University of Technology Sydney

17518 Real Estate Asset Class Analysis

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Subject handbook information prior to 2024 is available in the Archives.

UTS: Design, Architecture and Building: School of the Built Environment
Credit points: 6 cp

Subject level:

Postgraduate

Result type: Grade and marks

There are course requisites for this subject. See access conditions.

Description

This subject develops students' understanding of how to analyse investments in Real Estate Asset types such as residential, commercial, retail, industrial, student accommodation, and retirement village. Key to this understanding is an appreciation of the differences and similarities across property funds and going concerns real estate investments. Drawing on skills in investment property valuation, the subject discusses the underlying drivers of value for each asset types and levels of risk and return of property classes. It examines the holistic real asset lifecycle, and the unique importance of each property class. Students develop an in-depth understanding of the due diligence process involved in making real asset decisions and will also be exposed to the ESG implications associated with each Real Estate Asset type. The importance of green property finance and investment is also covered. Overall, students gain knowledge of the financial and market characteristics of real estate asset class which reinforces their investment analytical skills.

Subject learning objectives (SLOs)

On successful completion of this subject, students should be able to:

1. Demonstrate an understanding of the types and main characteristics of various real estate assets.
2. Develop critical thinking skills by identifying and assessing the drivers and cycles of different real estate types, as well as levels of risk and return of property classes.
3. Make rational decisions on the type of real estate assets to invest, given a range of property alternatives by conducting due diligence around investment purpose, KPIs, risk and financial environment.
4. Demonstrate an understanding of ESG that impact investment decision in the asset class.

Course intended learning outcomes (CILOs)

This subject also contributes to the following Course Intended Learning Outcomes:

  • Effectively apply a variety of communication skills and technologies in professional contexts (C.1)
  • Apply a theoretical and practical understanding of research methods to the investigation and analysis of property markets (P.2)
  • Apply a comprehensive understanding of property market drivers and key risk analysis techniques applicable to contemporary industry based practice (P.3)
  • Demonstrate a theoretical and practical understanding of built environment law and procedures in a variety of property-related contexts (P.4)
  • Apply a comprehensive theoretical understanding of sustainable urban development principles to contemporary property development contexts (P.5)
  • Apply appropriate technical analytic skills to a professional standard (P.8)
  • Demonstrate knowledge of research principles and methods applicable to property development (R.1)
  • Apply cognitive, technical and creative skills to evaluate and synthesise complex ideas and concepts in property development (R.2)

Contribution to the development of graduate attributes

The term CAPRI is used for the five Design, Architecture and Building graduate attribute categories as follows:

C = communication and group work
A = attitudes and values
P = practical and professional
R = research and critique
I = innovation and creativity

Real Estate Asset Analysis encourages student learning to develop these graduate attributes. The course content, learning strategies and assessment structure is explicitly designed with these attributes in mind.

Teaching and learning strategies

The subject is undertaken in block mode over two Friday & Saturday blocks.

The subject will be delivered through a blend of interactive lectures on key concepts and project-based learning relating to the financial and market characteristics of real estate asset class. The subject deliverables will include generating and assessing real estate data and information to inform investment decisions. There will be collaborative problem-solving exercises, involving current property markets and case studies, to strengthen key concepts discussed in class. Students are required to conduct real-life property market research on what to invest in and discuss the sustainability considerations of a chosen investment asset. There will be two separate guest speakers to share their expertise or perspectives about the subject to enhance learning outcomes. Online resource materials are also provided throughout the semester via Canvas to encourage flipped learning. Demonstration of learning is undertaken using a variety of assessment techniques that include group activities and presentations in class, evaluation of property data and information, property investment report writing, and a report on the green features of property assets.

Content (topics)

Block 1 (Part A & Part B): This Block will examine important characteristics of various property types such as (locations, income streams, income yield, capital growth, lease terms, tenants, minimum funds allocation, tax transparency, dividend payout, liquidity, right and burden of property ownership, property management skills, transaction cost, and building features) as well as the drivers (demand and supply, property cycles, macro/micro economic factors etc.) that affect investment decisions. This Block will also cover how property quality is divided into classes such as A, B, and C and the levels of risk and return of property classes. These characteristics will be examined for the following property types:

  • Residential (houses/apartments)
  • Office
  • Industrial (Logistics & Manufacturing)
  • Large Format Retail
  • Shopping Centres
  • Student Accommodation
  • Retirement Village
  • Going Concerns (Self-storage, Childcare, Pubs & Hotels, Service Stations)
  • Emerging Investment Opportunities
  • Property Funds
  • + Guest Speaker

