abacus property group Dr Frank Wolf Managing Director Past - - PowerPoint PPT Presentation

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To Buy or Not to Buy? – That is the question

Dr Frank Wolf Managing Director

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Past Performance to 30 Sept 2010

Source: Investment Property Databank Australian Property Investors Digest (September 2010)

­60 ­40 ­20 20 40 60 80 100

Total Return Asset Classes, rolling annual % per annum

All Property S&P/ASX 200 A­REIT S&P/ASX 200 CBA Bond: All Maturities

1 Year Percentage Returns to 30 September 2010 All Property 7.9 S&P/ASX 200 A­REIT ­4.2 S&P/ASX 200 0.6 CBA Bond: All Series, All Maturities 6.8 CPI: Eight Capital Cities 2.8

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Returns Dispersions

3 Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Portfolio Benefits – Direct Property

Volatility significantly lower than Australian Shares or A­REITs Average returns almost identical to A­REITs ~10% pa over past 25 years, but significantly higher in the shorter term: Low correlations to other asset classes Continues to be a valid contributor to a diversified portfolio

Period All Property S&P/ASX 200 A­REIT S&P/ASX 200 1 Year 7.9 ­4.2 0.6 3 Year 2.6 ­24.2 ­7.2 5 Year 8.9 ­8.1 4.2

Percentage Returns to 30 September 2010

Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Commercial Property Performance to September 2010

Source: Investment Property Databank Australian Property Investors Digest (September 2010)

­20 ­10 10 20 30 40 percent per annum

Total Return, rolling annual % per annum

All Property Retail Office Industrial

1 Year Returns % to 30 September 2010 All Property 7.9 Retail 8.2 Office 7.7 Industrial 7.0

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Income Returns to September 2010

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5 6 7 8 9 10 11 12

Income Return, rolling annual % per annum

All Property Retail Office Industrial

Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Capital Returns to September 2010

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­30 ­20 ­10 10 20 30

Capital Return, rolling annual % per annum

All Property Retail Office Industrial

Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Historical Facts

Retail sector income yield in downward trend over past 25 years Industrial properties consistently produce higher income yields Historically capital growth varied between sectors Diversification within property sectors lowers overall risk Average property transaction value less than $25m in 2008 Evidence of increased trading from 2

nd half of 2009 & throughout 2010

Direct commercial property market continues in upward swing since

• approx. June 2009

Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Office Sector ­ Income

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Average Returns since 1985

Premium

Since Dec 91

Grade A Grade B Grade C & D

Total % 7.3 8.9 8.5 9.1 Income % 6.1 6.9 7.7 8.3

Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Office Sector ­ Growth

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Average Returns since 1985

Premium

Since Dec 91

Grade A Grade B Grade C & D

Total % 7.3 8.9 8.5 9.1 Capital % 1.1 1.9 0.8 0.8

Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Office Sector

Premium Grade properties produced the lowest average annual total return since Dec 1999, but the highest capital growth Secondary Grade properties (B, C & D Grades) had higher average income yields over past 25 years Non CBD Office outperformed CBD office over the past 15 years by 1.4% Non CBD Office also had consistently higher annual income yields since Dec 1999

Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Retail Sector Total Returns

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Average Annual Returns Super & Major Regional Regional Sub­ Regional Neighbour hood

Total 13.6 12.3 12.2 12.5 Income 7.3 8.2 9.2 9.5 Capital 5.9 3.8 2.8 2.7

Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Retail Sector Income Returns

Average Annual Returns Super & Major Regional Regional Sub­ Regional Neighbour hood

Total 13.6 12.3 12.2 12.5 Income 7.3 8.2 9.2 9.5 Capital 5.9 3.8 2.8 2.7

Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Retail Sector

Super & Major Regional Retail: has produced the highest average annual total return since March 1987 – nearly 24 years, but has produced the lowest average annual income return Neighborhood Retail: has consistently produced the highest average annual income return since March 1987, but has produced the lowest average annual capital growth Sub­Regional Retail has produced the highest total annual returns

• ver the last 10 and 15 years

14 Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Industrial Sector Total Returns

Average Annual Returns Warehouse Distribution High­Tech Business Park Industrial Estate

Total 10.4 9.7 8.7 9.6 Income 9.6 9.2 8.8 9.2 Capital 0.7 0.4 ‐0.2 0.3

Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Sector Summary

Severity & duration of this downturn much less than 1990’s Greatest contributor to total returns is income Average annual capital growth for commercial property since Dec 1985 ­ 2.6% pa Outperformance best served by a value adding active investment approach

Retail produced greatest capital growth but lowest income yield Industrial produced greatest income yield and second lowest capital growth Office, Retail & Industrial sectors have similar performance trends but can vary

