Funding arrangements (i.e. raise capital) for an Australian Real Estate Investment Trust (REIT) which is required to fund a new acquisition (thinking of buying another property) valued at AUD$1 billion.
Examine the overall report
concentrating on the financial statements and notes provided.
Comment on your impression of their usefulness to potential “non-accounting” end users.
In addition, discuss the company’s treatment of important accounting issues related to the
property industry, including depreciation, impairments, revaluation, intangibles and
Analyse the financial statements and establish the current (existing) capital structure of your selected REIT
In other words, establish the composition of the sources of funds that goes to make up the current capital structure of the trust. Establish how much equity and how much is debt, as in percentage of the total value. Also see if funds from other sources are utilised. After establishing the capital structure, calculate the current weighted average cost of capital (WACC) of the trust. Use the methods in the notes to calculate the WACC. Have regard to current interest rates for estimating cost of debt and return on shares for estimating cost of equity capital. The focus is on approach rather than the actual accuracy of the figures. Discuss and decide how your trust should fund its proposed acquisition. Should it raise debt, equity or a mixture of both? Then establish the ratio of each (if applicable) or should the trust utilise funds from any alternative sources. What instruments should be used to raise funds?