Strategic Property Portfolio Analysis: Fund Setup & A-REIT Valuation

This report presents a comprehensive property portfolio analysis, focusing on the establishment of the Sunrise Property Fund and the valuation of the Charter Hall Residential Real Estate Investment Trust (A-REIT). Part A details the strategic planning for a new $500 million property fund, covering investment vehicle selection, strategic objectives, funding structure, portfolio construction, risk management, economic context, and future prospects. The fund aims to invest in Australian residential and commercial properties, targeting a 5% annual return. Key issues include diversification and managing business risks associated with leasing structures and macroeconomic factors. Part B provides an assessment of the Charter Hall Residential REIT, including a forecasted profit and loss statement and valuation using the dividend discount model. The analysis concludes with investment recommendations based on the REIT's financial performance and market conditions. The report recommends that the fund's performance is predicted to remain sustainable depending upon the business structure of the fund.

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

1PROPERTY PORTFOLIO ANALYSIS
Executive Summary
The aim for the project is to construct a property portfolio, which will be constructed using the
500 million dollars, which would be invested into the newly developed Sunrise Property Fund.
The evaluation of the property portfolio will be done based on the operations of the fund and the
economic scenario under which the company will be operating. The objectives and the goals of
the company will be evaluated so as to analyses the future prospect of the company. The outlook
and the issue faced by the find in the due course of the find were discussed. The second part of
the assignment deals with the assessment of the A- RIT index Charter Hall Residential that was
considered for the evaluation. The financials of the company was forecasted for the company and
the valuation of the fund was done using the dividend discount model, which helped us analyze
the fair market value of the company.

2PROPERTY PORTFOLIO ANALYSIS
Table of Contents
Part A...............................................................................................................................................3
Overview of Sunrise Property Fund............................................................................................3
Details and Justifications.............................................................................................................3
Investment Vehicle..................................................................................................................3
Strategic Objective of the Fund...............................................................................................4
Financing Structure..................................................................................................................4
Property Portfolio Construction Issues....................................................................................4
Risk Management and Compliance Issues..............................................................................5
Economic and Property Market Context for investment Decisions........................................5
Future Prospect of the Fund.....................................................................................................6
Ongoing Critical Property Portfolio Issues..............................................................................6
Overall Recommendations...........................................................................................................6
Part B...............................................................................................................................................7
Charter Hall Residential Real Estate Investment Trust...............................................................7
Forecasted Profit and Loss Statement......................................................................................7
Valuation of the Stock...........................................................................................................11
Investment Recommendations...............................................................................................12
Reference.......................................................................................................................................14

3PROPERTY PORTFOLIO ANALYSIS
Part A
Overview of Sunrise Property Fund
The Sunrise Property Fund will be aiming at investment areas in the residential and
commercial properties in Australia. The investment areas where the company will be primarily
focusing is on the commercial property where the fund structure would be primarily investing
into the commercial properties and leasing the same (Hoesli & MacGregor, 2014). The source of
revenue for the company will be coming from the sale of commercial properties and the leasing
income generated by the leasing of the commercial properties of the assets held by the fund. The
500 million fund would be used in the residential and commercial properties by the sunrise
property fund. The weightage given for the residential commercial area would be the highest
around 60% of the total fund would be invested in the residential properties that is 300 million
dollars and 200 million dollars would be invested in the commercial property. The revenue for
the company will be growing at an average growth rate of around 5% p.a.. The growth in the 500
million property fund will be significantly depending on the economic and the business factor
under which the fund will be operating. The reason for selecting the commercial and residential
property for the purpose of the investment is the growing Australian Property market. The
favorable macro-economic conditions and the sustainability of the return generated from the
property market is the key reason for selecting the specific fund style (Grimaldi et al. 2015). The
key customers for the fund will be the commercial users and the high premium residential
property buyers for the fund. The key focus for the company is to identify and explore the
property market and alternatively identify the various sources of revenue generation for the
company. The benefits for investing into the fund will be the diversification benefit the fund will

4PROPERTY PORTFOLIO ANALYSIS
be providing into the commercial and residential areas and the sustainability of the income would
be insured by the income generated in the form of rent and rates collected from the leased
property (Stobbs & Biernacki, 2017).
Investment Objective Sunrise Property Fund will track a record of
around 5%p.a on the average five-year
investment period.
Fund Overview The Sunrise Property Fund will be aiming at
investment areas in the residential and
commercial properties in Australia.
Investment Manager Sunrise Investment Group
APIR Code MF000789AU
Property Type Commercial and Retail Property
Investment Type Closed Ended, Unlisted property Type
Status Open for Investment
Equity Target $500,000,000
Management Cost 1.2% p.a
Team Experience 20 years
Investment Approach:
 Active Management
 Risk Management
 Diversification
Asset Allocation
Location Allocation
Sydney 50%
Melbourne 30%
Brisbane 20%


