26 2,6 83 114,516 2 7,42 0 5 15 ,5 42 51 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2023 C U RREN T AS S ETS Assets associated with discontinued operations Cash and cash equivalents Trade and other receivables Derivatives at fair value O ther TO TAL C U RREN T AS S ETS N O N -C U RREN T AS S ETS Investment properties Property loans Equity accounted investments Deferred tax assets Property, plant and equipment O ther financial assets Intangible assets and goodwill Derivatives at fair value O ther TO TAL N O N -C U RREN T AS S ETS TO TAL AS S ETS C U RREN T LIAB ILITIES Liabilities associated with discontinued operations Trade and other payables Derivatives at fair value Income tax payable O ther TO TAL C U RREN T LIAB ILITIES N O N -C U RREN T LIAB ILITIES Interest-bearing loans and borrowings Derivatives at fair value Deferred tax liabilities O ther TO TAL N O N -C U RREN T LIAB ILITIES TO TAL LIAB ILITIES N ET AS S ETS TO TAL EQ U ITY N ote s 21 8 5 6 (a) 7 4(c) 15 6 (b) 20 21 10 4(c) 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 3,0 72,416 71,9 0 0 46 ,6 37 30 ,283 4,0 56 3 ,2 2 5 ,2 9 2 2,0 9 9 ,876 53,142 158,6 74 11,6 41 458 3,9 87 32,46 3 14,541 6 ,10 0 2 ,3 80 ,882 - 176 ,50 5 43,472 20 ,86 9 7,281 2 48,12 7 4,50 0 ,582 53,144 172,9 6 1 15,9 9 8 21,6 6 8 244,334 10 5,6 26 38,0 72 6 ,547 5 ,15 8,9 3 2 5 ,6 0 6 ,174 5 ,40 7,0 5 9 1,142,40 1 57,584 20 ,6 0 3 - 5,476 1,2 2 6 ,0 6 4 - 127,0 30 - 1,732 9 ,188 13 7,9 5 0 1,0 0 6 ,50 8 859 9 ,735 1,319 1,0 18,42 1 1,70 9 ,241 - 52,9 0 6 5,853 1,76 8,0 0 0 2 ,2 44,485 1,9 0 5 ,9 5 0 3 ,3 6 1,6 89 3 ,5 0 1,10 9 3 ,3 6 1,6 89 3 ,5 0 1,10 9 52 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued) AS AT 30 JUNE 2023 Equity attributable to members of AGHL: Contributed equity Reserves Retained earnings Total equity attributable to members of AGHL: Equity attributable to unitholders of AT: Contributed equity Accumulated losses Total equity attributable to unitholders of AT: Equity attributable to members of AGPL: Contributed equity Retained earnings Total equity attributable to members of AGPL: Equity attributable to unitholders of AIT: Contributed equity Accumulated losses Total equity attributable to unitholders of AIT: Equity attributable to members of ASPT: Contributed equity Reserves Retained earnings Total equity attributable to members of ASPT: Equity attributable to members of ASOL: Contributed equity Reserves Retained earnings Total equity attributable to members of ASOL: TOTAL EQUITY Contributed equity Reserves Retained earnings Reserves of discontinued operations TOTAL EQUITY Notes 2023 $'000 568,862 4,144 63,684 636,690 2022 $'000 568,221 2,941 128,200 699,362 1,373,217 (321,050) 1,052,167 1,372,070 (107,236) 1,264,834 47,064 62,253 109,317 46,983 64,630 111,613 188,472 (140,532) 47,940 188,330 (113,047) 75,283 334,610 259 464,005 798,874 84,424 (31) 632,308 716,701 333,683 (1,346) 412,174 744,511 84,059 (351) 521,798 605,506 12 3,361,689 3,501,109 2,596,649 4,144 760,668 228 3,361,689 2,593,346 1,244 906,519 - 3,501,109 53 CONSOLIDATED STATEMENT OF CASH FLOW YEAR ENDED 30 JUNE 2023 C AS H FLO W S FRO M O PERATIN G AC TIVITIES Income receipts Interest received Distributions received Income tax paid Finance costs paid O perating payments Payments for inventory N ote s 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 326 ,56 0 358,6 0 5 111 853 10 ,136 12,579 (12,0 47) (11,50 3) (46 ,9 52) (31,6 26 ) (159 ,9 88) (134,477) - (9 38) N ET C AS H FLO W S FRO M O PERATIN G AC TIVITIES 8 15 3 ,0 5 0 15 8,2 6 3 C AS H FLO W S FRO M IN VES TIN G AC TIVITIES Payments for investments and funds advanced Proceeds from sale and settlement of investments and funds repaid Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Payments for investment properties and capital expenditure Proceeds from disposal of investment properties Payment for other investments and financial assets (1,158) (326 ,823) 75,325 142,50 2 (8,30 4) (3,745) 8 49 (39 6 ,786 ) (80 5,49 7) 170 ,0 54 83,438 - (48,0 78) N ET C AS H FLO W S U S ED IN IN VES TIN G AC TIVITIES (2 9 5 ,5 14) (82 3 ,5 0 1) C AS H FLO W S FRO M FIN AN C IN G AC TIVITIES Proceeds from issue of stapled securities Payment of issue costs Payment of borrowing costs Repayment of borrowings and financial instruments Repayment of principal portion of lease liabilities Proceeds from borrowing s Distributions paid - 20 3,29 0 (42) (4,0 51) (6 71) (4,39 6 ) (1,783) (6 5,6 6 5) (89 6 ) (1,371) 271,36 4 758,9 34 (16 6 ,547) (10 2,818) N ET C AS H FLO W S FRO M FIN AN C IN G AC TIVITIES 10 1,42 5 783 ,9 2 3 Net increase in cash and cash equivalents from continuing operations Net (decrease)/increase in cash and cash equivalents from discontinued operations N ET IN C REAS E / (DEC REAS E) IN C AS H AN D C AS H EQ U IVALEN TS Net foreig n exchange differences Cash and cash equivalents at beg inning of period 21 39 ,36 5 11,373 79 ,320 (52,412) (41,0 39 ) 118,6 85 22 (172) 57,9 9 2 176 ,50 5 C AS H AN D C AS H EQ U IVALEN TS AT EN D O F PERIO D 8 13 5 ,488 176 ,5 0 5 54 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 30 JUNE 2023 CONSOLIDATED Attributable to the stapled security holders Issued capital $'000 Reserves of discontinued Operations* $'000 Employee equity benefits $'000 Retained earnings $'000 Total equity $'000 At 1 July 2022 2,593,346 (1,697) 2,941 906,519 3,501,109 Other comprehensive income - 1,925 - 1,925 Net income for the period - - - 25,495 25,495 Total comprehensive income for the period Issue costs - 1,925 - 25,495 27,420 (42) - - - (42) Distribution reinvestment plan 3,345 - - - 3,345 Security acquisition rights - - 1,203 - 1,203 Distribution to security holders - - - (171,346) (171,346) At 30 June 2023 2,596,649 228 4,144 760,668 3,361,689 *The reserves of discontinued operations are foreign currency translation reserve. Attributable to the stapled security holders Foreign currency translation reserve $'000 Employee equity benefits $'000 Issued capital $'000 Retained earnings $'000 Total equity $'000 CONSOLIDATED At 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 period - - - 517,165 517,165 Total comprehensive income for the period Equity raisings Issue costs - (1,623) - 517,165 515,542 203,290 - - - 203,290 (4,051) - - - (4,051) Distribution reinvestment plan 44,316 - - - 44,316 Security acquisition rights - - 236 - 236 Distribution to security holders At 30 June 2022 - - - (160,103) (160,103) 2,593,346 (1,697) 2,941 906,519 3,501,109 55 CONTENTS 30 JUNE 2023 Notes to the financial statements About this report Segment information Page 57 Page 59 Results for the period Operating assets 1. Revenue and liabilities 5. Investment properties Capital structure and financing costs 8. Cash and cash equivalents Group Structure Other Items 14. Parent entity financial information 15. Property, plant and equipment 2. Earnings per stapled security 6. Property loans and other financial assets 9. Capital management 3. Expenses 7. Investments accounted for using the equity method 10. Interest bearing loans and borrowings 4. Income Tax 11. Financial instruments 12. Contributed equity 13. Distributions paid and proposed Signed reports Directors’ declaration Independent auditor’s report 16. Commitments and contingencies 17. Related party disclosures 18. Key management personnel 19. Security based payments 20. Intangible assets and goodwill 21. Discontinued Operations 22. Summary of significant accounting policies 23. Auditor’s remuneration 24. Events after balance date Page 113 Page 114 56 NOTES TO THE FINANCIAL STATEMENTS – About this Report 30 JUNE 2023 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 2023 was authorised for issue in accordance with a resolution of the directors on 18 August 2023. 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 The Group makes judgements in respect of the fair value of investment properties (Note 22(n)). The fair values of these properties are reviewed regularly by management with reference to external independent property valuations and market conditions existing at reporting date, using generally accepted market practices. The assumptions underlying estimated fair values are those relating to the receipt of contractual rents, expected future market rentals, maintenance requirements, capitalisation rates and discount rates that reflect current market conditions and current or recent property investment prices. These judgements, assumptions and estimates have also been applied to investment properties held through investments accounted for using the equity method. 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. 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 based on discounted cash flow analysis using assumptions supported by observable market rates adjusted for counterparty creditworthiness. 57 NOTES TO THE FINANCIAL STATEMENTS – About this Report 30 JUNE 2023 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued) 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 20. 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. 