Block 2: Part A: Property Investment and Financial Due Diligence: Block 2 will cover the concept of due diligence in real estate to aid investment decisions. Students will learn how to conduct financial due diligence checks for an underlying property type with emphasis on the following:

  • Purchasing price check and acquisition costs
  • Profit and loss statement of the current year and the past 3-5 years, if available.
  • Tenancy-mix and lease term, lease expiry date, and various lease agreements
  • Repairs and capital improvement including HVAC
  • Property taxes including land tax
  • Strata fee or insurance premium
  • Potential gross rental income
  • Other incomes from the property
  • Vacancy loss
  • Management fees
  • Council rates
  • Other expenses
  • Current year income Analysis (gross income multiplier, net income multiplier)
  • Current year financial analysis (operating expense ratio, break-even ratio, debt coverage ratio, and loan to value ratio)
  • Current year profitability analysis (capitalisation rate, equity dividend rate)

Block 2: Part B: Property Investment and Sustainability Considerations. The sustainability component of due diligence is covered in this part with a focus on the following:

  • Introduction to property investment (motivation for property investment, concerns of property investment, property clock, property investment players, property investment vehicles)
  • Green and environmentally friendly property investment (evidence/indices of global warming, local initiatives, environmental, social and governance (ESG), green vs non-green investment performance)
  • Summary of concepts
  • + Guest Speaker

Assessment

Assessment task 1: Property Investment Preliminary Analysis

Intent:

Assessment 1: Property Investment Preliminary Analysis (Individual Assignment 40%): The aim of this assessment is to conduct a preliminary analysis of a real estate for investment purposes. You are required to make a case for investing in an underlying asset.

A recent review of the investment portfolio of a property company by a team of experts recommended an additional investment of around $500-$800 million in an income-producing real estate asset. Accordingly, the CEO has asked the investment team to provide the required data and information to inform Management’s decision regarding this new investment. Assuming you are the “Investment Team Leader” of this property company, you are required to produce a market report of a major income-producing property that is aligned with the Company’s investment objectives outlined below:

  • The subject property must be an existing income producing asset - office, industrial or retail property.
  • The asset is in one of the major cities of Australia such as Adelaide, Brisbane, Canberra, Darwin, Hobart, Melbourne, Perth, and Sydney
  • The maximum the Fund can spend in acquiring this asset is $800M.
  • The holding period of this investment is 10 years.
  • The underlying asset should produce a total return (IRR) of at least 5% per year. (Please note - you are not required to generate the IRR)
  • The Company also has serious consideration for energy efficiency and the Management requires an asset with a minimum of 3-4 NABERS Star rating or a Green Star.

Content of the Report

Your report should include an executive summary and discuss the following:

Part A: The subject property should be consistent with the Company’s objectives. Student should identify the asset in one of the major cities of Australia - Adelaide, Brisbane, Canberra, Darwin, Hobart, Melbourne, Perth, and Sydney and discuss key characteristics of the underlying property including:

  • Asset type
  • Location of the asset
  • Lease and tenancy profile
  • Asking price and acquisition costs
  • Condition and age of property
  • Current return and risk
  • Demand and supply of the area
  • Energy efficiency rating of the asset

Part B: Compare and contrast the investment returns in the last 5-10 years of the subject property across core property sector markets of retail, office, industrial and residential and discuss key drivers of investment performance. (You may include charts and tables in this section to enhance your discussion)

Part C: As the market is forward looking, elaborate on the future performance of the underlying asset. Student should also discuss the reasons for investing into this sector and highlight the key risks and possible mitigating measures. You can also comment on key macroeconomic variables that may impact the future performance of the subject property.

Part D: Conclusion and recommendation

Students are not expected to discuss how the underlying asset can be financed neither address any tax implications.

Word target = 2500 words

Objective(s):

This task addresses the following subject learning objectives:

1, 2 and 3

This task also addresses the following course intended learning outcomes that are linked with a code to indicate one of the five CAPRI graduate attribute categories (e.g. C.1, A.3, P.4, etc.):

C.1, P.2 and P.3

Type: Report
Groupwork: Individual
Weight: 40%
Length:

Approximately 6,000 words.

Criteria:

Full assessment criteria will be outlined in the assignment brief.

