GOLDRUSH))MOTELS))COOLGARDIE)) BUSINESS)AND)FREEHOLD) OR) BUSINESS)ONLY)(SUBJECT)TO)CONDITIONS)) OR) FREEHOLD)ONLY)(SUBJECT)TO)CONDITIONS))

! Licensee: Ascend Commercial Pty Ltd Trading as Ascend Business Brokers ABN: 16 145 086 675 BUSINESS APPRAISAL PROPERTY APPRAISAL Address: 7-9 Ventn...
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! Licensee: Ascend Commercial Pty Ltd Trading as Ascend Business Brokers ABN: 16 145 086 675

BUSINESS APPRAISAL PROPERTY APPRAISAL Address: 7-9 Ventnor Ave West Perth WA

All correspondence to

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PO BOX 380, West Perth. 6872

Telephone (08) 9480 3200 Facsimile (08) 9480 3277

Phil Mulcahy Telephone (08) 9315 4401 Fax (08) 9315 4402 Mobile 0418 689 423 Email [email protected] Web www.ascend.com.au

!

Email: [email protected]

GOLDRUSH))MOTELS))COOLGARDIE)) BUSINESS)AND)FREEHOLD) OR) BUSINESS)ONLY)(SUBJECT)TO)CONDITIONS)) OR) FREEHOLD)ONLY)(SUBJECT)TO)CONDITIONS))

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OUTSTANDING PROFITABLE BUSINESS AND PROPERTY SHOWING 1) 11% RETURN ON INVESTMENT ON FREEHOLD LAND AND BUILDINGS (Compare 2.5% cash rate) 2) 50% RETURN ON INVESTMENT ON BUSINESS AFTER CONSIDERATION OF COMMERCIAL RENT

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BRILLIANT CENTRAL LOCATION ON HIGHWAY ONE SERVICING 1) HEAVY PASSING TRAFFIC 2) A LARGE CATCHMENT AREA FOR MINING SERVICE CONTRACTORS 3) A LARGE CATCHMENT AREA FOR WATER PIPE AND ROAD MAINTENANCE CONTRACTORS.

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TWO MOTELS COMPLETELY REFURBISHED AND REFITTED TO A VERY HIGH STANDARD 1) MAIN MOTEL 47-53 BAYLEY ST (HIGHWAY ONE) 7 GREEN TITLES – 3542M 2 - 26 UNITS - LICENCED RESTAURANT - OFFICE, COMMERCIAL KITCHEN - 4 X 2 HOME - SWIMMING POOL, ON SITE LAUNDRY AND COIN OPERATED SELF-SERVE LAUNDRY. 2) LOWER MOTEL – 10 BAYLEY ST (HIGHWAY ONE) 1 GREEN TITLES – 5151M 2 - 15 UNITS - ON SITE LAUNDRY X 2 - 3 X 2 TWO STOREY HOME, 2 WC. ROOM FOR FURTHER DEVELOPMENT

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BUSINESS PROFILE - SUMMARY Contact

Phil Mulcahy (08) 9315 4401 0418 689 423

Registered Business Name

COOLGARDIE GOLD RUSH MOTEL COOLGARDIE MOTEL

Location

47 – 53 Bayley St, Coolgardie WA (Highway One) 10 Bayley St, Coolgardie. WA. (Highway One)

Turnover

Av 2 years end June 30, 2014 - $890,991 – 100%

Gross Profit

Av 2 years end June 30, 2014 - $792,162 – 89%

Net Adjusted Profit

Av 2 years end June 30, 2014 - $281,888 – 31.6%

Rates and Taxes Water Shire Council

$553.62 $ $17,340.83

2014 - 2015

Variable Outgoings

All Service usage charges

Staff Requirements

Owner operator, Chef plus casual staff. See profile.

