Retail Flashcards
What is the most important factor for utility and value in retail?
Frontage is more important than depth and exposure
How do you measure retail?
Gross Lettable Area Retail (GLAR) under PCA guidelines. API adopts IPMS standards but retail is yet to have an IPMS standard.
How is the GLAR measured?
Measured from internal surface of external walls, centre of common walls (excludes stair voids, areas less than 1.5m high and standard facilities in building)
How is direct comparison used in retail?
Rate per GLAR
How is capitalisation of rent income used for retail?
Value property on its estimated net future income, net market income is assumed to be in perpetuity, capitalised using a cap rate from comparable sales, allowance for vacancy
How is DCF used for retail?
Mainly only used for larger properties, forecasts over 10 years
Define retail premises under the Retail leases act 2003?
premises, or part of, used wholly or predominantly for the sale or hire of goods by retail or the retail provision of services
What are the exemptions of the Retail leases Act 2003?
Leases with occupancy costs over $1m a year
Any leases not on the first three storeys of the building
Leases with tenants list on ASX or subsidiary
Barristers chambers
Leases for terms of less than one year
Leases with terms of 15 years straight or more, where they impose substantial works or financial obligations
Council premises
Community or charitable purposes
Farming and agricultural purposes
Tenant is related party
How long should the minimum lease be under Retail leases act?
5 Years minimum (can include options for renewal)
What are the 5 prescribed methods for rent reviews?
Fixed percentage increase
Increase based off CPI
Fixed annual amounts
Current market rent
Basis/formula to be prescribed by regulation
Under the RLA (2003) what must landlords disclose?
Must provide a draft copy of the lease (at least 7 days prior to commencement)
Must provide retail leases information brochuer from office of Small Business Commissioner
Must provide disclosure statement (at least 7 days prior to commencement)
How long must the lessor give the lessee prior to terminating the lease?
6 months written notice
Can a landlord terminate a lease because turnover targets are not being met?
No
What are the 6 unrecoverable outgoings under RLA 2003?
Capital costs (Section 41)
Depreciation (Section 42)
Sinking fund contributions (Section 43)
Interest on landlords borrowings (section 44)
Land tax (section 50)
Legal costs and other expenses related to preparation of lease (section 51)
Are ratchet clauses allowed in retail leases?
No
When will old leases prior to the act come into effect?
The RLA (2003) will come into effect when the lease is renewed after 1 May 2003
What are the 3 obligations/requirements for landlords under RLA (2003)
Provide a prospective tenant with copy of proposed lease
Provide a disclosure statement and copy of the proposed leased seven days before entering into lease
Maintain in good repair the structures, fixtures, plant and equipments (except if the lease says the tenant is entitled or required to remove these items at the end of the term)
What is a market rental?
The estimated amount a premises should rent at the relevant date between a willing lessor and a willing lessee in an arms length transaction where both parties have acted knowledgeable, prudently and without compulsion, having regard to the usual market terms and conditions for leases of similar premises.
What are the standard methods for rent reviews (section 35 RLA)?
Fixed percentage, CPI, market review, fixed annual amount, basis or formula prescribed by regulations
What lease dates does the RLA apply to?
Leases commencing after 1 May 2003, leases before this will become subject to RLA once they are renewed
What is the CB cold storage case vs IMCC Group?
CB Cold Storage Pty Ltd vs IMCC Group
Supreme court applied the ‘ultimate consumer test’ - ultimate consumer does not have to be person who uses the goods or services to satisfy personal needs, but could also be another business that uses the goods or services for a business purpose, so long as they do not resupply them
A key part of this case was that the CB cold storage operated during normal business hours and retail users could work in during these hours and receive a service
What is the basic summary of the income approach? (step-by-step)
If tenanted, assess rent and whether this is at market (analyse car parks and amenities seperate)
Check recoverability of land tax under RLA - deduct from net rent if applicable
Analyse comparable sales to determine an appropriate cap rate
Capitalise net income using market cap rate, then add or subtract rent shortfall
If vacant possession, owner occupied or short lease term remaining, allow vacancy, let-up period including agents advertising and rent free period
Turner method step by step?
Gross Realisation (GST Inclusive)
LESS selling expenses (agent comm. marketing, legal fees and GST)
= Net Realisation
LESS profit and risk
= Funds available for development
LESS development costs
construction costs (incl prof fees)
holding costs (rates, taxes)
Interest on construction (1/2 development, 1/2 selling period)
= Funds available for purchase
LESS costs of purchase
interest on land (full lead in, full development, 1/2 selling period)
Legal costs
Stamp Duty
= Residual Value
What can a low yield indicate?
Capital growth asset
Rent below market
Strong lease (long lease term or good tenant)
New building
Zoning (good)