Abacus Diversified Income Fund II
Product Disclosure Statement
Invest with Confidence
Issued by Abacus Funds Management Limited ABN 66 007 415 590 AFSL 227 819 Important InformatIon
This Product Disclosure Statement (PDS) is dated 24 December 2009 and is Contents issued by Abacus Funds Management Limited (ABN 66 007 415 590, AFSL 227 819) as responsible entity of the Abacus Diversified Income Fund II (the Fund). 1. Offer Summary 9 Contact details for Abacus are set out in the corporate directory on the inside back cover. The Fund is registered with ASIC as a managed investment scheme (ARSN 116 2. Fund Overview 12 429 844).
Unless otherwise permitted by applicable law, the Offer made in this PDS is available only to residents of Australia. This PDS does not constitute an offer in 3. Property Portfolio 21 any place in which, or to any person to whom, it would be unlawful to make such an offer. Anyone who comes into possession of this PDS should seek advice on, and observe any restrictions on, accepting an offer or distributing the PDS. Any failure to comply with those restrictions may constitute a violation of applicable 4. Information for New Investors 39 securities law. Unless stated otherwise, all figures are expressed in Australian dollars. All fees and payments stated in this PDS are quoted exclusive of any applicable GST unless stated otherwise. 5. Fees and Costs 47 Investors should be aware that an investment in the Fund is illiquid as at the date of this PDS. If the Fund becomes liquid Abacus will disclose this on the ‘Fund Documents’ section of the fund page of the Abacus Property Group website at www.abacusproperty.com.au. Investment in the Fund is subject to risk. Units in 6. Financial Information 52 the Fund are not quoted on any stock market. Past performance is not a reliable indicator of future performance. 7. Taxation Information 56 This PDS contains important information but it is general and does not take into account your investment objectives, financial situation or particular needs. Accordingly, before you invest, you should read this PDS carefully in its entirety and consider whether an investment in the Fund is appropriate to your 8. Investment Risks 58 objectives, financial situation and needs. Prospective investors should refer to Section 8 of this PDS and consider the risks associated with an investment in the Fund. You are encouraged to obtain independent legal, tax and financial advice. 9. Additional Information 62 Updating this pDS The information in this PDS is current as at the date of this document. It is subject to change from time to time. Abacus will disclose material information relating 10. Glossary 67 to the Fund and material changes to the PDS on the ‘Fund Documents’ section of the fund page of the Abacus Property Group website at www.abacusproperty. com.au in accordance with ASIC’s “Regulatory Guide 198: Unlisted disclosing entities: Continuous disclosure obligations”. You may also request a paper copy 11. How to Apply 68 of this information from us free of charge. Where new information is not ‘material information’ and is not materially adverse, it may be updated through Abacus Property Group’s website or when reporting to you. master trust / Wrap accounts If you invest in the Fund through an investment or reporting service such as a master trust, wrap account, investor directed portfolio service or nominee or custody service, you are an indirect investor in the Fund. The operator of the service that invests for you will be recorded as the Unitholder in the Fund. The service operator will have all the rights and benefits of a Unitholder. For example, the service operator will receive distributions and any statements or reports from the Fund and may provide instructions concerning additional investments, withdrawals and the payment of distributions. Investors should be aware that different fees and charges, arrangements for the application and transfer of Units, distribution calculation and timing may apply to wholesale investors, including investment or reporting services. Your rights are governed by your agreement with your service operator. Any queries or instructions relating to your investment should be directed to your service operator. other Information Abacus has not authorised any person to give any information or make any representation in connection with this Offer that is not contained in this PDS and no such information or representation made by anyone else may be relied on as having been authorised by Abacus in connection with this Offer.
In this PDS, “Abacus”, “we”, “us” or “our” refers to Abacus Funds Management Limited. A list of other defined terms used throughout this PDS appears in the Glossary contained in Section 10.
If you have received this PDS electronically we will provide a paper copy free of charge on request.
ABACUS DIVERSIFIED INCOME FUND II Are you looking for an investment with an attractive income yield?
That offers a minimum income return of 8% pa over the life of the investment. The income return is indexed each year in line with inflation.
An investment that provides a reliable and consistent income stream can contribute to your additional cash flow needs before retirement, or your superannuation fund can benefit from the certainty of underwritten income to provide the pension payments you seek in retirement.
ABACUS DIVERSIFIED INCOME FUND II 2 ...with annual CPI indexation?
So that your distributions automatically keep pace with inflation and the risk of inflation eroding the value of your distributions is removed.
Inflation can erode the real value of the income you receive. This could negatively impact on your lifestyle as a dollar today may not have the same purchasing power in the future. Inflation linked income reduces this risk and ensures that your income is adjusted to compensate for inflation.
3 ABACUS DIVERSIFIED INCOME FUND II ...that is tax effective?
So that you pay less tax now on the income you receive each year, leaving you with more dollars in your pocket and an improvement in your cash flow position.
Tax deferred distributions result in tax not being payable on all or some of the income in the year received, but instead is factored into the capital gain on disposal of the investment. Therefore a real benefit of tax deferred distributions is that more dollars remain in your pocket today, with the tax paid later at concessionary capital gains tax rates.
ABACUS DIVERSIFIED INCOME FUND II 4 ...and capital protection?
So that regardless of the changes in the asset values underpinning the investment, you will as a minimum receive a return of your capital at the end of the investment term.
Your return of capital is underpinned by the Fund's property portfolio and underwritten by Abacus Property Group. This allows you to plan your financial future with some certainty.
5 ABACUS DIVERSIFIED INCOME FUND II ...and an experienced Investment Manager?
Abacus Funds Management Limited is the responsible entity of the Fund and is a member of the Abacus Property Group, a diversified property business that is a member of the S&P/ASX 200 A-REIT index, with over 13 years experience as a retail property funds manager.
The skill and experience of the investment manager can contribute to the overall performance of the Fund and thus the return on your investment. Knowing the investment manager has the required specialist experience may therefore provide further comfort to your investment decision.
ABACUS DIVERSIFIED INCOME FUND II 6 how To InvEST
1 Read this PDS in full including the information provided on the inside front cover.
2 Consider the Offer in light of your particular investment objectives and circumstances, paying particular attention to the risk factors.
3 Consult your financial, tax or other professional adviser to decide if this investment is appropriate for you.
Complete the application form and, for New Investors, the AML Forms (a copy of which is available from the Abacus Property Group Website). Complete the direct debit authority or make a cheque 4 payable to Abacus Diversified Income Fund II and cross it “not negotiable”. Further details on how to complete the application form and meet the anti-money laundering requirements are set out in Section 11.
Mail your application form, AML Form and cheque or direct debit authority to: Abacus Diversified Income Fund II 5 Registries Limited GPO Box 3993 Sydney NSW 2001
Abacus is required under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 to 6 obtain additional information about the identity of New Investors and to verify that information by inspecting appropriate documents or by you providing certified copies of the documents.
7 ABACUS DIVERSIFIED INCOME FUND II LETTER FRoM ThE ChAIRMAn
Dear Investor
Abacus Funds Management Limited (Abacus) is pleased to offer you the opportunity to invest in the Abacus Diversified Income Fund II (ADIF II), a Fund that seeks to provide reliable income and capital preservation backed by 25 diversified commercial properties and Underwritten by Abacus Property Group.
An investment at an issue price of $0.75 per New Unit in ADIF II provides you with the following benefits: . A minimum cash distribution yield of 8% per annum. . Automatic annual distribution indexation, based on changes in the Consumer Price Index. . High tax deferral on the distributions, initially at 100%. . The distribution yield is underpinned by net rental income from the Fund’s property portfolio, and any shortfall is underwritten by Abacus Property Group for the term of the Fund. . Abacus Property Group has also underwritten the return of your capital after 30 June 2016 at the end of the Fund term. If after this date the net sale proceeds from the sale of the Fund or the Fund’s property portfolio are insufficient to return your capital invested, Abacus Property Group will make up the shortfall in the first instance by setting off the principal of the Abacus Loan Facility and any residual shortfall will be satisfied in either cash or Abacus Property Group stapled securities, or a combination of the two at Unitholder discretion. . Abacus will not be paid any management fees until all investors in the Fund receive their original capital back plus a capital gain of at least 10%.
ADIF II was originally launched in July 2007 and Existing Investors have already subscribed for $36.2m of equity.
ADIF II is managed by Abacus Property Group, an S&P/ASX 200 A-REIT with more than 13 years experience managing property funds for retail investors. Abacus Property Group is also underwriting the Fund’s distribution yield and the return of investor equity, so as to provide New Investors with greater certainty in respect of the returns they will receive. Further details on the nature of Abacus Property Group’s underwriting commitment can be found in Section 4.5 of this document, and further information on Abacus Property Group is located in Section 4.4.2 of this document.
Abacus proposes that the Fund will have a remaining term of approximately seven years. While it is likely that properties will be bought and sold during its term, Abacus proposes to provide liquidity for investors after June 2016 by selling the Fund or the remainder of the Fund’s assets, applying the proceeds to repay any Fund liabilities and then distributing the remaining proceeds to investors in the Fund.
Like all investments, there are risks associated with an investment in the Fund. I encourage you to read this document in its entirety, including the discussion on risks at Section 8 of this document and where appropriate, consult with your professional adviser to ensure that this investment is appropriate for your requirements.
Yours faithfully
JOHN THAME Chairman Abacus Funds Management Limited
ABACUS DIVERSIFIED INCOME FUND II 8 SECTION 1 / OFFER SUMMARY
1. oFFER SUMMARY
The following table summarises some of the key features of the Fund. This summary is not intended to be exhaustive. To find more detailed information refer to the relevant section of this PDS. Prospective investors should read the entire PDS to make an informed decision about whether to invest in the Fund, and where appropriate, seek advice from their financial adviser or other professional advisers.
FEATURE SUMMARY REFER Section 2.1 Abacus Diversified Income Fund II seeks to provide reliable income and capital preservation backed by FUND OVERVIEW 25 diversified commercial properties and Underwritten by Abacus Property Group.
To provide New Investors with regular and reliable income, which is indexed with inflation. Distributions Section 2.2, 2.6 are underpinned by the net rental income generated by the Fund’s property portfolio and the INVESTMENT underwriting commitment provided by Abacus Property Group. OBJECTIVE New Investors also benefit from the Fund’s Underwritten Capital Return, whereby Abacus Property Section 2.7 Group has underwritten the return of investor capital at the end of the Fund’s term, while retaining the potential for capital growth once all Unitholder Contributed Equity has been repaid.
The Fund owns a diversified portfolio of investment properties that have been acquired in accordance Section 2.3 with the investment strategy detailed in Section 2.3 of this PDS. Abacus’ strategy in respect of each FUND property is to maximise its passing rental income, and over time, to unlock the property’s inherent INVESTMENT capital growth potential by applying Abacus’ specialist property management skills and experience. STRATEGY Properties may be sold during the term of the Fund, and additional properties may be acquired. At the Section 2.9 end of the Fund Term, the Fund or the assets of the Fund will be sold and the net proceeds returned to investors.
Abacus intends to begin the process of selling the Fund or the Fund’s assets from 30 June 2016, Section 2.9 applying the net proceeds to pay out the Fund’s liabilities and returning the net proceeds to investors FUND TERM by 30 June 2017. If at this time the Fund has not been wound up Abacus will propose an exit strategy on which Unitholders will be asked to vote.
Abacus Funds Management Limited is the responsible entity of the Fund. Section 4.4 MANAGEMENT Abacus Funds Management Limited is a member of the Abacus Property Group, a diversified property OF THE FUND business that is included in the S&P/ASX 200 A-REIT index with over 13 years experience as a retail property funds manager.
The Fund’s property portfolio comprises 25 properties valued at $189.8m, offering the following Section 3 characteristics: . Individual property values of less than $25m. PORTFOLIO . 95% occupancy across approximately 90 tenancies. OVERVIEW . 4.0 years weighted average lease expiry. . 9.0% weighted average capitalisation rate. . Geographic and sector diversity. The Fund’s property assets have all been independently valued since June 2009.
The Fund is seeking to raise $73.5m through the issue of approximately 98m New Units at an offer price Section 4.2 of $0.75 each. Abacus may accept oversubscriptions or close the offer at its discretion. The Offer opens on 24 December 2009. THE OFFER The minimum investment is $5,000 and above that in multiples of $1,000. Applications may only be made on the application form that accompanies this PDS. There is no cooling-off period in relation to applications. Proceeds from the Offer will be used to repay the Abacus Working Capital Facility.
Issue price of New Units $0.75 Section 2.5, 2.6 Underwritten Distributions FY10 per Unit 6.0 cpa Distribution yield FY10 8% pa Tax deferral on distributions FY10 and FY11 100% INVESTMENT Gearing including the Abacus Loan Facility 60% FUNDAMENTALS Bank loan to valuation ratio (maximum permitted 61%) 57% FOR NEW UNITS Pro-forma net asset value per Unit $0.47 Adjusted net asset value per Unit $0.63 Interest cover ratio (minimum required 1.5 times) 1.7 times From 1 July 2010 onwards distributions on New Units are indexed in line with CPI.
9 ABACUS DIVERSIFIED INCOME FUND II SECTION 1 / OFFER SUMMARY
FEATURE SUMMARY REFER
New Units will attract an initial distribution of 6c per annum, which equates to an annualised distribution Section 2.6, 4.5 yield of 8% on a $0.75 issue price. For each new financial year commencing July 2010, the distribution on New Units will be automatically adjusted for the percentage change in the Consumer Price Index between the commencement of that financial year and June 2009. Distributions will be paid quarterly by electronic funds transfer.
DISTRIBUTIONS Distributions are expected to be 100% tax deferred in FY10 and FY11 with significant tax deferral on the distributions over the life of the Fund. Initially, the distributable income of the Fund will be less than the level of income required to fully fund the distribution specified above. This shortfall will be provided by Abacus Property Group in accordance with the underwriting arrangements described in Section 4.5.2 of this PDS. The distribution will be adjusted if there is a return of capital during the term of the Fund. The Underwritten Distributions for New Units and Converted Units cease if Unitholders vote to wind up the Fund before 30 June 2016.
New Investors will benefit from the commitment of Abacus Property Group to underwrite the return of Section 2.7, 2.9, their capital investment of $0.75 per New Unit at the end of the Fund term, but in any event not before 4.5 30 June 2016. Under the terms of this Underwritten Capital Return, if upon a winding up of the Fund (as described in Section 2.9 of this PDS) there are insufficient net proceeds to return $0.75 per Unit to New Investors, Abacus Property Group will make up the shortfall in the first instance by setting off the principal of the Abacus Loan Facility and any residual shortfall will be satisfied by either making a cash payment, by issuing Abacus Property Group securities or by a combination of the two at Unitholder discretion. The Underwritten Capital Return will be reduced accordingly if any capital distributions are made (in UNDERWRITTEN addition to income distributions) before the winding up of the Fund. CAPITAL RETURN A New Investor will only be entitled to the benefit of the Underwritten Capital Return on New Units they hold at the end of the Fund term. The Underwritten Capital Return for New Units and Converted Units will cease if Unitholders in the Fund vote to wind up the Fund before 30 June 2016. If at the end of the Fund term the net proceeds from the sale of the Fund or its properties exceed the aggregate Underwritten Capital Return for all Unitholders, all investors will be entitled to a distribution of any further surplus up to 10% on their original Contributed Equity before Abacus is entitled to be paid any deferred management fees. The aggregate Underwritten Capital Return when the Fund is fully subscribed is equal to the total Contributed Equity, an amount of $109.7m or $0.82 per Unit. Any surplus after Abacus has recovered its management fees will be shared equally between the Units issued in the Fund.
The Fund has three classes of units: Sections 2.5.4, 4.5 . Existing Units, which are held by investors who have subscribed for Units in the Fund prior to this PDS; . Converted Units, where Existing Units are converted into Converted Units; and EQUITY . New Units, issued pursuant to the Offer contained in this PDS. STRUCTURE Existing Investors have subscribed for 36m of Existing Units at approximately $1.00 per Unit to raise $36.2m. New Investors are being offered 98m New Units at $0.75 per unit to raise $73.5m. When the Fund is fully subscribed, Contributed Equity will be approximately $109.7m. The Fund has total bank borrowings of $101.2m of which $49.3m of drawn facilities expire in December Section 2.5.1 2010 and $51.9m of drawn facilities expire in August 2012. Abacus will seek to renew or refinance this facility during 2010. All bank covenants were met at 30 June 2009 and at the date of this PDS. FUND Abacus Property Group has lent $17.2m principal to the Fund. This loan has no financial covenants. The Section 2.5.3 BORROWINGS Fund will set off the repayment of this loan to satisfy Abacus Property Group’s obligations pursuant to the Underwritten Capital Return. Abacus Property Group has provided interim working capital of $73.5m to the Fund until equity is Section 2.5.2 subscribed. The proceeds of the Offer will be used to repay the Abacus Working Capital Facility. Unitholders may reinvest their distributions into New Units in the Fund by participating in the Fund’s Section 2.6.4 Distribution Reinvestment Plan (DRP). The DRP price is currently $0.73125 per Unit, a 2.5% discount to DISTRIBUTION the issue price of New Units. REINVESTMENT Units issued under the DRP will have the same Underwritten Distributions (initially 6 cents per annum) PLAN and Underwritten Capital Return ($0.75) as New Units. The DRP may be suspended, varied or cancelled at any time by giving notice on the Fund website.
ABACUS DIVERSIFIED INCOME FUND II 10 SECTION 21 / FUNDOFFER OVERVIEW SUMMARY
FEATURE SUMMARY REFER
The Fund’s distributions are expected to be significantly tax deferred over the term of the Fund, Section 7 resulting in no income tax having to be paid on the tax deferred portion of the distribution. However, in accordance with tax legislation investors may be liable for capital gains tax on the sale of their Units at TAXATION the end of the Fund Term even if the return of capital is equal to the initial investment because any tax deferred distributions reduce the tax cost base of the asset. Investors should obtain their own tax advice in relation to this investment. If the Fund becomes subject to tax, the Underwritten Distributions and Underwritten Capital Returns will be reduced by the amount of the tax payable.
The risks of investing in the Fund are described in detail in Section 8 of this PDS. Section 2.10, 8 While the risks of investing in the Fund are mitigated by the Underwritten Distributions and Section 8.3 INVESTMENT Underwritten Capital Return, investors need to appreciate that this assumes that Abacus Property RISKS Group will be in a position to satisfy its obligations if called upon to do so. Investors will need to satisfy themselves in this regard and obtain professional advice if they need assistance to evaluate the risk. Investors are urged to read Section 8.3 which explains this risk in detail.
An investment in the Fund should be regarded as a non-liquid investment. Section 2.9 A new limited liquidity facility has been introduced by Abacus Property Group for all Units where in cases of investor hardship (as determined by Abacus in its absolute discretion), Abacus as responsible entity of Abacus Trust will acquire the investor’s Units at a price that is the lesser of the Fund’s net asset value per Unit less the Sell Spread and the then current issue price of Units. The new limited liquity facility may be terminated at any time by Abacus in its sole discretion. Note that the Underwritten Capital Return does not apply to the sale price when exiting the Fund through the LIQUIDITY new limited liquidity facility. Any duty that is payable on the sale of Units under the new limited liquidity facility is payable by the exiting Unitholder. Although ADIF II was established as a liquid fund with a withdrawal facility, this facility has been Section 4.3 suspended. If market conditions improve so that the Fund’s assets become liquid, the withdrawal facility may be re-opened - but this is not expected in the foreseeable future. The liquidity facility that Abacus established for Existing Investors is not available for New Units or Section 2.9 Converted Units.
Abacus is entitled to an annual management fee of 0.7% of the Fund’s gross asset value, but will defer Section 5 the payment of this fee until the end of the Fund term. The fee will only be paid if all investors in the FUND FEES AND Fund receive back their original Contributed Equity plus a further 10%. All other Fund general operating COSTS expenses are payable at the time they are incurred. Any capital raising fees paid to eligible brokers and financial advisers whose clients invest in the Fund will be payable by Abacus Group Holdings Limited, not by the Fund.
The Fund has acquired investments from and sold investments to Abacus Property Group. Abacus Section 4.6 Property Group has provided funding to ADIF II and is entitled to fees from the Fund. If Abacus ceases to be the responsible entity of the Fund: Section 4.4.3 . the Abacus Working Capital Facility and the Abacus Loan Facility become repayable within 12 months;· . the Fund’s banks have the right to request a repayment of their loans either immediately or within RELATED PARTY 60 days;· TRANSACTIONS . Abacus will be entitled to recover its unpaid management fees before Unitholders receive any distribution of capital in excess of the Underwritten Capital Return; . Abacus may exercise its call option to acquire the Fund’s properties at fair market value as determined by independent qualified valuers; and . the new limited liquidity facility terminates. The Underwritten Capital Return and Underwritten Distributions are not affected by a change of responsible entity.
Australian Securities and Investments Commission has developed eight disclosures in relation to Section 2.11 ASIC DISCLOSURE investments in unlisted property schemes to help investors understand and assess these types of PRINCIPLES schemes. Section 2.11 shows where these disclosures are made in the PDS. These disclosures will be updated every six months through the Abacus Property Group website at abacusproperty.com.au
11 ABACUS DIVERSIFIED INCOME FUND II SECTION 2 / FUND OVERVIEW
2. FUnD ovERvIEw
2.1 BACKGRoUnD 2.2 InvESTMEnT oBJECTIvE Abacus Diversified Income Fund II was established with the The investment objective is to provide investors with an objective to build a significant portfolio of diversified property attractive and reliable source of investment income and the assets that provide reliable cash distributions and prospects return of their capital. The distribution and capital returns of for capital growth through Abacus’ active management. the Fund are underpinned by: The Fund was launched as Abacus Diversified Income Fund . the returns to be derived from the underlying investment II in July 2007 with a portfolio of 19 property assets and property portfolio; and a portfolio of indirect property investments (both listed . Abacus Property Group’s underwriting commitment. and unlisted). Since that time, the Fund has paid quarterly distributions, increased its portfolio to 25 property assets and There is potential for capital growth once all Contributed disposed of the majority of its indirect property investments. Equity ($109.7m or $0.82 per Unit once the Fund is fully Existing Investors in the Fund have invested $36.2m of equity subscribed) has been repaid. If there is a surplus after to date. the payment of all Fund liabilities other than Abacus' management fee then all investors will have a priority The book value of the Fund’s property portfolio at the date of entitlement, before Abacus' unpaid management fees, to this PDS is $189.8m, with an average portfolio capitalisation this surplus on a winding up of the Fund, up to an amount rate of 9.0%. Approximately 34% of the property portfolio equal to 10% of the total Contributed Equity. Any surplus after was externally revalued in June 2009, 59% was externally Abacus has recovered its management fees will be shared revalued in October 2009 and the remaining 7% of properties equally between the Units issued in the Fund. (held indirectly) were valued in December 2009. The portfolio is currently 95% occupied, and the weighted average lease 2.3 FUnD InvESTMEnT STRATEGY expiry is 4.0 years. The Fund owns a diversified portfolio of investment properties Abacus has managed the assets in the portfolio since their that offer an attractive yield, four year average lease expiry acquisition, using in-house and external property expertise. and prospects for capital growth enhanced by the active Abacus uses this experience, together with its broader management skills of Abacus. property management expertise, to enhance the performance Each of the properties within the portfolio exhibits a number of the portfolio through tenancy optimisation strategies of the following attributes: such as lease renewals, property enhancement and property expansion. . a value of less than $25m in the office, industrial or retail sectors; New Units issued pursuant to this Offer Document will be entitled to Underwritten Distributions of 8% per annum . attractive real estate fundamentals, such as location, based on an issue price of $0.75 per Unit (Indexed in line with purchase price relative to replacement cost, under- inflation each year from 1 July 2010) and an Underwritten utilised land, low purchase rate per metre and/or new Capital Return of $0.75 per New Unit effective after 30 June improvements; 2016. . favourable lease provisions including term, passing rent and rent review provisions; Existing investors have the option of either retaining their Existing Units or converting them to Converted Units in order . high quality tenant/s, based on their financial strength, to take advantage of a longer Underwritten Distribution the industry sector in which they operate and their period. position within that industry; or . opportunities to enhance returns through active These commitments are provided by the Abacus Property management of the asset, such as restructuring of Group. Further details are provided in Section 4.5. tenancies, increasing rents, upgrading and refurbishing assets, and reducing costs. In managing the Fund’s property portfolio, Abacus’ team of experienced property professionals seeks to drive earnings and capital growth by: . increasing rents through active management of the tenancy profile, market reviews, lease renewals and exploitation of under-utilised lettable area; . unlocking a property’s capital growth potential, through income optimisation, utilisation of undeveloped land, or refurbishment and repositioning; and . collecting rents in accordance with lease terms.