5PROPERTY PORTFOLIO ANALYSIS
Details and Justifications
Investment Vehicle
The investment vehicle in which the Sunrise Property Fund will be investing is into the
Australian Residential and Commercial Properties. The residential and the commercial properties
in the Australian economy has the potential for growth and the same could be seen by the past
trend growth rate of the company. The property will be focusing on the leasing services of
commercial, residential property, and not directly engaging with the buying and selling of the
properties (Weatherill et al. 2015). The 500 million property fund will be invested in the ratio of
60:40 ratio where the source of income generation for the company will be from capital gains
and dividend income.
Strategic Objective of the Fund
The fund primary objective will be identification of the key areas and the type of
properties demanded by the customers. The same would enable the property fund managers
identify the crucial factors for the progress of the company and the growth rate of the fund. The
funds business will be comparatively less risky from direct investment into commercial and
residential services as the income generated will be from leased properties. The income
generated will be distributed to the unit holders of the fund in proportion of the units held by
them (Poon, 2017).
Financing Structure
The financing structure for the company will shows the amount of debt or equity
exposure for the fund. The unit holders or the equity sources, which will compose of 80% of the
overall capital of the company, will fulfill the fund primary requirement for the capital (Chandra,
2017). The debt exposure for the company will be done in order to get the tax benefit from the

6PROPERTY PORTFOLIO ANALYSIS
income generated by the fund, which will help the company have a lower effective tax rate
(Chandra, 2017). The financing structure for the company will be on the basis of 80:20 ratio that
is through equity and debt sources.
Property Portfolio Construction Issues
The Property Portfolio will be constructed between the two key areas, which will
comprise of the residential and commercial property group. Diversification is the key issue,
which the fund will be facing; the fund should explore various other areas of asset class so that
the sources of revenue generation for the company are diversified (Enever, Isaac & Daley 2014).
The key risk analyzed in the fund pertaining to the business risk is the volatility in the leasing
structure of the property revenue generated and the changing macro-economic structure of the
economy. The sustainability in the level of inflation and the rising GDP of the economy may be
some of the key factors, which the fund should undertake while analyzing the prospect of the
fund. The exposure of the debt with the cost escalation associated with property market are some
of the key business risk, which the company should evaluate (Liao et al. 2015).
Financing
Structure
EquityDebt

7PROPERTY PORTFOLIO ANALYSIS
Risk Management and Compliance Issues
The risk management of the fund will be done after the analysis of the key factors of the
fund and the sensitivity factors for the fund, which influence the operations of the fund. The use
of the sensitivity analysis is the key risk assessment tool, which the company should use which
should incorporate the level of inflation, rent and rates structure and growth of the property
market. The leasing structure designed by the fund should be such so that the same remains
within the best interest of the fund in terms of changing business conditions and macroeconomic
environment.
Sunrise will strictly adhere to the rules and regulations of the fund and certain other
regulatory and legal compliance, which the company will be following. The fund should well
operate within the mentioned rules and regulations of the company such as the fund should
follow the primary objective of leasing property and should not engage in buying/selling
properties. The same can affect the financials of the company but in the long term sustainability
will be the key issues faced by the company unit holders in the form of income generation.
Legal Structure
Fund
Manager
MF Australia
Logistic
MF Global
Corporation
OTHER
OFFSHORE
Investors
MF Astralia
Corporation

8PROPERTY PORTFOLIO ANALYSIS
Economic and Property Market Context for investment Decisions
The performance of the property market is highly correlated with the performance of the
economy and the other macro-economic conditions. Key macro-economic factors like the level
of interest rate in the economy, inflation forecast and the growth rate of GDP in the economy are
some of the ley macro-economic factors, which the fund should take into consideration for
deciding the future prospects of the company.
Future Prospect of the Fund
The future prospect of the company is highly dependent on the demand for the
commercial and revenue properties created by the customers, which will in turn derive and
generate the revenue for the fund. The sustainability of the company will be seen, as the lease
contract the fund will be offering for the property leased will be on a long-term contractual basis
with several changes and modification in terms of maintenance cost and cost escalations clauses,
which will be reviewed annually by the fund. Moderate inflation and the rising Australian
economy would better incorporate the growth prospect of the economy (Smit, 2018).
Ongoing Critical Property Portfolio Issues
The management of assets in the form of leasing the properties and maintain the leasing
structure such as continuity of the services is the key issue which the fund may face. The
business risk for the fund is the only prime concern which the fund should consider and evaluate
other alternative strategies for the same. Leasing Structure and the agreement by the fund in the