Opening Hours Staff Wages

full time salaried employees Reception 4.30pm 8.00pm daily Restaurant 5.00pm – 7.00pm daily Sunday – Year end June 30, 2014 - $248,737 includes manager

Asking Price Freehold Land and Improvements

$1,355,000

Business - Plant & Equipment Goodwill

$150,000 $100,000

Total

$250,000 Plus Stock at Valuation

Stock approximately Walk In Walk Out Freehold & Business Freehold Property

$1,605,000 Plus Stock at Valuation $ $20,000 estimated stock $

Plus Stock at Valuation (PSAV)

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Total

COOLGARDIE The Shire of Coolgardie encompasses an area of 30,400km2 and includes the towns of Coolgardie, Kambalda, Widgiemooltha and Kurrawang. With the majority of the population residing between Coolgardie and Kambalda the Shires motto is ‘Two Hearts, One Soul’. Coolgardie is 550 kilometres east of Perth, 39 kilometres southwest of Kalgoorlie, and 187 kilometres north of Norseman, was the first settlement of the WA Goldfields and bears the name ‘Mother of the Goldfields’. Coolgardie has a resident population of about 1500 people. In its heyday it had a population of 16,000 and consequently many beautiful historic public buildings remain making Coolgardie a fantastic tourist destination. Significantly Coolgardie is located in Highway One, whereas Kalgoorlie is 39 kms northeast and not on Highway One. CERTIFICATES OF TITLE – LAND AREA There are a total of 8 certificates of title with a total land area of 9176m2. Details are Lower Motel – 10 Bayley St Lot 2 on Deposited Plan 77374 Certificate of Title Volume 1909 Folio 152. - 5149m2 Main Motel – 47 – 53 Bayley St Number 47 – Lot 95 Deposited Plan 222286 Certificate of Title Volume 1377 Folio 68. - 1012m2 Number 49 – Lot 418 Deposited Plan 300813 Certificate of Title Volume 1657 Folio 346. - 506m2 Number 49 – Lot 419 Deposited Plan 300813 Certificate of Title Volume 1657 Folio 345. - 506m2 Number 51 – Lot 404 Deposited Plan 302519 Certificate of Title Volume 1657 Folio 343. - 726m2 Number 53 – Lot 400 Deposited Plan 302519 Certificate of Title Volume 1657 Folio 390. - 771m2 Number N/A – Lots 401 Deposited Plan 302519 Certificate of Title Volume 1657 Folio 344. - 20m2 Number N/A – Lots 97 & 98 (Multi Title) Deposited Plan 222286 Certificate of Title Volume 1657 Folio 342. - 486m2 Copies of all Certificates of Title are available on request.

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LOCATION AND LAYOUT The main motel and the lower motel are both located and well exposed on Highway One and enjoy heavy passing traffic. The map below demonstrates the strategic location of Coolgardie in that it is an ideal place to stop for east west traffic and is central to many outlying mining centres in all directions.

LAYOUT AND CONFIGURATION The layout and configuration of the main motel and the lower motel is provided as Annexure A to this profile. Note that these are sketch plans only and not to scale. They are simply provided to give prospective purchasers an idea of layout, configuration of rooms and facilities on offer. PLANT AND EQUIPMENT A comprehensive list of all plant and equipment to be sold with the business is incorporated in the profile as Annexure B. All plant is of a high standard. Most is new or near new. The quality of fixtures and fittings is best demonstrated by an on site inspection. REGISTERED BUSINESS NAME There are two registered business names, which will be transferred to the new owners on settlement. 1. Coolgardie Gold Rush Motels 2. Coolgardie Motel Refer Annexure C to this profile. Macintosh*HD:Users:Mulcahy:Documents:WORK:PROFILES:Coolgardie*GR:GoldRushprofile270115.docx*Page*6*of*17*