ABACUS DIVERSIFIED INCOME FUND II 12 SECTION 2 / FUND OVERVIEW
Abacus may sell properties during the term of the Fund if 2.4 PRoPERTY PoRTFoLIo it believes that a property has reached its optimal level of The key features of the Fund’s property portfolio at the date maturity. The Fund is able to make additional investments of this PDS are as follows: over its term subject to availability of funding, whether that be direct property acquisitions, investments in property securities Number of properties 25 or other property related investments. The current strategy is to target a greater allocation to direct property as noted Portfolio book value $189.8m1 below. Average value per property $7.6m The Fund’s access to properties, property mortgages and other investments sourced by Abacus will not be on an Portfolio capitalisation rate 9.0% exclusive or priority basis. Abacus retains absolute discretion Current occupancy 95%2 in determining which of its funds will be offered the opportunity for an acquisition. Weighted average lease expiry 4.0 years
The Fund’s investment mandate enables it to invest in a 1 Two properties in the portfolio with an aggregate value of $13.1m are held combination of direct property, indirect property investments, indirectly. The Fund owns a 79% interest in the Abacus Hobart Growth Trust listed property trusts, property based mortgages and cash. (AHGT). AHGT owns a 50% interest in two options to acquire two Hobart office properties. The independent valuation of these two properties at December The level of diversification between the asset classes is a 2009 was $33.25m and the value of the Fund’s effective 39.5% interest is $13.1m. function of the prevailing economic environment. In the Further details of these two properties are set out in Section 3. current environment Abacus is targeting a greater allocation 2 The current occupancy of the portfolio is 95%. However, there are a number to direct property. A comparison of the Fund’s original of leases that expire over the next 12 months and occupancy could decrease if preferred asset allocation and the current preferred asset those leases cannot be renewed or new tenant leases completed. allocation is set out in the table below: The portfolio is diversified across the office, retail and industrial sectors while also well diversified across Victoria, CURRENT ORIGINAL ASSET CLASS PREFERRED PREFERRED New South Wales, Queensland and Tasmania. ALLOCATION ALLOCATION Further detail on each of the properties within the portfolio is Direct property 90-100% 50-80% contained in Section 3 of this PDS. All properties, excluding the two Hobart properties held indirectly, have been provided Indirect property 0-10% 10-30% as security to the Fund’s banks. Abacus will explore strategies investments to acquire the 21% outside equity interests in Abacus Hobart Listed property trusts - 10-30% Growth Trust so that the structure is simplified and the Hobart Property based properties, once the options are exercised, can be used as - 0-15% mortgages security for Fund borrowings to reduce the loan to value ratio. Cash 0-10% 0-5% The composition of the investment portfolio may change over time. The Fund’s listed and unlisted securities, other than the valuation Policy Fund’s investment in the Abacus Hobart Growth Trust, have been sold and in the current environment the Fund is The Fund operates an annual valuation cycle, with not liquid. Accordingly, the Fund’s withdrawal rights have approximately half of the properties valued by independent been suspended. Abacus currently intends to hold the third party valuers for each of the December and June majority of the Fund’s assets in direct property, although this reporting periods. asset allocation will be reviewed by Abacus in the future. Abacus only uses independent third party valuers for this Therefore these assets are currently considered illiquid. It is Fund who: not anticipated that the Fund will become liquid during the foreseeable future. . are registered under the appropriate state or territory It is, however, possible that valuer registration regimes; and this may change over time. . include a statement in the valuation reports that the valuation complies with all relevant industry standards and codes. Independent valuations of the properties that would normally be valued in December 2009 were commissioned in October 2009 and December 2009 for the purposes of this PDS.
13 ABACUS DIVERSIFIED INCOME FUND II SECTION 2 / FUND OVERVIEW
2.5 PRo-FoRMA CAPITAL STRUCTURE 6 Units on issue represents the 36m Existing Units plus the assumed issue of 98m New Units pursuant to this PDS. The Fund has been capitalised with a mix of Unitholder equity, 7 Net asset value per Unit is Fund Net Assets divided by Units on issue a bridging loan from Abacus Property Group (the Abacus (assuming that the Abacus Working Capital Facility has been repaid through the Working Capital Facility), the Abacus Loan Facility and bank issue of New Units). debt. 8 The pro-forma net asset value of $0.47 includes the liabilities relating to the mark to market value of the Fund’s interest rate swaps ($4.5m) and the Abacus The Fund’s pro-forma1 capital structure at 1 December 2009 Loan Facility ($17.2m). If the liabilities associated with the swap are excluded (on the basis that they are likely to be held to maturity and the liability amortises was as follows: to zero at that point) and the Abacus Loan Facility is excluded (on the basis that the loan principal will not be repaid before 30 June 2016 and will be set off by PRO-FORMA BALANCE SHEET $M the Fund to wholly or partially meet a shortfall between the Fund net assets and the Underwritten Capital Return if required) then the adjusted pro-forma net Gross asset value 195.8 asset value per Unit increases to $0.63. 9 Calculated as debt divided by gross assets, assuming the Abacus Working Bank debt (101.2) Capital Facility is fully repaid via the issue of New Units. Fund gearing is higher than the bank loan to valuation ratio because gearing includes the Abacus Loan Abacus Loan Facility (17.2) Facility.
10 2 Fund gearing has been calculated excluding the Abacus Loan Facility on the Other working capital (12.1) basis that the loan principal will not be repaid before 30 June 2016 and will be set off by the Fund to wholly or partially meet a shortfall between the Fund net Net assets 65.3 assets and the underwritten capital return if required. Less outside equity interests3 (2.2) 11 Indirect cost ratio includes Fund expenses but excludes the deferred Abacus management fee (see Section 5.3.2). Fund Net Assets4 63.1 2.5.1 Bank Debt Represented by: The Fund has drawn debt of $101.2m, which has been Unitholder equity (10.4) provided by two major Australian banks. The two facilities are set out in the table below: Abacus Working Capital Facility5 73.5 DRAWN UNDRAWN YEARS 63.1 FACILITY EXPIRY AMOUNT AMOUNT TO LIMIT ($M) DATE Units on issue6 134.0m ($M) ($M) EXPIRY
7 Facility Aug Net asset value per Unit $0.47 54.0 51.9 2.1 2.7 One 2012 Adjusted net asset value per Unit8 $0.63 Facility Dec Bank loan to value ratio 52.8 49.3 3.5 1.0 57% Two 2010 (maximum permitted 61%) Fund gearing9 60% Total 106.8 101.2 5.6 Fund gearing excluding the 52% In November 2009 the Fund renewed facility one until Abacus Loan Facility10 August 2012 and also increased the facility limit to enable the Indirect Cost Ratio11 1.1% repayment of facilities previously provided by another bank. The Fund’s ability to draw the undrawn amounts in the table 1 The pro-forma capital structure is based on the Fund’s audited balance above depends on the Fund’s ability to meet the financial sheet at 30 June 2009, adjusted for the Asset Transfers (see Section 4.6), the covenants associated with that facility. independent property revaluations commissioned in October and December 2009, change in mark to market valuation of the interest rate swaps, debt forgiveness (see Section 6) and assuming repayment of the Abacus Working Capital Facility by way of equity subscriptions. 2 Other working capital includes $3.7m of trade and other payables, $4.5m of liabilities relating to the value of the interest rate swaps and $3.9m of deferred tax liabilities. 3 The outside equity interest is the 21% of the Abacus Hobart Growth Trust that the Fund does not own. Refer Section 3. 4 Net Assets at 30 June 2009 in the Fund’s statutory accounts are negative because the Abacus Working Capital Facility is treated as debt and because asset values have fallen as described in Section 2.5.4. In the table above the pro-forma Fund net assets are positive because the Abacus Working Capital Facility is treated as equity. Audited net assets at 31 December 2009 are also expected to be negative. 5 The Abacus Working Capital Facility is treated as equity for the purposes of the pro-forma balance sheet as it is intended to be repaid from equity subscriptions.
ABACUS DIVERSIFIED INCOME FUND II 14 SECTION 2 / FUND OVERVIEW
Facility two is expected to be renegotiated in mid 2010. In Facility one permits a maximum LVR of 57.5% at the date of the current market it is likely that the bank margin on this this PDS, reducing to 55% at 1 July 2010 and 50% at 1 July renegotiated facility will increase and consequently increase 2011. The pro-forma LVR at 1 December 2009 in respect of the amount of cash support needed from Abacus Property facility one after the inclusion of the Campbellfield and Port Group to meet the Underwritten Distributions. Over the Macquarie properties (see Section 4.6.2) is 52.4%, within medium term the total cost of funding is a function of the the current banking facility covenant. Facility two requires a bank margin and the interest rate swaps in place at that time. maximum LVR of 65% until the facility expires in December A sensitivity analysis is set out in Section 6.3. 2010. The LVR at 1 December 2009 in respect of facility two is 63.5%, within the current banking facility covenant. No All of the drawn bank facilities are secured over the Fund’s valuation updates are due in respect of the assets securing direct property assets. Secured bank borrowings rank ahead both facilities until June 2010. of investor equity on a winding up of the Fund. The Fund has a number of strategies to reduce the loan to Gearing valuation ratio if required, including sale of assets to third Gearing indicates the extent to which the Fund’s assets are parties or Abacus Property Group, repayment of bank debt funded by external liabilities. The gearing ratio as defined by drawing on the Abacus Working Capital Facility or by by ASIC is calculated by dividing the total interest bearing accepting oversubscriptions in relation to this Offer. liabilities by total assets. The Fund has no off-balance sheet Facility one has two additional covenants which the Fund financing. must comply with: The pro-forma gearing at 1 December 2009 was 60%. Gearing . If any of the properties at Campbellfield, Port Macquarie is reported based on the assumption that the Abacus Working or Dingley are sold then all of the net sale proceeds must Capital Facility is repaid through the issue of New Units be applied to reduce the drawn amount of facility one. pursuant to this PDS and consequently the Abacus Working Capital Facility is excluded from the gearing calculation. But . If the weighted average lease term (WALT) of the for this assumption the gearing ratio would be 98%. Gearing properties securing facility one are less than the excluding the Abacus Working Capital Facility is more remaining term of facility one then the maximum LVR relevant to investors because the facility has no covenant tests reduces by 5%. For example, the LVR at 1 July 2011 would and is subordinated to other creditors on a winding up of the be 45% rather than 50%. At the date of this PDS the Fund. WALT exceeds the remaining term of facility one. The Fund’s pro-forma gearing at 1 December 2009 is 52% The Abacus Loan Facility has no LVR covenant requirement excluding the Abacus Loan Facility (on the basis that the (refer Section 2.5.3). loan principal will not be repaid before 30 June 2016 and will Facility Covenants – Interest Cover Ratio (ICR) be set off by the Fund to wholly or partially meet a shortfall between the Fund net assets and the Underwritten Capital Interest cover indicates the Fund’s ability to meet interest Return if required). payments from earnings where interest cover as defined by ASIC is equal to EBITDA (excluding unrealised gains Investors should refer to Section 8.3 for a fuller explanation of and unrealised losses) divided by interest expense. Interest gearing. expense takes into account interest paid under the Fund’s Facility Covenants – Loan to valuation Ratio (LvR) interest rate hedging arrangements. The interest cover at the date of this PDS is 1.7 times based on the pro-forma The table below shows the pro-forma LVR of the two bank assumption that the Abacus Working Capital Facility is repaid facilities at 1 December 2009 compared to the maximum through the issue of New Units pursuant to this PDS. But for permitted LVR in the respective facility agreements. The this assumption the interest cover ratio would be 1.0 times. difference between the pro-forma LVR and maximum LVR is Interest cover excluding interest on the Abacus Working the covenant headroom. The Fund is compliant with its LVR Capital Facility is more relevant to investors because this covenants at the date of this PDS. facility has no covenant tests and PRO-FORMA LVR LVR COVENANT is repaid as equity subscriptions AT 1 DEC 09 MAXIMUM HEADROOM are received.
Facility One 52.4% 57.5% 5.1%
Facility Two 63.5% 65.0% 1.5%
15 ABACUS DIVERSIFIED INCOME FUND II SECTION 2 / FUND OVERVIEW
Each of the Fund’s bank facilities have separate requirements 2.5.2 The Abacus working Capital Facility for interest cover ratio. Facility one has an interest cover ratio Abacus Property Group provides bridging finance to the covenant which requires the net property income from the Fund through the Abacus Working Capital Facility. Under this total of the assets over which that bank has security to be at facility, the Fund borrowed from Abacus Finance to finance least 1.5 times the amount of bank interest expense on the investments in accordance with the investment strategy and loan secured by those assets. For the year ended 30 June for other working capital needs. 2009 the ICR for that facility was 1.8 times. Funds raised under this PDS will be applied to repay Facility two has an interest cover covenant of 1.5 times, which the outstanding amount of the Abacus Working Capital requires the whole Fund to generate an EBITDA of at least 1.5 Facility. The facility may be redrawn as required to fund times the interest expense of the Fund (and for this purpose further investments or for working capital needs by mutual interest on the Abacus Working Capital Facility is excluded agreement between the parties. This facility may be repaid at from the definition of interest expense). For the year ended any time. 30 June 2009, the Fund’s interest cover in respect of this covenant was 1.9 times. Interest on the Abacus Working Capital Facility will be charged at the lower of: The ICR for both facilities have been improved through the inclusion of the net rental income of the Campbellfield and . the distribution rate that applies from time to time to Port Macquarie properties, which are providing additional Units issued in accordance with the latest PDS (but security for the recently extended facility one. ICR will excluding DRP Units); and however be reduced through increased bank interest margins. . a rate equivalent to the bank bill swap bid rate (BBSY) The Abacus Loan Facility has no ICR covenant requirement plus a margin of 7%. (refer Section 2.5.3). The distribution rate applicable to Units issued pursuant to Refer to Section 8.3 for a further explanation of interest cover. this PDS is 8% per annum based on an issue price of $0.75 for each New Unit (Indexed in line with inflation each year from Fund Interest Rate hedging Strategy 1 July 2010). The Fund has hedged all of the interest on its bank In addition to deferring the collection of its management fee borrowings from a floating rate to a fixed rate. The fixed rate (refer to Section 5.3.2), Abacus Property Group may defer is an average of 6.54% pa plus a bank margin. the payment by the Fund of some or all of the interest on SWAP YEARS the Abacus Working Capital Facility to enable the Fund to SWAP EXPIRY AMOUNT TO have sufficient distributable cash to meet the Underwritten RATE DATE ($M) EXPIRY Distributions. Abacus may recover any interest deferred if actual cash earnings exceed the cash required to meet the Swap One 53.5 6.41% Jul 20121 2.6 Fund’s Underwritten Distributions or at the expiry of the Fund Swap Two 20.0 6.47% Aug 2011 1.7 or loan term. Any interest deferred on the Abacus Working Capital Facility will be shown as a Fund liability and will Swap Three 10.5 6.31% Oct 2011 1.8 be repaid from the Fund’s net assets before repayment of Swap Four 25.0 6.95% Aug 2013 3.7 Unitholder equity. Total 109.0 6.54% The Abacus Working Capital Facility has been structured so that any outstanding principal amount is subordinated to 1 Swap One has an embedded put option that enables the bank to extend the other creditors on a Fund winding up or the Fund becomes initial 5 year swap at the same rate for a further 5 year term at the expiry of the insolvent and is repayable only on a proportionate basis with initial term. If the bank exercises this option because the prevailing rates at that time are lower than the swap rate then the Fund will incur this rate of interest for a return of capital to Unitholders. For this reason, the Abacus an additional five years. Working Capital Facility has not been included in calculating the gearing of the Fund. Facility one has a market disruption clause (which is The Abacus Working Capital Facility is to be repaid by becoming increasingly common 30 June 2018 and may be terminated in certain circumstances, in the current environment) including if Abacus ceases to be responsible entity of the that enables the bank to Fund. A summary of the terms of the facility is set out in increase the agreed margin Section 9.3. for that loan at any time if the cost of funding to the bank increases significantly.
ABACUS DIVERSIFIED INCOME FUND II 16 SECTION 2 / FUND OVERVIEW
2.5.3 Abacus Loan Facility 2.6 DISTRIBUTIonS Abacus Finance has agreed to lend to the Fund a maximum New Units will have the following distribution entitlements of $20m plus capitalised interest, of which $17.2m principal based on an issue price of $0.75 per Unit: has been drawn at the date of this PDS. This facility expires on 30 June 2018 with a fixed rate of interest of 10% per annum. NEW UNITS Interest on this loan may be accrued and paid at the expiry Underwritten Distributions (Indexed in line with of the loan. The loan principal will not be repayable before 6.0c 30 June 2016 unless Abacus is removed as responsible entity inflation each year from 1 July 2010) of the Fund or Unitholders in the Fund vote to wind up the Entry price $0.75 Fund. Although this loan will be repaid after bank debt and before a distribution of surplus to Unitholders it is subject FY10 underwritten distribution yield 8.0% to Unitholders receiving the Underwritten Capital Return Estimated tax deferral on distributions in FY10 100% described in Section 4.5. After 30 June 2016 the Fund will if and FY11 required set off all or part of the principal under the Abacus Loan Facility in satisfaction of Abacus Property Group’s The Underwritten Distributions on New Units will be Indexed obligations in respect of the Underwritten Capital Return in line with inflation, with the indexation determined once described in Section 4.5. The loan has the following security: each year from 1 July 2010 by reference to the movement in . a second ranking priority of repayment (after the bank CPI All Groups Australia between June of the current year providing facility one) from the net sale proceeds of any and June 2009. For example, the Underwritten Distribution Secured Assets if a Secured Asset is sold prior to Fund for the quarter ending 30 September 2010 will be 1.5 cents termination; and per New Unit adjusted for the percentage movement in CPI All Groups Australia between June 2010 and June 2009. . a second ranking mortgage (after the bank providing The next three quarters’ distribution will be the same as the facility one) over the Secured Assets located in September distribution. The Underwritten Distribution for the Queensland and Victoria. quarter ending 30 September 2011 will be 1.5 cents per New The facility is repayable within 12 months if Abacus is removed Unit adjusted for the percentage movement in CPI All Groups as responsible entity of the Fund and is repayable if the Fund Australia between June 2011 and June 2009. The CPI All is wound up at a meeting of Unitholders. Groups Australia movement may be positive or negative but A summary of the terms of the facility is set out in Section 9.4. the Underwritten Distributions on New Units will not reduce below 8% (6 cents) per annum as a result of indexation. 2.5.4 Unitholder Equity The cost of the inflation indexation on the Underwritten Contributed Equity issued prior to the date of this PDS is Distributions is not a cost to the Fund. The Fund will $36.2m. The pro-forma retained losses of the Fund are $45.6m charge Abacus Group Holdings Limited for any increase in which include $44.8m attributable to the loss in value of the distribution as a result of CPI indexation. Fund’s property assets (both direct and indirect) and $4.5m attributable to the mark to market impairment on the Fund’s The first quarterly distribution after an investment interest rate swap positions. is accepted will be pro-rated based on the number of days elapsed between the date This Offer is seeking to raise $73.5m through the issue of 98m of issue of the Units and the end of the New Units at $0.75 each. When the Fund is fully subscribed quarter. This method of calculating the Contributed Equity will be approximately $109.7m. distribution will be used for any New The Fund has three classes of Units as summarised in the Investor who invests directly in the following table. The table is a summary only and does not Fund. Abacus reserves the right to issue contain all details relating to the Underwritten Distributions Units to investors investing through an and Underwritten Capital Return. Full details of the three investment or reporting service using an classes of Units are described in Section 4.5. accrued distribution entitlement method.
