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Ministers explain infrastructure funding deal

The Government said yesterday it would repurpose its ultra-fast broadband company to co-invest up to $600 million alongside local councils & private investors in network infrastructure for big new housing developments.

Finance Minister Steven Joyce & Local Government Minister Anne Tolley said yesterday: “Crown Fibre Holdings Ltd will be renamed Crown Infrastructure Partners Ltd [though that name has been reserved for a new entity], and bring the investment skills & experience gained through the Government’s world-leading ultra-fast broadband rollout to the job of attracting private investment in roading & water infrastructure that open up big new tracts of land for more housing development.”

Crown Infrastructure Partners will set up special purpose companies to build & own new trunk infrastructure for housing developments in return for dedicated long-term revenue streams from councils through targeted rates & volumetric charging for use of the infrastructure by new residents.

Mrs Tolley said: “This innovative new funding method will be made available to cash-strapped councils who are struggling to fund new long-term infrastructure from their own balance sheets.

“Councils will have the option of buying back the infrastructure at some point in the future, but won’t have to commit to doing so. This is all about introducing outside capital to build this infrastructure, so current ratepayers don’t get burdened with all the costs of growth.”

2 of the earliest projects to be assessed by Crown Infrastructure Partners for investment will be projects in the north & south of the Auckland region previously which Auckland Council said would require investment outside the council’s own balance sheet.

“These 2 large projects can provide an additional 5500 homes in Wainui to the north of Auckland, and 17,800 homes across Pukekohe, Paerata & Drury to the south of the city.”

Mr Joyce said the Government was prepared to be an investor alongside the private sector and take up some of the early uptake risk: “We learnt from the ultra-fast broadband programme that if we derisk some of the early stages of the investment, we can bring in private sector investors to take on much of the heavy lifting as the investments mature. We would expect the Crown’s investment in each project to be matched with at least one-to-one with private sector investment over time.

“This new model is another way in which we are helping councils in our fastest growing cities to open up more land supply so more Kiwis can achieve the goal of home ownership.

“Crown Infrastructure Partners is the logical next step in infrastructure funding following the Government’s Housing Infrastructure Fund, which will deliver 60,000 houses across our fastest growing population centres over the next 10 years.”

Link:
Infrastructure funding detail

Attribution: Ministerial release.

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New Crown entity will advance housing infrastructure

The Government has lodged the documents to establish a new company, Crown Infrastructure Partners Ltd, to support development without breaching local council debt constraints.

Auckland Council has been tiptoeing just below its debt:revenue ratio limit of 265%, and put the concept to the Government of a special purpose vehicle to fund infrastructure in a way that recognises those debt constraints.

Instead of the council funding infrastructure for new development, it will come from the Crown company. Auckland mayor Phil Goff said yesterday this would enable construction of 23,300 homes in the north & south of the region to be brought forward.

Mr Goff said the announcement was made at Drury, in South Auckland, because that was likely to be the first place the new funding would be used, for 700 homes.

Mr Goff said: “The initial investment of $387 million in transport & water infrastructure in Drury South & West, Paerata & Pukekohe will enable the construction of 17,800 dwellings much earlier than would otherwise be the case.

“A further major development will be around Wainui in north Auckland, with $201 million in infrastructure funding required for an additional 5500 dwellings.

“The new investment vehicle will provide capital from the Government & the private sector which will not be debt on the council’s books. It will be funded through development contributions & targeted rates within the new housing developments.

“Auckland is growing by 45,000 new residents/year and requires unprecedented levels of infrastructure growth to keep up with demand. Increasing the supply of housing is a critical part of overcoming our housing shortage and slowing price rises caused by demand exceeding supply of housing.

“The new unitary plan ensures there is adequate land – greenfield & brownfield – to meet demand, but infrastructure servicing that land is necessary for homes actually to be built.

“Special purpose vehicles are another tool in our toolbox to enable us to lift the scale & pace of new housing development.”

Attribution: Mayoral release.

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Council to rejig finances to buy 17 new rail units

Auckland Council’s finance & performance committee will vote on Wednesday on a proposal to buy 17 3-car rail units.

The independently powered electrical multiple units will cost $207 million and are intended to meet forecast patronage growth from 2019.

The council needs to approve up to $25 million in its 2017-18 budget for a deposit for the order to be made in September.

Conditions of the purchase are that the NZ Transport Agency will commit to funding at least 50% of the capital & operational expenditure, and the timing of the NZTA funding must align with the cashflow requirement of the procurement & operation.

In addition, Auckland Transport must reprioritise its capital budget to provide $50 million of the purchase funding, so the council’s projected debt:revenue ratio doesn’t exceed its limit of 265%.

