| Country : | Australia |
|---|
Assignment Task
QUESTION 1
1. Question 1 Part A
The Morrison family has hired you, a professional property adviser, to investigate a particular “office” property in CBD Brisbane for a sound long-term investment. You have gathered the following information regarding the property and investment prospects:
[1] date of evaluation: 1 May 2020
[2] property’s selling price/value is $1.00m
[3] the property has three units with the following information:
Unit Area (m 2 ) Next market review Passing rent (2020)
1 265.0 1/08/2022 $60,000
2 365.0 1/07/2022 $65,000
3 325.0 1/03/2022 $75,000
[4] Market forecasts for 2021-2022 are as follows:
2020 2021 2022 Consumer price inflation 3.50% -0.50% -1.00%
Market vacancy level 4.50% 4.00% 6.50%
Change in market rent -1.50% -2.00%
Growth in operating expenses
Notes: Growth in operating expenses equals CPI + 1.5% for the corresponding year
[5] Additional information
a. Equity in 2020 will be $700,000, which will increase in subsequent years by the amount of loan repayment; rest will be loan from the bank
b. Loan interest rate will be fixed at 8.0% pa and will be on reducing loan amount/outstanding balance Required Assess and discuss the risk profile of the above property for the 2020-2022 period In doing so, you are required to clearly show the steps to ascertain the following:
i. 2020 net income from the property/investment and the equity cash flows
ii. 2021-2022 forecasts of the net income from the property and the equity cash flows
iii. to assess the risks, at least 5 ratios for the 2020-2022 period The above should be presented in appropriate table forms. Show workings only for the year 2020.
Discussions must refer to the tables and should cover, among others, strengths and weaknesses of the risk assessment, based on standard indications and symptoms In your discussion, in addition to the commentary on risk assessment, include the following:
iv. commentary on the rationality/reasonableness of the forecasts provided above compared to the current trends and expectations, bearing in mind the implications of COVID19
v. draw insights from your Assignment #1 on historical and forecast analysis and comments; here, mention briefly the area and property type
QUESTION 2
1. Question 1 Part B
Now assume that Morrison’s portfolio of property investments after the acquisition of theBrisbane CBD property looks like this:
Required
i. Including the proposed new Brisbane CBD investment in Part A, prepare a report for the Morrison’s on the performance of the family’s investment portfolio The analysis should be presented and structured clearly. Discussion of the analysis should explain the reasons for the relative performance and draw insights from your Assignment #1 on historical and forecast analysis and comments.
i. How does your analysis compare with the current and expected property market performance in Australia?
QUESTION 3
1. Question 2 Part A
You are provided with the following 2018 income statement and balance sheet for Jack’s Office Property Trust:
- Rates and taxes have increased steadily by 5% pa
- Operating expenses have increased steadily by 5% pa
- Borrowing expenses have been around 5% of total debt
- Manager's fees is 2% of Investment properties
- Cash fell by 3%
- Pay and Rec fell by 5%
- Investment properties increased by 5%
- Investment in associates fell by 8%
- Payables increased by 10%
- Interest-bearing liabilities fell by 20%
- Final distribution has been falling by 5%
- paLoans, bonds and notes increased by 12%
- Derivative financial liabilities were 40 in 2018, 30 in 2019
- Issued capital is the plug figure, i.e. total assets - (total liabilities plus reserves)
- Reserves have been falling by 6%
Required
Part A
i. Construct Jack’s income statement and balance sheets for 2018-2019
ii. Comment on the profitability trends. Do the trends reflect current reality?
Explain
iii. Comment on the current ratio trends for 2018-2019, including implications for further debt financing options and prospects
iv. Comment on the debt to property ratio trends for 2018-2019. Include in your commentary the relevance of the maximum ratio if it is 20%. Do the trends reflect current reality?
v. Comment on the structure of debt financing and implications for possible breach of covenants
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