The Fund’s redemption price will be lower than its issue price because the redemption price includes an allowance for estimated sales costs, which are excluded in the issue price.
The Fund’s Constitution specifies that the issue price be calculated by dividing its net assets by the number of issued units, less any amount for transaction charge.
When calculating net assets, the Fund’s property portfolio is valued at the prices provided by a qualified independent US-based appraiser. Australian Accounting Standards, which we must follow as per Corporations Law, specify that expected sale or disposal costs should be excluded from the estimate of the appraised fair market value of the properties.
When it comes to calculating a unit’s redemption price, the same formula is applied: net assets divided by the number of units on issue (before redemption), less any transaction charge.
Given the concept of a redemption price is to calculate what would have been available if all the properties were sold at the most recent appraised values, we now need to include an estimate (as a transaction charge) of the sale costs we think will be incurred when we finally do sell.
Hence, there is a difference between the issue and redemption prices because the issue price is before estimated sales costs, and the redemption price is after estimated sales costs.
When you think about it, this makes sense, because if you bought a property today, and sold it for the same price tomorrow, then you would incur sales costs on disposal which would mean you would receive back less than what you paid. That is, the price paid (i.e. the issue price), would be higher than the net sales proceeds (i.e. the redemption price).
The estimated sales costs deducted include: realtor commission, title insurance, legal fees, and other associated sales costs.