58 NOTES TO THE FINANCIAL STATEMENTS – Segment Information 30 JUNE 2023 The Group predominately operates in Australia. The Group’s operating segments are regularly reviewed by the Chief Operating Decision Maker (“CODM”) to make decisions about resource allocation and to assess performance. The Group’s operating segments are: (a) Continuing Operations – Commercial: the segment is responsible for the management and ownership of commercial (office and other) properties. This segment also includes the equity accounting of co-investments in property entities and secured property loan; and (b) Discontinued Operations – Self Storage: the segment is responsible for the management, operation and ownership of self storage properties. This segment also includes the operating business Storage King, ownership of listed securities and equity accounting of co-investments. The FY22 segment information on net profit and balance sheet have been restated to split the continuing operations and discontinued operations into separate segments. The segment result includes transactions between operating segments which have been eliminated. 59 NOTES TO THE FINANCIAL STATEMENTS – Segment Information 30 JUNE 2023 Year ended 30 June 2023 Revenue Rental income Finance income Fee income Total revenue Other income Total consolidated revenue and other income Core Continuing Discontinued operations operations Commercial Self Storage Consolidated $'000 $'000 $'000 147,075 190,454 337,529 3,483 450 3,933 1,455 16,824 18,279 152,013 207,728 359,741 60 11,426 11,486 152,073 219,154 371,227 Net change in fair value of investments and financial instruments derecognised Net change in fair value of investment properties derecognised (1,023) 12,254 11,231 (9,097) (60) (9,157) Net change in fair value of investments held at balance date (854) 16,485 15,631 Share of loss from equity accounted investments (8,846) (314) (9,160) * ^ Net change in investment properties held at balance date (247,617) 150,304 (97,313) Property expenses and outgoings Depreciation and amortisation expense Administrative and other expenses Costs associated with de-stapling Segment result Net change in fair value of derivatives Finance costs Profit/(loss) before tax Income tax expense (41,880) (42,758) (84,638) (5,800) (3,434) (9,234) (35,361) (43,470) (78,831) (4,097) (4,138) (8,235) (202,502) 304,023 101,521 (20,220) 13,559 (6,661) (9,893) (43,802) (53,695) (232,615) 273,780 41,165 (5,650) (10,020) (15,670) Net profit/(loss) for the year attributable to members of the Group (238,265) 263,760 25,495 ^ includes fair value loss of $15.4 million * includes fair value loss of $0.7 million 60 NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued) 30 JUNE 2023 Ye ar ended 3 0 June 2 0 2 2 Reve nue Rental income Finance income Fee income Total reve nue O ther income Total c ons olidated reve nue and other inc ome Net change in fair value of property, plant and equipment, investments and financial instruments derecognised C ore C ommerc ial N on-C ore S elf S torage Deve lopme nt C ons olidate d $ '0 0 0 $ '0 0 0 $ '0 0 0 $ '0 0 0 130 ,539 16 0 ,538 - 2 9 1,0 77 3,0 30 5 8,19 9 11,2 3 4 2,0 82 15,228 - 17,3 10 13 5 ,6 5 1 175 ,771 8,19 9 3 19 ,6 2 1 324 10 ,9 6 1 - 11,2 85 13 5 ,975 186,73 2 8,19 9 3 3 0 ,9 0 6 (10 7) 5,0 33 - 4,9 2 6 Net change in fair value of investment properties derecognised (9 9 2) (43) - (1,0 3 5 ) Net change in fair value of investments held at balance date Net change in investment properties held at balance date Share of profit from equity accounted investments Property expenses and outgoings Depreciation and amortisation expense Impairment charges Administrative and other expenses S e gment re s ult 6 22 40 ,30 8 ^ 13,441 17,286 30 5,242 - 17,9 0 8 - 3 45 ,5 5 0 - (12) 13 ,42 9 (33,370 ) (36 ,276 ) - (6 9 ,6 46 ) (6 ,0 70 ) (2,9 32) - (9 ,0 0 2 ) (1,0 28) - (3,875) (4,9 0 3 ) (29 ,289 ) (37,30 1) (3,452) (70 ,0 42 ) 119,490 43 7,741 86 0 5 5 8,0 9 1 Net change in fair value of derivatives 28,10 1 - - 28,10 1 Finance costs Profit be fore tax Income tax expense (19 ,217) (19 ,343) - (38,560 ) 12 8,3 74 418,3 9 8 (9 ,9 9 5) (20 ,472) 86 0 5 47,6 3 2 - (30 ,46 7) N e t profit for the ye ar attributable to membe rs of the G roup 118,3 79 3 9 7,9 2 6 86 0 5 17,16 5 ^ includes fair value gain of $4.9 million 61 NOTES TO THE FINANCIAL STATEMENTS – Segment Information (continued) 30 JUNE 2023 As at 3 0 June 2 0 2 3 Current assets Non-current assets Total as s ets Current liabilities Non-current liabilities Total liabilitie s N e t as s ets C ontinuing O pe rations C omme rc ial $ '0 0 0 152,876 2,380 ,882 2 ,5 3 3 ,75 8 83,6 6 3 1,0 18,421 1,10 2 ,0 84 Dis c ontinue d O pe rations S e lf S torage * $ '0 0 0 3,0 72,416 Total $ '0 0 0 3 ,2 2 5 ,2 9 2 - 2 ,3 80 ,882 5 ,6 0 6 ,174 3 ,0 72 ,416 1,142,40 1 1,2 2 6 ,0 6 4 - 1,0 18,42 1 2 ,2 44,485 1,142 ,40 1 1,43 1,6 74 1,9 3 0 ,0 15 3 ,3 6 1,6 89 Total facilities - bank loans Facilities used at reporting date - bank loans Fac ilitie s unus ed at re porting date - bank loans 1,0 57,750 2,0 57,750 1,0 0 0 ,0 0 0 (9 72,750 ) (9 79 ,10 7) (1,9 51,857) 10 5 ,89 3 2 0 ,89 3 85 ,0 0 0 * Details of assets and liabilities are disclosed in Note 21. As at 3 0 June 2 0 2 2 Current assets Non-current assets Total as s ets Current liabilities Non-current liabilities Total liabilitie s N e t as s ets C omme rc ial $ '0 0 0 111,0 6 1 2,584,440 2 ,6 9 5 ,5 0 1 S e lf S torag e $ '0 0 0 137,0 6 6 2,574,49 2 2 ,711,5 5 8 Total $ '0 0 0 2 48,12 7 5 ,15 8,9 3 2 5 ,40 7,0 5 9 48,342 9 43,132 9 9 1,474 89 ,6 0 8 824,86 8 9 14,476 13 7,9 5 0 1,76 8,0 0 0 1,9 0 5 ,9 5 0 1,70 4,0 2 7 1,79 7,0 82 3 ,5 0 1,10 9 Total facilities - bank loans Facilities used at reporting date - bank loans Fac ilitie s unus ed at re porting date - bank loans 2,0 57,750 (1,6 77,0 11) 3 80 ,73 9 62 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 1. REVENUE Finance income Interest and fee income on secured loans - amortised cost Interest and fee income on secured loans - fair value Bank interest Total finance income 2. EARNINGS PER STAPLED SECURITY 2023 $'000 2022 $'000 2,963 2,924 - 8,199 106 520 11,229 3,483 2 0 2 3 2 0 2 2 B asic and diluted earnings per stapled security (cents) B asic and diluted earnings per stapled security for continuing operations (cents) 2.85 (26 .6 7) 6 1.11 14.0 9 Rec onc iliation of earnings us ed in c alc ulating earnings per s tapled s ec urity Basic and diluted earnings per stapled security Continuing operations Discontinued operations N et profit ($ '0 0 0 ) W eighted average number of sec urities : W eighted average number of stapled securities for basic earning per security ('0 0 0 ) 3. EXPENSES (a) N e t c hange in fair value of inves tments he ld at balanc e date Net change in fair value of listed and unlisted property securities held at balance date Net change in fair value of property loans held at balance date Net change in fair value of other investments held at balance date Total c hange in fair value of inves tments he ld at balanc e date (238,26 5) 26 3,76 0 2 5 ,49 5 119 ,239 39 7,9 26 5 17,16 5 89 3,452 846 ,26 0 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 1,0 68 (6 30 ) - - (214) 8 85 4 (6 2 2 ) (b) De prec iation and amortis ation expens es Depreciation and amortisation of property, plant and equipment and intangible assets Amortisation - leasing costs Total deprec iation and amortis ation expens es 9 12 4,888 5 ,80 0 1,40 1 4,6 69 6 ,0 70 (c ) Financ e c os ts Interest on loans Amortisation of finance costs Total financ e c os ts (d) Adminis trative and othe r e xpe ns es W ages and salaries Contributions to defined contribution plans O ther expenses Restructuring cost Total adminis trative and other e xpe ns e s 9 ,49 1 40 2 9,893 16,157 3,0 6 0 19 ,2 17 25,40 6 1,544 8,16 5 4,343 3 9,45 8 23,39 7 1,113 8,231 - 3 2 ,741 63 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 4. INCOME TAX (a) Inc ome tax e xpens e The major components of income tax expense are: Inc ome S tateme nt C urrent in come tax Current income tax charg e Adjustments in respect of current income tax of previous years Deferred in come tax Relating to origination and reversal of temporary differences Total inc ome tax expe ns e 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 7,119 (7,733) 6 70 26 4 (1,733) 5 ,6 5 0 17,0 58 9 ,9 9 5 (b) N umeric al rec onc iliation be tw e en agg re g ate tax e xpens e rec og nis e d in the inc ome s tate me nt and tax e xpe ns e c alc ulate d pe r the s tatutory inc ome tax rate A reconciliation between tax expense and the product of the accounting profit before income tax multiplied by the G roup's applicable income tax rate is as follows: Profit/(loss) before tax from continuing operations Profit before tax from discontinued operations Profit before inc ome tax e xpe ns e (232,6 15) 273,780 41,16 5 129 ,235 418,39 7 547,6 32 Prima facie income tax expense calculated at 30 % (AU ) Prima facie income tax expense calculated at 28% (NZ) Less prima facie income tax expense on profit from Trusts Prima Facie income tax of entities subject to income tax Adjustment of prior year tax applied U nrecognised tax benefit on tax losses Share of results of joint ventures and associates Security acquisition rig hts O ther items (net) Total inc ome tax expe ns e Less income tax expense attributable to discontinued operations Inc ome tax e xpens e attributable to c ontinuing ope rations 16 3,218 11,6 0 4 6 9 6 1,0 0 0 (1,184) (135,853) 28,36 5 11,116 6 54 270 4,59 0 1,6 14 (387) (418) 71 (152) 181 233 15 ,6 70 3 0 ,46 7 (10 ,0 20 ) (20 ,472) 9 ,9 9 5 5 ,6 5 0 64 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 4. INCOME TAX (continued) 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 (c ) Rec og nis ed deferred tax as s ets and liabilities Deferred income tax relates to the following: Deferred tax liabilities Revaluation of investment properties at fair value 36 ,551 40 ,125 Revaluation of investments and financial instruments at fair value 1,775 39 7 Capital allowances 2,140 2,29 9 B rand 9 ,489 9 ,489 O ther 8,9 6 8 9 ,782 G ros s deferred inc ome tax liabilitie s 5 8,9 2 3 6 2 ,0 9 2 Set off ag ainst deferred tax assets (4,872) (6 ,0 17) N et de ferred inc ome tax liabilities 5 2 ,9 0 6 5 7,2 2 0 Less deferred tax liabilities attibutable to discontinued operations (47,485) Deferred tax liabilities 9 ,73 5 Deferred tax as s ets Revaluation of investments and financial instruments at fair value Provisions - employee entitlements Losses available for offset against future taxable income O ther G ros s deferred inc ome tax as s ets Set off of deferred tax liabilities N et de ferred inc ome tax as s ets Less deferred tax assets attibutable to discontinued operations Deferred tax as s ets - 6 5 4,126 4,80 4 16 ,885 10 ,20 4 9 39 1,50 5 16 ,5 13 2 2 ,0 15 (4,872) (6 ,0 17) 15 ,9 9 8 11,6 41 - 11,6 41 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 entities 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. 