Abacus Property Group – Annual Financial Report 2018

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ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2018 12. FINANCIAL INSTRUMENTS (continued) (a) Credit risk (continued) Credit risk exposures The Group’s maximum exposure to credit risk at the reporting date was: Carrying Amount 2018 2017 $'000 $'000 Receivables 21,145 18,457 Secured property loans 330,291 346,667 Other financial assets 7,987 42,543 Cash and cash equivalents 103,256 56,267 462,679 463,934 As at 30 June 2018, the Group had the following concentrations of credit risk: - Secured property loans: cross-collateralised loans which were secured by two large developments at Riverlands and Camellia and other small developments collectively represent 56% (2017: 48%) of the portfolio. Secured property loans The Group has a total investment of $330.3 million in secured property loans as at 30 June 2018 (2017: $346.7 million). Of these loans $76.0 million has been renewed / extended beyond the original term on commercial terms (2017 $64.5 million). There was no movement in the allowance for impairment in respect of secured property loans and receivables during the year where no loans are past due and not impaired. 61
ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2018 12. FINANCIAL INSTRUMENTS (continued) (b) Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate and diverse amount of committed credit facilities, the ability to close out market positions and the flexibility to raise funds through the issue of new stapled securities or the distribution reinvestment plan. The Group’s policy is to maintain an available loan facility with banks sufficient to meet expected operational expenses and to finance investment acquisitions for a period of 90 days, including the servicing of financial obligations. Current loan facilities are assessed and extended for a maximum period based on the Group’s expectations of future interest and market conditions. The table below shows an analysis of the contractual maturities of key liabilities which forms part of the Group’s assessment of liquidity risk. Carrying Amount Contractual cash flows 1 Year or less Over 1 year to 5 years Over 5 years 30 June 2018 $'000 $'000 $'000 $'000 $'000 Liabilities Trade and other payables 88,568 88,568 88,568 - - Interest bearing loans and borrowings incl derivatives# 745,415 863,123 73,285 503,225 286,613 Total liabilities 833,983 951,691 161,853 503,225 286,613 Carrying Amount Contractual cash flows 1 Year or less Over 1 year to 5 years Over 5 years 30 June 2017 $'000 $'000 $'000 $'000 $'000 Liabilities Trade and other payables 27,865 27,865 27,865 - - Interest bearing loans and borrowings incl derivatives# 571,467 655,906 32,704 493,132 130,070 Total liabilities 599,332 683,771 60,569 493,132 130,070 # Carrying amount includes fair value of derivative liabilities. Contractual cash flows includes contracted debt and net swap payments using prevailing forward rates (c) Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Interest rate risk / Fair value interest rate risk The Group’s exposure to the risk of changes in market interest rates relates primarily to its long-term bank debt obligations which are based on floating interest rates. The Group has a policy to maintain a mix of floating exposure and fixed interest rate hedging with fixed rate cover highest in years 1 to 5. The Group hedges to minimise interest rate risk by entering variable to fixed interest rate swaps which also helps deliver interest covenant compliance and positive carry (net rental income in excess of interest expense) on the property portfolio. Interest rate swaps have the economic effect of converting borrowings from variable rates to fixed rates. Under the interest rate swaps, the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to the agreed notional principal amounts. At 30 June 2018, after taking into account the effect of interest rate swaps, approximately 41.7% (2017: 48.6%) of the Group’s drawn debt is subject to fixed rate hedges. Hedge cover as a percentage of available facilities at 30 June 2018 is 32.6% (2017: 28.6%). As the Group holds interest rate swaps against its variable rate debt there is a risk that the economic value of a financial instrument will fluctuate because of changes in market interest rates. 62
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Abacus Property Group – Annual Financial Report 2018

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