RESTAURANT LIQUOR LICENCE, EXTENDED TRADING PERMIT AND CERTIFICATE OF REGISTRATION OF A FOOD BUSINESS Refer Annexure D for all three of the above licences all of which are to be transferred to the new owner on settlement. STAFFING DETAILS 1. Chef – Salary - $72,800 per annum plus super - 1.30pm to close 6 days. 2. Morning Shift Person - $25 per hr/approx. 30-40 hours per week. 8.00am to 1.00pm six days per week plus 5.30pm to close 5-6 days per week. 3. Afternoon Shift Person - $22.50 per hr/approx. 30-40 hours per week. 1.00pm to close 6 days per week. Casual. 4. Cleaner - $22.50 per hr/approx. 20-35 hours per week, 8-00am to 1.00pm six days per week, plus 5.00pm to close 3-4 days per week. The cleaner is casual and currently a backpacker with meals and accommodation provided. 5. Manager – Salary $52,000 per annum plus super. RECEPTION HOURS 4.30 to 8.00pm daily On call up to 10.30pm. No bookings taken between 10.30pm and 7.00am. RESTAURANT HOURS 5.00pm to 7.00pm dinner service only. Continental breakfast available to guests, delivered to the room on the night of check in for the main motel. For the lower motel which is mainly used for contractors a continental self service breakfast is provided. SUMMARY OF PROFIT AND LOSS For the four years ending June 30, 2011, 2012, 2013 and 2014 the following summary has been derived from the Sellers accountant prepared financial statements, which form part of the Sellers tax returns. For the 6 months end Dec 31, 2014 the summary has been derived from the Sellers internal accounting system and has not been prepared by the Seller’s accountant. However it should be noted that one of the working partners in the business is a licenced BAS Agent. Macintosh*HD:Users:Mulcahy:Documents:WORK:PROFILES:Coolgardie*GR:GoldRushprofile270115.docx*Page*7*of*17*

The detailed financials showing detailed expenses are shown as Annexure E to this profile. Year end June 30

2,011.00

%

2,012

%

2,013

%

2014

%

6 mnths end Dec 31. 2014

%

Sales Accomm

420,722.00

857,795

677,681

460,844

483,518

Food

249,743.00

444,817

342,557

247,520

242,614

37,666.00

35,768

28,708

24,669

16,898

708,131

100 1,338,380

100 1,048,946

100

733,033

100

743,030

100

114,509

8.6

98,397

9.4

99,259

13.5

63,608

8.6

91.4

950,549

91.6

633,774

86.5

679,422

91.4

Bar Total Sales Cost of Sales

97,162.00

13.71

Gross Profit

610,969

86.3 1,223,871

Other Income Dividends Interest Rec'd Other Capital Gains (loss) Distribution Rec'd Total Income

24.00 87.00 611,080

33 641

Expenses NOP Add Back Accounting Amortisation Borrowing Costs Capital Loss Capital Works Deduct Contractors Depreciation Directors Super Distrib from Trust Dividends Rec'd Interest Paid Interest Rec'd Legal Fees SBE Assets Travel Adjusted NOP

1,224,545

65,500 847 3,777 -75,939 7,571 952,305

158,000 421 4,563 -8,779 787,979

679,422

508,168

650,549

817,825

642,033

263,554

102,912

573,996

134,480

145,946

415,868

1,182.00 740.00 51,621.00 22,874.00 87,460.00 -24.00 79,531.00 -

5,000 3,546 3,157 566 14,247 34,077 84,972 -33 20,875 6,393

17,720 75,939 100,279 25,000 -7,571 -65,500 65,449 -847 1,200 47,663 9,923

15,600 8,779 81,917 25,000 -158,000 29,184 -421 8965 3,072

-

346,296

746,796

403,735

160,042

415,868

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NOTES ON PROFIT AND LOSS

1. Accounting – Unrelated to motel business 2. Contractors – relates to refurbishment work to motel – capital items expensed for tax purposes 3. Travel – unrelated to motel business 4. Legal Fees – unrelated to motel business 5. Wages – There are two full time working partners. The male partner (the sole director of the operating company) does not pay himself. The female working partner (manager) is paid a salary and superannuation. Her salary and super have not been added back on the basis that a purchaser may be a single person and would therefore have to employ wages in lieu of the working partner.

REFURBISHMENT The current owners acquired the motel in 2010/11 and immediately commenced a major refurbishment programme, including 1) An upgrade of electrical wiring and infrastructure where necessary 2) Replacement of old carpet floor covering with new easy clean ceramic tiles. 3) Replacement of carpet where necessary 4) Floor tiling to all wet areas 5) Replacement of vanities and wall tiling in most rooms 6) Repainting internally and externally all rooms and public areas. 7) New bedding including mattresses and linen 8) New plumbing including cisterns, hand basins WC pedestals, shower screens in most rooms. 9) Installation in the main motel of three new 400 litre Thermann Evacuated Tube Hot Water Systems which are extremely cost effective to operate. These systems have either electric or gas booster systems for winter use. Macintosh*HD:Users:Mulcahy:Documents:WORK:PROFILES:Coolgardie*GR:GoldRushprofile270115.docx*Page*9*of*17*

