Archive | Finance

Brexit vote stalls council & Kiwi Property bond offers

Auckland Council decided yesterday, and Kiwi Property Group Ltd today, to defer the bond offers they announced last week because of the uncertainty following the Brexit vote in the UK.

The council said last Wednesday it was considering a retail bond issue of fixed-rate secured bonds to the public in New Zealand & institutional investors.

Kiwi Property said on Friday it was considering an issue of 7-year fixed-rate senior secured bonds to New Zealand institutional & retail investors, to be offered this week.

Earlier story:
27 June 2016: Kiwi Property to make bond offer this week

Attribution: Company & council releases.

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Council to set rates on Thursday

Auckland Council votes to approve its annual rates on Thursday, for the year starting on Friday.

The recommendations are for an average general rates increase of 2.4%, a uniform annual general charge of $394/property, the interim transport levy to continue and the farm/lifestyle block differential to be unchanged.

The 2.4% average general rates increase plus transport levy will work out at an average rise of 2.5% for residential & farm/lifestyle ratepayers, 1.9% for businesses.

The transport levy is $182.85 including gst for business properties, $113.85 for residential, farm/lifestyle and properties with no road access.

The proposed urban residential rate in the dollar of capital value is $0.00253439 and business $0.00693795.

The council set out a capital investment programme of $18.7 billion in its 10-year budget for 2015-25, while capping rates increases at no more than an average of 3.5%. Total council borrowings were forecast to rise from $7.2 billion to $11.6 billion, while assets were forecast to increase from $42 billion to $60 billion in 2024-25. For 2016-17, the 10-year budget forecast rates to increase by 3.2%, with $1.9 billion of capital investment and opex of $3.7 billion, and operating revenue continuing to be less than total opex, in line with the council’s policy of moving towards fully funding depreciation by 2025.

Governing body, Thursday 30 June at 9.30am, Town Hall:
11, Annual plan, adoption of the annual budget 2016-17
12, Rates setting 2016-17

Earlier story:
13 May 2016: The rating numbers council will vote on today

Attribution: Council agenda.

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Council to get finance proposal on HQ plus Graham St building

Auckland Council’s finance & performance committee agreed yesterday to get a “financing proposal” on 2 buildings – its 135 Albert St headquarters & 35 Graham St property administration building – most likely leading to their sale.

Council staff have been working on options for 10 council-owned buildings which Cameron Partners identified for review, but the financial planning manager for council-controlled organisations, Robert Irvine, said the list had been narrowed down due to legal constraints over titles and some being caught up in growth in their areas, such as the former Manukau City Council chamber & offices.

All 10 properties had a 2014 capital value of $311 million, well short of current market value, led by the council’s Albert St tower at $133.5 million. The Graham St property was valued at $32.5 million.

Mr Irvine said in his report: “The preliminary assessment indicates that a full sale & leaseback best aligns with the considerations that underline an ownership versus lease decision. The considerations being: the necessity for holding control of the asset, the level of operational risk an organisation wishes to hold, the financial impact, and the organisation’s capital scarcity.

“Preliminary analysis of Auckland Council’s corporate property portfolio indicates that there is no necessity for maintaining ownership control of the 2 corporate office buildings. It divests some operating responsibilities and will provide debt headroom.”

He said the underlying reason for government organisations to lease assets rather than own appeared to be capital rationing: “Where Auckland Council must borrow in order to fund a property purchase, it could be beneficial to rely on the private sector to provide that capital and simply pay for accommodation through a lease arrangement funded out of rates. This means the capital can be deployed elsewhere. For Auckland Council this could be stormwater & transport infrastructure.”

Chief financial officer Sue Tindal said any decisions the committee makes would then go out to public consultation, such as sale of buildings or airport company shares.

John Tamihere said it could be confusing, “death by a hundred cuts”, but “You have to see how it’s all wired up. What the city needs to get its head around, officers as well, you’re now getting to a level of requirement akin to a Cabinet type of paper and the rigour that goes into a bunch of those.

He said this could require review of the quality of documentation coming before the council.

To a question from Cllr Chris Darby, Kevin Ramsay said the option of bundling the council’s properties into an investment fund would be in the mix when staff reported again.

Cllr Mike Lee expressed concern that sale of the buildings kept being tied into ownership of Ports of Auckland Ltd & Auckland International Airport Ltd shares, and once more dragged in the presence of Independent Maori Statutory Board members at the committee table, which he’s constantly & vociferously opposed.

Cllr Linda Cooper said the 2 groups of assets were being considered separately: “I do want to rationalise some of the buildings we’ve got. We’ve got far too many buildings,” she said.

Cllr Wayne Walker said the council didn’t have a long-term vision for its accommodation, including council-controlled organisations, and an integral part of that was the civic administration building which the council intended to sell.

