abacus property group

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

Kim KitchenHead 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?

2

ASSET CLASS PERFORMANCE

OVERVIEW

How Does Direct Property Compare?

3

Past Performance to 31 December 2011

Source: Investment Property Databank Australian Property Investors Digest (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

3.1

Return Dispersions

5Source: Investment Property Databank Australian Property Investors Digest (December 2011)

Correlations

6Source: Investment Property Databank Australian Property Investors Digest (December 2011)

DIGGING DEEPER INTO PROPERTY

How does each subsector differ?

7

8

Commercial Property

Performance to December 2011

Source: Investment Property Databank Australian Property Investors Digest (December 2011)

Capital Returns to December 2011

9Source: Investment Property Databank Australian Property Investors Digest (December 2011)

Income Returns to December 2011

10Source: Investment Property Databank Australian Property Investors Digest (December 2011)

State Variances

11Source: Investment Property Databank Australian Property Investors Digest (December 2011)

Further Considerations

Region

Size

Use

12Source: Investment Property Databank Australian Property Investors Digest (December 2011)

13

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)

What About Residential Property?

14

Weighted average median house price – 0.7% increase in Dec 11 quarter

Annual house prices – 3.2% decrease to December 11

Median house prices in all capital cities over the quarter

Median houses prices 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

What About Residential Property?

15Source: REIA Real Estate Market Facts – December Quarter 2011

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

Digging Even Deeper – QLD

16

Queensland House Sale Prices – December 2011

Queensland Other Dwelling Sale Prices – December 2011

Source: REIA Real Estate Market Facts – December Quarter 2011

Digging Even Deeper – VIC

17

Victorian House Sale Prices – December 2011

Victorian Other Dwelling Sale Prices – December 2011

Source: REIA Real Estate Market Facts – December Quarter 2011

Digging Even Deeper – NSW

18

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

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

19Source: REIA Real Estate Market Facts – March Quarter 2011

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

20

THE FUTURE

Where is property heading according to

the experts?

21

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

22

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

23Source: NAB Australian Residential Property Survey – December 2011

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

24

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

25

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

26

TO BUY OR NOT TO BUY

What do you want to achieve?

27

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?

28

Property Options

29

Step 1 Step 2

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 AbacusManagement fee of circa 65 bps of asset value and market standard cost recoveryPerformance 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

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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