65 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 5. INVESTMENT PROPERTIES 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 Leasehold investm ent p ro perties 1 F reehold investm ent prop erties T otal inve s tm e nt prop e rtie s 13,0 22 4,6 9 9 ,0 13 4,7 12 ,0 3 5 The carrying amount of the leasehold property is presented gross of the finance liability of $2.4 million (30 June 2022: $2.5 million). 1. 13,27 2 4,48 7 ,310 4,5 0 0 ,5 8 2 Inve s tme nt prope rtie s - c ontinuing ope rations Commercial Self Storag e Total inve s tme nt prope rtie s Inve s tme nt prope rtie s - dis c ontinue d ope rations Self Storag e Total inve s tme nt prope rtie s inc luding he ld for s ale Reconciliation 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 2,0 9 9 ,876 2,26 0 ,6 33 - 2,239 ,9 49 4,5 0 0 ,5 82 2 ,0 9 9 ,876 2,6 12,159 4,712 ,0 3 5 - 4,5 0 0 ,5 82 A reconciliation of the carrying amount of investment properties at the beginning and end of the period is as follows. All investment properties are classified as Level 3 in accordance with the fair value hierarchy outlined in Note 11: Continuing Opera tio ns Freehold investment properties Carrying amount at beginning of the financial period Additions Capital expenditure Net change in fair value as at balance date Net change in fair value derecognised Disposals Straightlining 1 C arrying amount at end of the period Held for sale N on-c urrent 3 0 Jun 2 02 3 $ '00 0 3 0 Jun 2 02 2 3 0 Jun 2 02 3 3 0 Jun 2 0 2 2 $ '00 0 $ '0 00 $ '0 00 1,758,166 2,260 ,633 - 161,571 50 8,927 - 99,50 6 - 72,353 77,385 - 511 - 40 ,308 - (247,617) - (685) (9,097) (30 7) - (161,39 7) (83,061) (120,695) 1,881 - 2,127 - 2 ,2 60 ,63 3 - 2 ,099 ,876 - 66 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 5. INVESTMENT PROPERTIES (continued) Discontinued Operations Leasehold investment properties Carrying amount at beginning of the financial period Capital expenditure Net change in fair value as at balance date Carrying amount at end of the period Freehold investment properties Carrying amount at beginning of the financial period Additions Capital expenditure Net change in fair value as at balance date Net change in fair value derecognised Effect of movements in foreign exchange Carrying amount at end of the period 2023 $'000 13,272 14 (264) 13,022 2022 $'000 11,613 27 1,632 13,272 30 Jun 2022 30 Jun 2023 $'000 $'000 1,418,592 2,226,677 142,358 466,833 46,396 74,242 150,568 303,610 (60) (44) 5,352 (8,710) 2,599,137 2,226,677 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 Weighted average 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 Decrease Increase Increase Decrease Increase Increase Decrease Decrease Increase 67 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 5. INVESTMENT PROPERTIES (continued) 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 valuers who are experienced in valuing the types of properties in the applicable locations. Investment properties are independently valued on a staggered basis every two years unless the underlying financing requires a different valuation cycle. The majority of the investment properties are used as security for secured bank debt outlined in Note 10. The weighted average capitalisation rate for Abacus is 5.64% (30 June 2022: 5.39%) and for each significant category above is as follows: - Self Storage – 5.57% (30 June 2022: 5.45%) - Commercial – 5.71% (30 June 2022: 5.33%) The optimal occupancy rate utilised in the valuation process ranged from 82.5% to 100.0% (30 June 2022: 80.0% to 100.0%). The current occupancy rate for the principal commercial portfolio excluding development and self storage assets is 95.1% (30 June 2022: 95.0%). The occupancy rate for the established self storage portfolio is 91.3% (30 June 2022: 92.9%). The key assumptions and estimates used in the valuations include: • forecast future rental income, based on the location, type and quality of the property, which are supported by the terms of any existing leases, other contracts or external evidence such as current market rents for similar properties; • • lease assumptions based on current and expected future market conditions after expiry of any current lease; and the capitalisation rate and discount rate derived from recent comparable market transactions. The property valuations have been prepared based on the information that is available at 30 June 2023. In the event that there are any unanticipated material circumstances, this may 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 $96.1 million or decrease the fair value by $88.1 million respectively. During the year ended 30 June 2023, 100% (2022: 60%) of the number of investment properties in the portfolio were subject to external valuations. Those properties that were subject to an external valuation prior to 30 June 2023 were subject to an internal valuation at 30 June 2023. 68 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 5. INVESTMENT PROPERTIES (continued) C omme rc ial 9 9 W alker Street, North Sydney NSW 77 Castlereag h St, Sydney NSW 20 1 Elizabeth Street, Sydney NSW The O asis, B roadbeach Q LD 314-336 B ourke Street, Melbourne VIC 452 Johnston Street, Abbotsford VIC 14 Martin Place, Sydney NSW Industry Lanes, Richmond, VIC W estpac House, Adelaide SA 324 Q ueen Street, B risbane Q LD 1 Ashfield Shopping Centre, Ashfield NSW Kingsg ate, Fortitude Valley Q LD 181 James Ruse Drive, Camellia NSW 51 Allara Street, Canberra ACT - Current Market Central, Lutwyche Q LD 11 B owden Street, Alexandria NSW O ther (2 assets; 20 22: 4 assets) 2 Total C omme rc ial S elf S torag e NSW (47 facilities; 20 22: 42 facilities) 3 VIC (25 facilities; 20 22: 23 facilities) 4 Q LD (24 facilities; 20 22: 21 facilities) 5 ACT (6 facilities; 20 22: 6 facilities) W A (10 facilities; 20 22: 10 facilities) SA (3 facilities; 20 22: 2 facilities) NZ (15 facilities; 20 22: 15 facilities) Total S elf S torage 6 O w ne rs hip Inte res t % Fair Value 2 0 2 3 $ '0 0 0 C apitalis ation Rate 2 0 2 3 % Fair Value 2 0 2 2 $ '0 0 0 10 0 288,0 0 0 10 0 225,50 0 32 215,36 0 10 0 178,0 0 0 33 150 ,0 0 0 10 0 133,0 0 0 50 112,50 0 50 10 4,0 0 0 50 86 ,0 0 0 10 0 16 9 ,0 0 0 50 77,76 6 50 78,0 0 0 10 0 6 6 ,0 0 0 10 0 6 1,0 0 0 50 6 0 ,350 10 0 45,0 0 0 10 0 50 ,40 0 5.50 30 8,0 0 0 5.13 250 ,0 0 0 5.13 227,20 0 6 .75 178,0 0 0 5.6 3 153,333 5.50 140 ,0 0 0 5.13 121,50 0 5.13 110 ,850 6 .88 9 1,250 6 .13 9 1,250 5.75 88,0 0 0 6 .25 82,0 0 0 N/A 77,50 0 6 .75 72,50 0 6 .25 70 ,350 5.88 55,50 0 5.13 143,40 0 C apitalis ation Rate 2 0 2 2 % 5.0 0 4.6 3 4.6 3 6 .75 5.50 5.25 4.75 4.75 6 .50 5.6 3 5.50 5.75 N/A 6 .25 5.75 5.25 4.9 1 2 ,0 9 9 ,876 5 .71 2 ,2 6 0 ,6 3 3 5 .3 3 10 0 9 6 0 ,332 10 0 428,881 10 0 420 ,415 10 0 285,0 9 7 10 0 185,382 10 0 29 ,6 6 0 10 0 30 2,39 2 2 ,6 12 ,15 9 5.20 829 ,9 14 5.78 378,239 5.6 6 326 ,36 5 5.28 249 ,16 2 6 .28 149 ,132 6 .0 0 23,30 8 6 .0 0 283,829 2 ,2 3 9 ,9 49 5 .5 7 5.0 6 5.57 5.53 5.28 6 .42 5.87 5.82 5 .45 1. In August 2022, Abacus acquired remaining 50% interest in 324 Queen St, Brisbane QLD. 2. In June 2023, Abacus has divested 2 non-core assets being 187 Todd Road, VIC and 33 Queen St QLD. 3. Abacus has acquired 5 properties in NSW being Chatswood, Leumeah, Carlton, Croydon and Kogarah. 4. Abacus has acquired 2 properties in VIC being Dandenong and Mulgrave. 5. Abacus has acquired 3 properties in QLD being Loganholme, Capalaba and Currumbin. 6. Abacus has acquired 1 property in Darlington SA. 69 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 6. PROPERTY LOANS AND OTHER FINANCIAL ASSETS (a) N on-c urre nt prope rty loans Secured loans - amortised cost Provision for secured loans - am ortised cost (b) N on-c urre nt othe r financ ial as s e ts O ther financial assets Investm ent in securities and options - unlisted - fair value 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 53,148 53,148 (6 ) (4) 5 3 ,144 5 3 ,142 - 240 ,46 9 3,86 5 2 44,3 3 4 3,9 87 3 ,9 87 Other financial assets associated with discontinued operations of $224.1 million was disclosed in Note 21. 70 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 7. