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

To Buy or Not to Buy? – That is the question abacus property group Dr Frank Wolf Managing Director

Past Performance to 30 Sept 2010 Total Return Asset Classes, rolling annual % per annum 100 1 Year Percentage 80 Returns to 30 September 2010 abacus property group 60 All Property 7.9 40 S&P/ASX 200 ­4.2 20 A­REIT 0 S&P/ASX 200 0.6 CBA Bond: All ­20 Series, All 6.8 Maturities ­40 CPI: Eight 2.8 Capital Cities ­60 All Property S&P/ASX 200 A­REIT S&P/ASX 200 CBA Bond: All Maturities Source: Investment Property Databank Australian Property Investors Digest (September 2010)

Returns Dispersions abacus property group Source: Investment Property Databank Australian Property Investors Digest (September 2010) 3

Portfolio Benefits – Direct Property Volatility significantly lower than Australian Shares or A­REITs Average returns almost identical to A­REITs ~10% pa over past 25 abacus property group years, but significantly higher in the shorter term: Percentage Returns to 30 September 2010 S&P/ASX 200 Period All Property S&P/ASX 200 A­REIT 1 Year 7.9 ­4.2 0.6 3 Year 2.6 ­24.2 ­7.2 5 Year 8.9 ­8.1 4.2 Low correlations to other asset classes Continues to be a valid contributor to a diversified portfolio Source: Investment Property Databank Australian Property Investors Digest (September 2010) 4

Commercial Property Performance to September 2010 Total Return, rolling annual % per annum 40 1 Year Returns % to 30 September 30 2010 abacus property group percent per annum 20 All 7.9 Property 10 Retail 8.2 0 Office 7.7 Industrial 7.0 ­10 ­20 All Property Retail Office Industrial Source: Investment Property Databank Australian Property Investors Digest (September 2010) 5

Income Returns to September 2010 Income Return, rolling annual % per annum 12 11 abacus property group 10 9 8 7 6 5 All Property Retail Office Industrial Source: Investment Property Databank Australian Property Investors Digest (September 2010) 6

Capital Returns to September 2010 Capital Return, rolling annual % per annum 30 20 abacus property group 10 0 ­10 ­20 ­30 All Property Retail Office Industrial Source: Investment Property Databank Australian Property Investors Digest (September 2010) 7

Historical Facts Retail sector income yield in downward trend over past 25 years Industrial properties consistently produce higher income yields abacus property group 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) 8

Office Sector ­ Income Premium Grade Grade Grade Average Returns Since Dec 91 A B C & D since 1985 abacus property group 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) 9

Office Sector ­ Growth Grade Grade Grade Premium Average Returns A B C & D Since Dec 91 since 1985 abacus property group 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) 10

Office Sector Premium Grade properties produced the lowest average annual total return since Dec 1999, but the highest capital growth abacus property group 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) 11

Retail Sector Total Returns abacus property group Average Super & Sub­ Neighbour Annual Major Regional Regional hood Returns Regional 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) 12

Retail Sector Income Returns abacus property group Average Super & Sub­ Neighbour Annual Major Regional Regional hood Returns Regional 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) 13

Retail Sector Super & Major Regional Retail: has produced the highest average annual total return since March 1987 – nearly 24 years, but abacus property group 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 over the last 10 and 15 years Source: Investment Property Databank Australian Property Investors Digest (September 2010) 14

Industrial Sector Total Returns abacus property group Average High­Tech Industrial Annual Warehouse Distribution Business Estate Returns Park 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) 15

Sector Summary Severity & duration of this Retail produced greatest downturn much less than capital growth but lowest 1990’s income yield abacus property group Greatest contributor to total Industrial produced returns is income greatest income yield and second lowest capital Average annual capital growth growth for commercial property since Dec 1985 ­ 2.6% pa Office, Retail & Industrial sectors have Outperformance best served by similar performance a value adding active trends but can vary investment approach Source: Investment Property Databank Australian Property Investors Digest (September 2010) 16

Investment philosophy – Value Adding Carlton Hotel Asset strategy Exit strategy Acquisition fundamentals ­ Acquired September 06 ­ Find suitable operator ­ Sold Dec 06 ­ Offshore vendor ­ Negotiate favourable ­ Was going to anchor abacus property group ­ 50% discount to lease arrangements: Hospitality Fund replacement cost ­ Initial rent ­ But we were ­ Low rate per room ­ Turnover rent approached by a ­ Vacant possession ­ Triple net purchaser attracted to ­ Potential residential lease structure conversion opportunity ­ Return on Investment of 16.5% (annualised return of 43.5)% Purchased: Sept 2006 All property Carlton Hotel Capital Return 1.6% 16.5% Sold: Dec 2006 Income Return 3.4% 0.0% Returns relate to this period (not annualised) Total Return 5.1% 16.5% Carlton Hotel returns are calculated pre­tax, and ignore gearing benefits Source: Investment Property Databank Australian Property Investors Digest (September 2010) and Abacus Property Group 17

Investment philosophy – Value Adding Mariners Cove Acquisition Asset strategy Exit strategy fundamentals ­ Acquired 1999 for ­ Offered JV with local ­ Approached late 2007 $10m partner Ariadne and sold in early 2008 ­ Purchased from ­ Syndicated ABP 50% for $49m abacus property group receivers of Quintex interest in 2000 ­ Investors enjoyed very ­ Poorly managed ­ Restructure of tenancies strong returns ($4.33 ­ Land use agreement for for every $1 invested development achieving a 20% IRR) ­ Abacus achieved a $5m performance fee Retail Mariners Cove Purchased: March 2000 Capital Return 7.1% 15.4% Sold: February 2008 Income Return 7.1% 0.0% Total Return 14.7% 15.4% Mariners Cove returns are calculated pre­tax, pre performance fee and ignore gearing benefits Source: Investment Property Databank Australian Property Investors Digest (September 2010) and Abacus Property Group

Investment philosophy – Value Adding High quality landmark commercial 343 George Street, building in central Sydney CBD Comprises ground floor retail and 10 Sydney floors of office space abacus property group 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 19

Investment philosophy ­ Continued Negotiated new 15 year lease over 2,012 sm of office and retail space to retailer Burberry Increased passing yield to 9.4% from 7.1% Increased occupancy to 96% from 89% abacus property group 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% 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% 343 George Street returns are calculated pre­tax, and ignore gearing benefits Source: Investment Property Databank Australian Property Investors Digest (September 2010) and Abacus Property Group 20