Note the lower motel (15 units) has 3 gas instantaneous hot water systems. 10) Refurnishing all rooms including the installation of 32” flat screen TV’s, bed side tables, chairs, etc. 11) The fitting of solid doors to all rooms for security and sound insulation. 12) The installation of a new commercial master key system to all buildings. 13) The installation of security screens to all windows in the lower motel. 14) The installation of LED lighting in all buildings 15) Replacement of all kitchen equipment and appliances. 16) Replacement of gutters and roofing where required. 17) Replacement of window treatments where required. 18) Installation of new LG air conditioning units (refrigerated for cooling only) in every room. 19) Installation in all rooms new Mica Thermic Heaters, which are very cost efficient. Both internally and externally the motel is of first class presentation, is spotlessly maintained and cleaned and must be regarded as one of the better motels on Highway 1 in Western Australia. TRADING Clearly the refurbishment of all rooms and public areas of the motel has paid dividends with excellent sales and profitability in 2012 and 2013. Note that most of the major refurbishment and refit occurred in 2011 thus adversely affecting trade. In the financial year ending June 30, 2014 the goldfields experienced what most claim to be the biggest financial downturn in the area in two decades. Ascend has access to several businesses in the Kalgoorlie/Boulder, Coolgardie/Norseman area and all have experienced the worst year for many years. One retailer in Kalgoorlie who has been trading for 18 years claims that 2014 was without question their worst year on record. The positive from this is the return to normal trading in the latter half of the 2014 calendar year. In the 6 months ending December 31st 2014, sales exceeded sales for the previous 12 months ending June 30, 2014. In summary Year 1 (2011) was average but negatively effected by the refurbishment programme. Year 2 (2012) was an outstanding year where not only the mining boom peaked but there was a major mine shut down wherein hundreds of contractors required longterm accommodation. This shut down (and others) occurs on a regular basis for maintenance purposes. The major shutdown in 2012 is normally repeated every 4 to 5 years. Year 3 (2013) - An average normal year. Year 4 (2014) - An exceptionally bad year coinciding with the worst economic downturn in the area for at least 2 decades. Year 5 (2014 6 months) has returned to normal trading.

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ESTABLISHMENT/JUSTIFICATION OF ASKING PRICE – GOLD RUSH MOTELS The business was purchased in July 2010 and that the year 2010/11 involved substantial renovation thus adversely affecting trading. Because of the fluctuations prevalent in the mining industry, it is important, in an outback mining centre, to average at least the last 2 full years of trading as best reflecting current trading conditions over a reasonable time frame. It is noted that 2011/12 was an exceptional year and reflects the peak of the boom in the mining industry. 2012/13 is best described as an average year where even though the mining activity was decreasing there were still sales being generated with service contractors and passing east west traffic. 2013/14 was without question a bad year state-wide and in the goldfields is regarded as the worst year in trading for businesses in two decades. It can therefore be concluded that just as 2011/12 was an exceptionally good year, 2013/14 was an exceptionally bad year. It cannot and has not been ignored. In calculating the asking price, the price is based on data including an average year and an exceptionally bad year i.e. the last two full years of trading where accountant prepared tax figures have been provided are averaged. Also note the further evidence of 2013/14 being an exceptionally bad year, where for the 6-month figures ending Dec 31, 2014 i.e. Sales in 6 months exceed the previous 12 months. Average Sales Year!end!June!30!

2014!

2013!

Average!

Accommodation**

460,844*

677,681*

569,263*

Food*

247,520*

342,557*

295,039*

24,669*

28,708*

26,689*

F&B*total*

272,189*

371,265*

321,728*

36%*

Total!

733,033!

1,048,946!

890,991!

100%!

2,014!

2,013!

Average!