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (a) Extract from joint ventures and associates’ profit and loss statements F o rd tran s P ty L td * A W 7 10 C o llin St T ru st Oth er J o in t V en tu res T o tal 2023 $'000 2022 $'000 2023 $'000 2022 $'000 2023 $'000 2022 $'000 2023 $'000 2022 $'000 Revenue E xpenses 10,286 12,032 8,617 10,112 9,528 16,984 28,431 39,128 (6,899) (4,446) (16,730) (1,776) (21,837) (5,254) (45,466) (11,476) N et p ro fit / (lo ss) 3,38 7 7 ,58 6 (8 ,113) 8 ,336 (12,309) 11,7 30 (17 ,035) 27 ,652 Sh are o f n et p ro fit / (lo ss) 1,631 3,621 (4 ,238 ) 3,8 8 6 (6,239) 5,922 (8 ,8 4 6) 13,4 29 *Included in the net profit of Fordtrans Pty Ltd for the year ended 30 June 2023: Interest income $0.8 million (2022: $1.5 million) and interest expense $1.6 million (2022: $1.5 million) (b) Extract from joint ventures and associates’ balance sheets F o rd tran s P ty L td * A W 7 10 C o llin St T ru st Oth er J o in t V en tu res T o tal 2023 $'000 2022 $'000 2023 $'000 2022 $'000 2023 $'000 2022 $'000 2023 $'000 2022 $'000 2,732 5,824 964 772 84,111 3,939 87,807 10,535 246,627 245,859 103,000 117,000 13,845 108,467 363,472 471,326 249,359 251,683 103,964 117,772 97,956 112,406 451,279 481,861 (82,093) (5,911) (3,662) (3,548) (35,244) (12,562) (120,999) (22,021) - (79,554) - - (13,223) (34,825) (13,223) (114,379) 167 ,266 166,218 100,302 114 ,224 4 9,4 8 9 65,019 317 ,057 34 5,4 61 C urrent assets N on-current assets C urrent liabilities N on-current liabilities N et assets Sh are o f n et assets 8 3,633 8 3,109 50,151 57 ,112 24 ,8 90 32,7 4 0 158 ,67 4 17 2,961 *Included in the net assets of Fordtrans Pty Ltd as at 30 June 2023: cash and cash equivalents $0.6 million (2022: $4.1 million), current interest bearing loans and borrowings $75.0 million (2022: $Nil) and non-current interest bearing loans and borrowings $Nil (2022: $65.1 million). There were no impairment losses or contingent liabilities relating to the investment in the joint ventures and associates. 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 2023 was $1.2 million (2022: $2.3 million). 2. AW 710 Collins Street Trust (“710 Collins”) Abacus’ share of distributions (including capital distributions) for the year ended 30 June 2023 was $2.9 million (2022: $2.0 million). 71 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 8. CASH AND CASH EQUIVALENTS Reconciliation to Statement of Cash Flow For the purposes of the Statement of Cash Flow, cash and cash equivalents comprise the following: Cash at bank and in hand 1 Cash at bank and in hand attributable to discontinued operations1 Cash and cash equivelants 71,9 0 0 6 3,588 13 5 ,488 176 ,50 5 - 176 ,5 0 5 1. C ash at bank earns interest at floating rates. The carrying amounts of cash and cash equivalents represent fair value. 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 Net profit from continuing operations Net profit from discontinued operations Net profit Adjus tme nts for: Depreciation and amortisation of non-current assets Net chang e in fair value of derivatives Net chang e in fair value of investment properties held at balance date Net chang e in fair value of investments held at balance date Net chang e in fair value of investment properties derecognised Net chang e in fair value of investment and financial instruments derecognised Net (gain) / loss on disposal of property, plant and equipment Share of profit from equity accounted investments Increase / (decrease) in payables (Increase) / decrease in receivables and other assets N e t c as h from operating ac tivitie s (a) Disclosure of financing facilities Refer to Note 10. (b) Disclosure of non-cash financing facilities (238,26 5) 26 3,76 0 25,49 5 119 ,239 39 7,9 26 517,16 5 9 ,234 9 ,0 0 2 6 ,6 6 1 (28,10 1) 9 7,313 (345,550 ) (15,6 31) (17,9 0 7) 9 ,157 1,0 35 (11,26 6 ) (4,9 19 ) 35 (8) 9 ,16 0 (13,429 ) 24,9 86 21,9 40 15,9 89 9 52 15 8,2 6 3 15 3 ,0 5 0 Non-cash financing activities include capital raised pursuant to the Abacus distribution reinvestment plan. During the year 1.2 million (2022: 13.7 million) stapled securities were issued with a cash equivalent of $3.3 million (2022: $44.3 million). 72 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 9. 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 extended the earliest dated tranches of both its Headstock syndicated facility and Self Storage syndicated facility by one year to July 2024. Abacus has no bank debt expiring in the financial year ending 30 June 2024, 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 $11 million Bilateral facility. The total gearing covenant requires Abacus to have total liabilities (net of cash) to be less than or equal to 50% of total tangible assets (net of cash). As at date of reporting period, Abacus was compliant in meeting all its debt covenants. 73 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 10. INTEREST BEARING LOANS AND BORROWINGS N on-c urrent B ank loans - A$ B ank loans - A$ value of NZ$ denominated loan Loan from related party - A$ Less: U namortised borrowing costs (a) Total non-c urrent (b) M aturity profile of non-c urre nt interes t bearing loans Due within one year Due between one and five years Due after five years 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 9 72,757 1,49 2,137 - 184,885 34,222 32,6 54 (471) (435) 1,70 9 ,2 41 1,0 0 6 ,5 0 8 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 - 789 ,0 0 8 217,50 0 1,0 0 6 ,5 0 8 - 883,172 826 ,0 69 1,70 9 ,2 41 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 including discontinued operations are A$ and NZ$ denominated and are provided by several banks at interest rates which are set periodically on a fixed or floating basis. The loan facilities term to maturity varies from July 2024 to July 2028. The bank loans are secured by charges over the investment properties and certain property, plant and equipment. Including the discontinued operations, approximately 61.3% (30 June 2022: 76.1%) of bank debt drawn was subject to fixed rate hedges and the drawn bank debt had a weighted average term to maturity of 3.5 years (30 June 2022: 4.7 years). Hedge cover as a percentage of available facilities at 30 June 2023 is 58.2% (30 June 2022: 62.1%). 100% of the available facilities and drawn bank for the continued operations were subject to fixed rate hedges, and the drawn bank debt had a weighted average term to maturity of 3.8 years. Abacus’ weighted average interest rate including discontinued operations for the year ended 30 June 2023 was 2.78% (30 June 2022: 2.07%). The weighted average interest rate for the continued operations for the year ended 30 June 2023 was 1.12%. The weighted average interest rate included line fees on undrawn facilities. (c) Assets pledged as security The carrying amounts of assets pledged as security for current and non-current interest bearing liabilities are: N on-c urrent First mortgage Investment properties Total non-current assets pledged as security Total as s ets pledge d as s e c urity 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 2,0 9 9 ,876 2,0 9 9 ,876 4,0 6 2,149 4,0 6 2,149 2 ,0 9 9 ,876 4,0 6 2 ,149 Total assets pledged as security associated with discontinued operations was $2,150 .6 million. (d) Defaults and breaches During the current and prior years, there were no defaults or breaches of any of the Group’s loans. 74 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 11. 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 current inflationary environment, 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). 75 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 11. FINANCIAL INSTRUMENTS (continued) (a) Credit risk (continued) Credit risk exposures The Group’s maximum exposure to credit risk at the reporting date was: Receivables Listed and unlisted property securities Cash and cash equivalents Derivatives C as h and othe r financ ial as s e ts Secured property loans - amortised cost * S e c ure d prope rty loans Total c re dit ris k e xpos ure * The secured property loan is with one borrower. (b) Liquidity Risk C arry ing Amount 2 0 2 3 $ '0 0 0 46 ,6 37 3,9 87 71,9 0 0 44,824 16 7,3 48 2 0 2 2 $ '0 0 0 43,472 244,334 176 ,50 5 58,9 41 5 2 3 ,2 5 2 53,142 5 3 ,142 53,144 5 3 ,144 2 2 0 ,49 0 5 76 ,3 9 6 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. 3 0 June 2 0 2 3 L iab ilities C arrying C ontrac tual 1 Ye ar or O ve r 1 ye ar Amount $ '0 0 0 c as h flow s $ '0 0 0 le s s $ '0 0 0 to 5 ye ars $ '0 0 0 O ve r 5 ye ars $ '0 0 0 Trade and other payables Interest bearing loans and borrowing s incl derivatives# Total liabilitie s 57,584 1,0 0 6 ,50 8 1,0 6 4,0 9 2 57,584 1,214,877 1,2 72 ,46 1 57,584 48,414 - 9 48,852 10 5 9 9 8 9 48,85 2 - 217,6 11 2 17,6 11 76 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 11. FINANCIAL INSTRUMENTS (continued) (b) Liquidity risk (continued) 3 0 June 2 0 2 2 L iab ilities C arrying C ontrac tual 1 Ye ar or O ve r 1 ye ar Amount $ '0 0 0 c as h flow s $ '0 0 0 le s s $ '0 0 0 to 5 ye ars $ '0 0 0 O ve r 5 y e ars $ '0 0 0 Trade and other payables Interest bearing loans and borrowing s incl derivatives# Total liabilitie s 127,0 30 1,70 9 ,241 1,83 6 ,2 71 127,0 30 2,0 79 ,133 2 ,2 0 6 ,16 3 127,0 30 53,0 73 180 ,10 3 - 1,177,30 6 1,177,3 0 6 - 848,754 848,75 4 # Carrying amount includes fair value of derivative liabilities. Contractual cash flow 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 2023, after taking into account the effect of interest rate swaps, approximately 61.3% (2022: 76.1%) of the Group’s drawn debt is subject to fixed rate hedges. Hedge cover as a percentage of available facilities at 30 June 2023 is 58.2% (2022: 62.1%). As the Group holds interest rate swaps against its variable rate debt there is a risk that the economic value of a financial instrument will fluctuate because of changes in market interest rates. 