Mayor Phil Goff said on Friday: “New electric & battery-powered trains will have major benefits for commuters living south of Papakura in the high growth areas of Drury, Paerata, Pukekohe & potentially Pokeno. It will also honour a commitment I made at the last election.

“The purchase of the new units, which can operate on lines not yet electrified, allows us to eliminate aging, less reliable diesel trains currently used on the Pukekohe line.

“For commuters, it means removing the need to transfer trains at Papakura, making travel quicker & more convenient. It brings in a cleaner form of transport, eliminating diesel emissions, and ensures a more reliable & comfortable trip for commuters.

“The result is a more attractive public transport system which will help tackle growing congestion levels, especially on the Southern Motorway.

“The units could ultimately be transferred to the Kumeu-Huapai line when the Southern line is electrified in 2025.

“The purchase of 17 new units needs to be made now to meet the greater-than-estimated demand for rail travel. Demand has increased by 17% over the last year, and within months will achieve a record 20 million passenger trips/year in Auckland.”

Mr Goff said the council was also examining cheaper options. One of those is to buy 15 electrical multiple units (not independently powered) for $133 million. Another is to buy units with Korean batteries for $174 million.

Link:
Committee agenda item

Attribution: Mayoral release & committee agenda.

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Hobsonville Land aims for more houses below median price

HLC Ltd has begun a programme with its builder-partners to increase the supply of new homes at or below the median price of homes in the vicinity of Hobsonville Point, currently $884,000.

HLC is the Government-owned company, formerly the Hobsonville Land Co Ltd, which is engaged in residential land development at Hobsonville Point, and now also at Northcote.

Chief executive Chris Aiken said on Friday the programme would focus on the Buckley B & Te Uru precincts at Hobsonville Point, where 500 homes would be built over the next 4 years at or below the average of the median house prices for the former North Shore & Waitakere cities, as published by the Real Estate Institute every month.

The homes built as part of this programme will be mainly 3- or 4-bedroom homes. Some 2-bedroom homes would also be built, and they’d mostly be terrace houses or apartments.

Mr Aiken said this programme was in addition to the company’s programme to deliver Axis series homes, currently priced at or below $650,000. 20% of all new homes at Hobsonville Point will be Axis series homes.

He said: “The only way to reduce house prices in Auckland is to increase the supply of housing below the median price,” but add that the builders were also motivated by the commercial opportunity: “This is the part of the market in which demand is greatest. Continuing to only build big expensive houses on large sections isn’t meeting the majority of market need.

“Auckland is changing, with more one- or 2-person households, and many homeowners prioritising lifestyle & amenity over a backyard or large house.”

Mr Aiken said these homes would be sold on the open market by the 8 building companies participating in the programme, and would not use a ballot system sometimes required for Axis series homes when demand exceeded supply.

Buyers must buy the property in their own name and be owner-occupiers, meaning the buyer must live in the home for a minimum of 2 years after purchase.

The first homes to be built as part of the programme are expected to be ready for occupation from mid-2018, but some are already available to buy off-the-plan through Ockham Residential Ltd & Classic Builders Group Ltd.

Attribution: Company release.

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Half the record net migrant inflow is into Auckland

The net inflow of migrants continued to rise in June, reaching a record 72,305 for the June year – and 50% of that total was into Auckland.

Immigrants giving Auckland as their destination rose by 6142 to 59,076 for the 12 months, rising from 42.3% to 45% of all immigrants. The number not giving a final destination fell from 21,244 (17%) to 18,840 (14.3%).

The meteoric rise in net immigration over the last 5 years – from a net outflow of 3191 in the June 2012 year – has resulted from a combination of rising immigrant numbers and declining emigrant numbers. But in the last 12 months that picture has changed slightly.

For June, the number of immigrants was up by 950 to 9158, continuing a steady rise since 2010. On the departures side of the ledger, emigrants dropped to 4534 last June but rose to 5145 last month.

For the June year, arrivals rose from 82,305 in 2010 to 131,355 in the last 12 months, with big jumps in 2014-216, slipping back to a rise of 6300 in the last months. Departures declined from 87,593 in the June 2012 year to 55,965 in the June 2016 year, but bumped up to 59,050 in the last 12 months.

For Auckland, the net inflow in June was 2106 (1726 & 1571 in the previous 2 years). For the June year, the net inflow rose from 26,834 to 31,778 to 36,650 – 50.7% of the total net inflow.

The number of immigrants from Australia dropped slightly for both month & year – by 70 for the month to 1612, and by 262 for the year to 25,441.

