To Buy or Not to Buy? – That is the question
abacus property group
Kim Kitchen
Head of Retail Distribution
Agenda
Asset Class Performance Overview – how does direct property compare?
Digging Deeper into Property – How does each subsector differ?
The Future - Where is property heading according to the experts?
To Buy or not to Buy - What do you want to achieve?
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ASSET CLASS PERFORMANCE
OVERVIEW
How Does Direct Property Compare?
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Past Performance to 31 December 2011
1 Year Percentage
Returns to
30 December 2011
All Property
10.5
S&P/ASX 200
A-REIT
-1.5
S&P/ASX 200
-10.5
CBA Bond: All
Series, All
Maturities
13.4
CPI: Eight
Capital Cities
Source: Investment Property Databank Australian Property Investors Digest (December 2011)
3.1
Return Dispersions
Source: Investment Property Databank Australian Property Investors Digest (December 2011)
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Correlations
Source: Investment Property Databank Australian Property Investors Digest (December 2011)
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DIGGING DEEPER INTO PROPERTY
How does each subsector differ?
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Commercial Property
Performance to December 2011
Source: Investment Property Databank Australian Property Investors Digest (December 2011)
8
Capital Returns to December 2011
Source: Investment Property Databank Australian Property Investors Digest (December 2011)
9
Income Returns to December 2011
Source: Investment Property Databank Australian Property Investors Digest (December 2011)
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State Variances
Source: Investment Property Databank Australian Property Investors Digest (December 2011)
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Further Considerations
Region
Size
Use
Source: Investment Property Databank Australian Property Investors Digest (December 2011)
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Summary – Commercial Property
Retail sector produced highest total return, but income yield in downward trend
over past 27 years
Industrial properties consistently produce higher income yields
Historically capital growth varied between sectors and sub sectors – average
over 10 years = 3% pa
Income returns have remained fairly consistent within each sub sector –
average over 10 years = 7.5% pa
Diversification within property sectors and sub sectors lowers overall risk
Direct commercial property market continues in upward swing
Source: Investment Property Databank Australian Property Investors Digest (December 2011)
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What About Residential Property?
Weighted average median house price – 0.7% increase in Dec 11 quarter
Annual house prices – 3.2% decrease to December 11
Median house prices
Median houses prices
in all capital cities over the quarter
in only 1 capital city over the year
Annual Returns shown in the table include capital growth and income yield
Source: REIA Real Estate Market Facts – December Quarter 2011
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What About Residential Property?
Weighted average median Other Dwelling price – 0.1% higher in Dec 11 qtr
Annual Other Dwellings prices – 1.0% decrease to December 2011
Median Other Dwelling prices
in 6 capital cities over the quarter
Median Other Dwelling prices
in 5 capital cities over the year
Annual Returns shown in the table include capital growth and income yield
Source: REIA Real Estate Market Facts – December Quarter 2011
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Digging Even Deeper – QLD
Queensland House Sale Prices – December 2011
Queensland Other Dwelling Sale Prices – December 2011
Source: REIA Real Estate Market Facts – December Quarter 2011
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Digging Even Deeper – VIC
Victorian House Sale Prices – December 2011
Victorian Other Dwelling Sale Prices – December 2011
Source: REIA Real Estate Market Facts – December Quarter 2011
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Digging Even Deeper – NSW
New South Wales House Sale Prices – December 2011
New South Wales Other Dwelling Sale Prices – December 2011
Source: REIA Real Estate Market Facts – December Quarter 2011
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Summary – Residential Property
Sydney produced the highest total return, for the year to Dec 2011.
Hobart produced the highest returns over the past 10 years (3 bed +
houses)
Hobart also produced the highest returns over the past 10 years (2 bed
other dwellings)
Income returns remain low = 2% - 4% pa
Strong reliance on capital growth to achieve reasonable returns
Price growth slowing – negative returns for the quarter and 1 year returns
much lower than longer term average
High performance variables within sector, based on geographic, price and
size differences
Source: REIA Real Estate Market Facts – March Quarter 2011
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How do you outperform?
Historically low average capital growth on commercial property
3 ways to outperform:
Get lucky - Purchase the right property, in the right location, at the
right time for the right price
Focus on price – buy cheaply
Focus on adding value – improvements to property fundamentals
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THE FUTURE
Where is property heading according to
the experts?
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The Future – 2012
Economy underpinned by mining boom, but has structural problems,
including:
High Australian Dollar
High cost of debt
High level of white collar employment
Property will remain on the path to recovery
Australian assets particularly attractive to offshore investors
Transparency of regulatory environment
Diversity of economy
Yield spread
Expectation of continued weakening in the residential property market, but
rental growth accelerating and demand increasing.
