In the context of Australian Unity's property funds, the book value of a specific property is generally the latest valuation amount determined independently plus any capital expenditure since the date of the independent valuation. The book value used in determining the Fund's unit price and is the value of the property that appears on the Fund’s balance sheet on a given day.
Importantly, the book value of an asset is not the same as the asset's previous valuation. This is because the book value of a property may include any ongoing capital expenditure, as well as changes in market or financial conditions of the asset since its last traded or independent valuation was determined,
Example: Assume a direct property is valued at $10 million on 1 July 2012. The book value on 1 July is adopted at $10 million. Between 1 July and 30 September 2012, $500,000 is spent on the property in improvements. In this case, as the improvements are adding to the value of the property, the book value would be adjusted upwards to $10.5 million.
Buy and sell spreads are designed to help ensure investors share equally in the transaction costs that are incurred by a Fund during the normal course of its operations.
The spreads are expressed as a percentage of the Fund's net asset value and are incorporated into declared entry and exit prices.
Importantly, the buy and sell spreads are not an additional fee. Rather, they are retained in the Fund to cover transaction costs incurred when buying or selling assets. These costs include real estate agent fees, brokerage, legal fees, stamp duty and taxes.
Please note, buy and sell spreads are not applied to the reinvestment of distributions.
A capitalisation rate is the ratio between a property’s net operating income and its market value. It is often used when valuing a property. Lower capitalisation rates are an indication that the property is considered less risky and more likely to be considered attractive by investors, which contributes to a higher value for the property.
Discounted cash flow analysis estimates the present value of an investment's projected future cash flows, such as interest, rent, dividends received and sale proceeds, having regard to the investor's required rate of return.
In the context of a property investment, discounted cash flow analysis is one of several methods employed in determining the value of a property.
Loans secured over real estate and having priority over any later registered mortgages or charges.
The market where fixed interest securities with a maturity date over one year are traded. They include Commonwealth Government bonds, corporate bonds, floating rate notes, and certificates of deposit.
These represent loans to borrowers, such as governments, banks and companies. In return for the loan, borrowers generally pay a pre-determined rate of interest for an agreed term.
Gearing, or the use of borrowings, magnifies returns and losses. Higher gearing increases the risk as returns and losses are amplified by the use of borrowings.
A hedge is a transaction or an agreement that seeks to reduce risk on an investment.
In the context of borrowings, the investment manager may utilise an interest rate hedge to 'lock in' a fixed interest rate on the borrowings for a set period of time. By locking in a fixed interest rate, the Fund has greater certainty over its earnings as the total interest costs are known.
A measure which tracks changes in the value of a specific group of stocks, bonds, or other investments.
Companies falling outside the top 250 companies, that is, smaller companies on the Australian Securities Exchange (ASX) ranked by market capitalisation.