Tutorial 3 : Real Estate Ownership Structures

1. What is the current market cap of RAM Essential Services Property Fund (REP)?

• 398.62M

2. How much does it cost to buy one unit/share in REP?

• $0.755 per share

3. How many units/shares in REP on issue?

• 521, 084, 094 (521.1m on the balance sheet)

4. Is REP a stapled or externally managed fund?

5. What property sectors does the fund invest in?

• Essential retail (54.3%)
• Healthcare sector ()

6. What is the total combined market value of the properties that REP fund owns?

7. How much debt does REP have?

• $280.2M
• 32.8% gearing

8. Is REP’s market cap greater or less than REP’s net asset position?

• Market cap is less than net asset position.
• Market Cap: $398.62M
• Value of assets: $807.1M
• Total debt: $280.2M
• Net asset: $526.9M

9. What are your general observations about REP as a form of property investment?

• Why is the market cap less than the value of the assets?
• What has the price per share/unit performance looked like over the last year (ie high of $0.98 and low of $0.66)?
• How liquid is the investment (daily average trading volume of 267,884)?

Activity 2

In your opinion (without thinking about property rights, just your gut feeling), who do you think is in the right and who is in the wrong? Why?

How would you think about this dispute in relation to concept of property as a "bundle of rights" and does that change your thinking about who is right and who is wrong?

• The bundle of rights that you have when you own property includes the right to use and enjoy your property. you should have the right to do anything on your property that is not illegal.

  • the phrase “a person’s home is their castle” is meant to suggest inside your home you are the King or Queen and you can do as you please provided you aren’t breaking the law.

• Smoking is not illegal generally but is not allowed by society in certain public locations (ie can’t smoke in pubs, clubs and restaurants anymore).

• Accordingly you should be able to smoke in your own home (as an curious piece of trivia up until about 10 years ago in Queensland underage drinking at home was not illegal).

• Units and apartments are slightly different to other freehold property such as a house and land in that they have a Body Corporate structure which owns the common property and sets rules that apply to ownership of units in the building.

• Historic attempts to make rules to ban smoking on private balconies by Body Corporates have been thrown out by the courts (as smoking is not illegal and its was seen as an over reach by the Body Corporate in taking away rights of the owner, it has always been ok for the Body Corporates to ban smoking in common areas).

• However a few recent decisions by courts are changing this approach (this is not yet settled law and will probably require legislation to sort out what can and can’t be banned).

What does a dispute like this mean for real estate in general as an investment asset class?

Things to ponder:

• You may need to go to court to enforce your rights – expensive and inconvenient
• Shows the importance of actively managing your asset to protect your rights (ie if you don’t complain about a “nuisance” and put up with it for too long the courts won’t help you stop it)
• If you rent a property to someone what they do on the property may be legal but it may still create nuisance that could see them having to stop/leave the property (which could impact the certainty of your future rent)