Exits to Australia rose for both month & year – by 160 to 1781 for the month, and by 1111 to 24,881 for the year. The net gain shrank from 1933 to 560 for the year.

Other major immigrant sources for the year were China with a net inflow of 10,351 (9688 the previous year), India 7409 (12,118, down chiefly because student visa numbers declined), the Philippines 4646 (5010), the UK 6728 (4138) & South Africa 4867 (3054).

Attribution: Statistics NZ tables & release.

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Convention centre project delayed but “on budget”

Aside from the financial upheaval in the construction division of Fletcher Building Ltd, subsidiary company The Fletcher Construction Co Ltd told SkyCity Entertainment Group Ltd last Thursday that completion of its NZ international convention centre would be delayed.

When work on site, between Hobson & Nelson Sts, began in February 2016, the total project cost of the convention centre plus associated hotel, laneway & extra carparks was $700 million, with an opening date in 2019.

SkyCity said on Thursday an updated programme of works was still being reviewed, but it currently indicated practical completion for both the convention centre and the Hobson St hotel around the middle of 2019.

SkyCity said it remained comfortable with the contractual arrangements with Fletcher Construction and the project remained on-budget. It said the slight delay wouldn’t impact on any of the convention centre’s confirmed bookings.

Attribution: Company release.

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Mairangi Bay unit sells

One suburban unit sold at Bayleys’ auction in Takapuna on Thursday.

North-east

Mairangi Bay

7A Brighton Terrace, unit 1:
Features: 2-bedroom end unit, study nook, garage
Outcome: sold for $875,000
Agents: Peter Christofferson & Stephanie Glennie

Attribution: Agency release.

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Fletcher Building takes axe again to construction earnings, Adamson ousted

Fletcher Building Ltd announced its second hefty cut in earnings guidance for the year yesterday, but cushioned it by issuing a statement that ignored the first target in the opening comparison – before its contracting ploys went disastrously wrong.

Chief executive & managing director Mark Adamson – very oddly – presented the company viewpoint on the first guidance cut in March as if the cause was something peculiar to the company’s construction division.

Yesterday, Mr Adamson was gone and company chair Sir Ralph Norris was the frontman, as he should have been previously.

The cause?

One can surmise, because the company hasn’t said: The failure to make the required earnings on major contracts could arise only from bidding low to win the contract, and being prepared to lock in costs when costs across the sector were rising.

That goes to company ethos, an historic view that Fletcher is the rightful owner of certain areas of business. On this occasion Mr Adamson was the fallguy, but the company ethos tells you that the board – and especially the chair – would have set the direction.

The guidance trail

The new guidance for operating earnings for the year that ended on 30 June is $525 million.

The previous guidance, on 20 March, was $610-650 million.

The original guidance when the half-year results were presented, on 22 February, was $720-760 million.

Sir Ralph said the company also expected likely impairment of up to $220 million relating to the Iplex Australia & Tradelink business units.

The company’s earnings review

According to the company statement yesterday, trading in the building products, international, distribution and residential & land development divisions, as well as 3 of the 4 business units in the construction division (infrastructure, Higgins & South Pacific), is “in line with the company’s expectations, previously provided at the time of the interim results on 22 February.

“However, as work on major projects in the Building + Interiors (B+I) business unit has progressed, it has become apparent that losses in B+I will exceed those previously estimated. The deterioration is due to:

  • a major project subject to previous writedowns, which has required an increase in project resourcing and therefore cost as it nears completion
  • a second major project where construction timelines and the likely completion date have been extended
  • reduced profit expectations on a number of smaller projects in the remainder of the B+I portfolio.

Sir Ralph said: “It is very disappointing to see further losses being reported in our B+I business, particularly when the vast majority of the remaining Fletcher Building business units have performed so well during the year. I know our people in B+I are working incredibly hard to deliver a number of projects for our clients and I would like to acknowledge their efforts.”

In addition, consistent with its standard practice at the end of each financial period, Fletcher Building said it had undertaken a review of the balance sheet carrying values of its business units: “This review has indicated that the value of 2 business units, Iplex Australia & Tradelink, are likely to be subject to an impairment charge of about $220 million when the company finalises its financial statements in August. An impairment of this nature would be reported below the ebit line and have no impact on cash earnings.

“An impairment charge of $220 million would represent about 3% of the group’s total assets as at 30 June. The amount of asset impairment is indicative at this stage and is subject to finalisation of the year-end audit.
“With regards to the impairment of Iplex Australia and Tradelink, while we do see progress in these business units, the board felt it was prudent to recognise that the near- to medium-term estimates of profitability in each business are not aligned with current carrying values.”

