Comprehensive Financial Analysis of a Real Estate Portfolio

This assignment provides a comprehensive financial analysis of a property portfolio, focusing on the Big Short Developers Fund and Rural Funds Management Trust (RFM Trust). It evaluates real estate as an investment vehicle, assesses economic and risk factors, and forecasts fund performance. The analysis includes the fund's strategic objectives, funding sources, property portfolio construction, risk management, and compliance issues. Furthermore, the report includes a REIT valuation of the RFM Trust, forecasting profits, and providing an investment recommendation based on the financial analysis. Risk assessment tools like scenario and sensitivity analysis are used to evaluate the portfolio's financial viability under various conditions.

Running head: PROPERTY PORTFOLIO ANALYSIS
Property Portfolio Analysis
Name of the Student:
Name of the University:
Author’s Note:

1PROPERTY PORTFOLIO ANALYSIS
Part 2 Property Fund Analysis
Big Short Developers Fund

2PROPERTY PORTFOLIO ANALYSIS
Executive Summary
The aim of the assignment is to carry out a financial analysis on the Property Portfolio Analysis.
There were several parts that were evaluated while carrying on with the portfolio analysis the
factors included studying real asset as an investment vehicle, the objective and the benefits
provided by the real estate fund in the portfolio. The economic and risk factors of the property
market assessed helped us evaluate the benefits for the real asset as an asset class in the portfolio.
The assignment also covered valuation of real estate fund and the forecasting of the same was
done depending on the future economic outlook the same would provide and the benefits the
same would provide when the same is included in the property portfolio.

3PROPERTY PORTFOLIO ANALYSIS
Table of Contents
Part 2 Property Fund Analysis.........................................................................................................1
Fund Overview............................................................................................................................5
Details and Justifications.............................................................................................................5
Investment Vehicle..................................................................................................................5
Strategic Objective of Fund.....................................................................................................6
Sources and level of Funding..................................................................................................6
Property Portfolio Construction and Issues.............................................................................6
Risk Management and Compliance Issues..............................................................................7
Economic and Property Market Context for Investment Decision..........................................8
Outlook for Performance of the Property Fund.......................................................................8
Ongoing Critical Property Portfolio Management Issues........................................................8
Overall Recommendation............................................................................................................9
Part B.............................................................................................................................................10
A REIT Valuation..........................................................................................................................10
Fund Overview..........................................................................................................................11
Forecast Profits and Balance Sheet............................................................................................11
Valuation of the Stock...............................................................................................................12
Investment Recommendation....................................................................................................13
Reference.......................................................................................................................................15

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Appendix........................................................................................................................................17

5PROPERTY PORTFOLIO ANALYSIS
Fund Overview
The Big Short Development fund aims for capitalizing and creating investment decisions
based on the Office Retail and Office Commercial Investment Properties. The strong growth of
the Australian Commercial Properties and Retail Properties growth in the historical trend period
has shown a remarkable growth in the Real Estate Sector. The funds primary objective will be
investing in Commercial and Retail development space where the revenue from the same will be
generated based on developing property and selling the same to a third party. The development
fund will focus construction mainly on the city areas and will have a target customers like the
business community and businesspersons. The primary process for the fund would be
identification of key and crucial areas where the feasibility of the development could be well
important factors that would be considered before deciding upon the investment proposal and the
viability of the same. The fund will be established with infusion of fresh capital from the various
funding source such as debt and equity, which would contribute an amount equal to $500mn.
Details and Justifications
Investment Vehicle
The investment vehicle considered for the fund will be investments in the Real Estate
retail and commercial development project. The Retail sector and the Commercial Sector has the
potential for growth and the same can be seen from the past historical trend shown by them. The
strong macro-environment and the growing economy with moderate inflation will all give a good
positive boost to the Australian Real Estate (Morano, Tajani and Locurcio 2015).

6PROPERTY PORTFOLIO ANALYSIS
Strategic Objective of Fund
A portfolio of investment in the Australian Retail and Australian Commercial Property
will make up the strategic objective and role of the fund where the Investment will be based on a
50:50 ratio between the two-asset classes. The fund will invest in the Retail and Commercial
Space where each of the asset class suffers from additional investment, business and
macroeconomic risk. The primary objective of the fund is to invest in the well-diversified
portfolio and building development project according to the demand and the need of the
customers (Del Giudice et al. 2017).
Sources and level of Funding
The funding source for the property investment will be from debt and equity sources out
of which the both will be contributing an amount, which will be equal to 50:50 ratio. The debt
financing will be done at the current interest rate prevailing in the market and will be a long-term
source for financing the project. The equity can be borrowed from the infusion of fresh equity
capital, the same will be done by introduction of fresh equity capital, and the debt financing will
be done from additional amount borrowed from banks (Kurlat and Stroebel 2015).
Property Portfolio Construction and Issues
The property portfolio construction will be done when the investment will be done in two
of the Asset Class so that diversification is there from retail and office space. The diversification
in the two-asset class will provide diversification benefits. The demand for office space will be
dependent on the business condition of Australia and the macro-environmental factors of
Australia. The retail space of the development will be dependent on the demand of the retail
sector and the household income and the prevailing mortgage interest rate in the economy.

