Lecture 7 - Group assignment overview

• Groups of up to 5 students
  • To be formed via Blackboard
  • Allocate yourself to a group or you will be allocated
• Weighting – 40%
  • 35% for the group report
  • 5% for self-peer review participation
• Submission due 16 May 2024 at 3.00pm via Turnitin

Task description

Prepare an analytical report for a real-life Health Care Development Project.

• The Report is to be prepared on behalf of a hypothetical listed A-REIT that specialises in Health care properties and is seeking professional advice on the risks, issues and opportunities associated with acquiring, developing and holding a proposed Health Care development project.
• The students will act as professional advisors to the hypothetical A-REIT and prepare a 5,000 word (excluding bibliography) report that outlines their assessment of the project and its efficacy for their client as a project to add to its REIT portfolio of health care properties.

• Aged Care is a little bit different
• complicated financial modelling

Current project has a little bit of complexity and is fairly consistent with other markets

The details of the report must include:

• An analytical description of the property and its proposed development attributes including observations on the concept, target market, design/layout, and overall viability of the project.
• A discussion on the health care property sector in Queensland and comparative assessment of the REIT market for health care properties domestically and globally.
• A risk assessment of the project identifying the primary strengths, weaknesses, threats and opportunities for the project.

• How do you talk about viability
• size scale, location, demographics of the area
  • look at macro and micro perspective in regards the site
• look at the property sector
  • Is this the best possible use of your money?
  • Is it right size, space, location, timing?
• Target markets, design layout
• SWOT analysis
  • Opportunities and strengths are inherent
  • Weaknesses threats are external factors

• An overview of the funding mechanisms available to the REIT for the development.
• High-level financial modelling of the project that includes financial performance metrics and an assessment of the target purchase price for the project. (ie static residual value hypothetical development model and DCF with performance metrics - IRR, NPV, ROE, Cash on Cash)
• Details of any assumptions required to be made and the basis for those assumptions.
• Bibliography and referencing to Harvard standard.

Ratio of debt to equity Normally in development, with debt is enough to cover the hard costs (construction, land) not usual to see 50-55% of total debt to cost

Financial modelling

• Not a valuation, but must define value
• If doing this as a valuation, numbers are much more complicated and rigorous Market cap - cap rate from market evidence
• find industry commentary - will be adequate enough
• looking at sales evidence (don't need RP data) just research an justify
  • realcommercial.com e.g. have to reference it. Less research in terms of deriving the number

Need to do a DCF

• cost of acquiring
• development site, hypothetical/residual model
  • what it is worth when it is finished being built
• aggregate them into a single number
• land value from sales evidence - might be able to use this

Performance metrics

• IRR, NPV
• Is this comparable to industry
• weaknesses and threats are so big, don't do it e.g.
• If you have to make an assumption ask tutor (that you aren't making too much of a shortcut)

Note – the ECP in relation to the group assignment is wrong, it states:

• “a real-life real estate Rent development project” - that is not the case this year, it is a health care project.
• “The Report is to be prepared on behalf of a hypothetical potential investor” - that is not the case, the report is for a hypothetical listed A-REIT and for the sake of the exercise let’s call it the Live Well Healthcare REIT (ASX:LWH).
• Additionally, this year’s report calls for a discussion of the health care property sector and a discussion on the performance of REITs in general and health care REITs specifically.

It is for a Hypothetical listed AREIT

• not just talk about the healthcare market
• investigate REIT sector on healthcare specifically

Subject property

Annerley Health Hub 97-99 Cornwall Street and 275-281 Ipswich Road, Annerley QLD 4103

• The project is currently a live application for Ministerial Infrastructure Designation (application MID-0823-0715)
• The application has been made on behalf of the Cornerstone Group
• Cornerstone Group have their own property fund for health care property developments (see: CHP Fund | Cornerstone Group )
• Assume the plans given are the approved plans and the application for Ministerial Infrastructure Designation has been fully approved.
• DO NOT CONTACT THE OWNERS OR ANY ADVISORS FOR THE PROPERTY

For the purposes of this assignment, assume this is an approved project

• Look at Conerstone group
• Not a REIT - it is a fund
• More important to do the right process than get the right price

Subject Property

Annerley Health Hub Aims to complement the service offerings within the Princess Alexandra Hospital precinct comprising:

• 6 storey building that Area that will cater for a range of allied health services including general practice, diagnostic imaging, pharmacy, pathology, radiology, and day surgery.
• Ground level, with retail and an ancillary café along Ipswich Road
• Dedicated pedestrian entrance and vehicle access from the Cornwall Street frontage
• Car parking areas within a basement level comprising 200 spaces across 4 basement levels.

ground could have retail, cafe etc.

The Environmental Assessment Report that was prepared as part of the Ministerial Infrastructure Designation (application MID-0823-0715) has been provided along with the following attachments:

• Attachment A: SmartMap
• Attachment B: Current Title Search
• Attachment C: Architectural drawings
• Attachment D: Traffic impact assessment
• Attachment E: Noise impact assessment
• Attachment F: State Planning Policy Mapping
• Attachment G: Stormwater management plan
• Attachment H: DA Mapping
• Attachment I: Engineering services report
• Attachment J: Contaminated Land and Environmental Management Searches
• Attachment K: FloodWise Property Report
• Attachment L: Protected Matters Report
• Attachment M: Vegetation Management Report
• Attachment N: Protected Plants Flora Survey Trigger Map

Have a look at this, to assess the

• Traffic report and Noise impact could go into SWOT analysis, potentially
• In terms of architectural drawings, more than enough to price the cost of the building
  • Gross Floor area and net lettable area

Only way to pay rent on the area you occupy

• walkways, stairs, thickness of the wall etc is not include
• only pay for the net lettable area
• Architectural plans has net lettable area
• rate p sqm and apply a rate per square meter by gross area
• have different rates for carpark, vs area for day surgery, etc.
• Not doing quantity surveying, rate per square meter is adequate
• building a retail shop or office will cost less than a hospital - level of specification is greater
• When looking at rate per square meter for hospital rates, else adjust and spell as an assumption

Attachment L - Protected Matters Report

• generally under state laws
• Federal government created environmental conventions

Resources

• Financial press – lots of articles about Build to Rent
• Industry Publications (eg Colliers report, API guidelines)
• Construction cost databases – Cordells, Rawlinson's (check UQ database)
• Academic journal articles – REIT sector very mature in USA
• Australian Bureau of Statistics – demographic info
• Property sales and leasing info – realcommercial.com.au and rpdata (check UQ library)
• Queensland and Federal Government – health care statistics
• IBISWORLD reports
• Online feasibility studies – EstateMaster by Argus (probably not needed for this but might be helpful)

Reports done by real estate firms

good reports in Europe/US

• need to justify a pretty intuitive observation

Need to understand demographic

• Are their competitors, what is the demographic of the target healthcare
• is it overserviced in this location?
• Is it the right size
• how big is the catchment area? How far would people travel?
• Are you about to build a project that no-one wants?

Modelling - use an excel spreadsheet

• statemaster, is overkill

Academic articles

• look at articles about healthcare REITS

Parking

• free parking vs paid parking

Rates, land tax

• costs while in development
• How long does it take to build?
• risks - builders are going broke - delayed timelines
• Are you going to be fully tennanted when you finish development?

e.g.

• 2 months to demo, 22 months to build, two year to be fully let, sell after 8 years & discount cash flow to determine NPV
• Rates, land tax, insurances
  • not going to