Abacus Group (ABG) Earnings Call Transcript & Summary

Good afternoon, and welcome to the 2021 Abacus Property Group Annual General Meeting. My name is Myra Salkinder, and I am the Chair of the group. On behalf of the Board, I'd like to acknowledge the Gadigal people of the Eora Nation, the traditional custodians of this land, and pay our respects to their elders, past, present and emerging. While much effort has gone into conducting our first virtual AGM, it isn't as good as all being in the same room with the ability to look each other in the eye. I look forward to returning to in-person AGMs as soon as it becomes practical to do so. In particular, I would like to thank you, our security holders, for joining today's proceedings electronically. I wish to inform you that the meeting is being recorded. Let me introduce my fellow directors here at the meeting. Steven Sewell, our Managing Director; Mark Haberlin; Mark Bloom; Holly Kramer; Jingmin Qian; and Trent Alston. Also present in the audience are members of the Abacus management team. The group's auditor, Anthony Ewan from Ernst & Young, has dialed into the meeting. As it is past the point of time of 2:30 p.m., I declare the meeting open. This meeting comprises the Annual General Meetings of the members of Abacus Group Holdings Limited, Abacus Group Projects Limited and Abacus Storage Operations Limited, in conjunction with the meetings of the members of Abacus Trust, Abacus Income Trust and Abacus Storage Property Trust. If we encounter any technical issues resulting in security holders being unable to reasonably participate in this meeting, I will adjourn for 30 minutes, after which time, the meeting will be reconvened. If the technical issues continue, we will adjourn the meeting to a future time and outline the next steps via an announcement to the ASX. I will now outline the procedural matters for this meeting. You are entitled to ask a question or speak to a resolution if you are a security holder or the representative of a security holder. Via the Lumi AGM platform, security holders and proxy holders can vote on the resolutions by clicking the voting tab at the top of the screen on the navigation bar. [Operator Instructions] Questions may be submitted at any time from the start of the meeting, although questions that relate to a resolution contained in the notice of meeting will be answered as each resolution is presented. Questions may be submitted now, and I will answer them at the appropriate point in the meeting, or you may ask questions during the business of the meeting. Turning now to the business of the meeting, I will explain the voting procedure. The poll on all resolutions will be opened at the same time to give you a chance to cast your votes at any time during the meeting. I will then identify each resolution and open the item for discussion. Once questions have concluded, I will ask you to cast your votes if you haven't already done so, and the meeting will be brought to a close. Voting on all resolutions will be conducted by a poll. All open -- all valid open proxies directed to the Chair will be voted in favor of the resolution. Since our 2020 AGM, we have continued to navigate our path through this ongoing COVID-19 pandemic with our primary focus being on ensuring safe and healthy environments and supporting our people and customers. In June, when Greater Sydney and our office were placed under lockdown restrictions, we were again fortunately able to seamlessly adapt our business to remote working. I would like to take this opportunity to thank our many stakeholders who were both accommodating and collaborative as we adapted to a remote way of conducting business. Together, we were able to execute on our strategy to invest capital in targeted real estate opportunities that deliver long-term sustainable outcomes through active management. Our vision to create exceptional long-term value, together with our embedded values of being entrepreneurial, responsible and accountable, were and continue to be our guiding principles as we navigate this challenging environment. Abacus has emerged as a strong asset-backed annuity-style investment house with $4.3 billion of total assets, of which 97% are deployed in the commercial and self-storage sectors. Focusing on the activities of the past year and despite the challenging conditions, it was satisfying to see $1 billion of capital successfully deployed into assets in our strategically identified sectors that provide potential for enhanced income growth and ultimately value creation. This was achieved through a series of acquisitions and joint ventures, which were funded by a combination of noncore asset disposals, debt and other initiatives, including completion of an accelerated nonrenounceable pro rata entitlement offer, raising $402 million in December 2020. The Board periodically reviews the group's level of liquidity and gearing to ensure it is appropriately capitalized to support all future growth opportunities. In August, Abacus thought it prudent to strengthen its balance sheet by increasing its banking facilities by $500 million on favorable terms. As at 30 September 2021, gearing is at 30.4% and sitting within our target range of up to 35%. Turning now to our FY '21 results that clearly demonstrate the benefits of our diversified portfolio. The group delivered a statutory profit of $369.4 million, up 336% compared to FY '20. This was achieved primarily as a result of an increase in the fair value of our self-storage portfolio and increased rental income arising from acquisitions made during the year and the full ownership of prior year acquisitions. Funds from operations was $136.4 million, up 9.5% on FY '20, equating to $0.184 per security and with a 95% payout ratio, the full year distribution was $0.175. Net tangible assets per stapled security of $3.43, up 3.3% on FY '20, which was also positively impacted by the increase of fair value of our self-storage portfolio. We were pleased with the strong and resilient results in a COVID-19 context and would especially like to note that Abacus has not applied for or received any funds from the Australian government's JobKeeper scheme. Steven will elaborate on the operating performance of our business shortly. The Board and team at Abacus are proud of our commitment to sustainability. Sustainable practices and enhancements continue to be embedded into how we conduct business and as part of our strategic repositioning. Abacus has made a considerable reinvestment in people, culture, processes and systems. During FY '21, the Board set clear sustainability targets to improve our environmental performance, transparency and accountability. Our targets are focused on energy, emissions, water and waste across our property portfolio, and were developed in conjunction with our asset management team. To achieve these targets, we have developed a sustainability strategy and improvement pathways for our assets, which are aligned with our operational and capital works upgrades. Solid progress has been made across our sustainability target areas. And this year, we recorded a 25% reduction in greenhouse gas emission intensity across our operations compared to the 2019 baseline, noting the impact from lower usage due to COVID-19. Pleasingly, our office portfolio has achieved 4.6 stars of NABERS Energy and 4 stars for NABERS Water. I encourage you to refer to our 2021 sustainability report for more detail on the progress we are making. The Abacus Board renewal process has now been completed with the appointment of Mark Bloom during the year. Abacus is proud to have a strong Board, comprising 43% female representation and a nonexecutive director cohort with a diverse range of skills, expertise and backgrounds. The Abacus Board is focused on ensuring the group delivers long-term value to security holders. And together with the appropriate governance structure and a highly capable executive team, believe we are well placed to take advantage of business opportunities as they arise. I would like to thank Steven and the Abacus team including my Board colleagues for their dedication and commitment as we continue to navigate these challenging times and deliver on our strategic objectives. Before handing over to Steven, I would also like to thank all our security holders for their continued support.

Good afternoon, and welcome, everybody. Steven Sewell, and I'm the Managing Director. I'd also like to acknowledge the Gadigal people of the Eora Nation, the traditional custodians of the land on which we gather, and pay my respects to their elders, both past, present and emerging. With $4.3 billion of assets and 97% of those investments concentrated in the key sectors of commercial real estate and self-storage, Abacus is a strong asset-backed annuity-style business model and positioned to deliver superior long-term returns and maximize security holder value. We've had a multiyear transition where we've deployed over $2.3 billion in both the sectors, commercial and self-storage and, at the same time, reducing our investments in noncore assets, whereas at year-end, they only represented 3% of our portfolio. During the year also, we were happy to acquire the balance of our self-storage operating platform, the Storage King business. Following this significant transaction -- transition, we felt it was the appropriate time to define and refine what active management, a key part of our strategy, means at Abacus. After dedicated consideration, we have established that active management revolves around 3 main focal areas: Investment Management, where we strategically invest in assets in all major markets that have a clear path to sustainable income growth; asset management, where we provide commercial and self-storage space solutions with compelling value propositions for our customers; and customer and brand management, where, through close engagement with our customers, we aim to deliver best-in-class commercial and self-storage services that meet our customers' evolving needs. And in doing so, we build the Storage King brand to be the most recognizable and valued in the market. Getting to this point has required much dedication and focus from the whole Abacus team. It's our people, their market insight and our repositioning capability and experience, together with some strategic partnerships, that are the key enablers of our strategy. And without the team and our partners, we could not have achieved what we've been able to this year. Adding to the significant progress made in previous years, as Myra mentioned, a further $1 billion of capital was successfully and deliberately employed into our key sectors of commercial and self-storage. Particular emphasis was placed on our self-storage business, a sector where we believe we have a clear competitive advantage, and we invested over $575 million during the year, including the acquisition, as I mentioned, of the remaining 75% interest in the operating platform, Storage King, as well as a significant portfolio of premium Sydney-based stores. In addition, a further $425 million was invested in commercial real estate, including the acquisition of a 1/3 interest in the Myer Melbourne store in the CBD of Melbourne, and the remaining 60% portion of The Oasis Center, up on -- on the Gold Coast in Broadbeach, which now takes Abacus to full ownership of that asset. These enhancements have enhanced our portfolio quality and are expected to underpin long-term stability of income. Looking at self-storage. Abacus has been investing in the self-storage sector, specifically the