77 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 11. FINANCIAL INSTRUMENTS (continued) (c) Market 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: W eighted average interest rate*^ 4.0 7% 5.50 % 3 0 June 2 0 2 3 Financ ial As s e ts Cash and cash equivalents Receivables Secured loans Derivatives Other financial assets Total financ ial as s ets Financ ial liabilities Interest bearing liabilities - bank Interest bearing liabilities - other Derivatives Payables Total financ ial liabilities Notional principal swap balance maturities* W eighted average interest rate on drawn bank debt* Floating Fixed interes t Fixed interes t Fixed interes t N on interes t interes t rate les s than 1 year 1 to 5 years over 5 years $ '0 0 0 $ '0 0 0 $ '0 0 0 $ '0 0 0 bearing $ '0 0 0 Total $ '0 0 0 71,9 0 0 - - - 30 ,283 - - - - - - 53,142 14,541 - 6 7,6 83 3 0 ,2 83 - 71,9 0 0 926 ,0 0 7 - 46 ,750 - 34,222 859 - - 20 ,60 3 - - - 9 2 6 ,0 0 7 2 0 ,6 0 3 81,83 1 - - 46 ,6 37 - - - 3,9 87 - 5 0 ,6 2 4 - 71,9 0 0 46 ,637 - 53,142 - 44,824 3,9 87 2 2 0 ,49 0 - (471) - - - 57,584 - 5 7,113 9 72,286 - 34,222 - 21,46 2 57,584 1,0 85 ,5 5 4 - 9 50 ,0 0 0 1,110 ,0 0 0 - - 2,0 6 0 ,0 0 0 1.12% 78 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 11. FINANCIAL INSTRUMENTS (continued) (c) Market risk (continued) 3 0 June 2 02 2 Financ ial Assets Cash and cash equivalents Receivables Secured loans Derivatives Other financial assets Total financ ial assets Floating Fixed interest Fixed interest Fixed interest N on interest interest rate less than 1 year 1 to 5 years over 5 years $ '000 $ '000 $ '000 $ '000 bearing $ '000 Total $ '000 176,505 - - - 20,869 - - - - 53,144 38,072 - - - - 176,505 2 0,869 91,2 16 - - 43,472 - - - 244,334 - 2 87,806 - 176,505 43,472 - 53,144 - 58,941 244,334 576,3 96 Weighted average interest rate*^ 0.85% 5.50% Financ ial liabilities Interest bearing liabilities - bank Interest bearing liabilities - other Payables Total financ ial liabilities Notional principal swap balance maturities* Weighted average interest rate on drawn bank debt* 1,630,261 - - 1,630,2 61 - 46,750 - 32,654 - - 79,404 - - (424) - - 127,030 - 12 6,606 1,676,587 - 32,654 127,030 1,83 6,2 71 - 780,000 1,175,000 - - 1,955,000 2.07% calculated for the year ended 30 June * ^ weighted average interest rate excludes the impact of derivatives The following table is a summary of the interest rate sensitivity analysis: 30 June 2023 Financial assets Financial liabilities 30 June 2022 Financial assets Financial liabilities Carrying amount Floating $'000 -1% Profit $'000 AUD Equity $'000 +1% Profit $'000 Equity $'000 71,900 (719) 926,007 (4,138) - 719 - 5,761 - - Carrying amount Floating $'000 -1% Profit $'000 AUD Equity $'000 +1% Profit $'000 Equity $'000 176,505 (1,765) 1,630,261 3,611 - 1,765 - 14,623 - - 79 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 11. 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. Details of the Group’s fair value measurement, valuation technique and inputs are detailed below. Class of assets / liabilities Fair value hierarchy Investment properties Level 3 Valuation technique Discounted Cash Flow (""DCF"") Direct comparison Income capitalisation method Securities and options – unlisted Level 3 Pricing models Derivative – financial instruments Level 2 DCF (adjusted for counterparty Credit worthiness) Inputs used to measure fair value Net Operating income Adopted capitalisation rate Rate per unit Optimal occupancy Adopted discount rate Security price Underlying net asset Property valuations Interest rates Consumer price index (“CPI”) Volatility Securities and options – listed Level 1 Quoted prices (unadjusted) in active Market for identical assets or liabilities Quoted security price Level 1 Level 2 Quoted prices (unadjusted) in active market for identical assets or liabilities; Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 Inputs for the asset or liability that are not based on observable market data. There were no transfers between Levels 1, 2 and 3 during the period. Income capitalisation method This method involves assessing the total net market income receivable from the property and capitalising this in perpetuity to derive a capital value, with allowances for capital expenditure reversions. 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. 80 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 11. 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 period ended 30 June 2023. Opening balance as at 30 June 2022 Fair value movement through the income statement Additions Disposals Closing balance as at 30 June 2023 Opening balance as at 30 June 2021 Fair value movement through the income statement Additions Disposals Closing balance as at 30 June 2022 Sensitivity of Level 3 - unlisted securities and options Secured Unlisted loans securities/ Total (fair value) $'000 options $'000 $'000 - 3,865 3,865 - (846) (846) - 968 968 - - - 3,987 - 3,987 Secured Unlisted loans securities/ Total (fair value) $'000 options $'000 $'000 70,536 67,946 2,590 - 629 629 - 646 646 - (67,946) 3,865 - 3,865 (67,946) 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 (30 June 2022: $0.1 million) or increase the fair value by $0.1 million (30 June 2022: $0.1 million) respectively. 81 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 12. CONTRIBUTED EQUITY (a) Issued stapled securities Stapled securities Issue costs Total contributed equity (b) Movement in stapled securities on issue At beginning of financial period - equity raisings - distribution reinvestment plan Securities on issue at end of financial period 13. DISTRIBUTIONS PAID AND PROPOSED 2022 2023 $'000 $'000 2,649,833 2,646,488 (53,184) (53,142) 2,593,346 2,596,649 Stapled securities Number 2023 '000 Number 2022 '000 892,429 818,591 - 60,145 13,693 1,229 892,429 893,658 2023 $'000 2 02 2 $'000 (a) Distributions paid during the period June 2022 half: 9.25 cents per stapled security (2021: 8.50 cents) December 2022 half: 9.00 cents per stapled security (2021: 8.75 cents) 82,550 80,429 73,673 72,784 (b) Distributions declared and recognised as a liability^ June 2023 half: 9.40 cents per stapled security (2022: 9.25 cents) 84,004 82,550 ^ The final distribution of 9.40 cents per stapled security declared on 19 June 2023. The distribution being paid on or around 31 August 2023 will be approximately $84 million. Distributions were paid from Abacus 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 $120 million (2022: $103 million). $87.5 million is attributable to continuing operations and $32.5 million is attributable to discontinued operations. 82 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 14. PARENT ENTITY FINANCIAL INFORMATION Re s ults of the pare nt e ntity Profit for the year Total c ompre he ns ive e xpe ns e for the y e ar Financ ial pos ition of the pare nt e ntity at ye ar e nd Current assets Total as s e ts Current liabilities Total liabilitie s N e t as s e ts Total e quity of the pare nt e ntity c ompris ing of: Issued capital Retained earning s / Accumulated losses Employee options reserve Total e quity (a) Parent entity contingencies 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 9 5,6 0 8 9 5 ,6 0 8 4,89 0 4,89 0 4,528 83 7,485 80 9 2 43 ,114 5 9 4,3 71 4,29 1 75 7,2 80 225 2 6 0 ,3 6 2 49 6 ,9 18 56 8,86 2 56 8,221 21,36 5 (74,244) 2,9 41 4,144 49 6 ,9 18 5 9 4,3 71 There are no contingencies of the parent entity as at 30 June 2023 (2022: Nil). (b) Parent entity capital commitments There are no capital commitments of the parent entity as at 30 June 2023 (2022: Nil). 83 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 15. PROPERTY, PLANT AND EQUIPMENT N on-c urrent Right of use property asset Storage equipment Office equipment / furniture and fittings Total non-c urrent property, plant and equipment Rig ht of us e prope rty as s e t At the beg inning of the period net of accumulated depreciation D epreciation charg e for the period At the e nd of the pe riod ne t of ac c umulate d de pre c iation G ross value Accumulated depreciation N e t c arrying amount at e nd of the pe riod Plant and e quipme nt At the beg inning of the period net of accumulated depreciation Transferred to discontinued operations Additions Exchang e differences D epreciation charg e for the period At the e nd of the pe riod ne t of ac c umulate d de pre c iation Plant and e quipme nt G ross value Accumulated depreciation N e t c arrying amount at e nd of the pe riod 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 - 453 - 20 ,6 70 545 2 1,6 68 458 45 8 2 0 2 3 $ '0 0 0 453 (453) - 3,173 (3,173) - 21,215 (20 ,6 70 ) 189 - (276 ) 45 8 2,6 34 (2,176 ) 45 8 2 0 2 2 $ '0 0 0 1,36 0 (9 0 7) 45 3 3,173 (2,720 ) 45 3 20 ,30 4 - 3,6 0 7 (225) (2,471) 2 1,2 15 34,6 78 (13,46 3) 2 1,2 15 Total 45 8 2 1,6 6 8 84 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 16. COMMITMENTS AND CONTINGENCIES (a) Operating lease commitments – Group as lessor Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2023 are as follows: Within one year Within two years Within three years Within four years Within five years More than five years 2023 $'000 2022 $'000 107,453 106,998 96,257 94,576 85,591 