UNIT TYPE UNDERWRITTEN DISTRIBUTIONS UNDERWRITTEN CAPITAL RETURN Existing Units $1.00 8.5% pa until 30 June 2011 and based on the $1.00 per Unit at 30 September 2013 if the net (Class A) actual distributable cash of the Fund thereafter. assets per Unit are less than $1.00 at 30 June 2013 8.5% pa until 30 June 2011 and 8.0% pa plus Converted Units $1.00 $1.00 per Unit at Fund termination (effective indexation thereafter (Indexed in line with (Class B) from 30 June 2016) inflation in each year after 1 July 2011). Initially 8.0% pa, based on an issue price of $0.75 New Units $0.75 $0.75 per Unit at Fund termination (effective per Unit, Indexed in line with inflation each year (Class C) from 30 June 2016) from 1 July 2010, over the Fund term
17 ABACUS DIVERSIFIED INCOME FUND II SECTION 2 / FUND OVERVIEW
This means that the issue price is increased by the amount of The Underwritten Distributions shortfall in the table above distribution accrued to the date of the issue of the Units from excludes any impact from annual Indexation. It is anticipated the end of the prior distribution period. These investors will that this initial level of support will reduce over time as receive the distribution at the end of the quarter as if they had contracted rental increases enhance the Fund’s net operating been invested for the whole quarter. There is no advantage to income. Unitholders using this method of issuing units compared to Cash distributions for New Units and Converted Units are the method of issuing units based on a pro-rata distribution. underwritten by Abacus Property Group throughout the life An adjustment may be made to the Underwritten of the Fund. Distribution entitlements on Existing Units are Distributions if a return of capital is made before the unchanged and are described in Section 4.5. termination of the Fund. Holders of New Units will still be 2.6.2 Estimated Average Tax Deferral entitled to an Indexed 8% per annum distribution yield but on the reduced capital invested. The Underwritten Distributions Abacus anticipates that the tax deferral on income for New Units and Converted Units cease if Unitholders distributions will be significant over the life of the Fund. vote to wind up the Fund before 30 June 2016. If the Fund It is expected that in each of FY10 and FY11, the level of becomes subject to tax as a result of legislative changes tax deferral will be 100% and that this will decline over the following a review of taxation arrangements (see taxation risk remaining term of the Fund. The actual tax deferral on income in Section 8.3) the Underwritten Distribution and Underwritten distributions will depend principally on the rate at which New Capital Return will be reduced by the amount of tax payable. Units are subscribed to repay the Abacus Working Capital Facility. 2.6.1 Annual Cash Distributions 2.6.3 Payment of Distributions Distributions paid by the Fund may comprise any combination of: Distributions will be paid quarterly, within two months of the end of the March, June, September and December quarters. . rental income from the property portfolio; Unitholders who are registered holders of Units in the Fund . profits from the sale of any properties or other on the last business day of a relevant distribution quarter will investments of the Fund; receive that quarter’s distribution. In the first quarter that Units are issued the distribution is pro-rated based on the number . the deferral by Abacus Finance of the payment of days elapsed between the date of issue of the Units and of its interest owing on the Abacus Loan Facility; the end of the quarterly distribution period (unless Units are . the deferral by Abacus of the payment of its management issued using the accrued distribution method as described in fee and the deferral by Abacus Finance of interest owing Section 4.2.4). on the Abacus Working Capital Facility; and Distributions will be paid electronically, by way of direct credit . any other form of support that Abacus Property Group into your nominated bank account. If no bank details are may choose to provide. provided distributions will be automatically reinvested in the Distribution Reinvestment Plan. As detailed in Section 6.3, the level of support being provided by Abacus Property Group to enable the Fund to distribute an 2.6.4 Distribution Reinvestment Plan amount equal to the Underwritten Distributions on all classes Unitholders have the option of participating in the Fund’s of Units will vary due to a number of factors (for example Distribution Reinvestment Plan (DRP), which provides a rental growth rates). The actual performance for the year convenient method for investors to increase their holdings in ended 30 June 2009 would have necessitated approximately the Fund by electing to receive all or part of their distributions $2.2m of support in that year to meet the Underwritten as additional New Units. The DRP price is a 2.5% discount Distributions as follows: to the issue price of New Units under the PDS current at the INCOME SUPPORT $000 time. If there is no current PDS the price of Units under the DRP will be posted on the Fund's website. 98m New Units at 6.0c distribution per Unit 5,880 At the date of this PDS the DRP Unit price per annum is $0.73125. DRP Units will have the same Distribution to Existing Unitholders or holders Underwritten Distributions (initially 3,060 of Converted Units at 8.5c per Unit per annum 6 cents per Unit per annum) and Underwritten Capital Return ($0.75 Distributions Payable 8,940 per Unit) entitlements as New Units. Sourced from: Existing Investors holding Existing Cash available for distribution for year ended Units or Converted Units will receive 6,713 30 June 2009 New Units instead of cash distributions Underwritten Distributions shortfall 2,227 if they participate in the DRP. Distributable Income 8,940
ABACUS DIVERSIFIED INCOME FUND II 18 SECTION 2 / FUND OVERVIEW
Distributions will be automatically reinvested pursuant to the changes in rental income growth rates and capitalisation rates DRP if Abacus is unable to directly credit your bank account in the period to 30 June 2016 for the current Fund portfolio. (ie if you have not provided your bank account details). INCREASE (DECREASE) IN NET ASSET VALUE PER UNIT The DRP may be suspended, varied or cancelled by Abacus at any time by giving notice on the Abacus Property Group 5% 0.37 0.42 0.52 0.58 0.64 website. 4% 0.26 0.31 0.40 0.46 0.51 2.7 UnDERwRITTEn CAPITAL RETURn 3% 0.16 0.20 0.29 0.34 0.39 In addition to the Underwritten Distributions, Abacus
Property Group will underwrite the return of $0.75 capital PER AnnUM 2% 0.06 0.10 0.18 0.23 0.28 for New Units on a winding up of the Fund, effective from InCoME GRowTh 1% (0.03) 0.00 0.08 0.13 0.17 30 June 2016. If the net assets of the Fund on a winding up after 30 June 2016 are less than $0.82 per Unit (the weighted 9.75% 9.50% 9.0% 8.75% 8.50% average Contributed Equity per Unit once the Fund is fully CAPITALISATIon RATE subscribed), then Abacus Property Group will make good the shortfall. The shortfall will be met in the first instance If capitalisation rates fell slightly from their current level of by setting off the principal of the Abacus Loan Facility and 9.0% to 8.75% and rental income growth is 3% per annum any residual shortfall through the payment to Unitholders of then the net asset value per Unit would increase by $0.34 cash or by the issue of Abacus Property Group securities or a over the period to 30 June 2016. If all other factors were combination of the two, at Unitholder discretion. unchanged this would result in an increase of the pro-forma net asset value per Unit at 1 December 2009 of $0.47 per Unit If an investor sells their Units in the Fund before the Fund to $0.81 per Unit, which approximates the weighted average is wound up (for example through the new limited liquidity Contributed Equity of $0.82 per Unit. This would result in facility or the withdrawal facility if it becomes available) or nominal reliance on Abacus Property Group to meet the investors vote to wind up the Fund before 30 June 2016 they Underwritten Capital Return of $0.75 for each Class C Unit will not receive the benefit of the Underwritten Capital Return. and $1.00 for each Class A or Class B Unit. The income growth The Underwritten Capital Return of $0.75 per New Unit will be rate could be lower and still not require any commitment reduced by any repayments of capital made over the life of from Abacus Property Group because the Fund will offset the the Fund. principal owing under the Abacus Loan Facility against any shortfall between the net asset value and the Underwritten The Underwritten Capital Return for New Units and Converted Capital Return. Units will cease if Unitholders in the Fund vote to wind up the Fund before 30 June 2016. The greater the income growth rates achieved and the lower the capitalisation rate on sale of the properties, the lower the Further detail on the operation of the Underwritten Capital reliance will be on the Underwritten Capital Return and the Return for New Investors is provided in Section 4.5 along greater the likelihood of capital growth. There are many other with the Underwritten Capital Return provisions for Existing factors that may impact the net asset value when the Fund is Investors and holders of Converted Units. liquidated. This table above is for illustrative purposes only There are many variables that may impact on the net asset and is not a forecast. value at the winding up of the Fund after June 2016 and the Abacus reserves the right to recover its management fee extent, if any, to which Abacus Property Group may have to at the end of the Fund Term but Abacus has agreed that satisfy its obligations under the Underwritten Capital Return. it will not recover its management fee unless all investors Property leases generally have rent review provisions which in the Fund have received back their original Contributed cause the net rental income to increase each year by a fixed Equity plus a further 10%, in addition to their Underwritten amount, CPI or other mechanism. Rental growth over the Distributions. period from the date of this PDS to termination of the Fund 2.8 MAnAGEMEnT oF ThE FUnD may contribute to growth in the value of the Fund’s property portfolio. The Fund is managed by Abacus Funds Management Limited, Other factors which may affect a member of Abacus Property Group, an S&P /ASX 200 listed the value of the Fund’s property Australian Real Estate Investment Trust. Abacus Property portfolio include capitalisation Group is a diversified property group with approximately rates, occupancy, property $2 billion of assets under management and a 13 year track expenses and change of use. record as a property fund manager. The table below shows the 2.9 EXIT STRATEGY estimated impact on the net asset Abacus’ current intention is to sell the remainder of the Fund’s value per Unit arising solely from assets over the period 1 July 2016 to 30 June 2017, repay
19 ABACUS DIVERSIFIED INCOME FUND II SECTION 2 / FUND OVERVIEW
debt as sale proceeds are received and then to distribute 2.10 InvESTMEnT RISKS the surplus to Unitholders once all Fund assets are realised There are a number of risks to investing in the Fund that are and liabilities paid. However, if at that time the Fund has described in detail in Section 8. The risks of investing in the not been wound up Abacus will propose an exit strategy on Fund include: which Unitholders will be asked to vote. The Underwritten Capital Return offered by Abacus Property Group on New and . General Risks. These are risks that are generally Converted Units will not be effective before 30 June 2016. outside of the control of Abacus such as the economic environment. The Global Financial Crisis during 2008 and The exit strategy for investors may be through the sale of 2009 demonstrates the potential impact of the economic individual assets, sale of the entire property portfolio or Fund environment on all investments. to a third party or a listing or merger of the Fund. . Property Specific Risks. Property ownership has risk The Fund’s liquidity facility established for Existing Units around physical deterioration of assets, occupancy and is fully utilised and unavailable and the withdrawal rights leasing profile, development costs, insurance cover and have been suspended. A new limited liquidity facility has competition in the market where the property is located. been introduced for all classes of Unit under which Abacus as responsible entity of Abacus Trust (a member of Abacus . Fund Specific Risks. There are a number of risks specific Property Group) will acquire Units in cases of investor to this Fund including the reliance on Abacus Property hardship as determined by Abacus in its absolute discretion. Group to meet the Underwritten Distributions and The new limited liquidity facility may be terminated at any Underwritten Capital Return, the ability to refinance time. Investors should view this investment as illiquid until at maturing debt, limited liquidity to exit before the Fund least 30 June 2017. term and taxation risk. An investor who chooses to exit from 2.11 ASIC DISCLoSURE PRInCIPLES the Fund through the withdrawal The Australian Securities and Investments Commission (ASIC) facility (if it becomes available, has developed eight disclosure principles in relation to see Section 4.3) or through investments in unlisted property schemes to help investors the new limited liquidity understand and assess these types of schemes. facility will benefit from the Underwritten Distributions The eight disclosure principles are listed below and reference to the point of exit from the is made to the relevant sections in the PDS containing the Fund and will not benefit information required by the disclosure principle. from the Underwritten Capital Return. Abacus believes that the PDS meets the requirements of the disclosure principles.
ASIC DISCLOSURE PRINCIPLE FURTHER DETAILS Indicates the extent to which the Fund’s assets are funded by Section 2.5.1 Gearing Ratio external liabilities. Section 8.3 Indicates the Fund’s ability to meet interest payments from Section 2.5.1 Interest Cover earnings. Section 8.3 Section 2.5.1 Provides information on the Fund’s borrowing maturity and credit Section 2.5.2 Scheme Borrowing facility expiry and any associated risks. Section 2.5.3 Section 8.3 Section 2.4 Portfolio Diversification Addresses the Fund’s investment practices and portfolio risk. Section 3 Addresses key aspects of the Fund’s valuation policy for real Valuation Policy Section 2.4 property assets. Provides information on the Fund’s approach to related party Section 4.4.3 Related Party Transactions transactions. Section 4.6 Addresses the Fund’s distribution practices and provides Distribution Practices Section 2.6 information on the sources of the distributions.
Withdrawal Rights Provides information on the Fund’s withdrawal practices. Section 4.3
ABACUS DIVERSIFIED INCOME FUND II 20 SECTION 3 / PROPERTY PORTFOLIO
3. ProPerty Portfolio
PROPERTIES 25
PORTFOLIO BOOK VALUE $189.8 million
LAND AREA 216,982 m2
LETTABLE AREA 135,436 m2
WEIGHTED AVERAGE CAPITALISATION RATE 9.0%
OCCUPANCY 95%
WEIGHTED AVERAGE LEASE EXPIRY - BY INCOME 4.0 years
All data as at the date of this PDS and includes the 39.5% interest in the two Hobart properties held by way of option.
21 ABACUS DIVERSIFIED INCOME FUND II SECTION 3 / PROPERTY PORTFOLIO
Diversification of Portfolio oVerVieW: Property Portfolio by Sector
Retail 4%
WEIGHTED AVERAGE LEASE EXPIRY PROFILE
60
Industrial Office 52% 44% 50
Diversification of 40 Property Portfolio by State
TAS 30 7% NSW VIC 37% 26% 20 % CURRENT RENTAL INCOME EXPIRING
10
QLD 30% 0
30 JUN 10 30 JUN 11 30 JUN 12 30 JUN 13 1 JUL 13+
ABACUS DIVERSIFIED INCOME FUND II 22 SECTION 3 / PROPERTY PORTFOLIO
ADif ii hAs A geogrAPhicAlly DiVersifieD Portfolio
Townsville
Sunshine Coast Brisbane Gold Coast
Port Macquarie
Sydney
Melbourne • Office • Industrial • Retail Hobart
23 ABACUS DIVERSIFIED INCOME FUND II SECTION 3 / PROPERTY PORTFOLIO
lettAble AreA booK VAlUe cAPitAlisAtioN sector locAtioN ProPerty M2 A$ rAte QUEENSLAND • Sunshine Coast 12 Innovation Parkway, Birtinya, Kawana1 3,111 8,150,000 8.5% • Gold Coast Bartercard House, 121 Scarborough St, Southport 3,199 11,250,000 8.5% • Gold Coast 12 Short Street, Southport 2,883 9,000,000 9.75% • Gold Coast 26 Production Avenue, Molendinar 6,696 7,800,000 8.75% • Gold Coast 8 - 12 Mercantile Court, Molendinar 6,823 8,200,000 9.0% • Brisbane Building A, 5 - 6 Grevillea Street, Brisbane Airport 1,492 5,250,000 8.5% • Townsville 313 - 315 Ross River Road, Aitkenvale 2,350 7,200,000 8.5% NEW SOUTH WALES • Sydney 22 - 28 Edgeworth David Ave, Hornsby 3,573 11,100,000 9.0% • Sydney 13 Boundary Rd, Northmead 5,678 8,000,000 9.75% • Sydney 2 - 6 George Young St, Regents Park 7,827 9,400,000 8.75% • Sydney 70 Gibbes St, Chatswood 4,225 7,400,000 9.0% • Sydney Lot 6, 2 Endeavour St, Chatswood 1,952 7,500,000 8.0% • Sydney 75 Railway St, Rockdale 1,547 3,600,000 8.5% • Sydney 81 Railway St, Rockdale 2,690 4,600,000 9.0% • Sydney 4 Brunker Rd, Chullora 6,100 8,000,000 9.5% • Port Macquarie Macquarie Business Park, 27 Grant St 3,631 10,600,000 9.75% VICTORIA • Melbourne 1-5 Lake Drive, Dingley 16,153 13,400,000 8.75% • Melbourne 63 - 73 Woodlands Drive, Braeside 7,087 6,050,000 9.25% • Melbourne 75 - 83 Woodlands Drive, Braeside 2,495 2,100,000 8.75% • Melbourne 418 - 424 South Gippsland Highway, Dandenong South 5,345 4,450,000 9.0% • Melbourne 138 - 140 Williams Rd, Dandenong South 785 800,000 8.5% • Melbourne 571 Mount Derrimut Rd, Derrimut 8,357 6,550,000 9.25% • Melbourne 144 - 168 National Boulevard, Campbellfield 16,635 16,250,000 8.75% SUBTOTAL - INVESTMENT PROPERTIES 120,634 176,650,000 TASMANIA - OPTIONS • Hobart Emily Dobson House, 99 Bathurst St2 7,244 6,517,500 9.5% • Hobart Forestry House, 79-85 Melville St2 7,558 6,616,250 10.5% TOTAL - ALL PROPERTIES INCLUDING OPTIONS 135,436 189,783,750 9.0%
1 The valuation of the Kawana property assumes a rent guarantee from Abacus Property Group over the vacant space. Without this rent guarantee, the valuation is $7,750,000. 2 The two Hobart properties are held under option and can be acquired in 2010 and 2013. The lettable areas in the table above represent 100% of the total lettable area of the property. The valuation figures are 39.5% of the total valuation at December 2009, being the effective 39.5% interest in those properties that the Fund owns.
ABACUS DIVERSIFIED INCOME FUND II 24 SECTION 3 / PROPERTY PORTFOLIO
QUeeNslAND
Townsville
12 Innovation Parkway, Birtinya, Kawana Sunshine Coast, QLD Birtinya Modern office building with 118 car park spaces located in Brisbane Airport Brisbane this emerging suburb on the central sunshine coast. Kawana Molendinar Southport Business Village is part of a master planned community including commerical and retail uses.
• Office • Industrial • 12 Innovation Parkway, Birtinya, Kawana, Sunshine Coast • Bartercard House, 121 Scarborough Street, Southport • 12 Short Street, Southport • 26 Production Avenue, Molendinar, Gold Coast Book value 8,150,0001 • 8 - 12 Mercantile Court, Molendinar, Gold Coast Capitalisation rate 8.50% • Building A, 5 - 6 Grevillea Street, Brisbane Airport Valuation date October 2009 • 313 - 315 Ross River Road, Aitkenvale, Townsville Site area (m2) 4,402
Lettable area (m2) 3,111
Constructed (year) 2005
Occupancy 62%
Rent review Mix of CPI & Fixed
Sector Office
Major tenant Telstra Sensis
1 Based on a rent guarantee from Abacus Property Group over the vacant space in the building. Without this rent guarantee, the valuation is $7,750,000.
25 ABACUS DIVERSIFIED INCOME FUND II SECTION 3 / PROPERTY PORTFOLIO
Bartercard House, 12 Short Street, Southport 121 Scarborough Street, Southport Gold Coast, QLD Gold Coast, QLD Modern commerical office complex with 53 car park spaces, Three level office building with 83 car parking spaces located located 4km north of Surfers Paradise. The property is on the north west periphery of the Southport CBD. It is well centrally located within the Southport CBD with nearby located for major transport throughfares and retail facilities office developments and only 200m from the Australia Fair and is within 500m of Australia Fair shopping centre. shopping centre.
Book value 11,250,000 Book value 9,000,000
Capitalisation rate 8.50% Capitalisation rate 9.75%
Valuation date October 2009 Valuation date June 2009
Site area (m2) 1,656 Site area (m2) 2,001
Lettable area (m2) 3,199 Lettable area (m2) 2,883
Constructed (year) 1989 Constructed (year) 1980's
Occupancy 100% Occupancy 93%
Rent review Fixed Rent review Mix of CPI & Fixed
Sector Office Sector Office
Department of Major tenant Bartercard Major tenant Public Works
ABACUS DIVERSIFIED INCOME FUND II 26 SECTION 3 / PROPERTY PORTFOLIO
26 Production Avenue, Molendinar 8 - 12 Mercantile Court, Molendinar Gold Coast, QLD Gold Coast, QLD Industrial buildings and associated offices located 5km west High clearance warehouse and associated office located of Southport CBD. The property is located in the established 5km west of Southport CBD. The property is located in the Molendinar industrial estate with access to major transport established Molendinar industrial estate with access to major throughfares and is surrounded by a mix of industrial facilities. transport throughfares and is surrounded by a mix of industrial facilities.
Book value 7,800,000 Book value 8,200,000
Capitalisation rate 8.75% Capitalisation rate 9.00%
Valuation date October 2009 Valuation date October 2009
Site area (m2) 15,270 Site area (m2) 11,752
Lettable area (m2) 6,696 Lettable area (m2) 6,823
Constructed (year) 1980's Constructed (year) 1980's
Occupancy 100% Occupancy 100%
Rent review Fixed Rent review Fixed
Sector Industrial Sector Industrial
Australian Steel Tenant Tenant Mustang Marine Company
27 ABACUS DIVERSIFIED INCOME FUND II SECTION 3 / PROPERTY PORTFOLIO
Building A, 5 - 6 Grevillea Street 313 - 315 Ross River Road, Aitkenvale Brisbane Airport, QLD Townsville, QLD Modern office building located on Export Park adjacent to Modern two level office building and 77 car parking spaces Brisbane airport including 44 car park spaces. Export Park adjacent to the Kmart Plaza and Stockland Nathan Plaza in the includes international cargo terminals, freight forwarders, Aitkenvale district. The area has emerged as a popular retail warehousing and distribution. and commercial precinct.
Book value 5,250,000 Book value 7,200,000
Capitalisation rate 8.50% Capitalisation rate 8.50%
Valuation date October 2009 Valuation date October 2009
Site area (m2) 808 Site area (m2) 4,643
Lettable area (m2) 1,492 Lettable area (m2) 2,350
Constructed (year) 2006 Constructed (year) 1995
Occupancy 87% Occupancy 100%
Rent review Mix of CPI & Fixed Rent review Mix of CPI & Fixed
Sector Office Sector Office
John Davidson Major tenant Major tenant National Australia Bank and Associates
ABACUS DIVERSIFIED INCOME FUND II 28 SECTION 3 / PROPERTY PORTFOLIO
NeW soUth WAles
Hornsby
Northmead Chatswood
Regents Park Sydney CBD Chullora
Sydney Airport Rockdale 22 - 28 Edgeworth David Ave, Hornsby Sydney, NSW Four level commerical office building with a ground floor medical centre and parking for 72 cars. The property is • Office • Industrial • Retail located 25km from Sydney CBD in close proximity to low rise commercial premises, Westfield shopping centre and public • 22 - 28 Edgeworth David Ave, Hornsby transport. • 13 Boundary Rd, Northmead • 2 - 6 George Young St, Regents Park • 70 Gibbes St, Chatswood • Lot 6, 2 Endeavour St, Chatswood • 75 Railway St, Rockdale • 81 Railway St, Rockdale • 4 Brunker Rd, Chullora • Macquarie Business Park, 27 Grant St, Port Macquarie Book value 11,100,000 Capitalisation rate 9.00%
Valuation date June 2009
Site area (m2) 2,458
Lettable area (m2) 3,573
Constructed (year) 1988
Occupancy 60%
Rent review Mix of CPI & Fixed
Sector Office
Edgeworth Major tenant Medical Centre
29 ABACUS DIVERSIFIED INCOME FUND II SECTION 3 / PROPERTY PORTFOLIO
13 Boundary Rd, Northmead 2 - 6 George Young St, Regents Park Sydney, NSW Sydney, NSW Fully refurbished and newly constructed office/ showroom/ Office and warehouse building located 22km west of the warehouse buildings. The property is surrounded by old and Sydney CBD, an established industrial area. Surrounding new industrial premises and is well located to main arterial development includes industrial land and units and roads and only 2km from Parramatta CBD. warehouse facilities.
Book value 8,000,000 Book value 9,400,000
Capitalisation rate 9.75% Capitalisation rate 8.75%
Valuation date June 2009 Valuation date October 2009
Site area (m2) 8,397 Site area (m2) 12,530
Lettable area (m2) 5,678 Lettable area (m2) 7,827
New and Constructed (year) Constructed (year) 2006 refurbished
Occupancy 90% Occupancy 100%
Rent review Mix of CPI & Fixed Rent review CPI
Sector Industrial Sector Industrial
Bluescope Major tenant Tenant Colorpak Distribution
ABACUS DIVERSIFIED INCOME FUND II 30 SECTION 3 / PROPERTY PORTFOLIO
70 Gibbes St, Chatswood Lot 6, 2 Endeavour St, Chatswood Sydney, NSW Sydney, NSW Modern office and warehouse building with 82 car spaces Two ground floor stratum retail premises including storage located in the eastern Chatswood industrial precinct 10km and loading dock opposite the Chatswood railway station, from Sydney CBD. The property is in close proximity to road some 11km north of the Sydney CBD. The property is located and rail transport. within Chatswood's commercial and retail precinct and enjoys exposure for vehiclular traffic from the Pacific Highway. Dick Smith Electronics have vacated the premises but their lease remains until January 2012.
Book value 7,400,000 Book value 7,500,000
Capitalisation rate 9.00% Capitalisation rate 8.00%
Valuation date June 2009 Valuation date October 2009
Site area (m2) 4,268 Site area (m2) 2,117
Lettable area (m2) 4,225 Lettable area (m2) 1,952
Constructed (year) 1980's Constructed (year) 2001
Occupancy 67% Occupancy (see text above) 100%
Rent review Mix of CPI & Fixed Rent review CPI
Sector Industrial Sector Retail
Flamestop Dick Smith Major tenant Major tenant Australia Electronics
31 ABACUS DIVERSIFIED INCOME FUND II SECTION 3 / PROPERTY PORTFOLIO
75 Railway St, Rockdale 81 Railway St, Rockdale Sydney, NSW Sydney, NSW Office buildings located 12km south west of Sydney CBD with 30 car parking spaces at 75 Railway Street and 62 car parking spaces at 81 Railway Street. These two properties are located opposite the Rockdale railway station and in close proximity to other transport services, retail facilities and amenities. Together these two properties provide 2,999m2 of well located land with future development potential.
Book value 3,600,000 Book value 4,600,000
Capitalisation rate 8.50% Capitalisation rate 9.00%
Valuation date October 2009 Valuation date June 2009
Site area (m2) 1,442 Site area (m2) 1,557
Lettable area (m2) 1,547 Lettable area (m2) 2,690
Constructed (year) 1980's Constructed (year) 1988
Occupancy 100% Occupancy 81%
Rent review Market Rent review Mix of CPI & Fixed
Sector Office Sector Office
Life Without Tenant Centrelink Major tenant Barriers
ABACUS DIVERSIFIED INCOME FUND II 32 SECTION 3 / PROPERTY PORTFOLIO
4 Brunker Rd, Chullora Macquarie Business Park, 27 Grant St, Sydney, NSW Port Macquarie, NSW Industrial office/ warehouse complex of 7 units, 19km from Modern two storey office building incorporating retail and the Sydney CBD and within 5km of the Bankstown retail office tenancies and 99 car parking spaces. and commercial precinct. It is located within the Chullora Port Macquarie is a regional centre on the mid north coast industrial area which has good transport links to three Sydney of NSW and the property is located in a fringe commercial motorways. precinct some 1km east of the CBD.