property, and has -- since 2005, and has been able to accumulate a high-quality portfolio of over 115 existing and future development locations with a valuation today of over AUD 2 billion. It was a particularly pleasing step to be able to acquire the remainder of our operating platform, Storage King. The acquisition was identified as a key strategic imperative given our self-storage exposure in the real estate and comprises -- and now that sector comprises nearly half of our balance sheet. An expert and capable management business is critical to driving our self-storage operations and enhancing the associated asset returns. To date, we've taken various steps to enhance the Storage King business delivered through operational improvements, technological advancement and increasing the customer value proposition of the Storage King-branded stores, owned by Abacus as well as our licensee partners, all considered vital to enhancing the platform's scalable and sustainable offering. Owing to a strong operational performance, in addition to the pace of our acquisitions, our self-storage portfolio delivered 46% growth in net property income for the year and contributed $69.6 million of FFO, funds from operations, which was a 15.5% increase on the previous financial year. Despite the overall impact of the COVID-19 pandemic, trading conditions in our self-storage portfolio have proved extremely resilient. The rebound in occupancy during FY '21, following the COVID-19-related declines of the previous year through calendar year 2020, has continued through the September quarter with our established portfolio occupancy levels now reaching an all-time high of 92.4%. Again, looking at the established portfolio, which comprise 62 of our more mature stores, average rent per square meter and RevPAM grew to $306 and $283, up from $285 and $260, respectively, at the full year as trading conditions continue to strengthen materially. Our outlook for the self-storage sector in Australia remains strong, and as a result, we remain focused on a multipronged growth strategy, which includes acquisitions of stores, development of new format stores and expansion and optimization of our existing portfolio of stores. Turning to the commercial portfolio. Following a number of acquisitions and a few smaller scale divestments, some as recently as the September quarter, our commercial portfolio now comprises 27 assets with a market value of $2.1 billion. Also, owing to the pace of our acquisitions and steady operational performance, our commercial portfolio delivered 14% growth in net property income for the year and contributed $86.9 million of funds from operation, a 23.9% increase on the previous financial year. Even with the headwind of a challenging operating environment, we were pleased with the performance of the commercial portfolio during financial year '21. Active leasing and specifically asset management -- active asset management strategies delivered like-for-like office rental growth of 4.3% and occupancy increased marginally to 95.5%, with a weighted average lease expiry in the portfolio increasing to just under 4 years at 3.9 years. During the first quarter, COVID-19-related disruptions in a number of our key office markets have impacted leasing transaction volumes. But pleasingly, our occupancy has remained flat and our WALE stable, with incentives only marginally elevated. As our key market of Sydney in New South Wales opens up, we're starting to see increased inquiry levels and a willingness by our customers to commit to the space solutions offered and are positive about the outlook for the portfolio. Despite this complex backdrop, our retail portfolio delivered solid results during financial year '21, with like-for-like income positive, up 1.9%, our WALE up marginally to 5.4 years and occupancy only slightly reducing to 92.7%. The COVID-19-related border closures and restrictions presented an extremely challenging first quarter in our retail portfolio, given 2 of our assets are in Queensland. But as restrictions ease across the portfolio -- as restrictions ease, our portfolio markets, we expect to see consumer and customer confidence gradually return. Rent collection was resilient across the entire commercial portfolio with 97% of rents collected in the first quarter of this financial year. Our noncore and legacy investments, the group has continued to execute on the planned repatriation of equity from these investments and noncore sectors during the year, selling $107 million of small-scale assets. The legacy noncore residential loan assets were similarly reduced by 50% during the year with noncore residential now representing only 3% of total assets or $116 million. In conclusion, Abacus' FY '21 results have progressed our vision to create exceptional value for our customers and stakeholders as an owner and manager of real estate and operator of storage locations. The size, nature and market positioning of our key sector investments, we hope, will permit the group to deliver recurring income and value creation over the long term. Acknowledging the uncertainty caused by COVID, we remain positive on our differentiated AREIT positioning given the 2 diversified sectors of commercial real estate and self-storage. And expect that the active asset and investment management, together with our responsive customer and brand management, will help to deliver these long-term sustainable outcomes. I'd also like to take this opportunity to thank the entire Abacus team for their hard work and commitment to our business. I'd like to also thank my fellow directors for their expertise and guidance. And of course, our security holders, including our major investor, the Kirsh Group, for their continued and valued investment in Abacus. I'll now hand back to Myra.