81,837 69,193 69,975 53,164 52,064 118,158 134,657 529,498 540,425 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 2023 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: W ithin one year - gross settlement of property and investment acquisitions - property refurbishment costs - property development costs (c) Contingencies 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 3,80 6 36,444 11,858 5 2 ,10 8 48,526 24,6 21 81,6 36 15 4,783 At 30 June 2023 the Group had a $12.5 million bank guarantee facility which expires in July 2025 (2022: $10.0 million) and $7.5 million of bank guarantees had been issued from the facility (2022: $7.5 million). Bank guarantees issued at reporting date but not recognised as liabilities are as follows: Bank guarantees - Australian Financial Service Licences - redevelopment of investment properties - lease of office premises 2023 $'000 2022 $'000 7,500 7,500 1,163 1,502 - 564 8,663 9,566 85 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 17. RELATED PARTY DISCLOSURES (a) Subsidiaries The consolidated financial statements include the financial statements of the following entities: Entity Abacus Group Holdings Limited and its subsidiaries Abacus Castle Hill Trust Abacus Finance Pty Limited Abacus Funds Management Limited Abacus Investment Pty Ltd Abacus Mortgag e Fund Abacus Nominee Services Pty Limited Abacus Nominees (No 5) Pty Limited Abacus Nominees (No 7) Pty Limited Abacus Nominees (No 9 ) Pty Limited Abacus Nominees (No 11) Pty Limited Abacus Note Facilities Pty Ltd Abacus Property Services Pty Ltd Abacus SP Note Facility Pty Ltd Abacus Storag e Funds Management Limited Abacus Camellia Investments Pty Limited Abacus Riverlands Investments Pty Limited Abacus Group Projects Limited and its subsidiaries Abacus Property Pty Ltd Abacus Allara Street Trust* Abacus Repository Trust* Abacus Ventures Trust* * These entities are wholly owned by Abacus Equity interes t 2 0 2 3 % 2 0 2 2 % 10 0 10 0 10 0 10 0 - 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 74 74 51 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 74 74 51 86 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 17. RELATED PARTY DISCLOSURES (continued) (a) Subsidiaries (continued) Entity Abacus Trust and its subsidiaries: Abacus Abbotsford Trust Abacus Ann Street Trust Abacus Ashfield Mall Property Trust Abacus B owden Street Trust Abacus K1 Property Trust Abacus Lutwyche Trust Abacus Oasis Trust Abacus Potts Point Trust Abacus Richmond Trust Abacus Shopping Centre Trust Abacus Virginia Trust Abacus W estpac House Trust Abacus W estpac House No. 2 Trust Abacus 14 Martin Place Trust Abacus 33 Queen Street Trust Abacus 324 Queen Street Trust Abacus 464 St Kilda Road Trust 444 Queen Street Trust Lutwyche City Shopping Centre U nit Trust Oasis JV U nit Trust Abacus Income Trust and its subsidiaries: Abacus Grant Street Trust Abacus Todd Road Trust Castlereagh Sub 1 Trust Castlereagh FH Sub 1 Trust Equity interes t 2 0 2 3 % 2 0 2 2 % 10 0 10 0 10 0 10 0 10 0 10 0 10 0 - 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 - - 10 0 10 0 - 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 87 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 17. RELATED PARTY DISCLOSURES (continued) (a) Subsidiaries (continued) Entity Abacus Storage Operations Limited and its subsidiaries: Abacus Storage NZ O perations Pty Limited Abacus Storage Solutions Pty Limited Abacus Storage Solutions NZ Pty Limited Abacus U SI C Trust Abacus U Stow It A1 Trust Abacus U Stow It B 1 Trust Abacus U Stow It A2 Trust Abacus U Stow It B 2 Trust U Stow It Holdings Limited U Stow It Pty Limited Abacus SK Pty Limited Storage King Corporate Holdings Pty Limited Storage King Services Pty Limited SK Licensing Pty Limited SK (Licensees) Pty Limited Storage King Management Pty Limited Storage King Store Management Pty Limited Storage King Management NZ Limited Storage King (Singapore) Pte Limited Storage King International Limited Storage King Pty Limited Storage King NZ Limited A.A1 Storage King Pty Limited Abacus Storage Property Trust and its subsidiary: Abacus Storage NZ Property Trust (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 18. Equity interes t 2 0 2 3 % 2 0 2 2 % 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 88 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 17. RELATED PARTY DISCLOSURES (continued) (d) Transaction with related parties Transactions with related parties other than associates and joint ventures Revenues Property management fees received / receivable Transactions with associates and joint ventures Revenues Management fees received / receivable from joint ventures Share of (loss)/profit from joint ventures Other transactions Loan advanced from joint ventures Terms and conditions of transactions 2023 $'000 2022 $'000 337 268 861 (8,926) 1,195 13,429 1,568 1,496 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 parties is disclosed in Note 10. Ultimate controlling entity Calculator Australia Pty Ltd (“Kirsh”) is the ultimate controlling securityholder in the Group with a holding of approximately 51.8% of the ordinary securities of the Group (2022: 54%). During the year, Abacus Property Services Pty Ltd was engaged to manage the following properties: Property Relationship with Kirsh Charge per annum 2023 2022 14 Martin Place Tenants-in-common 3% of gross rental 278,984 277,531 4 Martin Place 100% owned by Kirsh 3% of gross rental 336,932 268,093 $ $ 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. 89 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 18. KEY MANAGEMENT PERSONNEL (a) Compensation for key management personnel Sho rt-term em p lo y ee b enefits Po st-em ploy m ent benefits O ther long -term benefits Security -based pay m ents (b) Loans to key management personnel 2 0 2 3 $ 2 0 2 2 $ 4,7 0 2,314 145,0 0 4 7 6 ,18 9 1,7 6 8 ,38 2 6 ,6 9 1,8 8 9 4,7 29 ,0 52 138 ,138 41,19 3 1,48 2,6 55 6 ,3 9 1,0 3 8 There were no loans to key management personnel and their related parties at any time in 2023 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. 19. SECURITY BASED PAYMENTS (a) Recognised security payment expenses 2023 $'000 2022 $'000 Expense arising from equity-settled payment transactions 2,615 2,388 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. The LTIs granted during the year vest as follows: Executive KMP Grant Tranche Vesting date Potential number to vest Tranche One – 50% of Grant August 2025 354,200 FY23 Grant Tranche Two – 50% of Grant August 2026 351,499 90 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 19. SECURITY BASED PAYMENTS (continued) (a) Recognised security payment expenses (continued) Other Executives Grant Tranche Tranche One – 33% of Grant FY23 Grant Tranche Two – 33% of Grant Tranche Three – 33% of Grant Deferred Short Term Incentives (Deferred STI) Vesting date August 2024 August 2025 August 2026 Potential number to vest 207,508 207,508 207,529 In FY22, Abacus introduced a Deferred STI plan for Executive KMP. 25% of an Executive KMP’s short term incentive is deferred by 12 months and settled in the form of rights. The deferred STI was introduced to aid retention, better align Executive KMP with securityholders’ interests, and provide for a “consequence management” governance mechanism for misconduct, fraud, malfeasance, or financial misstatement. 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. (b) Summary of Performance Rights granted Long Term Incentives (LTI) The following table illustrates movements in LTI during this year: O pening balance G ranted during the year Forfeited during the year Vested during the year O uts tanding at the end of the ye ar Exe rc is able at the end of the ye ar 2 0 2 3 N o. 2 0 2 2 N o. 9 20 ,539 1,422,6 9 8 (77,86 1) - 2,26 5,376 - 9 20 ,539 - - 9 20 ,539 - - The weighted average fair value of LTI granted during the year was $2.61 (2022: $3.39). 91 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 19. SECURITY BASED PAYMENTS (continued) (b) Summary of Performance Rights granted (continued) Deferred Short Term Incentives (Deferred STI) The following table illustrates movements in Deferred STI during this year: O pening balance G ranted during the y ear Forfeited during the y ear Vested during the y ear O uts tanding at the e nd of the ye ar Exe rc is able at the e nd of the ye ar 2 0 2 3 N o. 2 0 2 2 N o. - 217,0 46 - - 217,0 46 - - - - - - - The weighted average fair value of Deferred STI granted during the year was $2.61 (2022: $3.39). Security Acquisition Rights (SARs) The following table illustrates movements in SARs during this year: Opening balance Granted during the year* Forfeited during the year Vested during the year Outstanding at the end of the year Exercisable at the end of the year 2023 No. 2022 No. 2,025,528 1,508,159 - 256,444 (16,185) - (812,357) (517,369) 1,508,159 936,061 - - * To achieve a closer alignment of interests of securityholders and senior executives, when a tranche of SARs vests, the holder will be paid in respect of each SAR vesting an amount (a notional distribution) equivalent to the aggregate of the distributions per Abacus security paid during the period. The weighted average remaining life of the performance rights (both LTIs and SARs) at 30 June 2023 was 1.7 years (2022: 1.5 years). The following table lists the inputs to the model used for the performance rights’ plans for the years ended 30 June 2023 and 30 June 2022: Expected volatility (%) Risk-free interest rate (%) Life of instrument (years) Model used 2023 2022 22-27 3.25 - 3.40 0.6 - 3.7 Trinomial 32 0.04 - 0.19 1.8 - 3.8 Trinomial 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. 