Book value 8,000,000 Book value 10,600,000
Capitalisation rate 9.50% Capitalisation rate 9.75%
Valuation date June 2009 Valuation date June 2009
Site area (m2) 9,613 Site area (m2) 3,666
Lettable area (m2) 6,100 Lettable area (m2) 3,631
Constructed (year) 1990's Constructed (year) 2000's
Occupancy 97% Occupancy 100%
Rent review Mix of CPI & Fixed Rent review CPI
Sector Industrial Sector Office
Major tenant Radical Products Major tenant Centrelink
33 ABACUS DIVERSIFIED INCOME FUND II SECTION 3 / PROPERTY PORTFOLIO
VictoriA
Campbellfield Melbourne Airport Derrimut Melbourne Dandenong Dingley Braeside Braeside
1 - 5 Lake Drive, Dingley Melbourne, VIC Purpose built industrial complex located 30km south of the Melbourne CBD in the Redwood Gardens Industrial Estate which has good access to road transport. The property • Industrial comprises a production office and warehouse, raw materials • 1 - 5 Lake Drive, Dingley warehouse and finished goods warehouse. • 63 - 73 Woodlands Drive, Braeside • 75 - 83 Woodlands Drive, Braeside • 418 - 424 South Gippsland Highway, Dandenong South • 138 - 140 Williams Road, Dandenong South • 571 Mount Derrimut Road, Derrimut • 144 - 168 National Boulevard, Campbellfield
Book value 13,400,000
Capitalisation rate 8.75%
Valuation date October 2009
Site area (m2) 39,760
Lettable area (m2) 16,153
Constructed (year) 1980's
Occupancy 100%
Rent review Fixed
Sector Industrial
Unicharm Tenant Australiasia
ABACUS DIVERSIFIED INCOME FUND II 34 SECTION 3 / PROPERTY PORTFOLIO
63 - 73 Woodlands Drive, Braeside 75 - 83 Woodlands Drive, Braeside Melbourne, VIC Melbourne, VIC Office and warehouse located in an industrial suburb 25km Office and warehouse located in an industrial suburb 25km from Melbourne CBD. Property forms part of the Woodlands from Melbourne CBD. Property forms part of the Woodlands Industrial Estate, used primarily for distribution, including Industrial Estate, used primarily for distribution, including Kmart, Brivis Australia and Australia Post. Kmart, Brivis Australia and Australia Post.
Book value 6,050,000 Book value 2,100,000
Capitalisation rate 9.25% Capitalisation rate 8.75%
Valuation date October 2009 Valuation date October 2009
Site area (m2) 14,870 Site area (m2) 5,108
Lettable area (m2) 7,087 Lettable area (m2) 2,495
Constructed (year) 1996 Constructed (year) 2006
Occupancy 100% Occupancy 100%
Rent review CPI Rent review CPI
Sector Industrial Sector Industrial
Colorpak Tenant Tenant Colorpak Packaging
35 ABACUS DIVERSIFIED INCOME FUND II SECTION 3 / PROPERTY PORTFOLIO
418 - 424 South Gippsland Hwy, 138 - 140 Williams Road, Dandenong South Dandenong South, Melbourne, VIC Melbourne, VIC Modern warehouse with associated office located Small industrial office and warehouse located approximately approximately 35km south east of the Melbourne CBD in 35km south east of the Melbourne CBD in the established the established industrial precinct of Dandenong South. industrial precinct of Dandenong South. The property is in The property is in close proximity to local rail, bus and road close proximity to local rail, bus and road services. services.
Book value 4,450,000 Book value 800,000
Capitalisation rate 9.00% Capitalisation rate 8.50%
Valuation date October 2009 Valuation date October 2009
Site area (m2) 9,918 Site area (m2) 1,411
Lettable area (m2) 5,345 Lettable area (m2) 785
Constructed (year) 2004 Constructed (year) 2004
Occupancy 100% Occupancy 100%
Rent review Fixed Rent review CPI
Sector Industrial Sector Industrial
Foilmasters Tenant Ducor Australia Tenant (Colorpak)
ABACUS DIVERSIFIED INCOME FUND II 36 SECTION 3 / PROPERTY PORTFOLIO
571 Mount Derrimut Rd, Derrimut 144 - 168 National Boulevard, Campbellfield Melbourne, VIC Melbourne, VIC Modern industrial building with high bay warehouse. Modern warehouse facility with a large double storey office It is situated in an established and well regarded industrial component and front showroom and warehouse attached to precinct with good road connections, approximately 16km the rear. The property is located 18km from the Melbourne west of Melbourne CBD. CBD.
Book value 6,550,000 Book value 16,250,000
Capitalisation rate 9.25% Capitalisation rate 8.75%
Valuation date June 2009 Valuation date October 2009
Site area (m2) 15,520 Site area (m2) 34,220
Lettable area (m2) 8,357 Lettable area (m2) 16,635
Constructed (year) 2003 Constructed (year) 2007
Occupancy 100% Occupancy 100%
Rent review Fixed Rent review Fixed
Sector Industrial Sector Industrial
Pacific Brands Tenant G.A.M Steel Tenant Clothing
37 ABACUS DIVERSIFIED INCOME FUND II SECTION 3 / PROPERTY PORTFOLIO
tAsMANiA
Emily Dobson House, 99 Bathurst Street Forestry House, 79 - 85 Melville Street Hobart, TAS Hobart, TAS Commercial purpose built office building over 7 levels Two linked office buildings over four levels plus retail including small retail arcade and basement parking for 24 cars showroom and basement parking within the CBD of Hobart. within the CBD of Hobart. The central retail precinct of Hobart The central retail precinct of Hobart CBD is 200m from the CBD is 200m from the property and is surrounded by the property and is surrounded by the State Library and Myer State Library and Myer Department Store. Department Store.
The Fund owns a 79% interest in the Abacus Hobart Growth Trust (AHGT). AHGT owns a 50% interest in two options to acquire two Hobart office properties with the other 50% interest in the options owned by a private investor. The independent valuations of these two properties at December 2009 were in total $33.25m and the Fund’s effective 39.5% interest was calculated at $13.1m. The Fund paid $8.2 million for its 79% interest in AHGT representing the value of the options that AHGT owns less deferred tax liabilities and other creditors. The first option can be exercised between May and August 2010 to acquire the property named Emily Dobson House at Bathurst Street in Hobart. The option exercise price is $1 and the market value of 100% of this property was $16.5m at December 2009. The major tenant is the State Government of Tasmania on a lease that expires in September 2010 with a five year option to extend the lease. If AHGT does not exercise its option then the issuer of the option has the right to put the property to AHGT for $1. The second option can be exercised during 2013 to acquire the property named Forestry House at Melville Street in Hobart. The option exercise price is $1 and the market value of 100% of this property was $16.75m at December 2009. The major tenant is Forestry Tasmania on a lease that expires in June 2013. Abacus is in discussion with the tenant to extend the lease term past June 2013. If AHGT does not exercise its option then the issuer of the option has the right to put the property to AHGT for $1. The lettable areas in the tables below represent 100% of total lettable areas of the properties. The valuation figures are 39.5% of the valuation at December 2009, being the Fund’s effective 39.5% interest in those properties. Abacus Property Services manages both properties in AHGT. AHGT is responsible for paying any structural or capital works or capital expenditure obligations relating to the leases before both options are exercised. If AHGT fails to perform its obligations then there are penalty clauses in the option agreements.
Value - 39.5% 6,517,500 Value - 39.5% 6,616,250
Capitalisation rate 9.50% Capitalisation rate 10.50%
Valuation date December 2009 Valuation date December 2009
Site area (m2) 1,763 Site area (m2) 7,832
Lettable area (m2) 7,244 Lettable area (m2) 7,558
Constructed (year) 1990 Constructed (year) 1997 & historic warehouse
Occupancy 100% Occupancy 100%
Rent review Market Rent review Market
Sector Office Sector Office
Tenant State Government of Tasmania Tenant Forestry Tasmania
ABACUS DIVERSIFIED INCOME FUND II 38 SECTION 4 / INFORMATION FOR NEW INVESTORS
4. INFORMATION FOR NEW INVESTORS
4.1 FUND STRUCTURE 4.2.4 Allotment of Units The Fund is an unlisted unit trust that is a registered managed If an application is accepted, the investor will be allocated investment scheme (ARSN 116 429 844). a number of New Units in the Fund based on the amount subscribed and the issue price for New Units of $0.75. The 4.2 OFFER DETAILS first quarterly distribution after an investment is accepted will 4.2.1 The Offer be pro-rated based on the number of days elapsed between the date of issue of the Units and the end of the quarterly Abacus is offering New Investors the opportunity to subscribe distribution period. for a total of 98m New Units in the Fund at a price of $0.75 each. The $73.5m proceeds of the Offer will be applied to Abacus reserves the right to issue units to investment or repay the Abacus Working Capital Facility. Abacus may accept reporting services (such as a master trust, wrap account, oversubscriptions in its absolute discretion. investor directed portfolio service or nominee or custody services) using the accrued distribution entitlement method. The Offer opens on 24 December 2009 and will remain open This means that the price payable for these Units will include until fully subscribed. Abacus may close the Offer at any time an amount to take into account accrued distributions as without notice. at the date of issue of the Units. This accrued distribution 4.2.2 Applications amount remains an asset of the Fund. There is no advantage to Unitholders using this method of issuing units compared to New Investors may invest in the Fund only by completing the the method of issuing units noted in the paragraph above. application form contained in this PDS (see Section 11) and sending the completed form and a cheque or direct debit All Units will be issued using the pro-rata distribution method request to the registry. If New Investors want to invest through unless an investment or reporting service requests to use the an investment or reporting service such as a master trust or accrued distribution basis. wrap account, they should contact their service operator. Whichever method is used, the initial Underwritten The minimum investment is $5,000 and above that in Distribution is 6 cents per annum, Indexed, and the multiples of $1,000. Underwritten Capital Return is $0.75 per New Unit. For the purposes of this PDS, any reference to the issue price of Applications received will be processed daily on business New Units means $0.75 per Unit. days. Applications received after 2 pm or on a non-business day will be treated as if received on the next business day. 4.3 WITHDRAWAL RIGHTS Confirmation of investments will be sent to investors within 10 As at the date of this PDS, the operation of the Fund’s days of the allotment of Units. withdrawal facility is suspended because the Fund is Investors should note that there is no cooling off period in not liquid. Abacus does not expect this to change in the relation to applications for Units in the Fund. foreseeable future although this may change over time. 4.2.3 Overseas Investors A fund is liquid when the responsible entity reasonably expects that at least 80% of assets can be sold at market This offer is only open to persons receiving this PDS in value within the withdrawal period specified in the Fund’s Australia. The PDS does not constitute an offer in any place constitution. Where a fund becomes non-liquid, a Unitholder in which, or to any person to whom, it would be unlawful to has no right to withdraw except in accordance with any make such an offer. Anyone who comes into possession of withdrawal offer Abacus may elect to make. this PDS should seek advice on and observe any restrictions on accepting an offer or distributing the PDS. Any failure Withdrawals may be suspended in certain circumstances to comply with restrictions may constitute a violation of specified in the constitution. These circumstances include applicable securities law. if unit prices cannot be accurately determined, for example in the context of sudden market movements, or if it is not considered in the best interests of Unitholders to realise the required assets immediately. Any withdrawal requests outstanding when a suspension occurs, or received during a suspension period, will be treated as having been received by Abacus immediately after the end of the suspension period. If the withdrawal facility re-opens, because the responsible entity determines that the Fund is liquid, the terms of its operation for all Unitholders will be as follows.
39 ABACUS DIVERSIFIED INCOME FUND II SECTION 4 / INFORMATION FOR NEW INVESTORS
. A Unitholder seeking to redeem their investment in the 4.4 MANAGEMENT OF THE FUND Fund may make a withdrawal request by completing a 4.4.1 Responsible Entity withdrawal form. Withdrawal forms are available from the Abacus website or by contacting us. Abacus can only Abacus is the responsible entity of the Fund. Abacus holds accept withdrawal requests signed by the authorised an Australian Financial Services Licence (AFSL 227819) and is signatories of the Unitholder. authorised under this licence to operate the Fund. Abacus is a member of Abacus Property Group, a S&P/ASX 200 listed . Withdrawal requests are processed weekly, with payments Australian Real Estate Investment Trust. made within 10 business days of the end of the week in which the request is received. However, the Fund The Fund is a registered managed investment scheme (ARSN constitution provides that withdrawal requests may be 116 429 844). Procedures for the management of the Fund processed within 12 months of receipt and this may be and its assets are set out in a compliance plan lodged with further extended under certain circumstances. ASIC. Compliance with the compliance plan is monitored by a compliance committee and is audited annually by an external . The withdrawal price will be the net asset value per Unit auditor. All assets owned by the Fund are held by an external adjusted for the accrued distribution entitlement less the custodian. Sell Spread (currently 0.5%) on the last business day of the week on which the withdrawal application was received. Abacus’ role as manager includes: . The net asset value per Unit is the net asset value of the . Fund administration; Fund (as determined by Abacus) divided by the number . payment of distributions; of Units on issue. The net asset value of the Fund is based on the most recent valuation of the Fund’s assets . investor communications; and all liabilities are accounted for excluding the Abacus Working Capital Facility. In determining the number of . acquiring and selling properties and managing the Units on issue the Abacus Working Capital Facility is property team; notionally converted into units based on $0.75 per Unit . regulatory compliance; and or the issue price in accordance with latest PDS. Abacus will generally calculate the net asset value per Unit . arrangement of debt facilities. every six months and post the resultant Unit price to the At the date of this PDS, Abacus Property Group has an Abacus Property Group website within 3 business days. experienced executive management team as set out in the Information on the Fund’s valuation policy is set out in table below. Section 2.4. . The amount of the Sell Spread represents an estimate of the transaction costs that are incurred when the Fund sells assets. The application of the Sell Spread aims to ensure that each Unitholder bears the same proportion of transaction costs incurred by the Fund regardless of when they enter or exit the Fund. Other than the specific fees payable to Abacus, the amount of the Sell Spread is retained by the Fund and any part of the Sell Spread that exceeds actual transaction costs becomes an asset of the Fund. The amount of the Sell Spread may be adjusted over time to reflect any change in the amount of transaction costs incurred by the Fund. The terms and conditions relating to withdrawal requests described above assume that the Fund is liquid within the meaning of the Corporations Act. The Fund is not liquid at the date of this PDS.
ABACUS DIVERSIFIED INCOME FUND II 40 SECTION 4 / INFORMATION FOR NEW INVESTORS
DATE EXECUTIVE JOINED EXPERIENCE ABACUS
Dr Wolf has over 20 years experience in the property and financial services industries, including involvement in retail, commercial, industrial and hospitality Frank Wolf, related assets in Australia, New Zealand and the United States. Dr Wolf has been 1996 Managing Director instrumental in over $2 billion worth of property related transactions, corporate acquisitions and divestments. Dr Wolf is the chairman of FSP Group Pty Limited and a director of Kingston Capital Limited (financial planning groups).
Len is a licensed real estate agent and a registered real estate valuer. He has 40 years experience in the development, management and funding of commercial, Len Lloyd, retail and residential property. Len is responsible for property administration and Managing Director, 2000 development opportunities. Prior to joining Abacus Len held responsibility for Property Services the property portfolios of the Advance Bank and St George Bank and provided valuation and lending advice while with the Commonwealth Development Bank for 21 years.
Tom manages Abacus' funds management business and his primary responsibilities Tom Hardwick, include product development, capital raising, fund performance and unitholder Director Funds 2006 reporting for Abacus’ managed funds. Prior to joining Abacus, Tom worked in Management investment banking, where he specialised in raising capital for listed property trusts and other income funds.
Rod oversees the financial function of all of Abacus Property Group’s activities, including its external funds. Rod joined Abacus from merchant bank NM Rod de Aboitiz, 2006 Rothschild (Australia) where he was CFO and prior to this he was a director in Chief Financial Officer PricewaterhouseCoopers' banking and capital markets practice in offices around the world.
Peter manages the asset management activities of Abacus Property Group’s properties and coordinates internal and external property professionals on management and leasing of the assets. Peter is a licensed real estate agent Peter Strain, 2002 and a certified practicing valuer with a Graduate Diploma in Applied Finance Director Property & Investment. Peter has more than 25 years experience in both investment and corporate property including retail, commercial, industrial and special use real estate from roles at Colliers International and ANZ Banking Group.
Ellis Varejes, Ellis manages Abacus’ legal, commercial and compliance activities. He was Chief Operating Officer 2006 previously the senior corporate partner at a major Sydney law firm and has over and Company Secretary 25 years experience as a partner in corporate and commercial law.
The executive management team is supported by property and funds management specialists as well as finance, legal, marketing, compliance and administration professionals.
41 ABACUS DIVERSIFIED INCOME FUND II SECTION 4 / INFORMATION FOR NEW INVESTORS
4.4.2 Abacus Property Group 4.4.3 Change in Responsible Entity Abacus Property Group specialises in investing in Should Abacus cease to be the responsible entity of the property based assets and, as at the date of this PDS, has Fund, then Abacus may exercise its call option (see Section approximately $2 billion of assets under management. Key 9.5) to require the Fund to transfer some or all of the direct elements of the Group’s activities are: property and other investments held by the Fund to Abacus as responsible entity of Abacus Trust. The purchase price . an investment portfolio of commercial, retail and payable on exercise of the option where Abacus ceases to be industrial properties across Australia; the responsible entity of the Fund will be the fair market value . a funds management business, syndicating property of the direct property and other investments as determined based investment opportunities for retail and wholesale by independent qualified valuers. investors; If Abacus ceases to be the responsible entity of the Fund . a specialist mortgage lending business; and without consent of the bank providing facility one, this may cause a review event that gives the bank the right to amend . partnerships and projects with a number of property the terms of the facility or request a repayment of the drawn investment and development groups. amount under that facility within 60 days. Since 1996, Abacus Property Group has: If Abacus ceases to be the responsible entity of the Fund . established more than 35 investment funds; without consent of the bank providing facility two, this may cause an event of default that gives the bank the right to an . raised over $1.1 billion in equity from retail and immediate repayment of the drawn amount under that facility. institutional investors; and If Abacus ceases to be the responsible entity of the Fund then . grown assets under management to approximately the Abacus Working Capital Facility and the Abacus Loan $2 billion. Facility are repayable in full within 12 months including any The financial strength and property experience of Abacus deferred interest. Property Group support the Fund in a number of important If Abacus ceases to be the responsible entity of the Fund then ways, including the provision of: Abacus’ management fee becomes payable at the end of . an experienced team of property professionals to oversee the Fund term and is not subject to Unitholders in the Fund the performance of the Fund’s assets and maximise receiving 10% capital growth on their Contributed Equity. Unitholder returns; If Abacus ceases to be the responsible entity of the Fund, the . the Underwritten Distributions and Underwritten Capital new limited liquidity facility terminates. Return set out in this PDS; and The Underwritten Capital Return is not affected by a change . the Abacus Working Capital Facility and Abacus Loan of responsible entity. That is, even if Abacus ceases to be the Facility. responsible entity, Abacus Property Group will continue to provide the Underwritten Capital Return and Underwritten Details of the financial position of Abacus Property Group Distributions for the life of the Fund. and recent announcements can be found on its website at www.abacusproperty.com.au.
ABACUS DIVERSIFIED INCOME FUND II 42 SECTION 4 / INFORMATION FOR NEW INVESTORS
4.5 EQUITY STRUCTURE AND UNDERWRITING Class B Units are referred to in this PDS as Converted Units. COMMITMENT New Units (Class C) at $0.75 each 4.5.1 Classes of Units Units issued pursuant to this PDS to New Investors attract the The Fund has three classes of Units as summarised at the following level of Underwritten Distributions and Underwritten bottom of this page. Capital Return: Existing Units (Class A) at $1.00 each . Distributions of 6.0 cents per New Unit (ie. 8.0% pa based on an issue price of $0.75 per Unit), Indexed in line with Units issued prior to this PDS to Existing Investors attract the inflation each year from 1 July 2010, are underwritten following level of Underwritten Distributions and Underwritten by Abacus Property Group until the return of all Class C Capital Return: Unitholder invested capital. . Distributions of 8.5% pa (ie 8.5 cents per Unit based on . Abacus Property Group will underwrite the return of $0.75 $1.00 per Unit) are underwritten by Abacus Property capital per Unit on a winding up of the Fund (effective Group) until 30 June 2011. from 30 June 2016) in accordance with Section 4.5.3. . After 30 June 2011 the cash distribution will be Class C Units are referred to in this PDS as New Units. dependent on the distributable cash of the Fund at that time, without any support from Abacus Property Group. The amount of Underwritten Capital Return will be reduced for all classes of Units by any capital distributions made before . Abacus Property Group will offer to acquire all Class the effective dates of the Underwritten Capital Return for each A Units issued in the Fund at $1.00 per Unit by 30 class of Unit. September 2013 if at 30 June 2013 the net assets of the Fund for this class of Unit are less than $1.00 per Unit 4.5.2 Underwritten Distributions (determined by Abacus). If the net assets at 30 June 2013 Abacus Property Group will underwrite the cash distribution for this class of Unit are equal to or greater than $1.00 per for all classes of Unit as set out in the table below Unit then Unitholders will have no right to sell their Units (Underwritten Distributions). This will be achieved by to Abacus Property Group. Abacus Finance deferring the payment of interest on the Class A Units are referred to in this PDS as Existing Units. Abacus Working Capital Facility by the Fund, deferring the payment of any management or other fees payable to Abacus Converted Units (Class B) at $1.00 each under the constitution of the Fund, by a combination of Units issued to Existing Investors, who have taken up the offer interest and fee deferral, or in any other way Abacus Property to convert their Class A Units to Class B Units, attract the Group considers appropriate. Any interest or fee deferral following level of Underwritten Distributions and Underwritten (other than Abacus’ management fee) or other funding Capital Return: support may be recovered if the distributable cash of the Fund exceeds the cash required to meet the Underwritten . Distributions of 8.5% pa (ie 8.5 cents per Unit based on Distributions at expiration of the term or on a winding up $1.00 per Unit) are underwritten by Abacus Property of the Fund. Abacus’ management fee is recoverable at Group until 30 June 2011 expiration of the term or on a winding up of the Fund but only . From 1 July 2011, distributions of 8.0% pa plus indexation after investors have received back their original Contributed (ie 8.0 cents per Unit plus indexation based on $1.00 per Equity (based on $1.00 for Existing Units and Converted Units Unit) and indexed each subsequent year, are underwritten and $0.75 for New Units) plus a further 10%. by Abacus Property Group until the return of Class B The Underwritten Distributions on New Units will be Indexed Unitholder invested capital. in line with inflation once each year from 1 July 2010 and will . Abacus Property Group will underwrite the return of $1.00 be adjusted by reference to the movement in CPI All Groups capital per Unit on a winding up of the Fund (effective Australia index between June of the current year and June from 30 June 2016) in accordance with Section 4.5.3. 2009. For example, the distribution for New Units for the
SUMMARY OF UNIT CLASSES EXISTING UNITS CONVERTED UNITS NEW UNITS Underwritten Distributions 8.5c1 8.5c/8.0c2 6.0c3 Entry price $1.00 $1.00 $0.75 Underwritten Distribution yield on entry price 8.5% 8.5%/ 8.0% 8.0% Underwritten Distributions expiration date 30 June 2011 Fund Life2 Fund Life
1 Underwritten Distributions of 8.5c per annum until 30 June 2011. From 1 July 2011 onwards the distribution will depend on the non guaranteed and unsupported distributable cash of the Fund. 2 Underwritten Distributions of 8.5c per annum until 30 June 2011 and then 8.0c (Indexed in line with inflation each year) for the remaining term of the Fund. 3 Underwritten Distributions of 6.0c per annum, Indexed in line with inflation each year from 1 July 2010, over the life of the Fund.
