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) (c) Market Risk (continued) Interest rate risk / Fair value interest rate risk (continued) The following table is a summary of the interest rate sensitivity analysis: AUD Carrying amount -1% +1% Floating Profit Equity Profit Equity 30 June 2018 $'000 $'000 $'000 $'000 $'000 Financial assets 103,256 (1,033) - 1,033 - Financial liabilities 719,956 (1,400) - 1,294 - AUD Carrying amount -1% +1% Floating Profit Equity Profit Equity 30 June 2017 $'000 $'000 $'000 $'000 $'000 Financial assets 56,267 (562) - 562 - Financial liabilities 547,499 (3,828) - 3,558 - The analysis for the interest rate sensitivity of financial liabilities includes derivatives. 65
ABACUS PROPERTY GROUP NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2018 12. FINANCIAL INSTRUMENTS (continued) (d) Fair values The fair value of the Group’s financial assets and liabilities are approximately equal to that of their carrying values. Class of assets / liabilities Fair value hierarchy Valuation technique Inputs used to measure fair value Investment properties Level 3 Discounted Cash Flow ("DCF") and Income capitalisation method Adopted capitalisation rate Optimal occupancy Adopted discount rate Property, plant and equipment Level 3 Income capitalisation method Net market EBITDA Optimal occupancy Adopted capitalisation rate Derivative - project entitlement Level 3 Residual cash flow analysis Project cash flow forecast Project payment priorities Securities and options - unlisted Level 3 Pricing models Security price Underlying net asset Property valuations Derivative - financial instruments Level 2 DCF (adjusted for counterparty credit worthiness) Interest rates Consumer Price Index ("CPI") Volatility Level 1 Level 2 Level 3 Quoted prices (unadjusted) in active market for identical assets or liabilities; Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Inputs for the asset or liability that are not based on observable market data. There were no transfers between Levels 1, 2 and 3 during the period. Income capitalisation method Discounted cash flow method Residual cash flow analysis Pricing models – unlisted securities Pricing models – options This method involves assessing the total net market income receivable from the property and capitalising this in perpetuity to derive a capital value, with allowances for capital expenditure reversions. Under the DCF method, the fair value is estimated using explicit assumptions regarding the benefits and liabilities of ownership over the assets’ or liabilities’ life including an exit or terminal value. The DCF method involves the projection of a series of cash flows from the assets or liabilities. To this projected cash flow series, an appropriate, market-derived discount rate is applied to establish the present value of the cash flow stream associated with the assets or liabilities. The analysis takes into account the time value of money in a more detailed way than simply a developer’s profit margin as it considers the timing of all costs and income associated with the project. The fair value is determined by reference to the net assets which approximates fair value of the underlying entities. The fair value is determined using generally accepted pricing models including Black-Scholes and adjusted for specific features of the options including share price, underlying net assets and property valuations and prevailing exchange rates. 66
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Abacus Property Group ANNUAL FINANC
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Abacus Property Group – Annual Financial Report 2018

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