92 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 20. INTANGIBLE ASSETS AND GOODWILL Description of the Group’s intangible assets Abacus Funds Management Limited Goodwill Balance at 1 July At the end of the year Software At 1 July, net of accumulated amortisation Additions Amortisation charge for the year At the end of the year, net of accumulated amortisation Total goodwill and intangibles Intang ible as e ts and g oodw ill attributable to dis c ontinue d ope rations : Sto ra g e Kin g C o rp o ra te H o ld in g s L im ited G oodw ill B alance at 1 July At the e nd of the y e ar B rand and trade mark s w ith inde finite live s B alance at 1 July At the e nd of the y e ar Lic e nc e s and manag e me nt rig hts B alance at 1 July Additions Amortisation charg e for the year At the e nd of the y e ar, ne t of ac c umulate d amortis ation S oftw are At 1 July , net of accumulated amortisation Additions Amortisation charg e for the year At the e nd of the y e ar, ne t of ac c umulate d amortis ation Total g oodw ill and intang ible s Notes 2023 $'000 2022 $'000 32,394 32,394 32,394 32,394 280 357 - 122 (211) (199) 69 280 32,463 32,674 N ote s 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 33,132 3 3 ,13 2 33,132 3 3 ,13 2 31,6 29 3 1,6 2 9 31,6 29 3 1,6 2 9 7,376 7,9 0 6 - 1 (532) (531) 7,3 76 6 ,844 89 4 815 19 4 43 (113) (122) 815 89 6 72 ,5 0 1 72 ,9 5 2 Intangible assets of $72.5 million for Storage King Corporate Holdings Limited has been transferred to discontinued operations (refer to Note 21). 93 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 20. INTANGIBLE ASSETS AND GOODWILL (continued) 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 of disposal calculation using cash flow projections as at 30 June 2023 covering a five year period. (ii) Key assumptions used in valuation calculations Goodwill and intangible assets – the calculation is most sensitive to the following assumptions: a. Management and other fee income: based on market rates and revenue / funds under management within the financial year and the underlying growth rate of 2%. b. Licence & management and other fee income: based on actual income and revenue within the financial year and the underlying growth rate of 8%. c. 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 d. Property values of the funds / properties under management for Abacus Funds Management Limited: based on the fair value of properties e. Selling costs: management’s estimate of costs to sell the funds / properties under management f. For Abacus Funds Management Limited, a pre-tax discount rate of 8.6% (2022: 7.5%) and a terminal growth rate of 2.6% (2022: 2.0%) have been applied to the cash flow projections for goodwill to reflect the current risk- free rate. g. For Storage King Corporate Holdings Pty Limited, a pre-tax discount rate of 8.6% (2022: 7.5%) and a terminal growth rate of 2.6% (2022: 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 2023 has significant head room thus no reasonable changes in the assumptions would cause or give rise to an impairment. 94 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 21. DISCONTINUED OPERATIONS On 16 February 2023, the Group announced its intention to create a new ASX listed Self Storage REIT to be known as Abacus Storage King REIT (ASK). ASK was established by de-stapling Abacus’ existing Self Storage assets and will be an externally managed REIT with a majority independent Board of Directors. Abacus will be the manager of ASK and retain a minority interest of up to 19.9% of the stapled securities in ASK. The de-stapling of ASK completed on 4 August 2023. At 30 June 2023, the Self Storage business has been presented as a discontinued operations in the financial report. Associated assets and liabilities were classified as current assets and current liabilities in the financial report for the year ended 30 June 2023. The eliminations on the transactions between discontinued operations and continuing operations have been included in the financial performance and balance sheet. The financial performance of the discontinued operations segment for the year ended 30 June 2023 was as follows: Storag e Income Fee Income Finance income Total Re ve nue O THER IN C O M E Net chang e in fair value of investment properties held at balance date Net chang e in fair value of investment held at balance date Net chang e in fair value of PPE, investments and financial instruments derecog nised Net chang e in fair value of derivatives O ther income Total Re ve nue and O the r Inc ome Net chang e in fair value of investment properties derecog nised Storag e expenses Share of (loss)/profit from equity accounted investments D epreciation and amortisation expenses Finance costs Administrative and other expenses PRO FIT B EFO RE TAX FRO M D IS C O N TIN U ED O PERATIO N S 2 0 2 3 $ '0 0 0 2 0 2 2 $ '0 0 0 19 0 ,454 16 ,824 450 2 0 7,72 8 16 0 ,538 15,228 5 175 ,771 150 ,30 4 16 ,485 12,254 13,559 11,426 411,75 6 30 5,242 17,286 5,0 33 - 10 ,9 6 1 5 14,2 9 3 (6 0 ) (43) (42,758) (36 ,276 ) (314) (3,434) (2,9 32) (43,80 2) (19 ,343) (47,6 0 8) (37,30 1) 418,3 9 8 2 73 ,780 - Income tax expense N ET PRO FIT AFTER TAX FRO M D IS C O N TIN U ED O PERATIO N S (10 ,0 20 ) (20 ,472) 3 9 7,9 2 6 2 6 3 ,76 0 95 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 21. DISCONTINUED OPERATIONS (continued) The major classes of assets and liabilities that are held for distribution as at 30 June 2023 and represent those that will form ASK are as follows: Assets Intangible assets and goodwill Investment Property Property, Plant and equipment Trade and receivables Equity accounted Investments Derivative financial instruments Other financial assets Other Cash and cash equivelents Total assets Liabilities Trade and other payables Provisions Derivative financial instruments Deferred tax liabilities Other liabilities Interest-bearing liabilities Total liabilities Net assets 2023 $'000 72,501 2,612,159 25,982 21,047 16,047 31,612 224,146 5,334 63,588 3,072,416 106,908 4,239 770 47,485 3,947 979,052 1,142,401 1,930,015 The net cash flow for the discontinued operations for the year ended 30 June 2023 were as follows: Operating Investing Financing Net cash (outflow) / inflow 2023 $'000 2022 $'000 65,273 84,084 (212,204) (565,933) 94,519 561,169 (52,412) 79,320 96 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has also been prepared on a historical cost basis, except for investment properties and derivative financial instruments which have been measured at fair value, interests in joint ventures and associates which are accounted for using the equity method, and certain investments and financial assets measured at fair value. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($'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 2022. There are several amendments and interpretations apply for the first time on 1 July 2022 as follows, but they do not have an impact on the consolidated financial statements of the Group. - 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 and they had no impact on consolidated financial statements of the Group. 97 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (c) (i) New accounting standards and interpretations (continued) Changes in accounting policy and disclosures(continued) Property, Plant and Equipment: Proceeds before Intended Use – Amendments to AASB 116 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 had no impact on the consolidated financial statements of the Group. 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. The amendments had no impact on the consolidated financial statements of the Group. 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. 98 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023. The significant new standards or amendments are outlined below: - 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. - 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 2024) 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 2024 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. The amendments are applied prospectively and are not expected to have a material impact on the Group. 99 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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. 100 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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. 101 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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. 102 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 as disclosed within the parent entity note. (l) Interest in joint arrangements and associates 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 – up to 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. Impairment losses are recognised in the income statement. 103 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Property, plant and equipment (continued) 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. 104 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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. 105 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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. 