7PROPERTY PORTFOLIO ANALYSIS
The primary issues that would be faced by the development fund in the construction
would be the Cost Escalation, timely, regular payment of interest cost incurred, and business risk
associated with the construction of real estate projects. The issues dealt with the same should be
dependent on various business risk.
Risk Management and Compliance Issues
The risk management assessment in the development fund can be evaluated by the use of
various risk assessment tools. The risk assessment tool will help us identify the key issues and
risk associated with the development fund and the value determined at the various scenarios. The
use of sensitivity analysis and scenario analysis can be the best use of assessment of risk under
various scenarios. There are various important components involved in the assessment of the
valuation and determining the revenue generation form the portfolio. The various important
components that would be involved for valuation and determining the revenue will be the cost
escalation assumptions taken, inflation forecasts incorporated and the finance cost assumed and
taken for each of the year. There are other business risks also associated with the portfolio
investment in the real estate sector. Time decay, cost escalation and non-static tenancy structure
are the key business factor risk associated with the real estate property portfolio (Ling and
Naranjo 2015).
The property portfolio Compliance Issues may be with respect to internal and external
compliances, which the fund has to comply with the guidelines and regulations mentioned. The
legal aspects and the regulatory guidelines are some of the important aspects that the real estate
development funds need to adhere. The internal compliance comes with compliance and
guidelines mentioned by the rules and policy of the company and certain guidelines and rules

8PROPERTY PORTFOLIO ANALYSIS
placed by the creditors of the company with respect to compliance guidelines (Wainwright et al.
2015).
Economic and Property Market Context for Investment Decision
The Economic and Property Market Evaluation and analysis are some of the important
factors that needs to be evaluated for the assessment of the property portfolio. The property
market evaluation in the historical trend period has given us a brief idea that the Commercial and
the retail property growth was good when compared to other asset class. The property market
portfolio will provide an opportunity for exploring the business and financial opportunity
available for the fund investor. The macro-economic factors like inflation, GDP growth rate,
business growth rate and business cycle of the economy are some of the macro-economic factors
that should be taken into consideration while assessing the outlook of the fund. The property
market is a risky investment where the business risk associated with the real estate investment is
quite high and the beta of the fund with the overall performance of the economy is directly
linked. It means when the economy and the business function are at the boom stage the
performance for the real estate sector in the other hand will also be good (Ameyaw and Chan
2015).
Outlook for Performance of the Property Fund
The outlook for the performance of the property funds look volatile and could show a
high risk to return ratio benefits for the development fund investors. The performance outlook
for the fund looks good depending upon rising economy of Australia and the favorable economic
conditions. Moderate level of inflation in the economy and positive historical outperformance
with low level of standard deviation and volatility would favor the performance of the property
fund.

9PROPERTY PORTFOLIO ANALYSIS
Ongoing Critical Property Portfolio Management Issues
The critical property portfolio related issues, which can influence the financial viability
of the portfolio performance and the feasibility of the same is important in the long-term. The
critical property portfolio issues, which were identified, were the cost and time escalation and the
rising financing cost associated with the same.
Overall Recommendation
The financial evaluation and analysis of the property portfolio done helped us evaluate
the financial viability of the portfolio in the long term after incorporating various factors. The
business and macro-economic conditions were taken into account for assessing the financial
condition and the performance of the property portfolio in the long term. The financial analysis
and the risk assessment tool can be done by using risk assessment tools such as Scenario
Analysis and Sensitivity Analysis was performed in order to assess the value of the property
portfolio at different stages and the final value if some of the important factors incorporated
changes significantly.

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Part B
A REIT Valuation

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Fund Overview
The Australian Real Estate Investment Trust selected for the evaluation and analysis
purpose was the Rural Funds Management Trust (RFM Trust) is the oldest and the most
diversified fund in the Australian Economy. The Australian Real Estate Trust selected RFM
Trust invests primarily in the Farmland, Rural Infrastructure and Agricultural Activities. The
fund has an all-round of 21 years of record of accomplishment and the same has created a well-
diversified experience for the fund managers to identify and invest in asset classes that can yield
better returns for the fund. The Rural Fund Management is listed in the Australian Stock
Exchange (ASX) by the ticker symbol RFF. The Investment Trust Fund provides the investors of
the fund with various source of income. The Trust Fund aims to provide the source of income
through dividend payments and through Capital Growth in the form of increasing investment
value. The primary and potential source for the growth of fund is primarily dependent on the
leasing and ownership of agricultural property by the Trust.
Key Executives
The key executives for the Real Estate Investment Trust Fund were the Managing
Director of the Company David Bryant and the key executives for the company, which includes
the Business Executive, Financial Controller and the General Manager of the Trust.
Forecast Profits and Balance Sheet
The forecasted profit was made by forecasting the income statement of the Rural Fund
Management Trust Fund and there were general and other assumptions taken for forecasting the
same. The key forecasting that were done by assessing the business and the macro economic