Statistical Market Analysis Research Report

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Statistical Market Analysis Research Report. This assignment has two sections. Question 1 examines your ability to calculate annual net cash-flows and perform discounted cash-flow techniques to make an investment decision (as presented in topic 4). Question 2 requires you to investigate Modern Portfolio Theory. You are required to estimate three portfolios from three different Australian REITs and two US REITs, their expected return and risk. You are also required to build an efficient frontier for the different portfolio combinations of the five listed Australian REITs.

Question 1

It is 2020 and you are considering the purchase of an investment property. The property is for sale at $900,000. If you go ahead with the purchase, settlement will occur in January 2021. The property is currently leased, with a gross rent amount of $41,600 per annum. The lease agreement has an expiry date of December 2025 and has annual lease adjustments linked to CPI on January each year. The table below provides you with information regarding the property. You anticipate that both outgoing recoveries and operating expenses will grow at 2.50% per annum in the near future.

Statistical Market Analysis Research Report

Item    2020
Gross Rent    $41,600
Outgoing recoveries    $6,800
Operating expenses    $5,200
CPI    2.50%
Buying expenses    3.00%

Part a)
Calculate your total cost of the purchase.
Part b)
Calculate the annual net rent from the property over the period of 2020 until 2023.
Part c)
Through examination of historical capital growth for comparable properties, you have observed, on average, a 5.8% annual appreciation in capital values. Using this information, estimate the expected sale price of this property in 2023.
Part d)
Assume now that if you go ahead with the purchase, you intend to sell the property in 2024 for the price calculated in part c) and you will incur selling expenses of 3.10%. Calculate the net present value (NPV), profitability index (PI) and the internal rate of return (IRR) on your investment if you have a required rate of return of 4.50%. Assume a company tax rate of 0%.
Part e)
Would you invest in this property? Why/why not?

Statistical Market Analysis Research Report

Question 2

Part a)
Research and provide a discussion on the following Australian and U.S. Real Estate Investment Trusts (A-REITs and US-REITs):
·    ALE Property Group (ASX code: LEP)
·    Dexus (ASX code: DXS)
·    Scentre Group (ASX code: SCG)
·    Prologis (NYSE code:PLD)
·    Digital Realty Trust (NYSE:DLR)
Within your discussion you should address, at a minimum, their management structure (along with discussion on the advantages and disadvantages of the two types of management structures). The types of properties they invest in and their market capitalisation.

Part b)
Calculate the monthly returns (in Australian dollars) from January 2017 to December 2019 (36 months of returns) for the five A-REITs listed above.
Tabulate the following for each security:
1.    Average monthly returns.
2.    Monthly variance.
3.    Average annual returns.
4.    Annual variance.
(Note 1: do not include the month by month returns for each security in the main body of the assignment. This information needs to be placed in an appendix along with the monthly share prices for the 5REITs.
Note 2: For the US-REITs, you must convert the month-end US dollar share price into Australian dollars using the month-end AUD/USD exchange rate for the purposes of all analysis such as calculating returns, variance, etc.). Show the AUD converted price in the appendix as well.)

Statistical Market Analysis Research Report

Part c)
Using the data results from part b) and ‘solver’ in excel, calculate the portfolio return, standard deviation and Sharpe Ratio for the following (assume a risk-free rate of return of 0.5% per annum):
·    Equally weighted portfolio.
·    Optimal risky portfolio (i.e. maximise the Sharpe Ratio).
·    Minimum variance portfolio (i.e. minimise portfolio standard deviation).
Tabulate your results for each portfolio, ensuring that you include the weightings for each security in the portfolios. You must also include the variance-covariance matrix table.
Part d)
Using the data results from part b) and ‘solver’ in excel, build an efficient frontier graph. You must have a minimum of 10 portfolios to complete the efficient frontier.
In addition to the efficient frontier graph, ensure you provide a table of your portfolios that includes (for each portfolio) the standard deviation, expected return and the weights of each security in the portfolio.
Part e)
Discuss the shape of the efficient frontier and how it relates to Modern Portfolio Theory.

Requirements

·    This assignment is an individual assignment.
·    The preferred method of referencing is according to the Harvard System. There is no excuse for incorrect referencing. If you use any source you MUST reference it and have in-text citation. That means that within or at the end of the paragraph you will have a reference. You can check what is required here by using student resources online at:
·    The report is to be typed and presented in the following format:

1)    Cover page
2)    Executive Summary
3)    Introduction
4)    Table of Contents

Statistical Market Analysis Research Report

5)    Answers (each question to have its own subheading, e.g. Question 1) Part A)etc.)
6)    Conclusion(s)
7)    Reference List
8)    Appendices

·    For guidance on preparing a University assignment and how to reference correctly you go to the Study Support website:
·    The word limit for this assignment is 2,500 words (inclusive of tables & references). Word count does not include any appendices. (Note: This assignment is more focused on your ability to perform calculations, thus the word count is not a major issue in this assignment)

By admin in Blog on May 8, 2020