Abacus Property Group (ASX:ABP)

Steven Sewell
MD
Market Cap (AUD): 1.86B
Sector: Real Estate
Last Trade (AUD): 3.24 +0.03 (+0.93%)
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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.[1]

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.

2. Business model

    

The Company operates the following divisions:[2]

 

Divisions

Revenue ($’000)

% of total Revenue

% of Segment Result

Profit drivers[3]

Property

$162,483

34.3%

N/A

During the 12 months to 30 June 2018 the real estate markets across Australia continued to see historically low interest rates as the RBA maintained the cash rate at 1.5% while the forward guidance is for an ultimate increase in the cash rate.

A strong leasing market, particularly in Sydney and Melbourne office markets and general industrial markets during the year also contributed to the attractiveness of real estate assets to domestic and global investors. Increased merger and acquisition activity in the listed real estate markets has also intensified valuations and interest in direct real estate markets. The strength of the market continues despite a backdrop of economic uncertainty and disparate economic activity throughout Australian States.

The office markets across the eastern seaboard, in particular Sydney and Melbourne have remained very strong delivering exceptional growth in net effective rents and strong valuation growth.

The self-storage markets across Australia and New Zealand continue to experience the impacts from several attempts to consolidate the sector. Following the recent institutionalisation of the market as investors increased their awareness of self-storage as a viable asset class resulted in several participants investing heavily into the sector looking to increase their market share of the self-storage sector. This increased transactional activity and heightened interest has continued to deliver strong capitalisation rate compression across the sector

Storage

$125,143

26.4%

N/A

Property Development

$149,003

31.5%

N/A

Unallocated

$1,025

0.2%

N/A

Other

$39,659

8.4%

82.6%

Eliminations

($3,606)

(0.8%)

(6.7%)

3. Strategy


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

  • Group’s  take advantage of our specialised knowledge, track record, and market positioning
  • Group’s invest in core and core plus property investments that are expected to yield an appropriate risk adjusted returns over time
  • Group’s drive value through active management of the asset portfolio

4. Markets

    

The Group operates in markets including:[5]

 

Industry (Australia)

Industry Revenue (2018)

Growth Rate (annual 13-18)

Retail Property Operators

$23 billion

6.0%

Industrial and Other Property Operators

$17 billion

13.2%

Office Property Operators

$43 billion

11.3%

5. Competition

    

Major competitors include:[6]

 

  • Scentre Group Ltd (ASX:SCG)

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 a joint venture with its capital partners

     

2017   

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 a joint venture with its capital partners

     

2018   

Entered into contracts with two of the funds managed by  ISPT for the acquisition of a 50% interest in two Abacus owned super convenience retail assets, Ashfield Mall in Sydney NSW and Lutwyche City Shopping Centre in Brisbane QLD

Entered into a second joint venture partnership with Heitman LLC, a global real estate investment management firm

7. Team

 

Board of Directors[8]

 

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

Rob Baulderstone – Chief Financial Officer and Company Secretary

Lisa-Anne Carey – Head Of Legal

Cameron Laird – Director, Property Developments

Gavin Lechem – Director, Specialised Capital

John L’Estrange – Director, Property Developments

Philip Peterson – Director Self-Storage

Peter Strain – Director, Property Investment

Neil Summerfield – Head of Investor Relations


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8. Financials

 

2018 Full Year Results Presentation

     

Financial Year 2017/18 (ended 30 June):[9]

 

Division

Revenue ($’000)

% Change

Profit before tax ($’000)

% Change

Property

$162,483.0

(35.19%)

N/A

N/A

Storage

$125,143.0

22.47%

N/A

N/A

Property Development

$149,003.0

55.93%

N/A

N/A

Unallocated

$1,025.0

(356.78%)

N/A

N/A

Other

$39,659.0

(122.04%)

$2,277

(84.34%)

Eliminations

-$3,606.0

223.16%

$20,852

(6.7%)

Total

$473,707.0

2.17%

$275,771

(8.75%)

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 our 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.

 

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.

 

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 the policy to maintain a mix of floating exposure and fixed interest rate hedging with fixed rate cover highest in years 1 to 5.