Property Fund & REIT Valuation: Financial Analysis Project

This project constructs a real estate fund with a $500 million initial investment, diversified across commercial, residential, industrial, and warehouse properties, with a focus on property development and leasing, with buying and selling of properties focused on residential properties. The report examines the fund's economic and business factors. Part B evaluates Cromwell Property Group, forecasting its financials and valuing it using the dividend discount model, comparing the valuation to the market share price. The fund aims to generate income through capital gains and dividends. The fund will invest in commercial and industrial properties. The investment vehicle is the commercial and residential properties after assessing the macro economic conditions and the business factors under which the fund will be operating. The debt equity structure considered for the fund will be on the basis of the ratio of 80:20 ratio. The fund's future outlook is positive, with expected outperformance in the property market. Key development areas include properties in Melbourne and Frankston.

Running head: PROPERTY FUND & REIT VALUATION
PROPERTY FUND AND REIT VALUATION
Name of the Student:
Name of the University:
Author’s Note:

1PROPERTY FUND AND REIT VALUATION
Executive Summary
The aim of the assignment is to construct a real estate fund with an initial amount of 500
million dollars and the same will be invested in the different group of real estate properties.
The various type of real estate properties taken into consideration are the commercial,
residential, industrial and warehouses projects. The company will be engaging in developing
the properties and also leasing the same. The buying and selling of the properties will be
primarily focused on the residential properties. The economic and the business factors of the
fund under which the fund will be operating are discussed in the first section of the report.
The second part of the assignment deals with the evaluation of the Cromwell Property Group
and the analysis of the same. The financials for the company was forecasted in order to
determine the future prospects of the fund. The valuation for the company was done by using
the dividend discount model and the valuation was compared with the current market share
price of the company.

2PROPERTY FUND AND REIT VALUATION
Table of Contents
Part A.........................................................................................................................................3
Cityrise Property Fund...............................................................................................................3
Investment Vehicle.................................................................................................................3
Strategic Objective of the Fund..............................................................................................3
Debt/Equity Structure.............................................................................................................4
Property Portfolio Construction Issues..................................................................................4
Risk Management and Compliance Issues.............................................................................4
Economic and Property Market Concept...............................................................................5
Future Outlook of Performance of the Property Fund...........................................................5
Ongoing Critical Portfolio Management Issues.....................................................................5
Part B..........................................................................................................................................6
Cromwell Property Group..........................................................................................................6
Forecasting Financials............................................................................................................7
Valuation of the Stock............................................................................................................9
Investment Recommendations.............................................................................................10
Reference..................................................................................................................................11
Appendix..................................................................................................................................13

3PROPERTY FUND AND REIT VALUATION
Part A
Cityrise Property Fund
The property fund developed for the purpose of the investment aims to cover the
major aspect of the real estate property market by incorporating the commercial, industrial
and warehouse properties. The proposed fund will be aiming at investing into companies
which develops properties and sells the properties directly. The properties and companies
selected for the fund will primarily from the local domestic country that is Australia. The 500
million would be primarily invested in the real estate properties where the weightage given
for the commercial and industrial properties would be the highest (Hoesli and MacGregor
2014). Around 50% of the funds investible amount of money will be invested into the
commercial properties and companies whose operations are primarily based on the operations
of such properties. The Cityrise Property Fund will be equally distributing the investible set
of amount among the various types of properties group and real estate companies. The
primary sources of income generation for the fund would be derived through capital gains
and dividend income received from the real estate property investments (Chandra 2017).
Investment Objective The Cityrise property fund developed for the purpose of the
investment aims to cover the major aspect of the real estate
property market by incorporating the commercial, industrial
and warehouse properties.
Fund Overview The proposed fund will be aiming at investing into
companies, which develops properties and sells the
properties directly.
Investment Manager Cityrise Investment Group
APIR Code MF1234567AU
Property Type Commercial, Residential Property, Industrial property
Investment Type Closed Ended, Unlisted property Type
Status Open for Investment
Equity Target $500,000,000
Management Cost 1.5% p.a
Team Experience 40 years

4PROPERTY FUND AND REIT VALUATION

5PROPERTY FUND AND REIT VALUATION
Investment Vehicle
The investment vehicle considered for the fund is the commercial, industrial and real
estate properties where the fund will be focusing on utilizing the $500 million into leasing the
properties or involve in transaction sale of properties. The investment vehicle selected for the
fund is the commercial and residential properties after assessing the macro economic
conditions and the business factors under which the fund will be operating (Booyens and De
Beer 2016).
Investment Approach:
 Active Management
 Risk Management
 Diversification
Asset Allocation
Location Allocation
Melbourne 50%
Frankston 50%

