FP5eQCh10 - Problems with Guided Answers by Michelle Cull...

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Financial Planning in Australia 5e Problems Ch10 Page 1 Problems with Guided Answers by Michelle Cull © 2013 Reed International Books Australia Pty Limited trading as LexisNexis. Permission to download and make copies for classroom use is granted. Reproducing or distributing any material from this website for any other purpose requires written permission from the Publisher. Chapter 10: Investing in Property and Collectables 1 a Find and name one A-REIT on the Australian Stock Exchange Listing for each of the following six categories: an office property trust, industrial property trust, residential property trust, retail property trust, hotel property trust and a diversified property trust. b Provide the size (in $ millions) of each of the six A-REITs found in (a) and their one year, three year and five year returns in pa %. c Suggest reasons for the differences in size and return of the A-REITS identified above. d Matt has come to you for financial advice in regards to investing in A-REITS as a way to diversify his portfolio. He is also concerned about the impact that Australian interest rates may have on this type of investment. Briefly discuss how you would respond to Matt’s interests and concerns. Part a and b as at June 2012 A-REIT category (a) Example from ASX Size (in $ millions) One year return pa % Three year return pa % Five year return pa % Office Property Investa Office Fund 1,664.1 12.4 21.5 –8.1 Industrial Property Goodman Group 5,890.7 10.1 36.8 –29.7 Residential Property Ingenia Communities Group 86.0 69.5 57.4 –29.5 Retail Property Centro Retail Group 731.6 –4.5 47.9 –27.1 Hotel Property Thakral Holdings Ltd 444.9 40.7 53.3 –2.0 Diversified Property Stockland 6,799.1 –2.6 5.4 –10.5 Part c Based on the figures in (b) above, some possible explanations for the differences include:
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Financial Planning in Australia 5e Problems Ch10 Page 2 A negative five year return for all LPTs is mainly due to the beginning of the GFC which followed the peak of the US housing bubble in 2006. As can be seen, hotels and office property were least affected by the negative returns, with residential and industrial property hardest hit. There is a significant difference between commercial property (retail, office or industrial assets) and residential property. Commercial property investment is more complex, and hence riskier, than residential property investment, with more regulatory requirements. The figures in (b) indicate that the commercial property trusts (office, industrial retail) are subject to higher volatility. The size of these funds is also much higher (other than diversified fund Stockland). In terms of the office sector, returns for the past year may be down due to the poor state of financial markets which has affected the demand for office space by financial services firms.
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