43 ABACUS DIVERSIFIED INCOME FUND II SECTION 4 / INFORMATION FOR NEW INVESTORS
quarter ending 30 September 2010 will be 1.5 cents adjusted but not before 30 June 2016). If on completion of the winding for the percentage movement in CPI All Groups Australia up of the Fund there are insufficient net proceeds to pay index between June 2010 and June 2009. The next three the Underwritten Capital Return in respect of each class of quarter’s distribution will be the same as the September 2010 Unit, Abacus Property Group will satisfy the shortfall. Abacus distribution. The Underwritten Distribution for the quarter Property Group will satisfy the shortfall in the first instance by ending 30 September 2011 will be 1.5 cents per New Unit setting off the repayment of the principal of the Abacus Loan adjusted for the percentage movement in the CPI All Groups Facility and any residual shortfall will be satisfied at Unitholder Australia Index between June 2011 and June 2009. The CPI discretion by either, or a combination of: All Groups Australia index movement may be positive or making a cash payment. negative but the Underwritten Distributions on New Units - will not reduce below 8% (6 cents) per annum as a result of - issuing stapled securities in Abacus Property Group. The indexation. value of Abacus Property Group stapled securities will be based on the volume weighted average price of Abacus The Underwritten Distributions on Converted Units will be Property Group stapled securities (code: ABP) over the 10 Indexed in line with inflation with indexation determined once days preceding the date one week prior to the date on each year from 1 July 2011 by reference to the movement in which the Abacus Property Group stapled securities will CPI All Groups Australia index. The distribution on Converted be issued in respect of the shortfall. Units for the quarter ending 30 September 2011 will be 2 cents adjusted for the percentage movement in the CPI At Fund termination, a net asset value of $0.82 per Unit is All Groups Australia index between June 2011 and June required to meet the Underwritten Capital Return of $0.75 for 2009. Each subsequent year will be Indexed by reference to each Class C Unit and $1.00 for each Class A and Class B Unit. the percentage movement in CPI All Groups Australia index Any capital returns will be taken into account as part of the between June of the current year and June 2009. This means Underwritten Capital Return. The Underwritten Capital Return that the distribution percentage yield for Converted Units will for New Units and Converted Units will cease if Unitholders in be the same as the distribution percentage yield of New Units the Fund vote to wind up the Fund before 30 June 2016. from 1 July 2011 onwards. The Underwritten Capital Return provided by Abacus Property An adjustment will be made to the Underwritten Distributions Group is only available on the dates set out in this PDS. For if a distribution of capital is made before the termination Existing Units the Underwritten Capital Return is available of the Fund so that the distribution yield percentage is by September 2013. For New Units and Converted Units the maintained at the rates set out in the table above but on a Underwritten Capital Return is available on the later of 30 reduced capital investment base. June 2016 and Fund termination. Investors cannot benefit The cost of the inflation indexation on the Underwritten from the Underwritten Capital Return before these dates. Distributions is not a cost to the Fund. Abacus Finance The current expectation is to hold the majority of the assets is contracted to pay an amount equal to the increase in of the Fund for a period of approximately seven years. During distribution as a result of CPI indexation above 8% per annum. this time properties may be sold or new properties acquired. 4.5.3 Underwritten Capital Return It is Abacus’ current intention to repay debt if any assets are sold during the term of the Fund. Abacus Property Group will underwrite the return of capital for all classes of Unit (Underwritten Capital Return). 4.5.4 Surplus on Winding Up of the Fund Existing Units If on completion of the winding up of the Fund the surplus (plus any previously distributed capital) exceeds the Abacus will make an offer to acquire all Existing Units at $1.00 aggregate Contributed Equity in respect of each class of Unit, per Unit by 30 September 2013 if at 30 June 2013 the net Abacus will distribute the surplus as follows: asset value per Unit (as determined by Abacus) is less than $1.00 per Existing Unit. An adjustment will be made if any . First to all Unitholders in the Fund to return an additional capital repayments are made before 30 June 2013. Abacus 10% of Contributed Equity. Property Group can satisfy its commitment in cash or issuing Second to enable Abacus to recover any management stapled securities in Abacus Property Group or a combination . fees, the payment of which was deferred over the life of of the two, in its absolute discretion. If Abacus Property Group the Fund from 1 July 2009 until the date on which all Fund stapled securities are issued, they will be priced at the 10 day assets are sold. The management fees to which Abacus is volume weighted average price of Abacus Property Group entitled are calculated as 0.70% per annum of the gross stapled securities on the ASX over the period ending on 30 asset value of the Fund as described in Section 5. June 2013. Third, to Unitholders in the Fund, proportionate to the New Units and Converted Units . number of Units held. Abacus Property Group will underwrite the return of capital on these Units on a winding up of the Fund (effective from
ABACUS DIVERSIFIED INCOME FUND II 44 SECTION 4 / INFORMATION FOR NEW INVESTORS
The table below is an illustrative example of how this process will operate if there is a surplus at the end of the Fund and the Fund is fully subscribed. Any remaining amounts owing under the Abacus Working Capital Facility will be reflected as a Fund liability and repaid prior to the calculation of the surplus.
Share of Fund net assets Illustrative example: Fund net assets at winding up in June 2017 (assuming all $136.0m amounts due to Abacus Property Group are treated as Fund liabilities) Less Contributed Equity: Existing Units and Converted Units 36.0 $(36.2)m New Units 98.0 $(73.5)m Surplus available1 134.0 $26.3m
1) Additional 10% return of capital to Unitholders2 $(11.0)m
2) Recovery of Abacus management fees $(10.2)m
3) Remaining surplus attributable to Unitholders $5.1m Share of surplus attributable to Unitholders3 Existing Units and Converted Units 27% (3.8c per Unit4) $1.4m New Units 73% (3.8c per Unit4) $3.7m
1 No representation is made that there will be a surplus. The illustrative example is based on a capitalisation rate for the portfolio of approximately 7.75% and income growth rates of approximately 3% per annum. 2 The 10% additional return of capital is based on the original Contributed Equity. 3 The share of surplus is calculated based on the proportionate number of Units held by each investor. For example, the New Units share of surplus is based on 98m Units issued over the total number of Units issued of 134m multiplied by the $5.1m total surplus. 4 The surplus per Unit is calculated as the surplus divided by the number of Units issued. 4.6 RELATED PARTY TRANSACTIONS 4.6.2 Specific Related Party Transactions 4.6.1 Related Party Policy At the date of this PDS, Abacus Property Group has a relevant interest of 19.9% in the Fund’s issued Existing Units. Abacus The Fund may transact with other funds managed by Abacus Property Group will convert its Existing Units to Converted or members of the Abacus Property Group. Such dealings Units in proportion to the number of non Abacus Property have the potential to create situations where conflicts Group owned Existing Units that are converted to Converted of interest may arise. This is because they have different Units. stakeholders and objectives. Fees paid to the Abacus Property Group are set out in Section 5. Abacus Property Group has a policy in respect of related party transactions to ensure that the transaction is conducted on Abacus Property Services Pty Limited has been appointed to commercial terms, and that such terms are at arm’s length. manage the property assets of the Fund. APS is entitled to This includes fees and other costs payable to other members charge fees of 3.0% pa of the gross rental income from the of the Abacus Property Group in respect of the Fund and as properties for its services. Fees are also payable for leasing, outlined in this PDS. In particular, property sales between supervision of refurbishment and related activities undertaken related parties are on an arm’s length basis supported by by APS. independent valuations. In recent months, Abacus completed a restructure of the In addition, where a potential conflict of interest arises in Fund’s asset base (Asset Transfers), which sought to reduce respect of any related party transaction, Abacus believes the Fund’s loan to valuation ratio for bank covenant purposes, that disclosure to Unitholders where appropriate is an and to increase the Fund’s weighting to direct property assets. essential element of managing any such conflict of interest. A number of transactions were undertaken to give effect to This disclosure may be made through an offer document, this restructure as follows: the Fund’s Annual Report or through an explanatory memorandum to Unitholders. Abacus Property Group’s compliance framework requires appropriate review of all controls applying to a fund at least annually.
45 ABACUS DIVERSIFIED INCOME FUND II SECTION 4 / INFORMATION FOR NEW INVESTORS
. On 30 June 2009 Abacus Property Group acquired the Fund’s unlisted property security assets for $19,187,831, their value at that date. . On 1 July 2009 Abacus Property Group acquired effective ownership of the Fund’s listed property security assets for $1,362,837, their market value at 30 June 2009. . In September 2009 Abacus Property Group sold the property at Port Macquarie to the Fund for $10.6m, its independent valuation at 30 June 2009. . In December 2009 Abacus Property Group sold the property at Campbellfield to the Fund for $16.25m, its independent valuation at 31 October 2009. . On 30 June 2009, the Fund acquired from Abacus Property Group its 79% interest in the Abacus Hobart Growth Trust (AHGT) for $8,244,505 (its value at 30 June 2009 based on independent property valuations at 31 December 2008). The net effect of these transactions was that the Fund sold its listed and unlisted property investments and used these sale proceeds plus $17.2m drawn from the Abacus Loan Facility to acquire two direct property assets and AHGT units as summarised in the table below. The terms of the Abacus Loan Facility are summarised in Section 9.4.
SUMMARY OF ASSET TRANSFERS
SOURCES $000
Sale of unlisted property investments 19,187
Sale of listed investments 1,363
Drawdown of Abacus Loan Facility 17,196
Total 37,746
APPLICATIONS $000
Purchase of Campbellfield property 16,250
Purchase of Port Macquarie property 10,600
Payment of duty on property acquisitions 1,518
Purchase of units in AHGT 8,244
Part repayment of Abacus Working Capital 1,134 Facility
Total 37,746
ABACUS DIVERSIFIED INCOME FUND II 46 SECTION 5 / FEES AND COSTS
5. FEES AND COSTS
5.1 CONSUMER ADVISORY WARNING
DID YOU KNOW? Small differences in both investment performance and fees and costs can have a substantial impact on your long term returns. For example, total annual fees and costs of 2% of your fund balance rather than 1% could reduce your final return by up to 20% over a 30-year period (for example, reduce it from $100,000 to $80,000). You should consider whether features such as superior investment performance or the provision of better member services justify higher fees and costs. You may be able to negotiate to pay lower contribution fees and management costs where applicable. Ask the fund or your financial adviser. TO FIND OUT MORE If you would like to find out more, or see the impact of the fees based on your own circumstances, the Australian Securities and Investment Commission (ASIC) website (www.fido.gov.au) has a managed investment fee calculator to help you check out different fee options.
This section shows fees and other costs that apply to the Fund and hence have an impact on your investment. These fees and costs may be deducted from your money, from the returns on your investment or from the Fund’s assets as a whole. You should read all the information about fees and costs because it is important to understand their impact on your investment. 5.2 FEES AND COSTS SUMMARY
TYPE OF FEE OR COST1 AMOUNT2 HOW AND WHEN PAID
FEES WHEN MONEY MOVES IN OR OUT OF THE FUND. nil not applicable Establishment fee Fee to open your investment
Contribution fee not applicable The fee on each amount nil contributed to your investment Withdrawal fee not applicable The fee on each amount you take nil out of your investment. Termination fee not applicable nil The fee to close your investment. Management costs3 (i) Fund general expenses (including custodian fee) are estimated to Fund general expenses 4 The fees and costs for managing be 0.37% pa of the gross assets of the Fund. These expenses are in are paid as incurred by your investment addition to Abacus’ management fee described below at item (ii) the Fund. If expenses (ii) Abacus has agreed to defer the payment of its management are initially paid by fee until the termination of the Fund and will only recover the Abacus, it is entitled to management fee once investors in the Fund have received back be reimbursed by the their original Contributed Equity plus a further 10% in addition to Fund upon presentation their Underwritten Distributions. The management fee is calculated of relevant invoices. as 0.70% per annum of the gross asset value of the Fund.
SERVICE FEES Investment switching fee nil not applicable The fee for changing investment options
47 ABACUS DIVERSIFIED INCOME FUND II SECTION 5 / FEES AND COSTS
1 An explanation of all fees is set out at Section 5.3. Management Fees 2 Where applicable, these fees include GST and any applicable input tax credits or reduced input tax credits the Fund may claim. Abacus has agreed to defer the payment of its management 3 Abacus is also entitled to an acquisition fee, development management fee for the life of the Fund and will only recover the payment fee and management termination fee as described in Section 5.3.3. Abacus of these fees once all investors in the Fund have received Property Services Pty Limited is entitled to a property management fee as back their original Contributed Equity plus a further 10% in described in Section 5.3.1. addition to their Underwritten Distributions. 4 Abacus is entitled to recover the cost of operational expenses, such as accounting, auditing, legal fees, valuation, administration and reporting, share If Abacus is able to recover its management fee it will be registry costs, holding investor meetings, custodian and compliance costs from payable at a rate of not more than 0.70% pa (exclusive of the Fund. The actual amount of expense recoveries in any financial year could be more or less than the estimate provided. GST) of the gross asset value of the Fund. For example, on gross assets of $200m, the annual management fee payable 5.3 ADDITIONAL EXPLANATION OF FEES AND COSTS would be $1,400,000 plus GST. This management fee covers 5.3.1 Management Costs Payable by the Fund the tasks undertaken by Abacus to manage the Fund as described in Section 4.4.1. Fund Expenses Under the Trust constitution the management fee is Abacus is entitled to be reimbursed for all costs, charges calculated daily and paid monthly but this payment can be and expenses properly incurred in managing the Fund. deferred. If Abacus does become entitled to the payment of These expenses include expenses connected with the sale, the management fee, where there are surplus net assets as set purchase, insurance, custody and any other costs of dealing out in Section 4.5.4, the management fee will be calculated with any assets of the Fund, its administration, including daily on the gross assets of the Fund for the period 1 July meetings and the services of external consultants, legal and 2009 until Fund termination. No interest will be charged on financing fees, share registry, printing and postage costs. any management fees deferred and recovered at termination Fees paid to professional property managers for management of the Fund. of the assets include fees paid to Abacus Property Services 5.3.2 Indirect Cost Ratio Pty Limited. APS is entitled to a property management fee equal to 3% per annum of the gross rental income received The Indirect Cost Ratio for a fund is the ratio of a fund’s in respect of each property managed. APS is also entitled to management costs that are not deducted directly from an receive additional fees where services are provided for new investor or investor’s account to the fund’s total average net lease negotiations and lease changes such as rent reviews or assets. lease renewals. The fee payable for entering into a new lease In determining the Indirect Cost Ratio for the Fund for the where no other letting agent is involved with a lease duration year ended 30 June 2009 Abacus’ management fee that has of four years is 12% of the average annual gross rental under been deferred has been excluded and the Fund’s operational the lease. The fee is adjusted where the lease duration is expenses have been included. These fees are divided by the more or less than four years. The fee payable for rent reviews pro-forma net assets at 1 December 2009 and the Indirect is 10% of any increase in the annual gross rental but no fee is Cost Ratio on this basis is 1.1%. charged where the rent review is based on a CPI movement or fixed percentage increase. The fee payable for lease renewals is 75% of the equivalent fee payable for a new lease and the fee payable for exercise of options to extend the lease is 40% of the equivalent fee payable for a new lease. The estimated Fund expenses do not include abnormal expenses that may be incurred by the Fund, such as costs incurred in disposing of Fund assets, winding up of the Fund or unexpected costs such as litigation or compensation. In the event that such costs are incurred, Abacus will recover or pay them from the Fund’s assets or the compensation.
ABACUS DIVERSIFIED INCOME FUND II 48 SECTION 5 / FEES AND COSTS
5.3.3 Transaction and Operational Costs Payable Sell Spread by the Fund If the withdrawal facility becomes available and Units are Acquisition Fee redeemed in accordance with the withdrawal facility (see Section 4.3) then the withdrawal price is the net asset value Abacus is entitled to be paid an acquisition fee of up to per Unit adjusted for accrued distributions less the Sell 2% of the purchase price of each property asset acquired Spread. The liquidity price under the new limited liquidity by the Fund in recognition of the costs borne by Abacus in facility is the lesser of the net asset value less the Sell Spread sourcing and assessing such opportunities. The fee is payable and (where there is an offer open under a PDS for the Fund) to Abacus from the assets of the Fund within three business the offer price under that PDS. The Sell Spread is initially set days of completion of the acquisition of the asset or the at 0.5% of net asset value per Unit. The amount of the Sell completion of any related capital raising. Spread may be adjusted over time to reflect any change in the Dollar Example of Acquisition Fee actual transaction costs incurred by the Fund. Notice of any change in the Sell Spread will be posted to the Fund website. Purchase price $10,000,000 Note that the Sell Spread is not a fee to Abacus; it is retained Acquisition fee (2%) $200,000 by the Fund to cover transaction costs and any amount in excess of actual costs incurred remains an asset of the Fund. Abacus has not and will not charge an acquisition fee on the purchase of the Campbellfield and Port Macquarie properties 5.3.4 Abacus Fees Waived or the Abacus Hobart Growth Trust units. Abacus has agreed to waive its entitlement to a performance Development Management Fee fee under any circumstances. If Abacus undertakes any capital works on any of the Fund’s Abacus has agreed that no disposal fee will be charged on assets, Abacus is entitled to receive a fee of 3% ($30 per any property sold by the Fund. $1000) of the value of any capital expenditure. This fee is to Abacus has agreed that there will be no buy spread for New reflect Abacus’ evaluation and project management of capital Investors. works. The capital works management fee shall be paid to Abacus within seven days of payment of any invoices for Abacus has agreed that there will be no contribution fee or development work undertaken on the Fund’s behalf. equity raising fee payable by the Fund (see Section 5.3.5). Management Termination Fee 5.3.5 Equity Raising Fee Abacus is entitled to be paid a management termination fee Any equity raising fees payable to eligible brokers and of 2% on the gross asset value of the Fund calculated as at financial advisers who place funds pursuant to this PDS will be the day before one of the following events: payable by Abacus Group Holdings Limited. There is no cost to the Fund for equity raising fees. The equity raising fee rates . Abacus is removed as responsible entity of the Fund; or are shown in part 7 of the application form at the back of this . The Fund is listed on the Australian Securities Exchange; PDS. or 5.3.6 Other Information . The Fund is merged with or acquired by another entity. Abacus may rebate or waive a portion of any of the fees This fee is not dependent on investors receiving 10% capital described in this Section to wholesale investors and the growth on their original Contributed Equity. operators of investment or reporting services (eg master trusts, investor directed portfolio services or nominee or custody services) that invest in the Fund, or to investors that invest directly into the Fund.
49 ABACUS DIVERSIFIED INCOME FUND II SECTION 5 / FEES AND COSTS
5.3.7 Maximum Fees and Costs ASIC requires that the maximum fees that may be charged in accordance with the Fund’s constitution are disclosed in this PDS as set out in the table below under Column B. The constitution allows Abacus to waive, reduce or postpone the receipt of any fee (or any part of a fee) or charge a lesser fee than it is entitled to receive under the Fund constitution and it may recover any fees waived, reduced or postponed in a later year. Despite the maximum fees that are permitted in the Fund constitution, through this PDS Abacus has agreed that it will not charge fees in excess of those set out in the table under Column A. Abacus may not increase fees beyond the maximum amount permitted in the Fund’s constitution without seeking the approval of Unitholders at a meeting.
(B) MAXIMUM FEE SET OUT IN FUND FEES AND COSTS1 (A) FEE CHARGE AS PER THIS PDS2 CONSTITUTION Fees that are based on Fund asset values
0.7% pa of the gross asset value of the Fund, but only payable on Fund winding up once all investors 2.0% pa of the gross asset value of Management Fee have received back their original Contributed the Fund Equity plus a further 10%
2.0% of the gross asset value of the Management Termination Fee 2.0% of the gross asset value of the Fund Fund
Sell Spread 0.5% of net asset value 3.0% of net asset value
Fees that are based on property asset values
2.0% of the purchase price of each property 2.0% of the purchase price of each Acquisition Fee acquired by the Fund property acquired by the Fund 3.0% of the value of any capital Development Management Fee 3.0% of the value of any capital expenditure expenditure
Fees that are no longer payable 20% of the outperformance of the Nil – Abacus agrees not to charge a performance Performance Fee Fund above a total return of 10% fee per annum Nil - no disposal fee will be charged on any 2.0% of the net proceeds of the Disposal Fee property sold by the Fund sale of each property 12.0% of net asset value when Nil - it is not intended to charge a buy spread for Buy Spread aggregated with the Contribution New Investors Fee
Contribution Fee Nil – no contribution fee is payable by the Fund 5% of applications money
1 All of the above fees are GST exclusive 2 Despite the maximum fee set out in the Fund constitution, these fees will be charged as disclosed in this PDS
ABACUS DIVERSIFIED INCOME FUND II 50 SECTION 5 / FEES AND COSTS
5.3.8 Example of Annual Fees and Costs This table gives an example of how the fees and costs in the Fund can affect your investment over a one year period. You should use this table to compare this product with other investment products.
BALANCE OF $50,000 WITH A CONTRIBUTION OF $5,000 EXAMPLE DURING THE YEAR
Contribution fees Nil Nil
Estimated 1.1% Indirect Cost AND, for every $50,000 you have in the Fund you will be PLUS Management costs1 Ratio (see Section 5.3.2) indirectly charged $5502 each year.
If you had an investment of $50,000 at the beginning of the year and you put in an additional $5,000 during that EQUALS Cost of the Fund year, you would be indirectly charged fees of $550 to $6052 depending on the date the additional $5,000 was invested.
1 Abacus has agreed to defer the payment of its management fees but reserves the right to recover management fees at the end of the Fund term subject to investors in the Fund receiving back their original Contributed Equity plus a further 10%. Management costs exclude any acquisition fee as this PDS does not contemplate the acquisition of new properties. 2 Additional fees may be paid by the Fund if new assets are acquired.
51 ABACUS DIVERSIFIED INCOME FUND II SECTION 6 / FINANCIAL INFORMATION
6. FINANCIAL INFORMATION
6.1 INTRODUCTION 6.2 FUND INCOME STATEMENT The financial information relating to the Fund presented in The table below shows the actual income statement of the this section includes: Fund for the year ended 30 June 2009. . Historical financial statements of the Fund for the year ended 30 June 2009 comprising an income statement YEAR ENDED and balance sheet; and INCOME STATEMENT 30 JUNE 2009 $000 . Pro-forma balance sheet of the Fund at 1 December 2009. The income statement for the year ended 30 June 2009 for Rental income 14,515 the Fund has been provided to help investors assess the Property expenses and outgoings (1,253) level of support to be provided by Abacus Property Group to meet the Underwritten Distributions. The Fund’s net Net property income 13,262 income will vary over time but distributions to Unitholders are underwritten as set out in this PDS regardless of the future Other income 1,658 performance of the Fund. Finance costs (6,962) The pro-forma balance sheet at 1 December 2009 has been prepared based on the 30 June 2009 audited balance sheet Administrative expenses (615) but adjusted for the following transactions that occurred after 30 June 2009: Unrealised losses on investments and (28,825) a) Asset Transfers. The Fund has recently acquired two property direct property assets for $26.85m plus acquisition costs Unrealised losses on interest rate swaps (10,546) using the proceeds from the sale of its listed and unlisted investments and drawdown of the Abacus Loan Facility. Realised losses on sale of investments (1,077) See Section 4.6.2 for details. Loss attributable to Unitholders (33,105) b) Revaluations. Independent valuations of the direct property assets that were previously independently Distribution to Unitholders (2,884) revalued in December 2008 were commissioned in October 2009. Independent valuations of the properties Retained Earnings (35,989) held indirectly were completed in December 2009. c) Debt Forgiveness. Abacus Finance agreed to waive $15.9m of the Abacus Working Capital Facility and this liability is no longer payable by the Fund. d) Abacus Working Capital Facility. The pro-forma balance sheet assumes that the Abacus Working Capital Facility is fully repaid from equity subscriptions. e) Interest rate swaps. The mark to market value of the interest rate swaps as at 31 October 2009. f) Bank debt. An additional $3.1m of bank debt was drawn. Prospective investors are advised to read this PDS in full and make their own independent assessment of the future performance and prospects of the Fund and where appropriate, seek professional investment advice. Refer to Section 8 for an analysis of the potential risks to Fund returns.