16 Source: Investment Property Databank Australian Property Investors Digest (September 2010)

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Investment philosophy – Value Adding

Acquisition fundamentals

­ Find suitable operator ­ Negotiate favourable lease arrangements: ­ Initial rent ­ Turnover rent ­ Triple net

Asset strategy

­ Sold Dec 06 ­ Was going to anchor Hospitality Fund ­ But we were approached by a purchaser attracted to lease structure ­ Return on Investment

• f 16.5% (annualised

return of 43.5)%

Exit strategy Carlton Hotel

­ Acquired September 06 ­ Offshore vendor ­ 50% discount to replacement cost ­ Low rate per room ­ Vacant possession ­ Potential residential conversion opportunity

Purchased: Sept 2006 Sold: Dec 2006

Returns relate to this period (not annualised)

Source: Investment Property Databank Australian Property Investors Digest (September 2010) and Abacus Property Group

All property Carlton Hotel

Capital Return

1.6% 16.5% Income Return 3.4% 0.0%

Total Return

5.1% 16.5%

Carlton Hotel returns are calculated pre­tax, and ignore gearing benefits

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Investment philosophy – Value Adding

Mariners Cove Acquisition fundamentals Asset strategy Exit strategy

­ Approached late 2007 and sold in early 2008 for $49m ­ Investors enjoyed very strong returns ($4.33 for every $1 invested achieving a 20% IRR) ­ Abacus achieved a $5m performance fee

­ Offered JV with local

partner Ariadne

­ Syndicated ABP 50%

interest in 2000

­ Restructure of tenancies ­ Land use agreement for

development ­ Acquired 1999 for $10m ­ Purchased from receivers of Quintex ­ Poorly managed

Purchased: March 2000 Sold: February 2008

Source: Investment Property Databank Australian Property Investors Digest (September 2010) and Abacus Property Group

Mariners Cove returns are calculated pre­tax, pre performance fee and ignore gearing benefits

Retail Mariners Cove

Capital Return

7.1% 15.4% Income Return 7.1% 0.0%

Total Return

14.7% 15.4%

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343 George Street, Sydney

High quality landmark commercial building in central Sydney CBD Comprises ground floor retail and 10 floors of office space Acquired in July 2009 for A$55m Low price psm of ~A$5,400 Passing yield of 7.1% and market yield of 8.5% Significant under­renting of retail Attractive holding income Strong re­development potential through strata sub­division

Investment philosophy – Value Adding

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Negotiated new 15 year lease over 2,012 sm of

• ffice and retail space to retailer Burberry

Increased passing yield to 9.4% from 7.1% Increased occupancy to 96% from 89% Property sold in September 2010 for A$78 million Delivering a pre­tax profit of ~A$15 million in an 11 month period Representing a return on equity of over 60% and project IRR of 34.5%

Investment philosophy ­ Continued

Source: Investment Property Databank Australian Property Investors Digest (September 2010) and Abacus Property Group

343 George Street returns are calculated pre­tax, and ignore gearing benefits

Retail Office 343 George St.

Capital Return

0.2% ‐1.7% 26.3% Income Return 9.0% 9.8% 8.2%

Total Return

9.3% 8.0% 34.5%

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Abacus ­ Proven Property Manager

Abacus Property Group: Established in 1996 listed on the ASX in November 2002 market capitalisation of ~$800m member of the S&P/ ASX 200 index Assets under management of ~$2b Abacus has demonstrated its ability to: take advantage of different market conditions identify value gaps add value by improving tenancy profile & other property strategies

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Abacus Diversified Income Fund II

A Fund that delivers… A minimum 9% pa yield with automatic CPI indexation and 100% tax deferral expected in FY2011 and capital preservation with the potential for capital growth with no management fees until 110% of capital is returned All underpinned by real assets and underwritten by Abacus Property Group An alternative solution to property investing, providing you with certainty Invest with Confidence

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Disclaimer

The contents of this presentation are general only. This presentation is directed to representatives of Australian financial services licensees. It does not purport to contain all the information that an investor may require to evaluate an investment in the Abacus Property Group or any funds managed by Abacus Funds Management Limited or Abacus Storage Funds Management Limited. Before a person makes an investment decision on the basis of this information, they should determine for themselves or obtain professional advice as to whether any investment is appropriate for their particular needs, investment objectives and financial situation. None of Abacus Property Group, its directors, employees or advisers make any representation or warranty as to the accuracy, reliability or completeness of the information contained in this presentation. 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. Statements made in this presentation are made as of the date of the presentation unless otherwise stated. Abacus Funds Management Limited AFSL No. 227819

www.abacusproperty.com.au