ABACUS GROUP — Annual Report 2017

Aug 17, 2017

324 Queen Street, Brisbane QLD

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Abacus Property Group – FY17 Results Presentation 18 August 2017

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Appendix A Segment balance sheet

	Property	Property
Abacus balance sheet	Investment	Development	Unallocated		June 2017	June 2016
	($m)	($m)	($m)		($m)	($m)
Commercial investment properties	946.3				946.3	813.8
Self-storage investment properties	625.2				625.2	570.3
Inventory		93.1	15.6	1	108.7	83.4
Property, plant and equipment	4.7				4.7	4.7
Loans and interest	92.2	308.1			400.3	530.9
Other investments and financial assets	29.3	13.2			42.5	49.7
Equity accounted investments	133.4	33.9			167.3	179.9
Cash and cash equivalents			28.2		28.2	37.0
Other assets			30.3		30.3	20.1
Goodwill and intangibles			32.4		32.4	32.5
Total assets	1,831.1	448.3	106.5		2,385.9	2,322.3
Interest bearing liabilities					517.3	651.4
Other liabilities					66.3	120.1
Total liabilities					583.6	771.5
Net assets					1,802.3	1,550.8

1. AWLF inventory

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Appendix B Segment earnings (underlying profit)

	Commercial	Commercial	Storage	Development	Development	FY17 Total	FY16 Total
Rental income	75.3		69.7			145.0	131.3
Finance income1				43.9		43.9	46.3
Fee income2	12.6					12.6	12.5
Share of profit from equity accounted investments3	32.8	4, 6		20.7	5	53.5	19.4
Sale of inventory						0.0	2.9
Net change in fair value of investments derecognised5	43.5					43.5	16.0
Other Income	2.4			1.1		3.5	0.0
Interest						0.4	0.5
Total Underlying Revenue	166.6		69.7	65.7		302.4	228.9
Expenses	(15.2)		(25.9)	(3.0)		(44.1)	(42.8)
Segment result before corporate overheads	151.4		43.8	62.7		258.3	186.1
Corporate overheads	(17.8)			(7.7)		(25.5)	(22.2)
Underlying EBITDA	133.6		43.8	55.0		232.8	163.9
Finance costs						(32.9)	(31.3)
Depreciation and amortisation expense	(1.9)		(0.4)			(2.3)	(1.8)
Tax expense						(9.8)	(6.8)
Non-controlling interests						(1.0)	0.0
Underlying Profit						186.8	124.0
Change in fair value of investments	48.2		27.3	(10.6)		64.9	85.6
Change in fair value of derivatives						4.3	(8.3)
Impairment of land development						0.0	(40.6)
Tax benefit on significant items						1.9	9.0
Net Profit attributable to Abacus securityholders						257.9	169.7

1. Fee and interest on loans – includes $9.4 million of transactional activities 2. Income from third party capital JV’s and funds 3. Distributions from joint ventures

2. Excludes fair value gain of $0.7 million

3. Transactional activities

4. Includes transactional activities of $17.7 million

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	Appendix C
	Net tangible asset reconciliation
		30 June 2017	30 June 2016
	Consolidated Group net assets	1,814.6	1,559.3
	Less
	Total external non–controlling interest	(48.5)	(43.3)
	Total stapled security holders’ interest in equity	1,766.1	1,516.0
	Less
	Intangible assets and goodwill	(32.4)	(32.4)
	Deferred tax assets/liabilities (net)	3.4	(3.6)
	Total net tangible assets	1,737.1	1,480.0
	Securities on issue	575.6	556.6
	Net tangible assets per security	3.02	2.66

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Appendix D Abacus cashflow analysis[1]

Appendix D Abacus cashflow analysis1
	$'000
CASHFLOWS FROM OPERATING ACTIVITIES
Income receipts	235,753
Interest received	952
Distributions received	664
Income tax paid	(2,944)
Borrowing costs paid	(31,468)
Operating payments	(71,271)
Payment for land acquisition	(26,979)
NET CASHFLOWS FROM OPERATING ACTIVITIES2	104,707
CASHFLOWS FROM INVESTING ACTIVITIES
Payments for investments and funds advanced	(148,091)
Proceeds from sale / settlement of investments and funds repaid	215,119
Purchase and disposal of property, plant and equipment	(727)
Purchase of investment properties	(140,041)
Disposal of investment properties	131,254
Payment for other investments	(2,124)
NET CASHFLOWS USED IN INVESTING ACTIVITIES	55,390
CASHFLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of stapled securities and return of capital	13,337
Payment of finance and issue costs	(1,428)
Repayment of borrowings	(160,169)
Proceeds from borrowings	37,153
Distributionspaid	(57,682)
NET CASHFLOWS FROM FINANCING ACTIVITIES	(168,789)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(8,692)
Net foreign exchange differences	47
Cash and cash equivalents at beginningofperiod	36,284
CASH AND CASH EQUIVALENTS AT END OF PERIOD3	27,639

