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Abacus Diversified Income Fund II

Abacus Diversified Income Fund II
Cash Rebate 3% (as additional units)
Closing Date CLOSED
Minimum Investment $5,000
Research Adviser Edge 4 stars
  Zenith recommended

Fund profile
attractive income yield
annual CPI indexation
tax effective
capital protection
experienced investment manager

Abacus is seeking to raise a further $46.7m through the issue of approximately 62m new units at an offer price of $0.75 each as at 31 December 2010.

   
Product Disclosure Statement
Corporate Brochure
Cashflow Chart
Client Booklet
SMSF Retirement Impact Chart
 
   

What is the objective of Abacus Diversified Income Fund II?

Abacus Diversified Income Fund II seeks to provide investors with an attractive and reliable source of investment income and the return of their capital plus the potential for capital growth.

The distribution and capital returns of the Fund are underpinned by:

the returns to be derived from the underlying 25 investment properties valued at $185.4m; and
Abacus Property Group’s underwriting commitment.

Who should invest?

This Fund may suit investors who:
 
Are looking for regular and reliable distributions
Require a tax effective investment
Desire the potential for capital growth with capital protection
Want to diversify their investment portfolio to reduce volatility

Fund summary

FEATURES  
Minimum initial investment $5,000
Fund Term Approx. 6 to 7 years (30 June 2017)
Issue price $0.75
Underwritten capital return 100%
FEES  
Entry/Exit Fees Nil
Management Fee1 Nil
MER2 0.37%
Performance Fee Nil
DISTRIBUTIONS  
Underwritten cash distribution yield for new investors 9.0% pa indexed to inflation
Distribution reinvestment3 Currently available at 2.5% discount to issue price
Distribution frequency Quarterly
Estimated tax deferral FY11 100%
1 Abacus will not be paid any management fees (normally 0.7% pa of gross assets) until all investors in the Fund receive their original capital back plus a capital gain of at least 10%.
2 Refer to PDS for further information on fees and costs.
3 Distribution Reinvestment Plan (DRP) units attract the same underwritten distributions and underwritten capital return as new units.

What are the Fund’s key features?

Attractive income yield
Minimum income return of 9% pa over the life of the investment for new investors - underwritten by Abacus Property Group.

Annual CPI indexation
Each financial year commencing July 2011, 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 2010.

Tax effective
100% tax deferral estimated on distributions in FY2011.

Capital protection
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 - underwritten by Abacus Property Group.

Experienced investment manager
Abacus Funds Management Limited is the responsible entity of the Fund and is a member of 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.

No annual management fees
Abacus Funds Management Limited will not charge a management fee until investors have received a minimum 10% capital gain on their original investment.

How is the capital value underwritten?

The Fund currently owns 25 commercial investment properties which underpin the net asset value of the Fund (the asset composition may change over time). If the net sales proceeds from the sale of the Fund or the Fund’s property portfolio at the end of the investment term 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 (which is subordinated to unitholder capital) and any residual shortfall will be satisfied either in cash or Abacus Property Group stapled securities, or a combination of the two, at unitholder discretion. The Abacus Loan Facility has a principal drawn amount of approximately $48m and provides collateral to meet the underwriting commitments if required.

The underwritten capital return provided by Abacus Property Group is only available after 30 June 2016. As this is a fixed term investment investors are unable to benefit from the underwritten capital return before this date.

Who is underwriting the Fund returns?

Abacus Property Group, an S&P/ASX200 listed entity, is underwriting the Fund’s distributions and capital return. Abacus Property Group specialises in investing in property based assets and has approximately $2 billion of assets under management. Since 1996, Abacus Property Group has established more than 35 investment funds and raised over $1.1 billion in equity from retail and institutional investors. The financial strength of Abacus Property Group supports the Fund by providing loan facilities and underwriting the distributions and capital return. Details of the financial position of Abacus Property Group and recent announcements can be found on its website at www.abacusproperty.com.au

What is the potential for capital growth?