$160,042*

$403,735*

$281,888*

Bar*

! 64%*

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! Average!NOP! ! Adopt!$282,000! ! Macintosh*HD:Users:Mulcahy:Documents:WORK:PROFILES:Coolgardie*GR:GoldRushprofile270115.docx*Page*11*of*17*

! ESTABLISHMENT/JUSTIFICATION OF ASKING PRICE The main method in appraising freehold motels is by sales comparison. As sales of motels are infrequent, we used a second method whereby market rent is established and that is then capitalised on the basis of what a prudent investor would seek as a return on his/her investment taking into consideration the location, trading conditions, condition of improvements and other risk factors. To the freehold component is added the business assets. These are calculated on sales evidence of business sales in the accommodation hospitality categories. Method 1. The only two recent sales of similar motels in WA are 1) Albert Facey Narrogin, which sold in 2012 on a 20% capitalisation of net adjusted profit. 2) Fawlty Towers Bridgetown, which recently sold on a 19% capitalisation of net adjusted profit. Goldrush Motels Coolgardie has considerable advantages over the two motels cited about. 1) Narrogin and Bridgetown are more tourist, general public clientele based and compete with other accommodation and hospitality venues in those centres. Sales are therefore less reliable. 2) By comparison Goldrush Motels Coolgardie enjoys a monopoly environment. More importantly it has a regular clientele base of contract workers serving the mining industry, road maintenance (which is extensive because of the distances involved) and of course the Perth to Kalgoorlie water pipe maintenance, which virtually involves permanent ongoing attention. 3) Other factors to consider in establishing a suitable capitalisation rate relates to Coolgardie’s unique location. Coolgardie is the centre point for trades and maintenance workers servicing the centres of Southern Cross, Norseman and Kalgoorlie. All these contractors require accommodation and food and beverage services. 4) Finally the standard of improvements is a significant factor in that the recent substantial refurbishment of the business premises has resulted in a higher demand for the services the business offers. 5) Another significant advantage Coolgardie has over Bridgetown and Narrogin is that it is located on the main east west highway and therefore there is a higher demand from tourist traffic. This therefore gives Coolgardie another major source of revenue other than maintenance contractors. On the above basis and after discussion with three licensed bank valuers Ascend has adopted a capitalisation rate of 17% on net adjusted profit.

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Average Net Adjusted Profit = $282,000

*

Price = NOP X 100

*

ROI

*

= 282,000 X 100 17 = $1,658,824

* * * !

Adopt $1,660,000 freehold and business assets (WIWO) Method 2. a) Establish Market Rent Two methods are used to establish market rent i)

50% of net adjusted profit OR

ii)

30% of accommodation sales plus 10% of other sales.

i)

50% of net adjusted profit 50% of $282,000 = $141,000

Adopt $141,000 ii)

30% of accommodation sales 30% of $569,236 = $170,779 10% of other sales 10% of $32,1278 = $32,128

Market Rent $202,907 Clearly there is something remiss with this calculation. These benchmarks are based on industry averages. Where a location is outside those averages then there is a distortion such as this case. The distortion is clearly very high food and beverage sales in relation to accommodation sales. Food and beverage sales at Gold Rush Motels Coolgardie, far exceeds average motel F&B sales. This is because of Coolgardie’s isolation and a lack Macintosh*HD:Users:Mulcahy:Documents:WORK:PROFILES:Coolgardie*GR:GoldRushprofile270115.docx*Page*13*of*17*

of alternative quality eating establishments on offer. Clearly the business could not afford to pay $202,000 rent. On this basis therefore fair market rent of $145,000 has been adopted as a reasonable rent given net adjusted profit after rent to the business owner would be $137,000 (i.e. $282,000 - $145,000). ESTABLISHMENT OF SUITABLE CAPITALISATION RATE ON FAIR MARKET RENT Ascend has sold in recent times several freehold accommodation, food and beverage outlets in outlying areas such as Laverton, Merredin, Beverley and Katanning. All have been on a 12% capitalization rate. These have all been Freehold Hotels. With Goldrush Motels the standard of improvements are superior to the sold hotels in question. Maintenance of the motel would be far less of an issue than the hotels referred to. Accordingly an 11% capitalization rate has been adopted.