6PROPERTY FUND AND REIT VALUATION
Strategic Objective of the Fund
The strategic objective of the fund will be realising the various sources of income
generation from commercial and residential properties. The allocation of the fund into
commercial properties, residential and warehouses project will be in accordance with the
ratio of 50%, 30% and 20%. The key objective of the fund is incorporate the benefits of the
growing real estate property market of Australia (McIntosh, Fitzgerald and Kirk 2017).
Debt/Equity Structure
The debt equity structure considered for the fund will be on the basis of the ratio of
80:20 ratio. Around $400 million would be borrowed from Equity and around $100 million
of the fund would be generated from equity (Stark 2015). The debt funding for the fund was
kept at 20% so that the same would give the fund a tax benefit in the form of interest
expenses paid by the firm. The equity source of funding would also be dependent on the unit
holders of the fund which would primarily contribute the fund for the property (Costantino,
Di Gravio and Nonino 2015).

7PROPERTY FUND AND REIT VALUATION
Property Portfolio Construction Issues
The primary issue considered with the portfolio is the diversification issue i.e., the
unsystematic risk of the property portfolio which can be removed if the investment is
diversified across various asset class (Valdyanathan, Krishnakumar and Noonum 2018). The
portfolio constructed with the real estate properties needs to be diversified among the
commercial and real estate properties so that the business risk can be reduced. Asset
management and the operations of the same are some of the crucial factors that needs to be
analysed while evaluating the portfolio.
Financing
Structure
EquityDebt

8PROPERTY FUND AND REIT VALUATION
Risk Management and Compliance Issues
The risk management associated with the project assignment could be well associated
with the market risk, investment risk and the macroeconomic risks associated with the fund.
The same can be mitigated and forecasted by the fund manager by evaluating the various
factors under which the asset class operates and the sensitivity of the same with respect to the
economy (Aouni, Colapinto and La Torre 2014). There are other several compliance issues
also, which the fund may face that is legal and regulatory compliance which the fund may
have to face. The rules and regulations setup by the fund acts as the key guidelines for the
company. Market risk and the investment risk is quite high for property analysis as the above
risks changes rapidly with the changes in the business and macro-economic condition of the
economy (Grimaldi et al. 2015).
MF Australia
Logistic

9PROPERTY FUND AND REIT VALUATION
Economic and Property Market Concept
Investment into real estate project in itself has been highly correlated with the
performance of the economy related with the property market. Prevailing level of interest
rate, inflation rate in the economy and the Australian GDP growth rate are some of the crucial
factors that will be analysed. The property market is highly correlated with the economic
scenario of the economy and the same can be forecasted with the help of the various kinds of
business cycle in the economy. The prospect of the fund looks good as the stock will be
equally investing the amount $500 as per the risk and return preference of the fund
(Chourmouziadis and Chatzoglou, 2016).
Future Outlook of Performance of the Property Fund
The future outlook for the performance of the fund is expected to outperform the
property market. The performance and trend of the property fund will be highly related to the
type of business services provide by the fund. The performance of the GDP growth rate and
the Australian real estate market is expected to outperform and create wealth for the
shareholders of the fund (Seifert, Tancrez and Biçer 2016).
Ongoing Critical Portfolio Management Issues
The ongoing critical portfolio management issues which the fund may face are
particularly in the field of managing the operations of the fund and the various business
operation considered for the fund. The crucial portfolio management issues needs to be
identified and needs to be assessed carefully by the fund (Clayton et al. 2017).
Fund
Manager MF Global
Corporation
OTHER
OFFSHORE
Investors
MF Astralia
Corporation

10PROPERTY FUND AND REIT VALUATION

11PROPERTY FUND AND REIT VALUATION
Management Structure
Management Team Biography
 Tom Kirkman: Managing Director/Portfolio Fund Manager
o Graduated in Economics (Honours) and M.Sc. in Finance from Harvard
University.
o 15 Years of work experience in the property fund management.
 Andrew Lewis: Head of Investment
o PHD in Property and Real Estate Management
o 14 Years of working experience in the fund management.
o Jack Sparrow: Research and Strategy
o PhD in Economics and a CFA
o 10 Years of work experience in investment management
o Agustin Diaz: Business Development
o Bachelor in Commerce and Post-Graduation in Management
Cityrise Investment
Fund Commitee
Head of Investment
(Andrew Lewis)
Research and
Strategy
(Jack Sparow)
Business
Development(Austin
Maria)
Portfolio/Fund
Manager (Tom
Kirkman)