1. 30 June 2017 cashflow statement for ABP excluding the consolidation of funds under AASB10

2. Cashflow from operations of $168.5 million adds back the purchase of non–current inventory and development costs of $63.8m

3. Excludes $0.6 million of cash and cash equivalents associated with AWLF

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Appendix E Debt facilities

Capital management metrics	June 2017	June 2016
Total bank debt facilities	$873m	$873m
Total bank debt drawn	$514m	$629m
Term to maturity	3.4 yrs	3.5 yrs
% hedged	49%	53%
Weighted average hedge maturity	2.5 yrs	2.7 yrs
Average cost of debt – drawn	5.2%	5.4%
Group gearing1	20.5%	25.8%
Look through gearing2	25.1%	30.3%
Covenant gearing	23.9%	29.5%
Covenant gearing limit	50.0%	50.0%
Interest Coverage Ratio	7.4x	4.2x
Interest Coverage Ratio covenant	2.0x	2.0x

1. Abacus max target group gearing of up to 35%

2. Includes joint venture and fund assets and debt consolidated proportionately with Abacus’ equity interest

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Appendix F Debt maturity profiles

Debt maturity profile as at 30 June 2017

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($’m)
400
152
Available bank facility Drawn bank debt
300
200
298
100
118
50 130
39
0 39 15 32
FY18 FY19 FY20 FY21 FY22 FY23
Fixed hedging maturity profile as at 30 June 2017
($'m)
Fixed Interest Rate Swaps Weighted Average Fixed Rate
700 7.0%
600 6.0%
500 5.0%
400 4.0%
300 3.0%
200 2.0%
100 1.0%
0 0.0%
FY18 FY19 FY20 FY21 FY22 FY23
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Fixed hedging maturity profile as at 30 June 2017

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Appendix G Portfolio revaluations

Revaluation process for Abacus resulted in a net increase in the investment properties values for FY17 of approximately 5.0% or $74.8 million

• $47.5 million across the wholly owned commercial properties

• $27.3 million across the storage portfolio

• Revaluation of assets owned across our third party capital platform resulted in a net increase of $0.7 million

Average cap rate across the Abacus commercial portfolio has decreased to 6.72%

Market transactions illustrative of a tightening cap rate environment across all commercial sectors.

	Valuation 30 June 2017	Weighted average cap rate
Abacus investment portfolio by sector	$’000	30 June 2017
Retail	$402,099	6.28%
Office	$622,408	6.98%
Industrial & Other	$177,140	8.34%
Total commercial portfolio	$1,201,647	6.72%
Storage	$629,459	7.72%
Total investment portfolio	$1,831,106	7.08%

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Appendix H Summary portfolio metrics

	Key portfolio metrics	Jun 17	Jun 16
	Investment portfolio value1 ($m)	1,831	1,714
	Commercial portfolio1 ($m)	1,202	1,140
	Storage portfolio ($m)	629	574
	WACR1,4 (%)	7.08	7.48
	No. of commercial assets1	34	32
	NLA (sqm)2,3	226,811	254,048
	Occupancy2,3 (% by area)	90.5	91.2
	WALE2,3 (yrs by income)	4.1	4.3
	Like for like rental growth2,3 (%)	2.7	2.7

1. Includes assets acquired under our third party capital platform, inventory and PP&E

2. Excludes storage assets

3. Excludes development assets

4. Weighted Average Cap Rate

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Industrial and
Other
10%
Office
34%
Retail
22%
Storage
34%
SA TAS
NZ 5% 1%
7%
NSW
30%
ACT
10%
QLD
22%
VIC
25%
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Appendix H Summary storage portfolio metrics

State geographic diversity by NLA

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ACT
12% VIC
26%
NZ
20%
NSW
QLD 22%
20%
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Regional geographic diversity by NLA

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Regional NZ Canberra
6% 12%
Auckland
14%
Sydney
Regional QLD 22%
7%
Regional VIC
3%
Brisbane Melbourne
13% 23%
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Asset net lettable area (m[2] ) split by number of assets

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5%
8%
0-4000
52% 4001-7000
7001-10000
35%
10000+
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Asset net lettable area (m[2] ) split by value

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11%
16% 33%
0-4000
4001-7000
7001-10000
10000+
40%
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Appendix H Summary portfolio metrics