Price = Rent X 100 ROI = $145,000 X 100 11 = $1,318,181

Adopt

$1,318,000

Freehold

Land

and

Improvements. To this has been added the business assets. i.e plant and equipment, goodwill and stock. ESTABLISHMENT OF ASKING PRICE – ANY BUSINESS It is emphasized that Ascend Business and Property brokers are NOT licensed valuers. However Ascend does consult licensed valuers and has a database of statistical information relating to sales of businesses in all industries throughout Australia. A business is an investment just like any other investment. If you were to invest in a rental property you would look at the rental return offered and the possibility of a capital gain. For an investment of cash in a term deposit you would consider the interest rate offered. Investment properties offer returns (rent) of anywhere from 4% to 12% or more depending on location and type. Term deposits (cash) can range from as little as 0% to 6% or 7%. A business on the other hand can offer returns of 25 to over 100%!! Buying a business is an investment like any other. You have to consider the return. Normal investment rules apply - the higher the risk the greater the returns. The lower Macintosh*HD:Users:Mulcahy:Documents:WORK:PROFILES:Coolgardie*GR:GoldRushprofile270115.docx*Page*14*of*17*

the risk, the lower the return. Gone are the days when you added up the business assets and then add one years' net profit as goodwill. Astute purchasers particularly with professional advice require more. Arriving at a price for a small business is not guess-work using Return on Investment or * ROI. ROI is the time it takes to recoup the money invested based on the actual return of a business. If it takes two years to get your investment back you are in effect getting an annual return of 50%. ROI is your yardstick used by Business Valuers and Business Brokers to determine the price of a business based on sales of similar businesses across Australia. Return On Investment is the adjusted net profit of the business divided by the total purchase price expressed as a percentage. That is ROI% =

Adjusted Net Profit x100 Purchase Price OR

Purchase Price =

Adjusted NOP x 100 ROI%

ESTABLISHMENT OF SUITABLE ROI – GOLDRUSH MOTELS Ascend has a database of country based accommodation, hospitality based businesses. Most, if not all have achieved a 50% ROI on sale. Goldrush Motels NOP

$282,000

Less Rent

$145,000

Business NOP after rent

$137,000

Price = NOP X 100 ROI = 137,000 50 = $274,000 Summary Freehold Assets

$1,318,000

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Business Assets

$274,000

Total Assets

$1,592,000

Conclusion Appraisal 1

$1,660,000

Appraisal 2

$1,590,000

Average Method 1 & 2

$1,625,000 WIWO

This has been broken down as follows Freehold Land and Improvements

$1,355,000

Business Assets Plant & Equipment

$150,000

Goodwill

$100,000

Total

$250,000 PSAV $1,605,000 PSAV

Stock Approximately

$20,000

THREE OPTIONS TO PURCHASE 1. Purchase Freehold Land and Improvements and Business Assets on a walk in walk out basis. $1,605,000 PSAV ! 2. Buy Business Only With a 20-Year Lease

$250,000 PSAV

Conditions of the new lease will include but not be limited to 1) Term - 10 years. 2) Option Periods - 2 x 5 years. 3) Commencement Rent - $145,000 PA + GST + O/G 4) Annual Rent Reviews to CPI Annually 5) Market Review every 5 years. The Lessee is to be responsible for a high level of maintenance of all plant and equipment, fixtures and fittings and improvements except of a structural nature. Offers on the Business only will only be accepted by the Seller conditional on the Seller receiving and accepting an offer on the Freehold Land and Improvements within Macintosh*HD:Users:Mulcahy:Documents:WORK:PROFILES:Coolgardie*GR:GoldRushprofile270115.docx*Page*16*of*17*

a specified time with simultaneous settlement of the land and improvements and the business.

3. Buy Freehold Land and Improvements Only

$1,355,000

With commencement net rent of $145,000 per annum plus GST plus O/G, this provides the freehold investor with an initial return on his/her investment of 10.7%. What could be more secure than a 10.7%return with your tenant being a well established, well presented business with an excellent track record, located in a strategic location and drawing on a wide and varied catchment area, with a wide range of clientele? Offers on the freehold assets, will only be accepted by the Seller, conditional on the Seller receiving and accepting an offer on the business assets within a specified time and with simultaneous settlement of both the freehold land and improvements and the business. Disclaimer Information contained in this profile is subject to the following disclaimer. The information in this profile has been compiled from information supplied by the vendors of the relevant property/business. Ascend Business and Property Brokers has no reason to doubt its accuracy. However, Ascend Business and Property Brokers cannot guarantee the accuracy or content of this report. Nor can Ascend Business and Property Brokers take any responsibility for any estimate, projections, errors or omissions. Accordingly, all interested parties are recommended to seek independent financial and legal advice concerning the relevant property/business.

Ascend Corporate Pty Ltd 0418 689 423

9480 3200

www.ascend.com.au *

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