Abacus Property Group (ASX:ABP)

John Thame
Chairman
Market Cap (AUD): 2.11B
Sector: Real Estate
Last Trade (AUD): 3.685 +0.04 (+0.96%)
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1. About

 

Abacus Property Group is a leading diversified property group. The Group specialises in investing in core plus property opportunities in Australia.

Abacus is a stapled entity that combines the securities in three companies, Abacus Group Holdings Limited, Abacus Group Projects Limited and Abacus Storage Operations Limited, and three trusts, Abacus Trust, Abacus Income Trust and Abacus Storage Property Trust. The Group’s investment objective is to provide its investors with reliable and increasing returns. The Company  looks for property assets that are capable of providing growth in: rental income; and asset value as a result of its diligent active management. The Company does this through the acquisition, development and management of property assets by: taking advantage of its specialised knowledge and market position as the only listed core plus investor in the ASX 200; investing in core plus property investments that are expected to yield 12-15% per annum equity total returns over time; and driving value through active management of the asset portfolio and through the reinvestment of sale proceeds.[1]

2. Business model

 

The Company operates the following divisions:[2]

 

Divisions

Revenue ($’000)

% of total Revenue

% of Segment Result

Profit drivers[3]

Property

$139,448

35%

47%

Abacus’ property segment delivered a slightly weaker result. The 32 assets had a total value of $994M at year end (2015: $861M).

Storage

$98,002

24%

29%

Abacus’ self-storage portfolio results driven by an increase in net rental income and increase in the fair value of the facilities.  Portfolio assets totalled $574M across a total portfolio of 62 facilities.

Funds Management

$12,921

3%

5%

Abacus continues to manage these unlisted funds to try to optimise the returns with selective sales and acquisitions of assets.

Property Ventures

$63,700

16%

7%

The Property Ventures business invests in projects and provides finance solutions that focus on select residential and commercial development opportunities.  Abacus controls over 9,000 apartment units or land lots which equates to $55,000 cost base per unit/land lot. This low average price provides evidence that the property ventures business has prospects for strong returns.

AHF

$55,118

14%

6%

AHF owns three hotels: Rydges Esplanade in Cairns, North QLD with 242 rooms and Novotel Twin Waters Resort on the Sunshine Coast, QLD with 374 rooms. On 16 March the fund exchanged contracts to sell Rydges Tradewinds in Cairns for $34M.

ADIF II

$36,424

9%

14%

At 30 June 2016, ADIF II owned 6 office properties located in NSW,QLD and SA. During the year seven properties were sold for combined proceeds of $39.1M and $1.3M above book value. The Company intendeds to sell the remaining properties during the next twelve months.

AWLF

$14,210

4%

0%

AWLF owns the residential estate known as White Box Rise located in Wodonga, VIC. During the year 107 residential lots were settled for a combined gross proceeds of $14.2M

Unallocated/

Eliminations

($17,407)

(4%)

(7%)

N/A

3. Strategy

 

Abacus’ overarching strategy is to invest the capital in core plus property assets. The Group takes advantage of value adding opportunities to drive long term total returns and maximise securityholder value. The Group investment objective is to provide its investors with reliable and increasing returns. The Group looks for property assets that are capable of providing strong and stable cash-backed distributions from a diversified portfolio that provides genuine potential for enhanced capital and income growth as a result of its diligent active management. Abacus does this through the acquisition, development and active management of property assets. In particular: [4]

 

  • The Group takes advantage of its specialised knowledge and market position as the only listed core plus investor in the XPJ
  • The Group invests in core plus property investments that are expected to yield 12-15% per annum equity total returns over time
  • The Group drives value through active management of the asset portfolio and through the reinvestment of sales proceeds

 

The Group has a successful track record of acquiring property based assets and actively managing those assets to enhance income and capital growth. Its core plus presence and track record has facilitated joint ventures with a number of sophisticated global third party capital providers. The Group looks for assets and projects in major centres, typically on the Eastern seaboard of Australia, that are mispriced by the market and which the Group believes has the potential for income and capital growth.

4. Markets

 

The Group operates in markets including:[5]

 

Industry (Australia)

Industry Revenue (2016)

Growth Rate (annual 12-17)

Retail Property Operators

$24 billion

11.1%

Industrial and Other Property Operators

$10 billion

5.9%

Office Property Operators

$28 billion

9.3%

5. Competition

 

Major competitors include:[6]

 

  • Scentre Group Ltd (ASX:SCG)
  • Toll Holdings Ltd (ASX:TOL)
  • Macquarie Group Ltd (ASX:MQG)

6. History

 

1996[7]

Abacus Funds Management Limited formed as a property syndicator to source and package property-based investment opportunities for high net worth investors

 

2001   

Abacus merged a number of trusts and a small development company it established between 1996-1999 to form the Abacus Property Group, a stapled structure consisting of a trust and a company. Initial gross assets of $280 million included eight investment properties and a portfolio of high yielding mortgages

 