Norris & Adamson on Adamson

On Mr Adamson’s departure, Sir Ralph said: “The board believes it is the right time for Mark to leave the company, to allow a new chief executive to lead Fletcher Building through this period and into the next phase of its strategy. The board would like to thank Mark for his work and we wish him the best in his future endeavours.”

Mr Adamson said in the company release: “I am disappointed to finish my tenure on the back of a challenging result in the construction division. However I am proud of what has been achieved over the last 5 years – most notably the turnaround of Formica, double-digit earnings growth in distribution, our acquisition of Higgins and the significant progress in our residential development division.”

Francisco Irazusta takes over as interim chief executive next Monday, 24 July.

Fletcher-posed questions & answers

In a question & answer segment of yesterday’s release, Fletcher Building said: “What are the 2 major projects and when will they be completed? For reasons of client confidentiality, we will not name the projects. One of the projects is close to completion, and the other is targeting completion in the 2019 financial year.

“Are the 2 major projects, and associated issues, the same as those referenced in the 20 March update? Yes. The most significant issues remain complexity in design, subcontractor management & building programme delivery, which has led to an extension of project timelines and increase in project resource requirements & costs, relative to original budgets.

“How can you be sure this new provision will capture all potential future losses? One of the major projects is close to completion, which provides greater certainty over the ultimate cost. A review of remaining projects has been completed, and the construction timelines and the likely completion date extended on a second major project.

“Why are you booking such a large provision now? Under accounting rules, profit on a construction contract is recognised progressively through the life of the project, whereas when it is probable that a contract will incur a loss, the expected loss must be recognised immediately as an expense.

“What has been done to address the issues in B+I since the last update? In addition to the initiatives outlined in our March update, the construction division is benefiting from the leadership & robust management expertise of chief executive Michele Kernahan and B+I has a newly appointed general manager, David Kennedy, who brings with him 30 years’ experience in the construction industry across multiple markets.

“Is there a future for B+I in the Fletcher Building portfolio? We continue to believe that there is a future for the B+I business in the Fletcher Building portfolio, but it is likely to be a more focused business, targeting key clients & sectors.

“What will Mark Adamson receive upon departure? Mark will receive his contractual entitlements. All of his share options will lapse and he will forfeit all shares in the company’s long-term incentive scheme. No short-term incentive will be paid in respect of the 2017 financial year.

“Does this downgrade to earnings guidance pose a risk to your banking or debt covenants? Despite the further reduction in forecast cashflows from these additional B+I losses in the 2017 financial year, the company remains well within its banking covenants, and expects to continue to do so. Based on the updated guidance range, we expect the ratio of net debt:net debt + equity to be around 36% at the end of the 2017 financial year, and the ratio of net debt:ebitda to be about 2.7 times.”

Mark Adamson

Mark Adamson.

Mr Adamson found himself auditing multi-nationals as a young accountant at Deloittes in London 30 years ago. After 5 years at Deloittes, including time managing a number of companies in receivership post-1987, he moved to pharmaceuticals company Glaxo Wellcome plc for 6 years, staying in finance roles, then had his first taste of laminates at Perstorp Ltd, the UK holding company of a Swedish multinational.

In 2000 he moved to Formica Corp as chief financial officer, moving up to managing director then president for the UK & Europe. When Fletcher Building took over Formica in 2008, he was promoted to chief executive with responsibility for all Formica’s operations in North America, Europe & Asia.

In October 2011 he was made chief executive of Fletcher Building’s laminates & panels division, responsible for the Laminex Group business in Australia & New Zealand and for Formica worldwide, and in October 2012 he took over as chief executive of the whole group.

In 2015, I wrote that Mr Adamson’s business record was that of a change merchant, which meant both that he could be expected to move on soon and that getting the building products company shipshape had been a rapid revolution. His views then (see the story link below) give an insight into his thinking on how to turn the Fletcher worldview around.

One thing he wasn’t was a construction man, though among his aims at Fletcher Building was a sharp lift in the company’s own residential construction business, which he achieved.

Francisco Irazusta.

The new chief

His replacement as interim chief executive, Francisco Irazusta, joined Fletcher Building in March 2015. According to the company’s website: “He has enjoyed an impressive career in global building products in both North America & Europe. Prior to joining Fletcher Building, Francisco steered CRH plc’s European building products business through tough times, driving performance improvement throughout his tenure.”

He holds an MSc in industrial engineering from the State University of New York.