Portfolio metrics	Office	Retail	Industrial & Other	Storage
	Jun 17 Jun 16	Jun 17 Jun 16	Jun 17 Jun 16	Jun 17 Jun 16
Portfolio ($m)	623 492	402 375	177 273	629 574
No. of assets	19 16	5 7	10 9	65 62
Lettable area (sqm)1	91,732 84,424	56,250 63,363	78,829 106,261	302,000 290,000
WACR (%)	6.98 7.33	6.28 6.74	8.34 8.39	7.72 7.98
Occupancy1 (% by area)	81.5 88.7	92.0 86.5	100.0 98.4	89.24 87.44
Average rent psqm	$533 $400	$507 $446	$72 $65	A$2624 A$2594,5
WALE1 (yrs by income)	3.7 3.9	5.2 4.9	1.6 4.1	– –
Rental growth1,2 (%)	(2.2)3 (0.8)	9.53 7.6	3.3 3.0	– –
RevPAM (per available sqm)	– –	– –	– –	A$2344 A$2274,5

1. Excludes development assets

2. Like for like rent growth

3. Excluding movement in occupancy, rental growth for Office and Retail portfolio reflects 4.1% and 6.0% increase, respectively period on period

4. Average over last 12 months (by area) of all stabilised assets

5. Adjusted to FY17 FX rate of $1.05 for comparison purposes

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Appendix H Summary portfolio metrics – lease expiry profile

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39.7%
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14.2%
12.5%
11.1% 11.2% 11.3%
Month to month FY18 FY19 FY20 FY21 FY22+
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Appendix I Developments

Projects	Type	Equity	Loans	Total	Interest rate	Security	Returns
RCL Portfolio, NSW	JV/Loan	$39.7m	$102.0m	$141.7m		1st Mortgagee	50% profit share
One A, Erskineville, NSW	JV	-	$31.2m	$31.2m		Unsecured	50% profit share
IVY&EVE, Merivale St, QLD	JV	$27.5m	-	$27.5m		Equity	49% profit share
Marsden Park, NSW	Loan	-	$26.6m	$26.6m		1st Mortgagee	Exit fee upon repayment
Ashfield Central, NSW	Inventory	$24.1m	-	$24.1m		Equity	100% ownership
Grand Ave, Camellia, NSW	Loan	-	$17.4m	$17.4m		1st Mortgagee	50% profit share
Belmore, NSW	Loan	-	$15.9m	$15.9m		1st Mortgagee	50% profit share
Rance Road (Settler’s Estate), NSW	Loan	-	$14.8m	$14.8m		1st Mortgagee	50% profit share
The Eminence, Carlton VIC	JV	-	$14.2m	$14.2m		Unsecured	50% profit share
Mina Pde, Alderley, QLD	Inventory	$12.2m	-	$12.2m		Equity	100% ownership
Schofields, NSW	Loan	-	$11.6m	$11.6m		1st Mortgagee	0% profit share
Bosch, Bentleigh East, VIC	Inventory	$11.5m	-	$11.5m		Equity	100% ownership
107 George St, NSW	Loan	-	$9.2m	$9.2m		1st Mortgagee	50% profit share
55 Aird St, NSW	Loan	-	$7.5m	$7.5m		1st Mortgagee	50% profit share
21a-23 George St, NSW	Loan	-	$7.1m	$7.1m		1st Mortgagee	50% profit share
Lane Cove, NSW	Loan	-	$6.5m	$6.5m		1st Mortgagee	50% profit share
Doonside, NSW	Loan	-	$6.4m	$6.4m		1st Mortgagee	50% profit share
Luminary, Hawthorn VIC	Loan	-	$5.1m	$5.1m		Unsecured	50% profit share
17 small projects and investments	-	$25.3m	$32.5m	$57.8m
Total		$140.3m	$308.0m	$448.3m	9.3%

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Appendix I Residential pipeline – residential construction projects

Schedule of major projects due for development

• Targeted profit on cost of c.20%

• Average interest rate on ABP loans c.9%

	Project name	Settlement	Units/Sold	Status	ETR1	Ave. Unit Price	ABP Profit share	Comments
	EMINENCE, Carlton,	FY18	193/193	Completed	~$110m	$622k	50%	Settlements ongoing with
	VIC							c.80% settled to date
	ONE A, Erskineville,	FY18	175/164	Under construction	~$156m	$976k	50%	Settlements begin in H218
	NSW
	IVY & EVE, Merivale,	FY18	IVY:252/246	Under construction	~$242m	$560k	49%	IVY settlements: Begin H118
	Brisbane, QLD		EVE:224/218					EVE settlements: Begin H218
	ASHFIELD CENTRAL,	FY18	101/101	Under construction	~$81m	$815k	100%	Settlements begin in H218
	Ashfield, NSW		+3 retail units
	LUMINARY,	FY19	24/16	Pre-sales	~$38m	$1.65m	50%	Construction to commence
	Hawthorn, VIC		+2 retail units					H118 with completion in FY19
	Mina Parade, QLD	FY20	222+	Planning			100%	Abacus industrial asset now
			residential					rezoned for staged residential
			products
	Spencer West, VIC	FY21	210 + retail	Planning			50%	Mixed use residential and
								retail development