2002   

Abacus Property Group acquired the business of Abacus Funds Management Limited to form an integrated property investment group with an internalised management structure. The Group's business activities comprised property investment, property finance, funds management and joint venture projects. Abacus Property Group listed on the Australian Securities Exchange with total Group assets of $420 million and a market capitalisation of approximately $300 million

 

2006   

Abacus Property Group merged with Abacus Diversified Income Fund, increasing Group assets to $835 million

 

2007   

Abacus Property Group included in the S&P/ASX 300 Index

 

2008   

Abacus Property Group included in the S&P/ASX 200 Index

 

2009   

Abacus Property Group raised a total of $211 million to recapitalise the Group in the anticipation of future acquisition opportunities as a result of the global financial crisis. Abacus welcomed the Kirsh Group as a substantial cornerstone investor in the Group

 

2010   

During the 2011 financial year, Abacus Property Group initiated its third party capital platform through the creation of a number of core plus joint venture relationships with global investment managers including the Kirsh Group and Heitman LLC

 

2012   

Abacus Property Group integrated its largest unlisted managed fund, Abacus Storage Fund, into the stapled Group. The merger added $330 million of quality storage facilities to the Group’s portfolio while also providing a liquidity event for the storage fund’s unlisted investors

 

2014  

Abacus Property Group acquired 70% of the World Trade Centre in Melbourne for $120 million in its first joint venture with leading global investment firm KKR. Abacus and KKR subsequently acquired Oasis Shopping Centre, Broadbeach QLD for $104 million in February 2015

 

2015   

Abacus Property Group raised $107 million from existing securityholders to provide growth capital for anticipated acquisitions, development projects and third party capital initiatives. The Group had grown to a market capitalisation of over $1.8 billion. The Group’s total assets of circa $2.0 billion and a successful and growing third party capital platform that had acquired over $1 billion of property assets in joint venture with its capital partners

 

2016    

Abacus Property Group has grown to a market capitalisation of over $1.6 billion. The group has total assets of circa $2.3 billion and a successful and growing third party capital platform that has invested in over $1.4 billion of property assets in joint venture with its capital partners

7. Team

 

Board of Directors[8]‚Äč

 

John Thame – Chairman

William Bartlett – Non-Executive Director

Jingmin Qian – Non-Executive Director

Myra Salkinder – Non-Executive Director

Peter Spira – Non-Executive Director

Steven Sewell – Managing Director

 

Management Team

 

Steven Sewell – Managing Director

Cate Aarons – Head Of Corporate Transactions

Rob Baulderstone – Chief Financial Officer and Company Secretary

Cameron Laird – Director, Property Developments

Gavin Lechem – Director, Specialised Capital

John L’Estrange – Director, Property Developments

Lisa-Anne Carey – Head Of Legal

Neil Summerfield – Head of Investor Relations

Philip Peterson – Director Self-Storage

Peter Strain – Director, Property Investment


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8. Financials

 

2018 Half Year Results Presentation

 

Financial Year 2015/16 (ended 30 June):[9]

 

Division

Revenue ($’000)

% Change

Segment Result ($’000)

% Change

Property

$139,448

(7%)

$110,535

(1%)

Storage

$98,002

32%

$69,047

45%

Funds Management

$12,921

(20%)

$10,702

26%

Property Ventures

$63,700

(1%)

$16,355

(39%)

AHF

$55,118

15%

$13,605

299%

ADIFII

$36,424

170%

$32,192

246%

AWLF

$14,210

(35%)

($392)

95%

Unallocated/

Eliminations

($17,407)

(222%)

($15,980)

(82%)

Total

$402,416

7%

$190,881

24%

9. Risk

 

Major risks include:[10]

 

Treasury risk

Abacus manages its exposure to financial market risks by way of a formal treasury policy encompassing among other things interest rate, funding, liquidity and credit risk management. Risk management is undertaken over multiple timeframes with risk management activity reviewed on a regular basis by its Treasury Management Committee, a formally documented senior management committee. The overarching treasury policy parameters for interest rate and funding risk management reflect the objective of balancing a desired level of certainty for interest expense against retaining an appropriate level of flexibility to respond to external developments within not only domestic and global financial markets but also the wider domestic and global economies. The Treasury Policy is reviewed on a regular basis by senior management and the Board. This is enhanced by utilising the in-depth market knowledge of Abacus’ external independent treasury adviser.

 

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers, investment in securities and options, secured property loans and interest bearing loans and derivatives with banks.

The Group’s credit risk is predominantly driven by its Property Ventures business which provides loans to third parties, those using the funds for property development and / or investment.

 

Liquidity Risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate and diverse amount of committed credit facilities, the ability to close out market positions and the flexibility to raise funds through the issue of new stapled securities or the distribution reinvestment plan.

The Group’s policy is to maintain an available loan facility with banks sufficient to meet expected operational expenses and to finance investment acquisitions for a period of 90 days, including the servicing of financial obligations. Current loan facilities are assessed and extended for a maximum period based on the Group’s expectations of future interest and market conditions.

 

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. Similar policies are employed for the funds consolidated by the Group (AHF and ADIF II).