There are many variables that may impact on the net asset value at the winding up of the Fund after June 2016 and thus the extent, if any, to which Abacus Property Group may have to satisfy its obligations under the underwritten capital return or unitholders may be entitled to capital growth.

Rental growth over the term of the Fund may contribute to growth in the value of the Fund’s property portfolio. Other factors that may affect the value of the Fund’s property portfolio include capitalisation rates, occupancy, property expenses and change of use.

The greater the income growth rates achieved and the lower the capitalisation rate on sale of the properties, the lower the reliance will be on the underwritten capital return and the greater the likelihood of capital growth.
 
What is the Fund’s exit strategy and liquidity?

Abacus intends to begin the process of selling the Fund or the Fund’s assets from 30 June 2016, applying the net proceeds to pay out the Fund’s liabilities and returning the net proceeds to investors 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.

There is a new limited liquidity facility available for investors in cases of hardship. Investors should expect to hold their investment in the Fund for the full term and receive the benefit of the underwritten distributions and underwritten capital return over that period.

What is the Fund’s financial status?

Proforma balance sheet at 31 December 2010 as described in the Supplementary Product Disclosure Statement dated 31 January 2011 (Supplementary PDS).
 
Gross assets $187.0m  
Bank debt $101.2m  
  Expiring August 2012
Expiring September 2013
$52.9m
$48.3m
 
4
Abacus Loan Facility $48.0m 5
Bank LVR (maximum permitted 58.4%) 57%  
Gearing excluding Abacus Loan Facility 54%  
Gearing including Abacus Loan facility 79%  
Interest Cover (minimum required 1.5 times) 1.6 times  
Net asset value per Unit $0.26  
Adjusted net asset value per Unit $0.81 6

4 Drawn to $43.3 at 31 December 2010, following a short term repayment of $5m in December 2010, but expected to be drawn to $48.3m once bank security documents are finalised in respect of one of the Fund’s properties as described in the Supplementry PDS.
5 The Abacus Loan Facility is subordinated to unitholder equity.
6 Adjusted proforma net asset value is stated after excluding the mark to market liability of the swaps ($3.5m) and the Abacus Loan Facility ($48.0m), and treating the Abacus working Capital Facility as if converted to equity. It also includes the value of the collateral provided by the mortgage over land not owned by the fund ($7.6m) as described in the supplementary PDS.
7 While the portfolio book value may change over time the capital value of units remain underwritten by Abacus Property Group.

In November 2009 approximately half of the Fund’s debt was extended until August 2012 and in December 2010 the Fund’s second facility was extended with the same lender until September 2013. The Fund has hedged all of the interest on its bank borrowings from a floating rate to a fixed rate.

Property portfolio at 31 December 2010
No. of properties 25
Portfolio book value $185.4m
Land area 216,982m2
Lettable area 135,436m2
Weighted average capitalisation rate 9.1%
Occupancy 93%
Weighted average lease expiry 3.7 years

Approximately 44% of the property portfolio was externally valued in December 2010, 5% was valued in September 2010 and 47% was externally valued in June 2010. One property subject to option was last externally valued in December 2009. Properties may be sold during the term of the Fund, and additional properties may be acquired.

Disclaimer:
The information in this document is general only. Before a person makes an investment decision on the basis of this information, they should determine for themselves or obtain professional advice as to whether this information is appropriate for their particular needs, investment objectives and financial situation. An offer document for Abacus Diversified Income Fund II dated 24 December 2009 and Supplementary PDS is available above. Anyone considering an investment in the Abacus Diversified Income Fund II should consider the PDS and the Supplementary PDS in deciding whether to acquire Abacus Diversified Income Fund II Units. Applications can only be accepted for this investment on the application form attached to the PDS. Issuer: Abacus Funds Management Limited ABN 66 007 415 590; AFSL: 227819; ARSN: 116 429 844.

Simply download an Investment Brochure/PDS above. It’s that easy!

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