1. ETR: Estimated Total Revenue (net of sales costs and GST) including management rights

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Appendix I Residential pipeline – residential approval projects

Schedule of major projects awaiting sale to third parties upon rezoning approval

	 Average	interest rate on ABP loans c.9%	interest rate on ABP loans c.9%
	Project name	Timeline	Units	Status	Est. Unit/Lot Price1	ABP Profit share	Comments
	Camellia, NSW	FY18	15,000m2 of	Awaiting final council	~$100k	50%	Local council amalgamations and requests for
			retail + 3,250	approval			further information have delayed approval. We are providing further information while Council
							and DOP push forward with their studies to
							rezone the entire Camellia suburb
	Parramatta: 55 Aird St,	FY19	136	Planning proposal approved	~$150k	50%	Apartment/Retail building in
	NSW			Awaiting Gazettal			Parramatta CBD
	Parramatta: 107	FY19	125+	Planning: seeking rezoning	~$150k	50%	Apartment/Retail building in
	George St, NSW			to residential			Parramatta CBD
	Parramatta: 21a-23	FY19	100+	Planning: seeking rezoning	~$150k	50%	Apartment/Retail building in
	George St, NSW			to residential			Parramatta CBD
	Belmore, NSW	FY19	165	Planning proposal being	~$150k	50%	Stage payment for site up to $24m depending
				reviewed			on density achieved. New priority precinct
							recently announced includes this site. Strategy
							under review to increases density further

1. Estimated Unit/Lot Price based on market evidence

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Appendix I Residential pipeline – residential land sub-divisions

Schedule of land sub-divisions due for development

	Project name	Timeline	Land lots/Sold	Status	Price per lot	Cost to prepare lot	ABP share	Comments
	French Road	FY18	111/0	Site	$270k	$100k	25%	Approvals received. Site being prepared for 111 small
	Werrington (Stage 3),			preparation				lot sales. Sales to commence in H217
	NSW			for sales
	French Road	FY19	140/0	Awaiting	$270k	$100k	25%	Site can accommodate 140 small blocks. Council has
	Werrington (Stage 4),			gazettal				approved R2 zoning, gazettal is expected in 2017. DA
	NSW							is to be lodged shortly thereafter
	Riverlands, NSW		422/0	Awaiting	~$450k+	$120k	50%	Stage 1 - 15 ha has been approved for rezoning by
				development				the council and the NSW State Government via
				approval				gazettal. Development application for 241 lots in
								stage one has been submitted. A s.96 will further
								subdivide site into 422 lots. Abacus will look to
								develop out this project with its joint venture partner
								or consider appropriate offers for the site
	Rance Road		152/0	Seeking	~$330k	$100k	50%	Original plan approved for 152 small land lots.
	Werrington, NSW			rezoning				Updated plan leaves 80 small lots which are currently
								being marketed with higher density sort on remaining
								site which requires a new planning proposal.

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Important information

The information provided in this document is general, and may not be suitable for the specific purposes of any user of this document. It is not financial advice or a recommendation to acquire Abacus Property Group securities (ASX: ABP). Abacus Property Group believes that the information in this document is correct (although not complete or comprehensive) and does not make any specific representations regarding its suitability for any purpose. Users of this document should obtain independent professional advice before relying on this document as the basis for making any investment decision and should also refer to Abacus Property Group’s financial statements lodged with the ASX for the period to which this document relates. This document contains non-AIFRS financial information that Abacus Property Group uses to assess performance and distribution levels. That information is calculated in accordance with the AICD/Finsia principles and is not audited.

Any forecasts or other forward looking statements contained in this presentation are based on assumptions concerning future events and market conditions. Actual results may vary from forecasts and any variations may be materially positive or negative.

The information in this document is current only as at the date of this document, and that information may not be updated to reflect subsequent changes.

To the extent permitted by law, the members of Abacus Property Group and those officers responsible for the preparation of this document disclaim all responsibility for damages and loss incurred by users of this document as a result of the content of, or any errors or omissions in, this document.

Abacus Property Group:

Abacus Group Holdings Limited ACN: 080 604 619

Abacus Group Projects Limited ACN: 104 066 104

Abacus Funds Management Limited ACN: 007 415 590 AFSL No. 227819

Abacus Storage Funds Management Limited ACN: 109 324 834 AFSL No. 277357

Abacus Storage Operations Limited ACN: 112 457 075

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