ABACUS DIVERSIFIED INCOME FUND II 52 SECTION 6 / FINANCIAL INFORMATION
6.3 FUND DISTRIBUTION STATEMENT AND INCOME The table below shows the impact on the 2009 Underwritten SUPPORT Distributions shortfall support based on a number of possible sensitivities: In the year ended 30 June 2009 the cash available for distribution was $6,713,000 based on Abacus’ management fee being deferred in that year as shown in the table below. UNDERWRITTEN SENSITIVITY OF INCOME CHANGE DISTRIBUTIONS SUPPORT $000 YEAR ENDED SHORTFALL $000 DISTRIBUTION STATEMENT 30 JUNE 2009 $000 Loss attributable to Unitholders (33,105) Estimated cash shortfall FY09 - 2,227 Add back non cash and non recurring items SENSITIVITY 1 Unrealised losses on investments and +410 1,817 28,825 - current rent1 increases by 2.5% property Unrealised losses on interest rate swaps 10,546 SENSITIVITY 2 1 +656 1,571 Realised losses on sale of investments 1,077 - current rent increases by 4.0% Amortisation of loan fees 244 SENSITIVITY 3 Other non recurring items (874) - 50% of current vacant units are +790 1,437 leased at current rents Cash available for distribution 6,713 SENSITIVITY 4 If that year’s performance was representative of the Fund’s - 50% of current leases which -607 2,834 future earnings potential then the support required expire by 30 June 2010 are not from Abacus Property Group to meet the Underwritten renewed and remain vacant Distributions (assuming that the Abacus Working Capital Facility was repaid through the issue of New Units) would be SENSITIVITY 5 - the interest margin on the $2,227,000 as set out in the table below: -1,012 3,239 bank debt increases by INCOME SUPPORT $000 100bps 98m New Units ($0.75 each) at 6.0c distribution per 5,880 unit per annum SENSITIVITY 6 - rental income received on the Existing Units ($1.00 each) or Converted Units 3,060 Fund's effective 39.5% interest +1,421 806 ($1.00 each) at 8.5c distribution per unit per annum in the two Hobart properties Distributions Payable 8,940 when options exercised Sourced from: Cash available for distribution for year ended 6,713 1 Current rent at the date of this PDS is $16.4 million. 30 June 2009 The above sensitivity numbers are not forecasts. Underwritten Distributions shortfall1 2,227 The greater the Underwritten Distributions shortfall in each Distributable Cash 8,940 year, the greater the recovery of deferred interest or other 1 Abacus Property Group may fund the Underwritten Distributions shortfall fees at the end of the Fund Term and this in turn will reduce through any combination of cash, deferral of fees, deferral of interest or any the surplus net assets that might be available after the other means that it considers appropriate. The Underwritten Distributions Underwritten Capital Return has been satisfied. shortfall in the table above excludes any impact from the annual Indexation (see Section 4.5.2). It is difficult to forecast the level of Abacus Property Group support required in the future to meet the Underwritten Distributions as this will vary due to: . rental reviews over the property portfolio leases; . renewal of expiring leases and leasing of vacant area; . property sales; . costs of bank debt; and . changes in operating expenses or other unexpected costs.
53 ABACUS DIVERSIFIED INCOME FUND II SECTION 6 / FINANCIAL INFORMATION
6.4 PRO-FORMA BALANCE SHEET The balance sheet of the Fund as at 30 June 2009 and the pro-forma balance sheet at 1 December 2009 are as follows, on the basis that the Abacus Working Capital Facility is treated as equity:
AS AT PRO-FORMA AT BALANCE SHEET NOTE 30 JUNE 2009 1 DECEMBER 2009 $000 $000
ASSETS
Cash at bank 353 353
Trade and other debtors 2,750 2,750
Other financial assets 1 1,363 -
Investment properties 2 156,082 178,169
Investment in AHGT 3 14,944 14,534
TOTAL ASSETS 175,492 195,806
LIABILITIES
Trade and other payables 3,691 3,691
External bank debt 4 98,044 101,156
Abacus Loan Facility 5 8,244 17,196
Mark to market value of swaps 6 7,139 4,544
Deferred tax liability 3 4,029 3,906 TOTAL LIABILITIES 121,147 130,493
NET ASSETS 54,345 65,313
EQUITY
Issued equity 7 36,222 36,222
Issue costs (1,049) (1,049)
Retained earnings 8 (57,486) (45,559) UNITHOLDER EQUITY (22,313) (10,386)
Non controlling interest 3 2,199 2,199
NET LIABILITIES PER STATUTORY ACCOUNTS (20,114) (8,187)
Abacus Working Capital Facility 9 74,459 73,500
PRO-FORMA EQUITY 54,345 65,313
Issued Units (000) 10 - 133,960
Net asset value per Unit (cents) 11 - 47
Net asset value per Unit excluding swaps (cents) 11 - 51
Net asset value per Unit excluding swaps and 12 - 63 Abacus Loan Facility (cents)
ABACUS DIVERSIFIED INCOME FUND II 54 SECTION 6 / FINANCIAL INFORMATION
Notes to the Balance Sheet 8. Retained losses are described in Section 2.5.4. The pro- forma retained losses are $11.9m lower than the audited 1. Other financial assets at 30 June 2009 were the Fund’s retained losses at 30 June 2009 because Abacus Finance investment in listed property trusts. These investments were waived the repayment of $15.9m of the Abacus Working sold effective from 1 July 2009 and the cash proceeds used to Capital Facility, there was a $6.6m revaluation loss on property part fund the acquisition of direct property (see Section 4.6.2). valuations commissioned in October and December 2009 and 2. Direct investment properties were all independently the mark to market liability of the interest rate swaps reduced revalued in the last six months. Details of each of the by $2.6m. properties including the most recent independent valuation 9. The Abacus Working Capital Facility movements in the are set out in Section 3. The pro-forma investment property pro-forma balance sheet are set out in the table below: value includes the acquisition of the Campbellfield and Port Macquarie properties plus associated duty and the ABACUS WORKING CAPITAL FACILITY $000 independent property revaluations commissioned in October 2009. Abacus Working Capital Facility at 30 June 20091 74,459 Proceeds from sale of unlisted property INVESTMENT PROPERTIES $000 19,187 investments transferred to Abacus Loan Facility1 Investment property at 30 June 2009 156,082 Draw down of senior debt (see note 4) (3,112) Acquisition of Cambellfield 16,250 Abacus Working Capital Facility forgiven2 (15,900) Acquisition of Port Macquarie 10,600 Repayment from Abacus Loan Facility (1,134) Property revaluations (6,282) (see Section 4.6.2) Subtotal of property at valuation 176,650 Abacus Working Capital Facility pro-forma 73,500
Duty on acquisitions 1,519 1 The proceeds of sale of unlisted property trust assets on 30 June 2009 was used to reduce the Abacus Working Capital Facility at that date. Investment property pro-forma at 1 Dec 2009 178,169 2 Abacus Finance has agreed to waive a portion of the Abacus Working Capital Facility and this liability will not be payable by the Fund. 3. At 30 June 2009 the Fund acquired from Abacus Property Group its 79% interest in Abacus Hobart Growth Trust (AHGT) 10. Issued units assume that the Abacus Working Capital for $8.2m. Further details on this investment are set out in Facility is converted to New Units at $0.75 per Unit. Section 3. This acquisition is recorded on the balance sheet 11. The net asset value per Unit is calculated as the net assets as an investment in Hobart options ($14.5m) less the deferred (excluding the non-controlling interest relating to the units tax payable on the transaction ($3.9m), other payables ($0.5m) in AHGT) divided by the number of Units on issue (assuming and the 21% attributable to outside equityholders ($2.2m). the conversion of the Abacus Working Capital Facility to New 4. External bank debt was $98.0m at 30 June 2009. During Units). The net asset value per Unit has also been calculated December 2009 bank debt of $3.1m was drawn under the as above excluding the mark to market liability of the swaps existing facilities to part fund the Asset Transfers. because these will amortise to zero over the life of the swap. 5. The Abacus Loan Facility was drawn at 30 June 2009 to 12. The net asset value per Unit has been calculated as above $8.2m to acquire the investment in AHGT and drawn after excluding the Abacus Loan Facility to show the underlying 30 June 2009 to $17.2m to part fund the Asset Transfers. net assets of the Fund after all third party liabilities have been The composition of this loan is set out in Section 4.6.2. settled. The Abacus Loan Facility principal will not be repaid before 30 June 2016 and will be set off by the Fund to wholly 6. The Fund’s interest rate swap instruments described at or partially meet a shortfall between the Fund net assets and Section 2.5.1 were marked to market at 30 June 2009 and the Underwritten Capital Return. 31 October 2009. This liability will amortise to zero over the life of the swaps. 6.5 ACCOUNTING POLICIES 7. Issued equity is the 36.0m Class A Units issued to Existing The accounting policies of the Fund are detailed in the Fund’s Investors on or before 30 June 2009. financial statements. The Fund’s Annual Financial Report for the year ended 30 June 2009 can be found on the Abacus Property Group website under the Funds and Investment banner.
55 ABACUS DIVERSIFIED INCOME FUND II SECTION 7 / TAXATION INFORMATION
7. TAXATION INFORMATION
The following taxation information is intended as a guide only. If the Unitholder is an Australian resident taxpayer, the The information is based on Abacus’ understanding of the Unitholder will generally be taxable on: application of the current law as it stands at the date of this . the Unitholder’s share of the net income of the Fund for PDS to Australian resident individual investors who hold their tax purposes (including, capital gains and in respect of Units on capital account and may not apply to all investors. any foreign-sourced income that forms part of the net This section contains general information about the taxation income of the Fund for tax purposes, any foreign tax treatment of your investment but does not take into account credits attached to such foreign sourced income); your investment objectives, financial situation or needs. You should read the information carefully and consider whether . the tax deferred (non-assessable) component of this investment is appropriate for you. distributions made in relation to Fund Units to the extent that the non-assessable amount exceeds the cost base of Investments in Units can present complex taxation issues for the Units; and Unitholders and these issues may change over time. Each Unitholder is advised to consult their own professional adviser . any net capital gain arising from the subsequent disposal regarding the Australian tax consequences of acquiring, of the Units (those gains will be taxed in a different way holding or disposing of Units in the Fund in light of that if disposed of by a taxpayer carrying on a business of particular Unitholder’s specific circumstances. trading in securities). 7.1 TAXATION OF THE FUND 7.2 INCOME Based on current tax legislation, the responsible entity of Abacus will provide Unitholders with an annual taxation the Fund should generally not be liable for income tax as statement which will show the taxable income and such other it is intended that Unitholders in the Fund will be presently information required to complete their personal tax return. entitled to all the net income of the Fund in any income tax Taxation of Distributions from the Fund year. It is intended that all net income of the Fund will be distributed to Unitholders each year. Unitholders are liable to include in their taxable income the full amount of their share of the net income for tax purposes In certain circumstances, a trust may be broadly taxed like of the Fund in the year in which entitlement to the net income a company, where either the trust is a corporate unit trust of the Fund arises. A Unitholder’s share of the net income as defined in Division 6B of the Income Tax Assessment Act of the Fund for the year ended 30 June should therefore 1936 (the Act) or is a public trading trust as defined in Division be included by the Unitholder as assessable income in that 6C of the Act. Based on the proposed activities of the Fund financial year. This applies irrespective of whether distributions as set out in this PDS, it is unlikely that the Fund will satisfy from the Fund representing such entitlement are paid in the the conditions requiring it to be treated as a Division 6B following income year or reinvested in further Units. corporate unit trust or a Division 6C public trading trust. Distributions from the Fund may include various components, The terms of Division 6B and Division 6C are currently subject the taxation treatment of which may differ. For example, to review by the Government and the Board of Taxation. a distribution from the Fund may include a tax deferred Consideration is being given to, among other things, component, a CGT concession component as well as a net clarifying the type of activities that a trust may undertake capital gain. Treatment of those components for tax purposes without being treated as a Division 6C public trading trust. may also differ depending upon the type of taxpayer e.g. an It is not anticipated that any changes resulting from these individual, trust or company. reviews would cause the Fund to be taxed like a company under Division 6B or Division 6C, but this will depend on the terms of any legislative amendments that result from these reviews. Where a net revenue loss or net capital loss is incurred, it will not be able to be distributed to Unitholders. Revenue losses will be carried forward in the Fund and offset against future assessable income subject to the Fund complying with trust loss provisions of the Act. Any net capital loss may similarly be carried forward in the Fund and offset against future capital gains. Please see Section 8 for risks relating to taxation law and possible changes. The Australian tax consequences of holding Units depend largely upon whether the relevant Unitholder is a resident of Australia or a non-resident of Australia for taxation purposes.
ABACUS DIVERSIFIED INCOME FUND II 56 SECTION 7 / TAXATION INFORMATION
Tax Deferred Distributions If a Unitholder who is an individual or trustee applied the CGT discount method, the Unitholder’s taxable capital gain (after Tax deferred distributions generally arise from property offsetting any current year capital losses or carry forward net investments which attract building allowances and capital losses from previous years) will be reduced by one-half depreciation allowances for income tax purposes. Tax (or one third if the Unitholder is the trustee of a complying deferred distributions are not assessable when received superannuation entity, approved deposit fund or pooled unless and until the total amount of tax deferred distributions superannuation trust). If the Unitholder is a company, the CGT received by a Unitholder exceeds the cost base of their Units discount is not available. in the Fund. For CGT purposes, amounts of tax deferred distributions received reduce the cost base of a Unitholder’s 7.5 TAXATION OF FINANCIAL ARRANGEMENTS Units in the Fund and therefore affect the Unitholder’s capital Legislation with regard to the reform of the Taxation Of gain / loss on disposal of their Units. Once a Unitholder’s Financial Arrangements (“TOFA”) is now law. The TOFA cost base in the relevant Units is exhausted, the tax deferred proposals will impact upon the tax treatment of a wide range component of distributions will give rise to an immediate of financial transactions. The TOFA regime is intended to capital gain and be taxable in the hands of the Unitholder. accomplish two outcomes: to ensure that gains and losses on Capital Gains Tax Concessional Discount financial instruments will usually be on revenue account rather than capital account; and to codify the timing rules applicable To the extent that a net capital gain is included in the Fund’s to the recognition of gains and loss from the instruments. net income for tax purposes, the Unitholder will be regarded as having derived a capital gain equal to the Unitholder’s The new measures will apply on a mandatory basis from 1 proportionate share of such net capital gain. Where an asset July 2010 for qualifying taxpayers and arrangements, but with which has been owned by the Fund for at least 12 months is an optional start date of 1 July 2009. The new regime will disposed of, the Fund may be entitled to a 50% discount on only apply on a mandatory basis to financial arrangements the capital gain realised. The CGT concession component of a acquired on/after those dates, although taxpayers are able to distribution represents the CGT discount claimed by the Fund elect to include transactions undertaken before those dates. in respect of such disposals. Where discount capital gains Given the timing of the transactions anticipated in the PDS treatment has been applied in calculating the net capital gain (and without need to consider what arrangements and at the Fund level, the Unitholder will initially be required to taxpayers are included or excluded from the TOFA regime) gross-up the amount of the net capital gain in order that the the TOFA rules should have no potential impact on an appropriate CGT treatment may be applied in accordance investor, unless relevant elections were to be made by an with the particular tax profile of the Unitholder (e.g. with investor. respect to the application of any capital losses and discount capital gains treatment). Certain Unitholders may be eligible 7.6 TAX FILE NUMBERS for the CGT discount in respect of such capital gain in their A Unitholder need not quote a tax file number (TFN) when own right. applying for Units in the Fund. However, if a TFN is not 7.3 ACQUISITION OF UNITS quoted, or no appropriate TFN exemption information is provided, tax is required to be deducted from any distribution A Unitholder should have a cost base in the Units equal to the entitlement or shortfall payment under the Underwritten consideration paid to acquire those particular Units. Capital Return at the highest marginal tax rate plus the 7.4 DISPOSAL OF UNITS Medicare levy (currently 46.5%). If a Unitholder holds the Units as part of their business, they may quote their Australian Upon disposal of a Unit in the Fund, a resident Unitholder Business Number instead of their TFN. will make a capital gain on their individual underlying Units if the consideration received from the sale of a Unit exceeds 7.7 GOODS AND SERVICES TAX the cost base of the Unit. Upon disposal of a Unit, a resident The purchase and disposal of Units should not be subject to Unitholder will make a capital loss on their individual GST. underlying Unit if the consideration received from the sale of a Unit is less than the reduced cost base of the Unit. CGT Discount If a Unitholder in the Fund is an individual or a trustee and acquired (or is taken to have acquired) for CGT purposes, Units in the Fund at least 12 months prior to the date of their disposal (or other eligible CGT event happening), the amount of the Unitholder’s capital gain on disposal of the Units may be reduced by the relevant CGT discount. In calculating the Unitholder’s capital gain, the cost base must not be indexed.
57 ABACUS DIVERSIFIED INCOME FUND II SECTION 8 / INVESTMENT RISKS
8. INVESTMENT RISKS
This section describes some of the investment risks that may Funding affect the underlying future performance of an investment in The real estate investment and development industry tends the Fund, including general investment risks, property specific to be highly capital intensive. The ability of the Fund to risks and risks specific to the Fund. It is recommended that raise funds on favourable terms for future refinancing and/ investors read the entire PDS and seek professional advice on or acquisitions depends on a number of factors including the risks of investing in the Fund. general economic, political and capital and credit market The return of capital from the Fund to investors and the conditions. If the Fund cannot in future source debt to distributions paid by the Fund to investors are underwritten refinance existing debt, this may necessitate asset sales or by Abacus Property Group as described in this PDS in additional equity raisings. Section 4.5. However, the future performance of the Fund will Global Financial Crisis determine the extent to which this commitment from Abacus Property Group will be relied on. The world has experienced severe economic volatility through the global financial crisis and a number of risks are now more 8.1 GENERAL RISKS pertinent, including: The success of an investment in the Fund will be influenced . The ability to refinance the current debt facilities on by a range of factors, many of which are outside the control of comparable terms when they mature. Abacus. Such risks, which are typical of an investment in any property fund, include: . The risk of further decline in the value of the underlying properties, which would cause Fund net asset value per . changes to the economic environment, including Unit to decline and potentially lead to breach of banking employment, inflation, interest rates, exchange rates and covenants if additional equity cannot be raised to reduce government spending; gearing. . changes to the property market in general, such as . Higher costs of borrowing having a materially adverse interest rates, property values, capitalisation rates, affect on the Fund’s distributable income and, hence, the investor demand, government regulation; level of support provided by Abacus. . changes to the property sub-market in which an asset is . Reduced tenant demand and lower market rents. located, including new supply, tenant demand, market rents, the economic environment of that sub-market, . Illiquid property markets, which makes it hard to dispose infrastructure changes; of assets. . changes to the operating assumptions on which an asset Counterparty Credit Risk was acquired, including rental income, tenant default, Third parties, such as tenants, contractors and other future capital expenditure, repairs and maintenance, counterparties to contracts may not be willing or able to additional outgoings; and perform their obligations to the Fund. Legal and other . changes to the social environment, such as natural disputes may arise from time to time in the ordinary course of disasters, social upheaval or conflict in Australia or operations. overseas, may directly affect the assets of the Fund as 8.2 PROPERTY SPECIFIC RISKS well as have a significant impact on investor sentiment. The Fund holds a diversified portfolio of property assets, Investors will be exposed to property market risk. The each with its own risk profile. Typical risks of owning property value of the properties during the term of the Fund may include: fluctuate depending on market conditions including investor preferences for particular sectors or asset classes, interest rates or changes to capitalisation rates. Further, the assumptions (for example capitalisation rates or rental yield) adopted in the property valuations by the independent valuers may change in response to market conditions which may negatively or positively impact value. Adverse changes in market sentiment or market conditions may impact on the Fund’s ability to acquire, manage or develop assets. Property investments are by their nature illiquid investments. Further, the realisable value of property assets may be less than the book value of the Fund’s assets (even though book value may be based on independent valuation) where property markets are illiquid or demand is low.
ABACUS DIVERSIFIED INCOME FUND II 58 SECTION 8 / INVESTMENT RISKS
Physical Deterioration 8.3 FUND SPECIFIC RISKS Any deterioration in a property through age, damage, Abacus Property Group structural deficiencies, contamination or other environmental Abacus Property Group is an S&P/ASX 200 A-REIT with more issues could result in unbudgeted expenditure to remediate than 13 years experience managing property funds and at the the problem and assist the tenant to continue to trade. date of this PDS has approximately $2 billion of assets under We seek to minimise this risk through due diligence on the management. property prior to acquisition and appropriate maintenance programs. The expertise of Abacus in sourcing, acquiring and managing the Fund’s assets and funding arrangements is crucial to Leasing the Fund’s success. Abacus is a member of Abacus Property Income from a property may be reduced if it is not fully Group, an experienced property investor, fund manager leased, if a tenant defaults on its obligations during its and developer listed on the Australian Securities Exchange. lease, if a tenant fails to renew its lease upon expiry and the Abacus Property Group could be taken over or Abacus could property is not re-leased at comparable rental rates, or if be replaced as the manager of the Fund. A replacement rents decline or rent incentives increase. If property income manager may not have the same level of expertise. declines, this may have an adverse impact on the property’s Abacus Property Group also provides support to the Fund value (and hence Fund net asset value) and/or the Fund’s through the deferral of its management fees and through distributable income. This risk is managed through active the provision of the Abacus Working Capital Facility and asset management including ongoing liaison with tenants, Abacus Loan Facility. The Fund has a significant economic regular maintenance and refurbishment of properties to dependency on the continued provision of the $100m Abacus attract tenants, timely marketing programs for vacant space Working Capital Facility on current terms and the $20m and due diligence on the financial strength of prospective Abacus Loan Facility on current terms. The terms of these tenants prior to completing leases. facilities are set out in Section 9.3 and 9.4. Environmental Standards Abacus Property Group will provide the Underwritten The discovery of environmental contamination or changes to Distributions and Underwritten Capital Return as described future environmental standards could increase costs through in this PDS at Section 4.5. Investors are placing significant rectification, refurbishment and/or reduced tenancies. economic dependency on Abacus Property Group to meet these future obligations. Development Risk If Abacus Property Group is unable to meet the Underwritten Any redevelopment or refurbishment project involves risk, Distributions then investors will have to rely on the cash including completion risk, cost over-runs, builder default, generated by the Fund for annual distributions. This may occupational health and safety, let-up risk. be more or less than the Underwritten Distributions in any Insurance Risk particular year. If Abacus Property Group is unable to meet the Underwritten Capital Return then the final return of capital While Abacus remains confident of arranging proper will be dependent on the net asset value of the Fund at that insurance for the risks associated with ownership of the time but setting off the principal of the Abacus Loan Facility properties, there is no certainty that such insurance will owing to Abacus Finance. continue to be available or that the cost of insurance premiums will not continue to rise. This may affect the future The Financial position of Abacus Property Group and recent earnings of the Fund. Acts of terrorism, war and events of announcements can be found on its website at force majeure may affect properties and insurance may not www. abacusproperty.com.au. or through the Australian fully cover these risks. Insurance markets may be detrimentally Securities Exchange at www.asx.com.au using the code ABP. affected by the current global downturn such that insurance Capital Growth becomes more expensive or the financial ability of insurance companies to respond to claims is diminished. The net asset value of the Fund must exceed $0.82 per Unit (being the weighted average Contributed Equity per Unit) Competition, Socio-Economic and Demographic Factors before Unitholders will be entitled to capital growth and The entry of new competing properties into the market there is no reliance on Abacus Property Group to meet the where the properties in the Fund’s portfolio are located may Underwritten Capital Return. cause a negative effect, such as a decline in rental income or reduced occupancy. Similarly, changes to the socio-economic and demographic make-up of the locations in which the properties are situated may also cause an adverse effect.