9PROPERTY PORTFOLIO ANALYSIS
terms of the management of the properties are the critical issue, which the fund should undertake
and evaluate.
Overall Recommendations
The fund performance is predicted to remain sustainable depending upon the business
structure of the fund. The growth for the company is primarily dependent on the performance of
the company and the business environment of the fund. The level of interest rate for the fund is
expected to remain sustainable which will be in favor of the fund. The fund is expected to
outperform the benchmark index of S&P 500 Australian REIT Index.
Part B
Charter Hall Residential Real Estate Investment Trust
The Charter Hall Residential Real Estate Investment Trust invests in Commercial
Australian Supermarkets, which are primarily located in the metro and non-metro areas. The
portfolio for the fund is highly diverse with different kind of commercial properties, residential,
logistic and industrial properties under the portfolio of property. The property portfolio for the
fund is distributed in all over the regions of the Australia where the demand for such properties
are the most. The top tenant for the fund is the Woolworths Company, which contributes the
highest amount of rental income for the Company. The primary significant objective for the
REIT is property investment and the company has remained the core business activity since the
incorporation of the same. The REIT considers various business and macro-economic conditions
of the property before the investment into portfolio of properties. The primary assessment of the
property include the assessment of the environment under which the property is situated, the
geographic diversification of the portfolio and the long term demographic trend growth rate of

10PROPERTY PORTFOLIO ANALYSIS
the investment to be done are some of the factors to be considered before the evaluation of the
investment. The key assets of the REIT includes the range of commercial, residential and
industrial property where the value of the same changes with the changes in the economic
conditions and the business factors under which the property operates.
Forecasted Profit and Loss Statement
The profit and loss statement for the company was forecasted for the Charter Hall
Residential Company by looking at the past performance of the company in the past five years.
The average growth rate was analyzed for the company and the various business conditions and
the macro economic conditions like the level of interest rate, inflation rate in the economy and
the growth rate of the Australian GDP are some of the key factors that were analyzed in the
evaluation of the income statement for the company (Hasan et al. 2016). The revenue forecast for
the company primarily depends on the tenancy collected by the fund in the form of rent and rates
collected and the forecast for the same depends on the increase in the total assets of the company.
The key expenses for the company is the operating expenses, which the company has to spend on
the maintenance of the various kind of property group the fund has under the portfolio of
properties. The company has a good amount of debt financing done in the form of long-term debt
financing used by the company. The interest burden for the company also stand out to be the key
expenses for the company as the level of debt exposure for the company stand out high. The
same increase the financial risk for the company and as the business risk for the company it is
advisable for the company to reduce the level of debt so that the financial risk of the company
remains low. The Company has also sources for income from different sources other than the
income earned from collection of rent and tenancy (Wu et al. 2016). The average profitability for
the company was evaluated by taking into consideration the past five year financials trend for the

11PROPERTY PORTFOLIO ANALYSIS
company. The Earnings per share of the company was seen considerably grow at a constant
growth rate of about 10% p.a. The outstanding share for the company also did not showed any
major changes as the shares outstanding for the company on an average changed only about 2-
3%p.a. The balance sheet of the company was also evaluated based on the average annual
growth rate provided by the company in the past five year trend analyzed. The changes in the
non-current assets of the company which primarily constituted the properties did not show major
changes for the company and the same grew about 5-6%p.a. annually. The annual growth rate of
the receivable for the company has decreased, which shows a positive impact for the fund that
they are been to realize the due amount more efficiently from the debtors of the company (Peng
et al. 2017). The liabilities of the company includes the long term borrowings of the company
which on an average has been increased by the company. The increase in the debt financing is
expected to increase for the fund as the operations of the fund continues to grow. The common
stock of the company also increased by about 1.23% on an average basis for the trend period
analyzed. The same was forecasted for the company that the increase in the same will be at an
average growth rate of about 1.23% p.a.
CHARTER HALL RESIDENTIAL REIT BALANCE SHEET
Particulars 2019 (F) 2020 (F) 2021 (F) 2022 (F) 2023 (F)
Assets
Cash and cash equivalents 67540 74294 81723 89896 98885
Receivables 12668 12345 12031 11724 11425
Other assets 2868858 3053818 3250704 3460282 3683373
Total assets 2949066 3140458 3344458 3561902 3793683
Liabilities and stockholders' equity
Short-term borrowing
Long-term debt 1026143 1132103 1249004 1377977 1520268