Abacus on Track for De-Cluttering of $3.0bn Self Storage REIT

19 May 2023

Abacus Property Group says it is on track for the proposed de-stapling of the Groups’ Self Storage assets into Abacus Storage King (ASX:ASK). Abacus remain listed on the ASX under a new ticker code, and be known as Abacus Group (ASX:ABG) (‘Abacus Group’).

ASK, which will be an externally managed by Abacus Group, will be a fully integrated owner, operator and manager of a Self Storage operating platform with a substantial portfolio of trading stores, future stores, and other Self Storage focused investments across the major markets of Australia and New Zealand.

The latest unaudited independent valuations show a $65.7 million net increase in the Self Storage portfolio to $2,619 million and a $117.1 million net decrease in the Abacus Commercial portfolio to $2,392 million.

The weighted average cap rate of 5.54% on the Self Storage portfolio has no expansion as of 30 April 2023 following a 9 basis point expansion as of 31 December 2022 – an affirmation reflective of the ongoing direct market activity experienced in Abacus’ key Self Storage markets. Abacus’ Commercial portfolio decreased by 5.0% or net $117.1 million during the four-month period to 30 April 2023, with a 19 basis point increase in the weighted average cap rate.

Abacus Group’s Managing Director, Steven Sewell commented “These independent valuations provide investors with a comprehensive update ahead of the proposed de-stapling. Pleasingly we have seen positive momentum continue in our $2.6 billion Self Storage portfolio, most notably in the valuer’s assumption of rents which have risen 3.2% so far this calendar year. The Self Storage portfolio has delivered a year-on-year double-digit annualised rental increase demonstrating portfolio resilience sourced from our diverse customer segments. The increase in valuations of the Self Storage portfolio is estimated to result in the Gross Assets of ASK totalling in excess of $3.0 billion as of 30 April 2023.

The Commercial property revaluations reflect the current market conditions for Office assets. Whilst the valuations show an average increase in cap rates of 19 basis points our Commercial portfolio is continuing to experience high levels of tenant leasing enquiries validating the occupier trend towards a flight to quality and the demand for Abacus’ well located, high quality properties.”

A summary of Abacus’ portfolio valuation by sector as at 30 April 2023 is tabled below:

Self Storage1312,61965.75.54%

Subject to the conditions set out below, Abacus intends to provide securityholders with a Transaction Booklet5 that sets out more detail on the proposed de-stapling and ASK’s proposed equity raising ahead of an Extraordinary General Meeting (EGM) to vote on the proposal.

Substantial progress has been made regarding the implementation steps required to effect the proposal. It is currently intended that resolutions to approve the proposal will be put to Abacus securityholders at an EGM to be held in July 2023. Subject to the securityholder vote at the EGM, and the satisfaction of regulatory and any required third party approvals, ASK is expected to be listed on ASX in August 2023.

Abacus intends that ASK will have a majority independent board and independent Chair. Abacus announced the proposed appointment of John O’Sullivan as the Chair of ASK with Stephanie Lai and Karen Robbins proposed to be appointed as Independent Non-Executive Directors of ASK. It is also proposed that Steven Sewell will be an Executive Director of ASK while remaining Managing Director of Abacus Group, and existing Abacus Non-Executive Director Mark Bloom will be on the ASK Board as a nominee of Calculator Australia and, subject to completion of the proposal, he would step down from the Abacus Group Board.

ASK will be externally managed by Abacus Group and as such it is considered appropriate that Abacus Group holds a stake in ASK on completion of the proposal – currently intended to be up to 19.9% of ASK securities on completion of the proposal. Abacus Group expects to acquire its interest in those ASK securities by exchanging a proportion of the balance of intercompany loans for equity in ASK and through the transfer of certain Self Storage assets to ASK which will result in all of the Self Storage assets being owned by ASK.

Separately Calculator Australia, Abacus’ largest Securityholder, has confirmed it currently intends to hold securities in ASK on completion of the proposal such that its total interest in ASK (including its indirect interest through the new Abacus Group) would be under 50%. The free float of the ASK register is expected to be more than 40% of securities on issue, after allowing for Calculator Australia’s and Abacus Group’s ownership interests.

As previously announced, as part of the proposal Abacus intends to set appropriate gearing levels to position both vehicles to deliver on their respective growth opportunities. It is intended that the ASK equity raising would be in the form of a pro rata issue to existing Abacus Securityholders, and would be an investment in the new ASK vehicle at the time of the de- stapling.

Abacus expects the gearing of both vehicles at the completion of the de-stapling to be approximately 25% to 30%.

Inclusive of the impact of the preliminary independent valuation update Abacus confirms that the pro forma NTA of ASK is expected to be approximately $2.1 billion. As a result of the de-stapling the new Abacus Group pro forma NTA is expected to be approximately $2.0 billion.

Pro forma net assets prior to and post de-stapling

Abacus outlook

Abacus reaffirms FY23 distribution guidance of at least 18.4 cents per security. Guidance is predicated on no material deterioration in current business conditions.