59 ABACUS DIVERSIFIED INCOME FUND II SECTION 8 / INVESTMENT RISKS
Financing One of the Fund’s current bank facilities expires in December 2010. When a bank facility is renewed there is no obligation The use of debt in an investment is referred to as ‘gearing’ for a financier to offer the same financial covenants and more or ‘leveraging’. It enhances the potential for capital gain onerous covenants may apply. The amount which a financier if the Fund’s properties increase in value. However, it may is prepared to lend may be reduced by the lender requiring a also increase any capital loss in the event that the value of lower LVR or requiring a higher ICR. the properties fall compared to an investment in a property investment vehicle which has no borrowings. Use of leverage If at any time the Fund failed to meet its banking covenants, may adversely affect the Fund when economic factors such as there would usually be a short period in which that breach, if rising interest rates or severe economic downturns occur. If an able to be remedied, could be remedied and, if the breach investment is unable to generate sufficient cash flow to meet was not remedied or an alternative agreement reached with the principal and interest payments on its indebtedness the the bank, the bank could declare an event of default which value of the Fund’s equity could be significantly reduced. could ultimately lead to a demand for immediate repayment of the loan. A lender may terminate a debt facility prior to the expiry of its term if the loan is in default (for example if the income of the Liquidity Fund is insufficient to meet interest payments or if the value of The Fund’s withdrawal facility has been suspended. the Fund’s properties decline or if the Unitholders of the Fund resolve to wind up the Fund without the prior written consent There is a new limited liquidity facility available where Abacus of the bank). If this were to occur the Fund’s lenders may Trust will acquire Units in cases of investor hardship at Abacus’ require their loans to be repaid immediately causing the value absolute discretion. The Fund’s liquidity facility for Existing of the Fund’s equity to be significantly reduced. Investors remains fully utilised and unavailable and no further liquidity applications can be accepted or honoured. As such, A lender has no obligation to renew a loan at the end of the investors in the Fund should consider an investment in the term. There is no guarantee that future loans may be obtained Fund as an illiquid investment. If assets become liquid it is or be obtained at competitive interest rates at the time that possible that the Fund’s withdrawal facility may be reopened. the Fund’s debt facilities are to be refinanced, in which case assets may need to be sold. Unitholder Risk On expiry of the current facilities and swap instruments Generally, the constitution of the Fund limits the liability of the cost of borrowing may increase. Early termination of Unitholders to the value of their investment in the Fund. these arrangements could impose additional costs. Adverse Subject to the constitution of the Fund and to the extent fluctuations in interest rates, to the extent they are not permitted by law, no Unitholder will personally be liable for hedged, may impact the Fund’s earnings and asset valuations any obligation of, or liability incurred by, the responsible due to the impact on property markets. A reduction of interest entity. However, the ultimate liability of Unitholders in unit rates will adversely affect the value of the Fund’s interest rate trusts to creditors is a question that has not been determined swaps that are recorded on the balance sheet at market value finally by the courts. and may cause a reduction in the net asset value of the Fund Fixed Nature of Significant Costs and the Fund’s after tax profit. Conversely, future interest rate rises will cause the swap market value to appreciate. As the Most of the Fund’s annual expenditure, including interest swap approaches maturity the market value (either positive or payments, maintenance costs, rates and taxes are generally negative) will diminish with a fair value at maturity of nil. fixed in nature and are not reduced when circumstances cause a reduction in income from the underlying property Interest cover measures the ability of the Fund to service portfolio. The value of an asset owned by the Fund and the interest on debt from earnings. It is therefore a key indication level of income support required may be adversely affected if of the Fund’s financial health and key to analysing the property income declines and other related expenses remain sustainability and risks associated with the Fund’s level of unchanged. borrowings. Occupational Health and Safety Each of the bank facilities have loan to value (LVR) and interest cover ratio (ICR) covenants that must be met. If Fund earnings If the Fund fails to comply with the necessary occupational decline or property values decline materially, it is possible that health and safety legislative requirements across the the Fund may breach its banking covenants. Other covenants jurisdictions that it operates in it could result in fines, penalties relate to change of control events. If a change of control and compensation for damages as well as reputational occurs or there is a change of the responsible entity, a review damage. event in some facilities may be triggered and may result in debt becoming immediately due for payment.
ABACUS DIVERSIFIED INCOME FUND II 60 SECTION 8 / INVESTMENT RISKS
Taxation Risk The Government has also established the Henry Commission to undertake a broader review of the Australian tax Future tax reforms could impact on the distributions from system. One issue raised by the Commissioner in his the Fund and the value of the Fund’s Units. Investors should public statements is the complexity of the current system, note that Australian tax laws are complex and are constantly including different rules for taxation of companies, trusts subject to change. In particular, the tax regime applicable and partnerships. At this stage it is not clear what the final to managed funds in Australia is currently subject to review recommendations of the Henry Commissioner will be, or by the Australian Government and the Board of Taxation. whether they will be implemented. It will be necessary to Although it is not anticipated that the outcome of these monitor the process to determine its impact on the Fund. reviews would have a material adverse impact on the Fund, this will not be able to be determined with certainty until If the Fund becomes subject to tax, the Underwritten such outcomes are known. The views and the assumptions Distributions and Underwritten Capital Return will be reduced contained in this PDS are based on Abacus’s understanding of by the amount of tax payable. the law current as at the date of this PDS. The taxation comments in Section 7 of this PDS are general in nature by necessity. They do not, for example, apply to non-residents or those who carry on a business trading in securities or take into consideration individual characteristics of investors. Tax liabilities are the responsibility of each Unitholder and the Fund is not responsible for taxation or penalties incurred by Unitholders. On 22 February 2008, the Assistant Treasurer announced that the Australian Government has asked the Board of Taxation to review the taxation arrangements that apply to managed funds. The Government asked the Board to examine four particular areas of concern, these being: . alternatives to the use of “present entitlement” to determine the income tax liability of beneficiaries and trustees; . the desirability of extending relevant aspects of the recommended changes to the tax arrangements for other trusts; . the international competitiveness of Australia’s real estate investment trusts; and . international developments especially those in the US, UK and Canada. We believe the Government should be announcing the outcomes of this process in 2010. For investors who seek further information, the Assistant Treasurer also released a consultation paper which considers the reform of some of the trading trust rules found in Division 6C of the Income Tax Assessment Act 1997. This consultation paper may be located at: http://www.treasury.gov.au
61 ABACUS DIVERSIFIED INCOME FUND II SECTION 9 / ADDITIONAL INFORMATION
9. ADDITIONAL INFORMATION
The Constitution of the Fund; Abacus Property Management 9.3 ABACUS WORKING CAPITAL FACILITY Services Agreement; Abacus Working Capital Facility; Abacus Abacus Funds Management Limited as responsible entity Loan Facility; Option Deed; Yield Management, Unit Purchase of the Fund has entered into an agreement to borrow up and Underwritten Capital Return Deed; New Limited Liquidity to $100m from Abacus Finance Pty Ltd (a wholly-owned Facility Deed; Indexation Agreement and Distribution subsidiary of Abacus Group Holdings Limited). $73.5m Reinvestment Plan are available for inspection during normal principal has been drawn in the pro-forma balance sheet at business hours at the registered office of Abacus Property 1 December 2009. The loan is available to be used to fund Group, Level 34 Australia Square, 264-278 George Street, the acquisition of properties by the Fund and for the working Sydney NSW 2000. The following summaries highlight the capital requirements of the Fund as approved by Abacus significant provisions of the material documents and do not Finance. Funds may be re-drawn by mutual agreement purport to be exhaustive statements of their provisions. between the parties. 9.1 CONSTITUTION OF THE FUND The loan must be repaid by 30 June 2018. The Fund is registered with ASIC as a managed investment The loan is repayable within 12 months of Abacus ceasing to scheme (ARSN 116 429 844). The Fund constitution and be the responsible entity of the Fund. the Corporations Act govern the rights and obligations of Unitholders and Abacus as responsible entity of the Fund. Interest on the Abacus Working Capital Facility will be charged at the lower of: Key provisions of the constitution include: . the distribution rate that applies from time to time to . responsibilities, powers and obligations of the Units issued in accordance with the latest PDS (but responsible entity; excluding DRP Units); and . rights and obligations of Unitholders; . a rate equivalent to the bank bill swap bid rate (BBSY) . how Unit prices are determined; plus a margin of 7%. . redemption of Units; For this purpose the distribution rate for any relevant calendar quarter is the number of cents comprising the distribution . income and capital distributions; for that quarter multiplied by four and divided by the issue . fees and expenses; price of units issued in accordance with the latest PDS (but excluding Units issued under the DRP), expressed as a . term of the Fund; and percentage per annum. (For example, if the last issue price . modification of the constitution. was $0.75 and the quarterly distribution is 1.5 cents then the distribution rate is 8% per annum). An adjustment will be 9.2 ABACUS PROPERTY MANAGEMENT SERVICES made to the issue price in this calculation if there is any return AGREEMENT of capital. Abacus has entered into an agreement with Abacus Property Services Pty Limited to oversee the management of the Fund’s properties. The fee payable to APS is equal to 3% per annum of the gross rental income received in respect of each property managed. The fee is payable in monthly instalments. In addition to this fee, APS is entitled to receive additional fees where services are provided for new lease negotiations and lease changes such as rent reviews or lease renewals. Refer to Section 5.3.1 for more information.
ABACUS DIVERSIFIED INCOME FUND II 62 SECTION 9 / ADDITIONAL INFORMATION
The distribution rate applicable to New Units issued pursuant The loan has the following security: to this PDS is 8% per annum (indexed in line with inflation . a second ranking priority of repayment (after one of each year from 1 July 2010). Interest is payable quarterly at the the Fund’s banks) from the net sale proceeds of any same time as distributions to Unitholders. Secured Assets if a Secured Asset is sold prior to Fund If Units in the Fund become subject to repricing on a net termination; and asset value basis under the constitution then each year an . a second ranking mortgage (after one of the Fund’s interest adjustment will also accrue at a rate which is based banks) over the Secured Assets located in Queensland on the movement in net asset value in that year. The interest and Victoria. adjustment may be positive (if the net asset value increases) or negative (if the net asset value decreases). The interest The Secured Assets comprise 75 Railway Street, Rockdale; 81 adjustment component will be added to (or deducted from) Railway Street, Rockdale; 12 Short Street, Southport; 1-5 Lake the principal amount of the loan outstanding as at the end Drive, Dingley; 13 Boundary Road, Northmead; 313 Ross River of each financial year. The Fund is not currently subject to Road, Townsville; 4 Brunker Road, Chullora; 70 Gibbes Street, repricing on a net asset value basis and therefore this interest Chatswood; 22-28 Edgeworth David Avenue, Hornsby; 144- component is not applicable. 168 National Boulevard, Campbellfield; and 27 Grant Street, Port Macquarie. The payment of interest may be deferred to the extent necessary to support the Underwritten Distributions. At the The facility is repayable within 12 months if Abacus is removed end of the loan term, the borrower must repay the balance of as responsible entity of the Fund and is repayable if the Fund the principal outstanding and any interest deferred. is wound up at a meeting of Unitholders. The Abacus Working Capital Facility has been structured so 9.5 OPTION DEED that the principal amount is subordinated to other creditors If Abacus ceases to be the responsible entity of the Fund, on a winding up of the Fund or the Fund becomes insolvent Abacus may exercise its call option to require the Fund and is repayable on a proportionate basis with a return of to transfer some or all of the direct property and other capital to Unitholders as if the facility principal was converted investments held by the Fund to Abacus as responsible to New Units at an issue price of $0.75 per Unit. The Abacus entity for the Abacus Trust. The purchase price payable on Working Capital Facility shares in the downside risk with exercise of the option will be the fair market value of the equityholders but does not participate in capital growth. direct property and other investments as determined by Any interest deferred relating to the Abacus Working Capital independent qualified valuers. The option must be exercised Facility will be treated as a creditor of the Fund and payable within twelve months of the date that Abacus ceases to be the from the net assets of the Fund at the same time as payments responsible entity. to other creditors. Should the Fund wish to sell any of its assets whilst Abacus 9.4 ABACUS LOAN FACILITY is the responsible entity, it must first offer to sell the assets Abacus Funds Management Limited as responsible entity to Abacus as responsible entity for the Abacus Trust at the of the Fund has entered into an agreement to borrow up to fair market value as determined by independent qualified $20m plus capitalised interest from Abacus Finance Pty Ltd (a valuers. If Abacus as responsible entity for the Abacus Trust wholly-owned subsidiary of Abacus Group Holdings Limited). does not accept the written offer within 30 business days, $17.2m principal has been drawn in the pro-forma balance then the Fund may sell the asset to any third party at a price sheet at 1 December 2009 to part fund the acquisition of and on terms no more favourable within four months after the Asset Transfers as described in Section 4.6.2. The loan facility 30 business day period expires. If the sale is not completed limit allows the interest on the drawn balance of this loan to within four months, this procedure must be repeated. be accrued and repaid at the end of the Fund Term. Abacus and Abacus Trust have entered into a side deed with This facility, which expires on 30 June 2018, has a fixed rate the bank providing facility one agreeing that the option deed of interest of 10% per annum. Interest on this loan may be will not apply where the bank is enforcing its security. accrued and payable at the expiry of the loan. The loan principal will not be repaid before 30 June 2016 and interest accrued but unpaid may be repaid at any time. Although this loan ranks behind the banks and ahead of equity it is subject to the Underwritten Capital Return described in Section 4.5. After 30 June 2016 the Fund will if required set off all or part of the principal under the Abacus Loan Facility in satisfaction of Abacus Property Group’s obligations in respect of the Underwritten Capital Return described in Section 4.5.
63 ABACUS DIVERSIFIED INCOME FUND II SECTION 9 / ADDITIONAL INFORMATION
9.6 UNDERWRITING ARRANGEMENTS Underwritten Capital Return The four stapled entities that make up Abacus Property Group Abacus Property Group will offer to acquire Class A units at (see glossary) have entered into a Yield Management, Unit $1.00 per Unit in the period 1 July 2013 to 30 September 2013 Purchase and Underwritten Capital Return Deed with Abacus if the net asset value per Class A Unit at the close of business Funds Management Limited as responsible entity of the Fund, on 30 June 2013 (as determined by Abacus and treating any the effect of which is summarised below. outstanding principal owing pursuant to the Abacus Working Capital Facility as Class C Units issued at $0.75 per Unit or Underwritten Distributions the last issue price) is less than $1.00 per Unit. This Unit Abacus Property Group will underwrite a cash distribution of: purchase will apply to Class A Units in the Fund on issue on 1 July 2013. The payment amount will be reduced by any . 8.5% per annum to the holders of Class A units and Class capital distributions made to Class A Unitholders prior to B units based on a $1.00 issue price until 30 June 2011; 30 June 2013. . 8.0% per annum adjusted for indexation to the holders The consideration for the offer to Class A unitholders will be of Class B units based on a $1.00 issue price from 1 July payable in cash, or at Abacus Property Group’s discretion by 2011 until the termination of the Fund; and providing listed stapled securities in Abacus Property Group . 8.0% per annum adjusted for indexation after 1 July 2010 to an equivalent value based on the 10 day volume weighted to the holders of Class C units based on a $0.75 issue average price of Abacus Property Group stapled securities price until the termination of the Fund. over the period of 10 days ending on 30 June 2013, or partly by cash and partly by providing such securities. This offer will Indexation is calculated by reference to the Indexation be made by 30 September 2013. Agreement as described in Section 9.8. Abacus Property Group will ensure that by termination of the Abacus Property Group will satisfy its Underwritten Fund each Class B Unitholder in the Fund has received an Distribution obligations by causing Abacus Finance to defer amount equal to $1.00 per Unit less any capital distributed interest on the Abacus Working Capital Facility or by causing prior to Fund termination by making a payment equal to Abacus to waive or defer any of the fees payable to Abacus any shortfall. A deduction will be made for withholding tax under the Fund’s constitution or in any other way that Abacus if applicable. The Underwritten Capital Return will not be Property Group considers appropriate. Any fees or interest effective before 30 June 2016. so deferred are recoverable when the Fund has cash which exceeds the amount required to meet the Underwritten Abacus Property Group will ensure that by termination of the Distributions or at the expiry of the Abacus Working Fund each Class C Unitholder in the Fund has received an Capital Facility or upon termination of the Fund. Abacus’ amount equal to $0.75 per Unit less any capital distributed management fee will only be recovered on a winding up of prior to Fund termination by making a payment equal to the Fund once all Fund investors have received 110% of their any shortfall. A deduction will be made for withholding tax invested equity. if applicable. The Underwritten Capital Return will not be effective before 30 June 2016. The Underwritten Distributions for Class B and Class C Units cease if Unitholders vote to wind up the Fund before 30 June The shortfall amount due to Class B and Class C unitholders 2016. will be payable in cash to each relevant Unitholder in the Fund or at Unitholder’s discretion by providing listed stapled securities in Abacus Property Group to each relevant Unitholder in the Fund to an equivalent value based on the 10 day volume weighted average price of Abacus Property Group’s stapled securities over the period ending on the date one week prior to the date on which the listed stapled securities in Abacus Property Group will be provided, or a combination of the two. The Underwritten Capital Return for Class B and Class C Units will cease to apply if Unitholders vote to wind up the Fund before 30 June 2016.
ABACUS DIVERSIFIED INCOME FUND II 64 SECTION 9 / ADDITIONAL INFORMATION
9.7 NEW LIMITED LIQUIDITY FACILITY DEED 9.8 INDEXATION AGREEMENT Abacus Funds Management Limited as responsible entity Abacus Finance Pty Limited has entered into an agreement of Abacus Trust will acquire units from investors where an with Abacus Funds Management Limited as responsible application, assessed by Abacus in its absolute discretion entity of the Fund. Abacus Finance will pay an amount equal meets the hardship criteria. Abacus Trust must acquire units to the inflation indexation on the Underwritten Distributions within five business days of Abacus deciding that it will accept in respect of Class B and Class C Units to the Fund each an application under this facility. If the application is rejected calender quarter. The indexation is calculated each year Abacus will inform the relevant unitholder within five business by reference to the movement in the Weighted Average of days. Eight Capital Cities - All Groups Index between June of the current year and the base reference period of June 2009. The Hardship must be demonstrated by reference to one of the indexation will be applied to the Underwritten Distributions following reasons: applicable to the Class B Units on issue at any given period . where the unitholder is unable to meet reasonable and from 1 July 2011 and applied to 98m Class C Units from 1 July immediate family living expenses; 2010 (assuming that the Abacus Working Capital Facility is notionally converted to Units). . on compassionate grounds (eg medical costs for serious illness, funeral expenses or to prevent foreclosure); Failure, substitution or amendment to the index is dealt with in accordance with the 2006 ISDA Inflation Derivatives . in the case of permanent incapacity; Definitions. . where a unitholder has been unemployed for at least 9.9 DISTRIBUTION REINVESTMENT PLAN three months as at the time of the application under the notice of exercise of liquidity option without other means; Under the Fund’s Distribution Reinvestment Plan (DRP), all and Unitholders may elect to receive their distributions in the form of additional New Units (Class C Units) rather than . in the event of an application by a beneficiary of a cash. New Units issued under the DRP will rank equally with deceased estate of a unitholder where the beneficiary is other New Units issued and will participate in all distributions suffering hardship. subsequently made. A Unitholder can only make four liquidity applications per Participation in the DRP is optional and investors may year with a total withdrawal amount of $100,000. select full or partial participation. Investors selecting partial The liquidity price will be the lesser of the net asset value per participation must specify the percentage of their Unitholding Unit less the Sell Spread and, where there is an offer open to be subject to the DRP. Investors may vary or terminate under a PDS for the Fund, the offer price under that PDS. their participation in the DRP at any time by completing a Plan Instruction Form, available from Abacus or available The new limited liquidity facility will terminate automatically if: as a download from the Abacus Property Group website at . Abacus Funds Management Limited ceases to be the www.abacusproperty.com.au. All Unitholders with an address responsible entity of the Fund or Abacus Trust; in Australia, or in other countries where the Fund decides participation is available, are eligible to participate in the DRP. . Abacus Funds Management Limited ceases or Abacus Currently there are no other countries where participation is Trust ceases to be a member of Abacus Property Group; available. or New Units issued under the DRP will be priced at 2.5% below . the Fund is listed or one Unitholder holds 75% or more of the issue price of New Units under the then current PDS. the total Units on issue in the Fund. If there is no current PDS, the issue price will be posted to The new limited liquidity facility may be terminated at any the Abacus Property Group website. There are no costs time by Abacus in its sole discretion. associated with participation in the DRP. Any transfer duty on the transfer will be payable by the exiting Where the distribution is not exactly divisible by the DRP issue Unitholder and will be deducted from the net proceeds of price, the excess amount will be carried forward to the next sale. distribution. Abacus reserves the right to vary the conditions of the DRP at any time at its discretion. A copy of the DRP will be provided to investors on request. It is also available as a download from the Abacus Property Group website. Abacus may vary, suspend or cancel the Distribution Reinvestment Plan at any time by notice on the Abacus Property Group website.
65 ABACUS DIVERSIFIED INCOME FUND II SECTION 9 / ADDITIONAL INFORMATION
9.10 LABOUR STANDARDS, SOCIAL, ETHICAL AND 9.12 HANDLING COMPLAINTS ENVIRONMENT CONSIDERATIONS You have a right to complain if you are not satisfied with any Although Abacus is committed to high standards of corporate aspect of our service. Abacus takes all complaints seriously governance and seeks to act at all times in an ethical manner, and it will provide you with a copy of our Consumer Guide to Abacus does not take into account labour standards or Resolving Complaints on request and at no charge. social or ethical considerations in the selection, retention or If you have a complaint, you should write to Abacus including realisation of investments. Environmental considerations are your name, address and Unitholder number. Abacus will considered as part of normal property due diligence. acknowledge the complaint within five business days and will 9.11 REPORTING TO UNITHOLDERS seek to resolve it as soon as practicable, but no later than six weeks from receipt. As a disclosing entity, the Fund is subject to regular reporting and disclosure obligations. Copies of documents lodged Abacus is a member of the Financial Ombudsman Service with ASIC in relation to the Fund may be obtained from or (FOS) which retail investors may contact for any issues that inspected at an ASIC office. cannot be resolved with us. FOS is an independent external dispute resolution organisation registered with ASIC. Please Investors have the right to obtain a copy of the following note that FOS will not deal with your complaint unless you documents pertaining to the Fund from us: have first raised your concerns with us. FOS has a toll free . the annual financial report most recently lodged with telephone number 1300 780 808, or you can contact them by ASIC; mail at GPO Box 3, Melbourne Victoria 3001. . any half-year financial report lodged with ASIC after the 9.13 CONSENTS AND DISCLAIMERS lodgement of that annual financial report and before the Registries has given its consent to be named in this PDS in date of this PDS; and the form and context in which it is named and consents to the . any continuous disclosure notices given after the statements made by or attributed to them. Registries has not lodgement of that annual report and before the date of caused the issue of this PDS and does not make, nor purport this PDS. to make, any statement in this PDS. Registries expressly disclaims and takes no responsibility for any part of this PDS Abacus will send all Unitholders the following information: other than the reference to its name and the statements made . a confirmation statement on receipt of a properly by or attributed to them. completed application form and cheque or direct debit As at the date of this PDS, the issuer had not received notice request form; that Registries had withdrawn their consent. . quarterly income distribution statements; 9.14 AUTHORISATION . an annual financial report (if you have opted to receive it); This PDS is issued by Abacus Funds Management Limited as and the responsible entity of the Fund. The directors of Abacus . an annual taxation statement setting out the details Funds Management Limited have authorised the issue of required to be included in income tax returns. this PDS. This PDS has been signed on their behalf by the Chairman of Abacus Funds Management Limited. The Fund’s annual financial report will be posted to the Abacus website. Abacus will also maintain up-to-date information on the Fund on our website, located at www. abacusproperty.com.au/Funds.asp.