Thank you, Steven. This now brings us to the formal part of the meeting. The last Annual General Meeting of Abacus Property Group was held on the 17th of November 2020. The minutes of that meeting were approved by the Board and signed by the Chair of that meeting in accordance with the provisions of Section 251A of the Corporations Act. The original minutes are available for inspection at the registered office of the company, should any member want to see them. Would anyone like to speak to this item? The notice of meeting dated 8 October 2021, setting out the business for today's meeting, was sent to all security holders. The first item of notified business is to consider the 2021 annual financial report and other reports. We have our auditors present to answer any questions relating to the conduct of the audit and the preparation of the audit report. Are there any questions on this item via the Lumi platform? [Operator Instructions] Are there any questions on the phone? Resolution 2 is to adopt the remuneration report, which is set out on Pages 13 to 27 of our 2021 annual financial report. The remuneration report explains the Board's policy in relation to the nature and amount of remuneration paid to directors and executives and the link between remuneration and performance conditions. Are there any questions on this item via the Lumi platform? [Operator Instructions] Are there any questions on the phone? I now put the motion that the remuneration report for FY '21 be adopted. The proxies received in respect of this resolution are now being displayed on screen. The next item of notified business concerns the election and reelection of directors to the Board of Abacus Group Holdings Limited, Abacus Group Projects Limited and Abacus Storage Operations Limited. The first part of Resolution 3 relates to the election of Mark Bloom as a director of the companies. The listing rules and constitution of the companies require that at an AGM, a director who was appointed to fill a vacancy or as an addition to the Board since the last AGM, hold office until the conclusion of the next AGM, but is eligible for election at that AGM. Mark Bloom was appointed to the Boards of the companies as a director on 1 July 2021. Mark is a Nonexecutive Director. Mark had an extensive 36-year career as an international finance executive with his most recent roles as Chief Financial Officer at Scentre Group and Deputy Group CFO at Westfield Group. He acts as a consultant to Calculator Australia Pty Limited and is a Nonexecutive Director of AGL Energy Limited and Pacific Smiles Group Limited. Mark is a member of the People Performance and Audit and Risk Committees. I'll now put the motion that Mark Bloom be elected as a director of Abacus Group Holdings Limited, Abacus Group Projects Limited and Abacus Storage Operations Limited. The proxies received in respect of this resolution are now being displayed on screen. Are there any questions on this item via the Lumi platform? [Operator Instructions] Are there any questions on the phone? The second part of Resolution 3 is to reelect Mark Haberlin as a director of the companies. Mark retires by rotation in accordance with the constitutions of the companies, and being eligible, offers himself for reelection. Mark joined the Board in 2018. Mark is a Nonexecutive Director and is Lead Independent Director. He has significant expertise in accounting and audit capital transactions, mergers and acquisitions and risk management in the real estate and financial services sectors. He was a partner at PwC for 24 years, where he developed key accounting and audit experience and was a member of the PwC Governance Board with his last 2 years as Chair. Mark is Chair of the Audit and Risk Committee as well as a member of the People Performance Committee. The directors value the contribution of Mark and intend to vote in favor of the resolution. I now put the motion that Mark Haberlin be reelected as a director of Abacus Group Holdings Limited, Abacus Group Projects Limited and Abacus Storage Operations Limited. The proxies received in respect of this resolution are now being displayed on screen. Are there any questions on this item via the Lumi platform? [Operator Instructions] Are there any questions on the phone? Resolution 4, security holder approval for the granting of rights to the Managing Director of Abacus Property Group, Steven Sewell, as his FY '22 long-term incentive under the group's equity incentive plan. Details of the plan were provided in the explanatory memorandum that accompanied the notice of meetings. I now put the motion that 367,648 rights under the equity incentive plan be granted to the Managing Director Steven Sewell on the terms set out in the explanatory memorandum. The proxies received in respect of this resolution are now being displayed on the screen. Are there any questions on this item via the Lumi platform? [Operator Instructions] Are there any questions on the phone? Resolutions 5 and 6, which are special resolutions, are to amend the constitutions of each company and trust by amending updated provisions and aligning with current market practices. The details of these resolutions are contained in the explanatory notes that accompanied the notice of meeting. A copy of the constitutions in their entirety can be found on the Abacus website. As these are special resolutions, they will be considered passed if at least 75% of the votes are in favor of the resolutions. The directors are unanimously in favor of the resolutions. And as Chair, I also intend to direct all proxies in favor. I now put the motion to approve the changes to the company constitutions on the terms set out in the explanatory memorandum. The proxies received in respect of this resolution are now being displayed on the screen. Are there any questions on this item via the Lumi platform? [Operator Instructions] Are there any questions on the phone? I now put the motion to approve the changes to the trust constitutions on the terms set out in the explanatory memorandum. The proxies received in respect of this resolution are now being displayed on screens. Are there any questions on this item via the Lumi platform? [Operator Instructions] Are there any questions on the phone? Now moving to voting. Please ensure you have clicked the for, against or abstain button next to each resolution via the Lumi platform. I have appointed [ Andy Mar ], a representative of our registry, as a returning officer. Calculation of the votes can take a little while. Once the results have been completed, they will be announced on the ASX website. You will also find the results of the voting on the Abacus Property Group website later today. This concludes the notified business of the meeting. I will now open the meeting for a period of general questions. Are there any questions or comments via the Lumi platform? [Operator Instructions] Are there any questions on the phone? Well, I have to say it really is a pleasure to preside over a meeting and a company. And I really look forward to hopefully seeing you all in person next year. And if there is any other business which may be lawfully brought forward to this meeting, can we have it now. There being no further business, I now declare the Abacus Property Group meeting closed.