Next 18 months will provide outstanding opportunities
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Residential Property – 2012
Slowing/Decline in house prices expected to December 2012
Best performing States expected to be:
Western Australia
South Australia / Northern Territory
New South Wales
Worst performing city expected to be Victoria
Resident owner occupiers expected to remain key driver of new
developments along with small increase in first home buyer activity
Constraints continue to be:
Tight credit conditions
Interest rates
Employment security / Housing affordability
Inner city houses and inner city low rises/townhouses = strongest demand
Expect rents to increase by 3.2% - but big divergence between each State
Source: NAB Australian Residential Property Survey – December 2011
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Office Markets – 2012
Underlying fundamentals remain relatively firm.
Consider:
Economic growth projections
Multi-speed domestic economy
o
Western Australia
o
Queensland
Tenant demand
o
Finance & Insurance Sectors
Yield expectation
Where to invest
Capital markets
o
Investor demand – onshore / offshore?
Supply
Rental growth
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Industrial Markets – 2012
Markets in the early stages of an upswing
Tenant demand steady
Forward pipeline of supply remains subdued
All sectors pre-commitment driven
Major participants are:
Private investors
Offshore groups building their presence
Existing domestic funds
Rental increases:
Brisbane
Sydney
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Retail Markets – 2012
Slow retail turnover growth in 2011, debate on whether this is now a structural change
rather than a cyclical issue
Are current household saving levels a permanent feature
Increased competition from international retailers through on-line retailing & expansion into
Australia
Australian occupancy cost to turnover ratios are high by global standards
Risk aversion is cyclically high.
Global competition will highlight differentials between prime and secondary centres
Speciality rents under some pressure
Retail vacancy remains low, but pressure to maintain high occupancy rates.
Destinational and strong convenience centres remain attractive
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TO BUY OR NOT TO BUY
What do you want to achieve?
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Things to consider..
What is the desired financial outcome?
What is the investment timeframe?
What is your risk tolerance?
What $ amount and % of your investment portfolio?
Will you be gearing the investment?
What is your desired level of involvement in managing the property?
What ongoing costs are you prepared to pay?
What ability do you have to fund net cash outflows?
What level of liquidity are you seeking?
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Property Options
Step 1
Outcome
• Income
• Growth
• Total return
Liquidity
• Minimum/maximum
holding period
• Full/partial access to
capital
Financial
• Ability to fund
ongoing costs
• Tax
Time
• Personal
involvement
Step 2
Direct or
indirect
ownership
Price range
Property
management
Number of
properties
Gearing
level
Tenant
strategy
Domestic or
overseas
State/City/
Suburb
Value add
strategy
Characteristics
Ongoing
costs
Residential/
Office/Retail/
Industrial/
other
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Investment Opportunity
Abacus is in the process of divesting smaller assets
Moorabbin House & Home, Moorabbin Victoria, is a fully
leased, modern metropolitan bulky retail centre with a
GLA of 13,298 sqm, 378 car spaces and a net annual
income of $2.8 m
Abacus acquired the asset with a short WALE in 2006
and has since extended the WALE to 4.5 years
This stabilised asset has experienced a significant cap
rate expansion as a result of the GFC and poor retail
environment
Abacus believes that Moorabbin House at its
anticipated independent valuation of $30 m
($2,150/sqm and 9.3% cap rate) provides a compelling
opportunity to earn above average risk adjusted
returns
Abacus wants to co-venture with sophisticated
investors to own the asset until the market
appropriately recognises its value
Offer Strategy
Nature of Raising
Wholesale Clients for the purposes of Chapter 7 of the Corporations Law
Manager
The manager of the investment co-venture is a member of the ASX listed Abacus Property
Group
Investment Being Offered
Units in entity
Equity being Sold
Minimum of $7.8m – maximum of $11.7 million
Abacus Minimum Investment
$3.9 million or 25% of the equity of approximately $15.6 million
Minimum Investment
$50,000, subject to the discretion of the Manager
Closing Date
The offer will open at the end of May 2012 and will close at the end of June 2012
Investment Term
Anticipated term of 5 to 7 years, depending on market conditions, with definite exit at year 8
Target Return to Investors
12% equity IRR comprised partly of yield and partly of capital gain (after fees) and does not
assume significant cap rate compression
Distribution
Year 1 & 2 distribution of circa 8.5% p.a. and average of 9.25% p.a. over a five year
investment period
Fees
No establishment fee to Abacus
Management fee of circa 65 bps of asset value and market standard cost recovery
Performance fee of 20% of returns above a 10% per annum
Gearing
Debt to 50% LVR drawn day one, anticipate obtaining facility of 55% to provide a buffer
Disclaimer
The contents of this presentation are general only. It 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 Abacus Property Group or any funds managed by Abacus 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
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