Property Investment and Risk Management Analysis Report - 2019 Q1

This report provides a detailed investment analysis of a multi-tenant office building located in Auburn, NSW, Australia, specifically 18-20 Ettalong Street. The analysis includes a discounted cash flow (DCF) projection over a 10-year period, calculating expected gross revenue, operating expenses, and net cash inflows. The report also incorporates tenancy and outgoing schedules for two tenants, outlining rental rates, expenses, and reimbursement revenues. Key financial metrics such as Net Present Value (NPV) and Internal Rate of Return (IRR) are calculated to assess the property's investment potential. The report considers various assumptions, including discount rates, terminal yields, and market conditions to evaluate the financial implications of renting the property. The impact of leverage, risk, and taxation on investment potential is also discussed, providing a comprehensive assessment of the property's investment viability.

Running head: PROPERTY INVESTMENT AND RISK MANAGEMENT
Property Investment and Risk Management
Name of the Student:
Name of the University:
Authors Note:

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PROPERTY INVESTMENT AND RISK MANAGEMENT
Contents
Introduction:....................................................................................................................................2
Investment analysis:.........................................................................................................................2
Discounted cash flow from the property:....................................................................................6
Tenancy schedule and outgoing schedule:................................................................................12
Discount rate:.............................................................................................................................22
Terminal yield:...........................................................................................................................22
Asking price:..............................................................................................................................22
Outgoing growth rate and CPI:..................................................................................................23
Market rent:...............................................................................................................................23
Net present value:......................................................................................................................23
Internal rate of return:................................................................................................................35
Impact of leverage, risk and taxation on investment potential:.....................................................37
Conclusion:....................................................................................................................................46
References:....................................................................................................................................47

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PROPERTY INVESTMENT AND RISK MANAGEMENT
Introduction:
Situated in Auburn, NSW, Australia, 18-20 Ettalong Street property is stretched to a total floor
area of 1220 square foot. It is a fully furnished property and extremely desirable from the point
of view of tenants due to its location. The reason that the property is so desirable is due to its
proximity to 22 primary schools located around it along with 70 DA approved places. The
property is also situated right behind the metro station in Ettalong Street making it even more
attractive for daily communication and connectivity. Considering the current market situation in
the real estate industry the owner should consider renting the property to tenant / tenants instead
of selling it in the real estate market. Attractive annual rent is expected to accrue from the
property due to the characteristics of the property as mentioned above. Taking into consideration
the market conditions and based on appropriate assumptions a detailed calculation has been
undertaken in document to assess the financial implications of the proposal to rent the property
in the future for the owner of the property (Wang and Wu, 2018).
Investment analysis:
In order to conduct a detailed investment analysis on the property it is important to have detailed
information about the property as well as the underlying variables. Considering the number of
assumptions that are required to conduct analysis of an investment proposal it is important to
make such assumptions properly to ensure that the final outcome of the investment analysis is
close to the reality in the future (Bird and Hunt, 2017).
The detailed information about the property and the market conditions commensurate to the
property and its location are contained in the table below. Using the data and information from

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PROPERTY INVESTMENT AND RISK MANAGEMENT
the table below a detailed investment analysis shall be conducted to calculate the expected return
from the property in the future (Calabrese, 2017).
Data about the property and its tenancy agreement
Property Name: 18-20 Ettalong Street
Property address 18-20 Ettalong Street property is situated
in Auburn, New South Wales
Property Type (Use of the property) Multi-tenant Office Bldg.
Floor Area of the property (Sq. Ft.): 1,220
Rental period starting from: 01.01.201
9
Rental period in years 10
Inflation rate in general 4%
Vacancy period 0%
Loss in rental due to vacancy 0%

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PROPERTY INVESTMENT AND RISK MANAGEMENT
Expenses reimbursed
Maintenance of the property $1.80 per sq. ft./yr.
Property tax $1,200 per yr.
Insurance premium on the property $0.75 per sq. ft./yr.
Utilities $1.60 per sq. ft./yr.
Administrative expenses $0.25 per sq. ft./yr.
Expenses not to be borne by property owner
Management expenses 4% of Annual gross rent
Market conditions and situations
Market rent for such property $120.00 per sq. ft./yr.
Number of months the property was vacant 0 Months
Allowance for improvement of the property $1.60 per sq. ft.
Length of the rental period 10 years
Resale Assumptions:
Terminal value cap rate 10%

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PROPERTY INVESTMENT AND RISK MANAGEMENT
Commission on resale value 2%
Valuation Assumptions:
Discount rate 8.00%
Information about the tenants and rent to be paid by them are contained in the table below:
Two tenants will share the property
Tena
nt 1
Tenant
2
Name of the tenants Abiga
il
Smith
David
Whatm
ore
Rental Rate/Sq. Ft. $120.
00
$120.00
Occupied Area in Square feet (tenants) 720 500
Term of rental agreement beginning from 01- 01-01-