Assessment task 2: Financial Due Diligence

Intent:

Assessment 2: Financial Due Diligence (Individual Assignment 40%): The aim of this assessment is to conduct financial due diligence to establish the financial state of a subject property. From the investment report that you submitted in Assessment 1, you have been asked to conduct financial due diligence of the underlying property, digging up more information around cash inflows and cash flows of the underlying property. Please note you can also choose another property in case you do not wish to proceed with the property in Assessment 1. You are required to carry out the following tasks:

  • Obtain data and information about the current and expected financial situation of the underlying property including copies of the current and past profit and loss statements (3-5 years), if available, cash inflow (rent and other income), and cash outflow (relevant expenses including the relevant taxes and insurance)

Content of the Report

Your report should include the following:

  • An executive summary
  • Discuss how the asking price compares to similar assets.
  • Discuss the current and expected rental income of the subject property for the next five years.
  • Discuss the current and expected future expenditure items of the underlying asset for the next five years.
  • Conduct income, financial, and profitability analyses of the subject property using data of the current financial year.
  • Conclusion and recommendation

Students are expected to focus on the financial considerations (money value) as they apply on the subject property and not the mere description of possible cash flows.

Word target = 2500 words

Objective(s):

This task addresses the following subject learning objectives:

1, 2 and 3

This task also addresses the following course intended learning outcomes that are linked with a code to indicate one of the five CAPRI graduate attribute categories (e.g. C.1, A.3, P.4, etc.):

C.1, R.1 and R.2

Type: Report
Groupwork: Individual
Weight: 40%
Length:

Approximately 6000 words

Criteria:

Full assessment criteria will be outlined in the assignment brief.

Assessment task 3: Sustainability

Intent:

Assessment 3: Sustainability (Individual Assignment 20%): The aim of this assessment is to examine the Environmental, Social, and Governance (ESG) considerations of a chosen Property Company or Listed Property Trust (LPT) in the past 5 years.

The delivery of environmental, social, governance (ESG) and economic value has become critical in investment analysis. Assuming the role of “Sustainability Team Leader”, you are required to analyse the sustainability considerations of the Company/Trust in the past 5 years by undertaking the following tasks.

  • Obtain copies of the annual report (only the past 5 years) of the chosen Company/LPT via DatAnalysis platform within UTS library website.
  • Obtain the Trust’s sustainability or ESG framework/considerations in the past 5 years.
  • Identify ESG benchmarks to be used in assessing the ESG of the Trust.
  • Sustainability benchmarks or standards to be considered are United Nations Sustainable Development Goals (UNSDG), Global Real Estate Sustainability Benchmark, Asia Pacific Real Assets Association, NABERS Energy Rating, and Green Star. You can use one or any combination of these benchmarks.

Content of the Report

Your report should include the following:

  • An executive summary
  • Discuss the ESG benchmarks being used in the report.
  • Relate the sustainability considerations of the Trust to these ESG benchmarks.
  • Discuss the gains made, if any, and areas that require improvement in ESG.
  • Conclusion and recommendation

Word target = 1500 words

Objective(s):

This task addresses the following subject learning objectives:

2, 3 and 4

This task also addresses the following course intended learning outcomes that are linked with a code to indicate one of the five CAPRI graduate attribute categories (e.g. C.1, A.3, P.4, etc.):

P.4, P.5 and P.8

Type: Report
Groupwork: Individual
Weight: 20%

Minimum requirements

Minimum attendance of 80% of timetabled hours.

Recommended texts

Wilkinson, S.J., Sayce, S.L., & Christensen, P.H. 2015. Developing Property Sustainably. Routledge.

Wilkinson, S. & Reed, R (2008), Property Development, 5th Edition, Routledge, UK.

Other resources

Reading List

Brueggeman, W and Fisher, J. D. (2022), Real Estate Finance and Investment, 17th edition, McGraw Hill Irwin, New York, USA

Clauretie, T, M & Sirmans, G, S (2010), Real estate finance: theory and practice, 6th edition, Cengage Learning, London.

Geltner, D, Miller, N, Clayton, J & Eichholtz, P (2014), Commercial real estate analysis and investments, 3rd Edition, OnCourse Learning, Mason OH 45040.

Jaffe, A, J & Sirmans, C, F (1995), Fundamentals of real estate investment, 3rd edition, Prentice Hall, Englewood Cliffs, NJ.

Rowland. (2009). Australian Property Investment & Financing. Thomson Reuters (Professional) Australia Pty Limited.

Global Real Estate Sustainability Benchmark (GRESB) Real Estate Assessment. Available from: https://www.gresb.com/nl-en/real-estate-assessment/#assessment-resources

Building Energy Efficiency Disclosure Act 2010 – Australian Government Department of Climate Change, Energy, the Environment and Water