106 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 Indefinite No amortisation Useful lives Amortisation method used Internally generated or acquired Acquired Licencing and management agreements Finite (15 years) Amortised on a straightline basis over the period of the agreements Acquired Software 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. 107 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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. 108 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 - 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. 109 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (x) Taxation (continued) Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences, except: - when the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or - when the taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. New Zealand The trusts that operate in New Zealand (“NZ”) are treated as a company for NZ income tax purposes and are taxed at the corporate tax rate of 28% (2022: 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% (2022: 28%). Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. 110 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 22. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (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 19). 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. (aa) Non-current assets held for sale or distribution and discontinued operations The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction or deemed disposal rather than through continuing use. Upon classification as held for sale, assets of a disposal group are recognised at the lower of carrying amount and fair value less costs to sell with the exception of investment properties, other financial assets and derivatives which are valued in accordance with Note 22(n) and Note 22(j) respectively. Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale. Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position. A segment, entity or operation disposed of or wound up qualifies as discontinued operations if it is a component of the Group that represents a separate major line of business or geographical area of operations. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of profit or loss. Additional disclosures are provided in Note 21. All other notes to the financial statements include amounts for continuing operations, unless indicated otherwise. 111 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 23. AUDITOR’S REMUNERATION Amounts received or due and receivable by Ernst & Young Australia: - Fees for auditing the statutory financial report of the parent covering the Group and auditing the statutory financial reports of any controlled entities - Services required by legislation to be provided by the auditor - compliance services - Other assurance and agreed-upon-procedures services under other legislation or 2023 $ 2022 $ 1,125,000 1,075,000 38,915 53,400 contractual arrangements where there is discretion as to whether the service is provided 29,430 159,926 by the auditor or another firm - Other services - due diligence services - Internal audit quality assurance services Total 24. EVENTS AFTER BALANCE SHEET DATE Subsequent to the financial year end: 730,000 37,800 - - 1,961,145 1,288,326 • On 27 July 2023, securityholders voted to de-staple Abacus Storage King which is represented by ASOL and • ASPT from Abacus Property Group with the de-stapling being completed on 4 August 2023. In conjunction with the de-stapling, a fully underwritten 1-for-5.6 pro rata security offer in Abacus Storage King was completed at an issue price of $1.41 per stapled Abacus Storage King security which raised $225 million. • Abacus acquired a minority investment of 19.9% of the Abacus Storage King Securities on issue. 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. 112 DIRECTORS’ DECLARATION In accordance with a resolution of the Directors of Abacus Group Holdings Limited, we state that: In the opinion of the directors: a. b. c. 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) (ii) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2023 and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including Australian Accounting Interpretations) and the Corporations Regulations 2001; 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 2023. On behalf of the Board. Myra Salkinder Chair Sydney, 18 August 2023 Steven Sewell Managing Director 113 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 2023, 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 2023 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 2023. 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 Discontinued Operations Why significant How our audit addressed the key audit matter On 7 June 2023 the Group announced a proposed de-stapling of the Group into two separate entities Completion of the de-stapling occurred after the reporting date, on 1 August 2023. Due to the de-stapling the storage business segment of the Group meets the definition of a disposal group under Australian Accounting Standards and accordingly has been classified as Held for Sale and as a Discontinued Operation at 30 June 2023. We considered this a key audit matter due to the number of judgments required in determining the valuation of assets associated with the disposal group, the significance of the transaction to the Group and the nature of the disclosures required. For the same reasons we consider it important that attention is drawn to the disclosure in Note 21 which describes the contribution of the discontinued operations to the financial performance and financial position of the Group as at 30 June 2023. Our audit procedures included the following:  We reviewed the Group’s assessment that the storage business segment should be presented as Held for Sale as at 30 June 2023 in accordance with the requirements of Australian Accounting Standards.  We assessed the adequacy of the Group’s Discontinued Operations disclosures in the financial report outlined in Note 21.  We assessed whether the transaction costs that were appropriately included in the Consolidated Income Statement for the year ended 2023.  The procedures performed with respect to Investment Property held within the disposal group were consistent with the procedures outlined in the Investment Properties Key Audit Matter section. 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 2023 annual report other than the financial report and our auditor’s report thereon. We obtained the directors’ report that is to be included in the annual report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the annual report after the date of this auditor’s report. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ► Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. ► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. ► Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. ► Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. ► Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 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 18 to 47 of the directors’ report for the year ended 30 June 2023. In our opinion, the Remuneration Report of Abacus Group Holdings Limited for the year ended 30 June 2023, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Anthony Ewan Partner Sydney 18 August 2023 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ADDITIONAL INFORMATION Number of holders of ordinary full paid securities Number of holders holding less than a marketable parcel or ordinary fully paid stapled securities 9,797 1,319 Voting rights attached to ordinary fully paid stapled securities. One vote per security Top 20 largest security holdings as at 7 August 2023 HOLDER NAME NUMBER OF SECURITIES % ISSUED SECURITIES CALCULATOR AUSTRALIA PTY LIMITED 411,705,733 46.07% HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 121,040,594 13.54% J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 88,352,171 9.89% CITICORP NOMINEES PTY LIMITED 54,865,570 6.14% CALCULATOR AUSTRALIA PTY LIMITED 51,192,965 5.73% NATIONAL NOMINEES LIMITED 24,694,507 2.76% ARYM INVESTMENT HOLDINGS PTY LTD 14,600,000 1.63% BNP PARIBAS NOMS PTY LTD 11,554,146 1.29% CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMINEES PTY LTD BNP PARIBAS NOMINEES PTY LTD UBS NOMINEES PTY LTD 5,213,956 3,788,323 2,448,761 2,422,512 0.58% 0.42% 0.27% 0.27% MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED 2,229,790 0.25% CHARTER HALL WHOLESALE MANAGEMENT LIMITED CHARTER HALL WHOLESALE MANAGEMENT LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED WARBONT NOMINEES PTY LTD NULIS NOMINEES (AUSTRALIA) LIMITED BNP PARIBAS NOMS (NZ) LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 1,657,026 1,650,000 1,564,869 1,434,039 1,280,244 1,156,402 1,028,531 0.19% 0.18% 0.18% 0.16% 0.14% 0.13% 0.12% Total Securities of Top 20 Holdings 803,880,139 89.95% Total of Securities 893,657,633 HOLDERS NUMBER OF SECURITIES % ISSUED SECURITIES Spread of securities as at 7 August 2023 RANGE 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 2,293 3,534 1,863 2,020 100,001-9,999,999,999 95 Totals 9,805 Substantial security holder notices SECURITYHOLDER Calculator Australia Pty Limited 929,510 9,758,553 13,569,642 47,292,984 822,106,944 893,657,633 0.10% 1.09% 1.52% 5.29% 91.99% 100% NUMBER OF SECURITITES 462,898,698   

Continue reading text version or see original annual report in PDF format above