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PROPERTY INVESTMENT AND RISK MANAGEMENT
01-19 19
Number of years in the agreement 10 10
Using the above information and data let us proceed towards calculation of discounted cash
inflows from the property, net present value of the property and internal rate of return (Cornell,
2016).
Discounted cash flow from the property:
Discounted cash flows from the property during the period between 2019 and 2024 are provided
in the table below:
Discounted cash inflow
projection
Years Year 1 Year 2 Year 3 Year 4 Year 5
Period ending on: Dec-19 Dec-20 Dec-21 Dec-22 Dec-23
Expected gross revenue from
rent
Revenue from rent $146,400 $152,256 $158,346 $164,680 $171,267
Less: Loss due to vacancy $0 $0 $0 $0 $0
Scheduled Base Rental $146,400 $152,256 $158,346 $164,680 $171,267

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PROPERTY INVESTMENT AND RISK MANAGEMENT
Revenue
Reimbursed expenses $6,568 $6,746 $6,931 $7,124 $7,324
Total expected gross revenue $152,968 $159,002 $165,278 $171,804 $178,592
Operating Expenses
Reimbursable Expenses
Maintenance of the property 2,19
6.00
2,2
83.84
2,37
5.19
2,47
0.20
2,56
9.01
Property tax 1,20
0.00
1,2
00.00
1,20
0.00
1,20
0.00
1,20
0.00
Insurance premium on the
property
91
5.00
91
5.00
91
5.00
91
5.00
91
5.00
Utilities 1,95
2.00
2,0
30.08
2,11
1.28
2,19
5.73
2,28
3.56
Administrative expenses 30
5.00
31
7.20
32
9.89
34
3.08
35
6.81
Non-reimbursable Expenses

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PROPERTY INVESTMENT AND RISK MANAGEMENT
Management expenses 5,85
6.00
6,0
90.24
6,33
3.85
6,58
7.20
6,85
0.69
Total Operating Expenses 12,424
.00
12,83
6.36
13,265
.21
13,711
.22
14,175
.07
Operating income $140,544 $146,166 $152,012 $158,093 $164,417
Capital cost
Allowance for improvements $1,880 $1,955 $2,033 $2,115 $2,199
Total Capital Costs $1,880 $1,955 $2,033 $2,115 $2,199
Cash inflow after meeting all
expenditures
$138,664 $144,211 $149,979 $155,978 $162,217
PV factors @8% pa 0.925925
926
0.857338
82
0.793832
241
0.735029
853
0.680583
197

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PROPERTY INVESTMENT AND RISK MANAGEMENT
Discounted cash inflow (Net) $128,392.
59
$123,637
.31
$119,058.
15
$114,648.
59
$110,402.
35
Discounted cash flows from the property during the period between 2025 and 2029 are provided
in the table below:
Discounted cash inflow
projection
Years Year 6 Year 7 Year 8 Year 9 Year 10
Period ending on: Dec-24 Dec-25 Dec-26 Dec-27 Dec-28
Expected gross revenue from
rent
Revenue from rent $178,118 $185,243 $192,652 $200,359 $208,373
Less: Loss due to vacancy $0 $0 $0 $0 $0
Scheduled Base Rental
Revenue
$178,118 $185,243 $192,652 $200,359 $208,373
Reimbursed expenses $7,533 $7,749 $7,975 $8,209 $8,453

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PROPERTY INVESTMENT AND RISK MANAGEMENT
Total expected gross revenue $185,651 $192,992 $200,627 $208,568 $216,826
Operating Expenses
Reimbursable Expenses
Maintenance of the property 2,67
1.77
2,77
8.64
2,88
9.79
3,005.
38
3,125.
59
Property tax 1,20
0.00
1,20
0.00
1,20
0.00
1,200.
00
1,200.
00
Insurance premium on the
property
91
5.00
91
5.00
91
5.00
915.
00
915.
00
Utilities 2,37
4.91
2,46
9.90
2,56
8.70
2,671.
45
2,778.
30
Administrative expenses 37
1.08
38
5.92
40
1.36
417.
41
434.
11
Non-reimbursable Expenses
Management expenses 7,12
4.72
7,40
9.71
7,70
6.10
8,014.
34
8,334.
91
Total Operating Expenses 14,657 15,159 15,680 16,223. 16,787.

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PROPERTY INVESTMENT AND RISK MANAGEMENT
.47 .17 .94 58 92
Operating income $170,993 $177,833 $184,946 $192,344 $200,038
Capital cost
Allowance for improvements $2,287 $2,379 $2,474 $2,573 $2,676
Total Capital Costs $2,287 $2,379 $2,474 $2,573 $2,676
Cash inflow after meeting all
expenditures
$168,706 $175,454 $182,472 $189,771 $197,362
PV factors @8% pa 0.630169
627
0.583490
395
0.540268
885
0.500248
967
0.463193
488
Discounted cash inflow (Net) $106,313.
37
$102,375.
84
$98,584.1
4
$94,932.8
8
$91,416.8
4