Earlier stories:
20 March 2017: Fletcher Building cuts earnings guidance by $110 million
19 March 2017: Fletcher Building to explain construction loss Monday morning
17 August 2016: Fletcher message is steady rather than gains from innovative performance
21 August 2015: Fletcher chief looks at a better-based future
21 February 2013: Adamson wants Fletcher Unite to reshape group
21 November 2012: Adamson looks at local property rationalisation as first step to lift Fletcher Building
18 June 2012: Ling exits Fletcher Building, laminates chief Adamson moves up – and the big words are “patience” & “innovation”

Attribution: Company release.

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2 leasehold units plus one in Metropolis sell at auction

2 leasehold apartments – one in the Docks and the other in the Sebel Auckland Viaduct Harbour – plus a unit in the Metropolis were sold at Ray White City Apartments’ auction yesterday, leaving 4 other units unsold.

2 units in the Spencer on Byron hotel in Takapuna were passed in, and a third was withdrawn before the auction started.

CBD

Albert St

Quay West, 8 Albert St, unit 2302:
Features: 74m², one bedroom
Outgoings: rates $1785/year including gst; body corp levy $8433/year
Income assessment: $650-700/week furnished
Outcome: passed in at $565,000
Agent: Ron Yang

Kitchener St

Metropolis, 1 Courthouse Lane, unit 1902:
Features: 52m², corner one bedroom, storage locker, parking space
Outgoings: rates $1595/year including gst; body corp levy $7037/year
Income assessment: $620/week current
Outcome: sold for $616,000
Agent: Dominic Worthington

Quay Park

The Docks, 4 Dockside Lane, unit 224:
Features: leasehold, 30m², one bedroom, remediation of building underway
Outgoings: rates $1037/year including gst; body corp levy $4359/year including ground rent of $1675/year; terminating leasehold from 2011 for 150 years, ground rent reviewed every 7 years, next review November 2018
Income assessment: $390/week current
Outcome: sold for $121,000
Agent: Dominic Worthington

Uptown

Oxford, 13-17 Mount St, unit 5K:
Features: 54m², 2 bedrooms, parking space
Outgoings: rates $1278/year including gst for unit, $1262/year for parking; body corp levy for unit $3624/year, parking $626/year
Income assessment: $650-700/week furnished
Outcome: passed in after the sole bid, from the vendor, at $600,000
Agents: May Ma & Mark Li

Waterfront

Sebel, 85 Customs St West, unit (door) 615:
Features: leasehold, 57m², one bedroom, study area, 7m² balcony
Outgoings: rates $/year including gst; body corp levy $18,038/year, including $7840/year ground rent
Outcome: sold for $300,000
Agents: Judi & Michelle Yurak

North-east

Takapuna

Spencer on Byron, 9-17 Byron Avenue, unit 501:
Features: 59m², fully furnished one bedroom
Outgoings: rates $2190/year including gst; body corp levy $2982/year excluding gst
Income assessment: in hotel management pool
Outcome: passed in at $175,000 + gst
Agents: James Mairs & Gillian Gibson

Spencer on Byron, 9-17 Byron Avenue, unit 612:
Features: 48m², fully furnished one bedroom, parking space
Outgoings: rates $1195/year including gst; body corp levy $3140/year
Income assessment: $550/week, fixed until 30 September
Outcome: passed in at $275,000 + gst
Agents: James Mairs & Gillian Gibson

Spencer on Byron, 9-17 Byron Avenue, unit 712:
Features: 2 bedrooms
Outcome: withdrawn from auction
Agents: James Mairs & Gillian Gibson

Attribution: Auction.

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2 leasehold apartments sell at auction

The owner of 2 leasehold apartments in the Quay Park precinct one at Hudson Brown and the other at The Landings, sold both under the hammer at City Sales’ auction yesterday.

The third property up for auction, a New Lynn studio, was passed in.

CBD

Quay Park

Hudson Brown, 57 Mahuhu Crescent, unit 422:
Features: leasehold, 70m², 2 bedrooms, parking space
Outgoings: rates $1608/year including gst; body corp levy $10,004/year including ground rent
Income assessment: $580/week fixed until January
Outcome: sold for $220,000
Agents: Tony Kelly & Trisha Shanaghan

The Landings, 10 Ronayne St, unit 611:
Features: leasehold, 41m², 2 bedrooms
Outgoings: rates $873/year including gst; body corp levy $2799/year, ground rent $2297/year
Outcome: sold for $130,000
Agents: Tony Kelly & Trisha Shanaghan

North-west

New Lynn

10 Crown Lynn Place, unit 3E:
Features: 28m² studio, deck
Outgoings: rates $865/year including gst; body corp levy $2474/year
Outcome: no bid, back on the market at $230,000
Agent: Trisha Shanaghan

Attribution: Auction.

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