Analysis of Capital Structures and Equity Elements of Real Estate Companies

This report analyses the capital structures and equity elements of four real estate companies, namely, Divine Limited, Dexus, Centuria Metropolitan Reit and Charter Hall Retail Reit. It discusses the movements of various equity elements, such as share capital, retained earnings, general reserve, asset revaluation reserve, capital reserve, non-controlling interest, etc. The report also compares the debt-to-equity ratios of the companies and concludes that Centuria has maintained its capital structure properly in comparison to other companies and also raised relatively more funds through share issuance.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
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Author’s Note:

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Table of Contents
Introduction:....................................................................................................................................3
Analysis of Equity Elements:..........................................................................................................3
Comparison of the Capital Structures:.............................................................................................7
Conclusion:......................................................................................................................................7
Reference:........................................................................................................................................9

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Introduction:
Capital structure of any business firm can be defined as the funding of its operating and
investing activities through various types of funds. These funds can be classified mainly into two
forms – equity capital and debt capital. Equity capital is accumulated from the owners of the
business, whereas, debt capital is collected from different third parties (Robb & Robinson, 2014).
It is very essential for a business firm to maintain a proper capital structure to continue the
operations properly.
The total equity, which is one of the most important source of capital financing, is the
liability to the owners of the business. For the company form of businesses, it is attributable to
the shareholders of the company (Jõeveer, 2013). The total equity is consisted of different
elements of equity capital. Some of the elements, such as, share capital, retained earnings,
general reserve etc. are directly attributed to the shareholders. On the other hand, some equity
funds, which are created for some specific purposes, for example, asset revaluation reserve,
capital reserve etc., are indirectly related to the owners and can only be paid back to them at the
time of liquidation of the business.
In this report, four real estate companies, namely, Divine Limited, Dexus, Centuria
Metropolitan Reit and Charter Hall Retail Reit, have been selected to analyse the capital
structures and the movements of various equity elements.
Analysis of Equity Elements:
As discussed above, the total equity is comprised of different types of equity funds.
However, it is not necessary that all the companies must have same elements. The two elements,
which are common for all companies, are share capital and retained earnings or accumulated

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profit/loss. The other elements may vary from company to company (Ampenberger et al., 2013).
The equity capital structures of the four selected companies also indicate the same, which are
discussed below:
- Divine Limited:
The equity capital structure of Devine Limited includes contributed equity, reserves and
accumulated losses. Contributed equity is the capital fund, collected by issuing equity shares and
the reserve is created for the share based payment expenses and benefits. Accumulated losses
have been generated from the losses from the operating activities year by year.
Devine
Particulars 2014 2015 2016 2017 2015T 2016T 2017T
Contributed Equity 292367 292367 292367 292367 0% 0.00% 0%
Reserves 161 355 331 336 -120% -6.76% 2%
Accumulated Losses -43893 -79917 -117806 -146198 82% 47.41% 24%
Total Equity 248635 212805 174892 146505 -14% -17.82% -16%
Trend
From the table, it can be stated that the company has not issued any equity share over the
four years and hence, share capital has remained unchanged. The reserves have increased, which
denotes that the company have paid more share based payment expenses over the years.
However, as the company has incurred net loss in every from 2014 to 2018, the accumulated
losses have rise up drastically, which is not a positive sign for the company.
- Dexus:
Dexus maintains almost same equity structure as Devine limited. However, apart from share
based payment reserve, its reserve also includes asset revaluation reserve, cash-flow hedge

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reserve and treasury securities reserve. The movements in the equity structure of Dexus over last
four years are shown below:
Dexus
Particulars 2014 2015 2016 2017 2015T 2016T 2017T
Contributed Equity 1833.4 1990.6 1984 2126.7 9% -0.33% 7%
Reserves -9.3 8.6 9.1 6.9 192% 5.81% -24%
Retained Profits 193 190.3 321.7 427.2 -1% 69.05% 33%
Total Equity 2017.1 2189.5 2314.8 2560.8 9% 5.72% 11%
Trend
The company has issued equity shares in 2015 and 2017, which has led to increase in
contributed equity, whereas, due to share re-purchase on 2016, it has decreased from the
previous year. The amount of reserves has increased significantly from 2014 due to profits in
asset revaluation, cash flow hedge, security payment expenses and treasury securities (Jain,
Singh & Yadav, 2013). However, in 2017, the company has earned lower profits from cash flow
hedges and provided higher benefits for treasury securities in comparison to 20 6, which has
caused mild fall in reserve amount. As the result of the net profits, earned in 2016 and 2017, the
company has been able to increase its retained profits for the last two years.
- Centuria Metropolitan REIT:
Apart from the common elements, i.e, share capital or issued capital and retained profits, the
total equity of Centuria Metropolitan REIT includes non-controlling interest. It can be defined as
the amount payable to or receivable from the minority shareholders of subsidiary companies.
CMA
Particulars 2014 2015 2016 2017 2015T 2016T 2017T
Issued Capital 29255.26 129110.2 129328 397637 341% 0.17% 207%
Retained Earnings -6357.57 -4383.71 22902 11564 31% 622.43% -50%
Non-Controlling Interest 20269.4 110529.9 119250 445% 7.89% -100%
Total Equity 43167.08 235256.4 271480 409201 445% 15.40% 51%
Trend