JOHN THAME Chairman, Abacus Funds Management Limited
ABACUS DIVERSIFIED INCOME FUND II 66 SECTION 10 / GLOSSARY
10. GlossaryGLOSSARY
Abacus Funds Management Limited, the Financial Year, for example FY2009 is the year FY Abacus responsible entity of the Fund from 1 July 2008 to 30 June 2009 ABN 66 007 415 590
Abacus Finance Abacus Finance Pty Limited ACN 079 529 909 GST Goods and Services Tax
ICR Interest Cover Ratio Abacus Loan Facility The loan facility as described in Section 9.4 The annual increase in the Underwritten Indexed Abacus Property Group is the economic entity Distributions as set out in Section 4.5.2. listed on ASX under code ABP. Abacus Property Group comprises four stapled entities: Abacus The issue price of New Units, being $0.75 per Issue Price Abacus Property Group Group Holdings Limited, Abacus Group Projects Unit as detailed in Section 4.2.4 Limited, Abacus Trust and Abacus Income Trust. Abacus Property Group is the owner of Abacus LPTs Listed Property Trust assets Finance, Abacus Property Services and Abacus.
Abacus Property Abacus Property Services Pty Limited LVR Loan to valuation ratio Services or APS ACN 050 739 001 Net asset value determined in accordance with Abacus Working NAV The loan facility as described in Section 9.3 the constitution of the Fund Capital Facility An investor in the Fund who acquires New Units AHGT Abacus Hobart Growth Trust New Investor in the Fund pursuant to this PDS Anti Money Laundering and Counter Terrorism AML Financing Units in the Fund issued pursuant to this PDS. New Units Anti Money Laundering and Counter Terrorism (Class C Units) AML Act Financing Act 2006 (Cth) The offer to subscribe for 98m New Units to raise Forms provided by your financial adviser or Offer $73.5m in accordance with the terms located on the Abacus Property Group website AML Forms of this PDS to be completed by you to allow Abacus to comply with its obligations under the AML Act PDS Product Disclosure Statement Australian Securities and Investments ASIC Property located at 27 Grant Street, Port Commission Port Macquarie Macquarie, NSW purchased for $10.6m The purchase of AHGT, Campbellfield and Port Asset Transfers Macquarie and the sale of ULPTs and LPTs as Registries Limited as described in the Corporate Registries described in Section 4.6.2 Directory Property located at 144-168 National Boulevard, Campbellfield Campbellfield, Victoria purchased for $16.25m 75 Railway Street, Rockdale, NSW; 81 Railway Street, Rockdale, NSW; 12 Short Street, Equity invested by Unitholders in the Fund at Southport, QLD; Dingley; 13 Boundary Road, Contributed Equity $1.00 per Class A and Class B Unit and $0.75 per Northmead, NSW; 313 Ross River Road, Class C Unit. Secured Assets Townsville, QLD; 4 Brunker Road, Chullora, NSW; An offer to Existing Unitholders to convert all of 70 Gibbes Street, Chatswood, NSW; Conversion Offer their Existing Units to Converted Units 22-28 Edgeworth David Avenue, Hornsby, NSW; Campbellfield and Port Macquarie Units in the Fund issued prior to this PDS Converted Units and where the Unitholder has accepted the Conversion Offer (Class B Units) Sell Spread The sell spread as set out in Section 5.3.3. The consumer price index described in TFN Tax File Number CPI All Groups Australia Section 9.8 and defined as The Weighted Average of Eight Capital Cities: All Groups Index. ULPTs Unlisted Property Trust assets Property located at 1-5 Lake Drive, Dingley, Dingley Victoria Underwritten The underwritten capital return provided by Earnings before interest, tax, depreciation and Capital Return Abacus Property Group as set out in Section 4.5.3 EBITDA amortisation Underwritten The underwritten distributions provided by Existing Investor An owner of Existing Units in the Fund Distributions Abacus Property Group as set out in Section 4.5.2
Units in the Fund issued prior to this PDS An interest in the Fund in accordance with the Existing Units Unit (Class A Units) Fund constitution Abacus Diversified Income Fund II, Fund Unitholder The owner of a Unit in the Fund ARSN 116 429 844 APIR ABA 0008AU
67 ABACUS DIVERSIFIED INCOME FUND II SECTION 11 / HOW TO APPLY
11. HOW TO APPLY
11.1 APPLICATIONS under the AML Act is supplied to Abacus or your financial adviser To invest in the Fund, complete the application form, AML Forms (if authorised to act as agent for Abacus) and duly verified. No and any certified documents required and send them with your accrued or pro-rata distribution will be paid to you in respect cheque made payable to Abacus Diversified Income Fund II or of your application money if, for any reason (such as failure to direct debit authority to: complete the AML Forms or provide supporting documents required), your application cannot be finalised. Abacus Diversified Income Fund II Registries Limited Records of any personal information Abacus collects about you GPO Box 3993 under the AML Act, the process of verifying that information and Sydney NSW 2001 your risk assessment may be kept by your adviser and/or Abacus or its agents. Abacus may be legally obliged to disclose that 11.2 AML FORMS information and the assessment to the government regulator All applications for New Units must be accompanied by the of the AML Act. Otherwise Abacus and its agents will keep the appropriate AML Forms and supporting documents required by information confidential to the extent required by law. the AML Act. Financial Advisers If you are: If you are investing through a financial adviser, they will provide . investing through a financial adviser, they will provide you you with the necessary forms and help you to complete them. with the necessary forms and help you to complete them; If your financial adviser is authorised by Abacus to act as its . not investing through a dealer, IDPS or other financial adviser agent for AML purposes, they may also verify the information you (or if you are investing through a financial adviser who is not provide. In this case, the adviser must certify to Abacus that they authorised as an agent of Abacus for AML purposes) you have obtained all appropriate identification information from you must provide Abacus with appropriate identification material for the purposes of the AML Act in accordance with the IFSA/ by completing the relevant AML Forms and forwarding them FPA Guidelines, have verified the information from appropriate to Abacus together with certified copies of any supporting original documents or certified copies, and have kept records documents required. This will enable Abacus to properly of the process that they followed and the identity documents identify you and meet the requirements of the legislation. inspected. These records may be inspected by Abacus at any The AML Act requires that applications from New Investors be reasonable time. A copy of the forms completed by your adviser accompanied by additional information as to their identity. This is must be provided with your application. done by completing the AML Forms specific to your investor type If you are investing directly, or if your financial adviser is not (eg individual, corporate, trust, partnership, etc). The AML Forms authorised by Abacus to act as its agent for AML purposes, and related information are available from your financial adviser both the properly completed AML Forms and certified copies of and/or from the Abacus website: www.abacusproperty.com.au. supporting documents must be provided with your application. Follow the link to “Anti Money Laundering” under the “Funds 11.3 PERSONAL INFORMATION COLLECTION STATEMENT and Investments” banner. If you have any queries please contact In addition to collection of information pursuant to the AML Abacus on 1300 139 440. Act, personal information is collected for the purpose of The information provided on the AML Forms must be verified providing investment products to applicants. The information by Abacus or its agents by inspecting appropriate documents or is used to process applications and provide efficient and by you providing certified copies of the documents (see Abacus effective administration and reporting services in respect of the Property Group’s website for information about who can certify investments. identity documents). For example, individuals will be required to The personal information may be disclosed to the Abacus produce a current photographic identification document such Diversified Income Fund II registry, which undertakes the majority as a current passport or driver’s licence, or to provide a certified of the administrative and reporting responsibilities. The personal copy of the document, in order to verify their identity details. information may also be disclosed to related corporations to If a New Investor is a company, the identity of the company assist in management or administrative functions. Some liaison directors may also need to be verified. If a New Investor is a trust, with investors’ financial advisers may also be necessary. additional information will be required. Without the information, applications usually cannot be Abacus may also need to obtain additional information in processed. Provision of tax file numbers is optional but, if not relation to source of funds and similar matters from both Existing provided, the Abacus Diversified Income Fund II is required Investors, holders of Converted Units and New Investors. The by taxation law to deduct tax from distributions at the highest information obtained under the AML Act is used to assess the marginal rate. likelihood of investors being involved in money laundering or terrorism financing (risk assessment). In most cases, the Abacus Diversified Income Fund II and any other person or entity to whom it has disclosed personal Until Abacus receives all information required under the AML information will grant an investor access to their personal Act and is able to verify it Abacus may not be able to issue information held within a reasonable time of any such request. New Units to investors. More detailed information regarding the treatment of personal For the purpose of calculating the record date from which the information is set out in the privacy policy which can be viewed on Unit price or pro-rata distributions are calculated, the date of the Abacus Property Group website at receipt of an application will be treated as the date that all the www.abacusproperty.com.au Alternatively, a hard copy may be information which Abacus reasonably believes to be required obtained at Abacus’s offices or by contacting the Privacy Officer
ABACUS DIVERSIFIED INCOME FUND II 68 SECTION 11 / HOW TO APPLY
on 612 9253 8600. Queries may also be directed to this number or 1. Who is the investor? emailed to [email protected]. Please complete the part of this section relevant to your 11.4 DECLARATION investment. Please note that: By completing and submitting an application form you (or your . Only legal entities are allowed to hold Units. attorney) will be taken to have declared that: . Applications in the name of a natural person (including an . all details and statements made by you are complete and individual trustee) must include your surname and at least accurate; one full given name – don’t use initials. . no notice of revocation of the power of attorney has been . Provision of your Tax File Number (or ABN / ARBN) is not received; compulsory. However, if your TFN is not provided, Abacus is . you are not, as a result of the law of any place, a person to required by law to deduct tax from all distributions paid to whom this PDS should not be given; and you at the highest marginal tax rate plus Medicare levy. . you are not less than 18 years of age or a person not 2. Investor contact details otherwise having full contractual capacity without the Please enter your name and address in this part of the form. All necessity for consent or ratification by any other person. correspondence will be sent to this address. In addition, by applying for Units in the Fund: Please include your telephone and/or email details in case (a) you agree to give Abacus further information or personal Abacus needs to contact you in relation to your investment. details it reasonably believes are required in order to meet its 3. Are you an Existing Investor in the Fund? obligations under anti-money laundering, counter-terrorism If you are an Existing Investor in the Fund please provide your or taxation legislation; investor number. (b) you represent that you are not aware and have no reason to 4. How much would you like to invest? suspect that: Please enter the amount you want to invest here. For New . the funds you are investing have been or will be Investors the minimum investment is $5,000 and above that in derived from or related to the proceeds of crime, or multiples of $1,000. connected with money laundering, the financing of If investing by cheque, your cheque must be: terrorism or other illegal activities whether prohibited under Australian or International law or convention or . drawn on an Australian branch of an Australian registered agreement, or come from an offshore bank, shell bank, bank; or non-cooperative jurisdiction; . made payable to Abacus Diversified Income Fund II; and . the proceeds of your investment will be used to finance . crossed ‘not negotiable’. any illegal activities; If you want us to directly debit your account, please complete the . neither you nor any related person is a politically direct debit request which follows the application form. exposed person; 5. How would you like to receive your income . you are not commonly known by any other names distributions? different from those disclosed in the application form; Income distributions may be reinvested into additional Units in . any documents or information used for verification the Fund or paid into your nominated bank account. purposes in support of your application are complete If you do not elect to receive your distribution by direct and correct; payment, your distribution will automatically be reinvested in (c) you agree that, in the event of your delay or failure to accordance with the terms of the Distribution Reinvestment Plan. produce information which Abacus has requested for AML 6. Your account details for distribution payments purposes, Abacus may, in its absolute discretion, take such action as it sees fit. In particular Abacus may determine not Please provide details of your account with a bank or other to issue Units to you, transfer or redeem your Units, or may financial institution. This account must be in the name of the unilaterally redeem your Units, if it believes such action to investor. Abacus will credit your distributions to this account. be necessary or desirable in the light of its obligations under 7. Adviser details relevant legislation; and This section will be completed by your financial adviser (if any). (d) you acknowledge that it may be a criminal offence to Please leave blank if you are not investing through a financial knowingly provide false, misleading, forged, altered or adviser. falsified documents relating to your identity. 8. AML Forms 11.5 COMPLETING THE APPLICATION FORM As detailed above, the Australian Government has introduced Please complete all sections of the application form and the laws to help prevent money laundering and terrorism financing. direct debit request (if applicable) in CAPITAL LETTERS to enable A key requirement of these laws is for New Investors to prove your application to be processed efficiently. their identity by completing the relevant forms provided by Description of investor their financial adviser or located on the Abacus Property Group website and providing any supporting documents required. If Please tick the relevant box to indicate the legal nature of the Abacus is not able to confirm an eligible applicants identity, we investor. may not be able to issue Units to that applicant.
69 ABACUS DIVERSIFIED INCOME FUND II APPLICATION FORM ABACUS DIVERSIFIED INCOME FUND II APPLICATION FORM
The Product Disclosure Statement (PDS) dated 24 December 2009 provides detailed information about the Abacus Diversified Income Fund II. It is advisable to read the PDS in full before applying to invest in the Fund. A person who gives you access to this Application Form must at the same time and by the same means give you access to the PDS and any supplementary material. While the PDS is current, Abacus will provide paper copies of the PDS, any supplementary documents and the Application Form on request and without charge.
Description of Investor (please tick) Adviser use only
Individual Joint Partnership Company Trust Executor Superannuation Fund Adult(s) for child under 18
1. Who is the investor(s)? Adviser Stamp Individual investor 1 Title Surname Given names
Date of birth TFN or exemption reason / / Individual investor 2 Title Surname Given names
Date of birth TFN or exemption reason / / If Partnership (Investors 1 & 2) trading as
Corporate investor Company name ACN or ARBN or ABN or exemption reason
Superannuation Fund/Trust/Child under 18/Executor Individual Trustee 1 Title Surname Given names
Date of birth TFN or exemption reason / / Individual Trustee 2 Title Surname Given names
Date of birth TFN or exemption reason / / Superannuation Fund/Trust/Estate/Child’s name
If Corporate Trustee: Company name
Superannuation Fund or Trust name
Trust/Superannuation Fund Tax File Number or ABN or exemption reason
ABACUS DIVERSIFIED INCOME FUND II 70 APPLICATION FORM
2. Investor contact details
Contact name
Postal address
Suburb State Postcode
Phone (BH) Phone (AH) Mobile
Facsimile Email
I wish to receive investor communications and statements via email. 3. Are you an Existing Investor in the Fund?
No Yes If yes, please insert investor number
A$ 4. How much would you like to invest? Cheques payable to Abacus Diversified Income Fund II 5. How would you like to receive your income distributions?
Reinvested into additional Abacus Diversified Income Fund II Units or Paid to the account nominated in Section 6 below 6. Your account details for distribution payments
Name of bank/building society/credit union Branch
Branch number (BSB) Account number Account Name
7. Adviser commission details Only licensed investment advisers are entitled to receive commission. Some advisers may rebate part or all of their commission to investors although they are under no obligation to do so. Rebated commission will be used to buy extra Units. The percentage to be rebated, if any, must be indicated below. No changes can be made to commission payment details for Existing Investors. Show % of total available commission to be rebated. Eg. if you wish to rebate half the upfront % commission, insert 50%. If no number is shown, 100% will be assumed and no commission will Rebate initial commission be paid to the advisers. Pay commission Select combination of upfront and trailing commission. If no box is ticked, upfront commission of 3% will apply. 3% upfront only or 2% upfront and 0.2% trail or 1% upfront and 0.4% trail or 0.6% trail only
Adviser full name Dealer group name
Adviser signature Dealer AFSL licence
8. Anti-money laundering The Australian Government has introduced laws to help prevent money laundering and terrorism financing. A key requirement of these laws is for investors to prove their identity by completing the relevant forms located on the Abacus Property Group website. Follow the link to “Anti Money Laundering” under the “Funds and Investments” banner on the Abacus Property Group website. If you are not investing through a dealer, IDPS or other financial adviser you must provide Abacus with appropriate identification material, this will enable Abacus to properly identify you and meet the requirements of this legislation. If you are investing through a financial adviser, they will provide you with the necessary forms and help you to complete them. If Abacus is not able to confirm an eligible applicant’s identity, we may not be able to issue Units to that applicant. If you have any queries please contact Abacus on 1300 139 440.
AML/CTF certification by adviser I confirm I have completed AML/CTF identification and verification requirements for this investor as required under the AML/CTF Act. Please tick box to confirm
Verified by adviser Name Signature
71 ABACUS DIVERSIFIED INCOME FUND II DIRECT DEBIT FORM ABACUS DIVERSIFIED INCOME FUND II DIRECT DEBIT FORM
Request and Authority to debit the account named below to pay Abacus Funds Management Limited.
Request and authority to debit (if your account is held jointly, please write both names)
Investor 1 – Surname or Company Name Investor 2 – Surname or Company Name
Given Names or ACN/ARBN Given Names or ACN/ARBN
Request and authorise Abacus Funds Management Limited as responsible entity of the Abacus Diversified Income Fund II to debit the investment amount through the Bulk Electronic Clearing System from an account held at the financial institution identified below subject to the terms and conditions of the Direct Debit Request Service Agreement (and any further instructions provided below).
Insert the name and address of the financial institution at which the account is held
Financial Institution Name
Address
Suburb State Postcode
Insert the details of the account to be debited Please check with your financial institution to ensure that the account nominated will allow direct debiting.
Name of bank/building society/credit union Branch
Branch number (BSB) Account number Account Name
Acknowledgement By signing this Direct Debit Request you acknowledge you have read and understood the terms and conditions governing the debit arrangements between you and Abacus Funds Management Limited as responsible entity set out in this Request and in your Direct Debit Request Service Agreement.
Payment details A$ Investment amount
Insert your signature and address
Investor 1 – Name and Signature Investor 2 – Name and Signature
Note: an execution for a company should be made by two directors or by one director and one company secretary and all signatories should print their full name and capacity (eg. ‘director’) below their signature. Please state if a sole director or sole company secretary.
Address
Suburb State Postcode
Date / /
ABACUS DIVERSIFIED INCOME FUND II 72 DIRECT DEBIT FORM ABACUS DIVERSIFIED INCOME FUND II DIRECT DEBIT SERVICE AGREEMENT
Definitions By signing the Direct Debit Request you acknowledge you have read and understood the terms and conditions governing the debit arrangements between you and Abacus Funds Management Limited as set out in this Direct Debit Request and in the Direct Debit Request Service Agreement.
Abacus, us or we means Abacus Funds Management Limited account means the account held at your financial institution from which we are authorised to arrange for funds to be debited; agreement means this Direct Debit Request Service Agreement between you and us; business day means a day other than a Saturday or a Sunday or a public holiday in New South Wales; debit day means the day that payment by you to us is due; debit payment means a particular transaction where a debit is made; Direct Debit Request means the Direct Debit Request between you and us; you means the applicant who signed the Direct Debit Request; your financial institution means the financial institution where you hold the account that you have authorised use to debit.
1. Debiting your Account 5. Dispute 1.1 By signing a Direct Debit Request, you have authorised us to debit 5.1 If you believe that there has been an error in debiting your account, any amount we may charge you from your account. You should refer you should notify us directly on 1300 139 440 and confirm that to the Direct Debit Request and this agreement for the terms of the notice in writing with us as soon as possible so that we can resolve arrangement between you and Abacus. your query more quickly. 5.2 If we conclude as a result of our investigations that your account 1.2 We will only arrange for funds to be debited from your account as has been incorrectly debited, we will respond to your query by authorised in the Direct Debit Request. arranging for your financial institution to adjust your account 1.3 If the debit day falls on a day that is not a business day, we may (including interest and charges) accordingly. We will also notify you direct your financial institution to debit your account on the in writing of the amount by which your account has been adjusted. following business day. 5.3 If we conclude as a result of our investigations that your account 1.4 If you are uncertain as to when a debit payment will be debited from has not been incorrectly debited, we will respond to your query by providing you with reasons and any evidence for this finding. your account, you should contact your financial institution. 5.4 Any queries you may have about an error made in debiting your 2. Changes by Us account should be directed to us in the first instance so that we can attempt to resolve the matter. If we cannot resolve the matter, you can 2.1 We may vary any details of this agreement or a Direct Debit Request refer it to your financial institution, which will obtain details from you at any time by giving you at least fourteen (14) days written notice. of the disputed transaction and may lodge a claim on your behalf. 3. Changes by You 6. Accounts 3.1 Subject to 3.2 and 3.3, you may change the arrangements under You should check: a Direct Debit Request by contacting us on 1300 139 440. (a) with your financial institution whether direct debiting is available 3.2 If you wish to stop or defer a debit payment you must notify us in from your account as direct debiting is not available on all accounts writing at least seven (7) days before the next debit day. This notice offered by financial institutions. should be given to us in the first instance. You may also stop or (b) your account details which you have provided to us are correct defer a direct debit payment by contacting your financial institution. by checking them against a recent account statement; and 3.3 You can cancel your authority for us to debit your account at any (c) with your financial institution before completing the Direct Debit Request if you have any queries about how to complete the Direct time by giving us seven (7) days notice in writing before the next Debit Request; debit day. This notice should be given to us in the first instance. You may also cancel your direct debit payment by contacting your 7. Notice financial institution. 7.1 If you wish to notify us in writing about anything in relation to this agreement, you should write to Abacus Funds Management 4. Your Obligations Limited, Level 34, Australia Square, 264-278 George Street, Sydney, 4.1 It is your responsibility to ensure that there are sufficient clear funds NSW 2000. available in your account to allow a debit payment to be made in 7.2 We will notify you by sending a notice in the ordinary post to the accordance with the Direct Debit Request. address you have given us in the Direct Debit Request. 4.2 If there are insufficient funds in your account to meet a debit payment: 7.3 Any notice will be deemed to have been received two (2) business days after it is posted. (a) you may be charged a fee and/or interest by your financial institution; 8. Privacy (b) you may also incur fees or charges imposed or incurred by us; and We collect your personal information to provide you with the direct debit services you have requested. To do that we may need to disclose (c) you must arrange for the debit payment to be made by another your personal details and the account details provided on the attached method or arrange for sufficient clear funds to be in your account by Direct Debit Request to electronic network administrators, other financial an agreed time so that we can process the debit payment. institutions and to any entity or person you have requested us to pay on your behalf. Specifically, your personal and account details may be 4.3 You should check your account statement to verify that the amount disclosed to Westpac Banking Corporation or Australia and New Zealand debited from your account is correct. Banking Group in the event of any alleged incorrect or wrongful debit. 4.4 If Abacus is liable to pay goods and services tax (GST) on a supply If any part of that information is not provided, we may not be able to made by Abacus in connection with this agreement, then you agree provide you with those direct debit services. to pay Abacus on demand an amount equal to the applicable GST. For full details of our Privacy Policy we refer you to our website at www.abacusproperty.com.au.
73 ABACUS DIVERSIFIED INCOME FUND II Corporate DireCtory
Abacus Funds Management Limited (as responsible entity of the Fund) is the issuer of this PDS.
Investor Enquiries and registry registries Limited Level 7, 207 Kent Street Sydney NSW 2000 t 1300 139 440 E [email protected] responsible Entity Abacus Funds Management Limited Level 34 Australia Square 264 - 278 George Street Sydney NSW 2000 t (02) 9253 8600 f (02) 9253 8616 E [email protected] W www.abacusproperty.com.au
ABACUS DIVERSIFIED INCOME FUND II www.abacusproperty.com.au