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Consecutive increase in the issued capital of the company indicates that it has generated
huge capital funds through issuance of share capital in last three years. Moreover, the profits,
generated in 2015 and 2016 has also helped the company to turn its negative retained earnings to
positive. However, though it has earned profits in 2017, the retained earnings has decreased,
comparing to last year, due to distribution of dividends to its shareholders (Serfling, 2016). The
non-controlling interest had increased in 2015 and 2016 and in 2017, it has become nil. It depicts
that the company has collected all the receivables from the minority shareholders of its
subsidiaries.
- Charter Hall Retail REIT:
Charter Hall Retail REIT finances its equity capital through contributed equity, reserves and
accumulated losses. The following table shows that the company has generated capital funds by
issuing equity shares on 2015 and 2016, but any further issuance has not occurred in 2017. The
reserve, which is comprised of foreign currency translation reserve and cash flow hedge reserve,
has been negative in each year, though it has decreased over the period (Chen, Wang & Zhou,
2014). It has become possible as the company has recovered the losses from foreign exchange
translation and cash flow hedging in the recent years. The company has generated profits in
2015, 2016 and 2017, which has helped to decrease the accumulated losses also.
CQR
Particulars 2014 2015 2016 2017 2015T 2016T 2017T
Contributed Equity 2127 2153.3 2269.6 2276.3 1% 5.40% 0%
Reserves -8.8 -0.1 -1.3 -3.4 99% 1200.00% 162%
Accumulated Losses -863.1 -803.5 -736.1 -598.4 -7% -8.39% -19%
Total Equity 1255.1 1349.7 1532.2 1674.5 8% 13.52% 9%
Trend

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Comparison of the Capital Structures:
Debt-to-equity ratio can be very helpful to describe the capital structure of any company.
It denotes the proportion of debts, used for financing the total capital of a company relative to the
proportion of total equity. Hence, the debt-to-equity ratios of the four companies are compared
below in the following graph:
1
0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1.600
DEBT-TO-EQUITY R ATIO
Axis Title
The graph shows that except the Dexus, debt-to-equity ratios of all other companies are
lower than 1. Hence, it can be stated that except Dexus, all other companies have used more
equity capital to finance its total assets than debt capital.
Conclusion:
It can be concluded that Centuria has maintained its capital structure properly in
comparison to other companies and also raised relatively more funds through share issuance. It
has helped the company in operational activities and to maintain the profit margins steady.
Whereas, Devine and Charter Hall have not issued shares significantly over the period and are
still suffering from accumulated losses. On the other hand, though Dexus has also earned profits

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over the period, it has higher debts, which should be lower down at earliest. Otherwise, in future
it may create several issues, such as, increase in interest expense, decrease in profit margins etc.

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Reference:
Ampenberger, M., Schmid, T., Achleitner, A. K., & Kaserer, C. (2013). Capital structure
decisions in family firms: empirical evidence from a bank-based economy. Review of
Managerial Science, 7(3), 247-275.
Chen, H., Wang, H., & Zhou, H. (2014). Stock return volatility and capital structure decisions.
Jain, P. K., Singh, S., & Yadav, S. S. (2013). Capital Structure Decisions. In Financial
Management Practices (pp. 77-158). Springer, India.
Jõeveer, K. (2013). What do we know about the capital structure of small firms?. Small Business
Economics, 41(2), 479-501.
Robb, A. M., & Robinson, D. T. (2014). The capital structure decisions of new firms. The
Review of Financial Studies, 27(1), 153-179.
Serfling, M. (2016). Firing costs and capital structure decisions. The Journal of Finance, 71(5),
2239-2286.