The call for a report on financing options for the 2 buildings was approved.

Link: Committee agenda

Attribution: Council committee agenda & stream of meeting.

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The rating numbers council will vote on today

These are the numbers mayor Len Brown (pictured) wants Auckland Council to set today for the year starting 1 July:

  • an average increase in rates revenue of 2.4%
  • a uniform annual general charge of $394
  • year 2 of the 3-year interim transport levy (targeted rate) be unchanged at a fixed charge of $113.85 (including gst) for non-business ratepayers and $183.85 (including gst) for business ratepayers
  • draw down from the council’s diversified financial asset portfolio up to $100 million/year over the next 2 years to manage debt ratios within prudent limits
  • $1.945 billion of capex, $3.67 billion of opex, $8.774 billion of closing debt, interest:revenue ratio 11.5%, debt:revenue ratio of 265%
  • the general rate differential for farm & lifestyle properties to stay at 80% of the urban residential rate.

The 2016-17 budget would be based on year 2 of the 2015-25 long-term plan, adjusted for the updates set out in the staff reports, and to incorporate the following changes & specific decisions:

  • Auckland Council to continue its public transport concessions
  • additional funding of $1.5 million to Auckland Transport, noting that the remaining $1.5 million estimated cost of the discontinued Government subsidy to come from internal savings in Auckland Transport
  • additional capital funding to Auckland Transport of $30 million in 2016-17 & $20 million in 2017-18 to support the early acquisition of land for capital projects excluding light rail
  • request Auckland Transport work with the NZ Transport Agency & Kiwirail to retain the land at the Waterview Tunnel construction site until the decision on the light rail project has been progressed
  • additional operating expenditure of $150,000 to deliver town & local centre clean-ups.

For Maori property

The mayor has proposed that the Maori freehold land rates remission & postponement policy be amended to include remissions:

  • to adjust rates to the equivalent of those that would have been charged, had the property been valued excluding any potential use that is unlikely to be achieved within Maori ownership
  • to adjust rates to the equivalent of those that would have been charged, had the rateable value of the property been adjusted by 10%, where properties have significant barriers to development such as owners being deceased or not succeeded to
  • for marae & urupa land in excess of the 2ha limit for non-rateability
  • for land returned under treaty settlement for commercial redress, where the land is set aside and protected for cultural, historic or natural conservation purposes or because it is wahi tapu, or used for a marae or urupa
  • that the rates remission & postponement policy be amended to remit fixed charges on Maori land on multiple titles used as single property.

Other specific targeted rate proposals:

  • a 2-year pilot programme be established providing financial assistance of up to $35,000/property to eligible homeowners in Piha, Te Henga, Karekare & Little Oneroa catchments to replace or upgrade their failing systems, funded by a targeted rate set from 1 July 2017
  • a targeted rate be set (at two-thirds of the level set regionally for a full year recycling service) to fund a fortnightly kerbside fully commingled recycling collection in rural Franklin
  • the Brown’s Bay, Glen Eden & North Harbour business improvement districts are extended.

The process:

The mayor’s annual budget proposal is debated this morning by the council’s finance & performance committee. Its recommendations go to the council’s governing body this afternoon for approval, without relitigation.

Mr Brown said in his summary:

The consultation document the governing body adopted in February identified the key changes to the rating policy on which it was seeking feedback – the level of uniform annual general charge, the interim transport levy, a reduced differential for farms over 50ha and the rates remission & postponement policy for Maori freehold land.

Mr Brown said review of the underlying budgets by council-controlled organisations & council staff had identified some cost changes, mostly positive, and a few issues where specific decisions would be required. These specific issues include some aspects of concessionary fares to SuperGold cardholders & senior citizens, additional capital funding for strategic transport land acquisition and release of diversified financial assets. He’s also proposing the inclusion of a small budget for town and local centre clean-ups.

“With regard to rating policy, this proposal is based on minimal change. I am firmly of the view that, after 5 years of massive change as a consequence of the amalgamation of the rating system, it is time to have some stability. I acknowledge the work that Cllr Ross Clow has done to look for alternatives in the way the transport levy is charged and I think that was a debate worth having. However, on balance, I feel that this should be a year of minimal change and therefore my proposal is to remain with status quo for the uniform charge, transport levy & the differential for farms over 50ha.

“I am supporting the recommended changes to the Maori freehold land rates remission & postponement policy and also to the more local targeted rate issues – where supported by the local board. These are all minor and do not undermine the stability principle.

“I am proposing for 2016-17 that we continue to support the SuperGold cardholders & senior citizens in free use of public transport in the current arrangements. The introduction of the HOP card for these users will enable data gathering to support any future consideration of this ongoing subsidy. I am disappointed that the Government has withdrawn its support in the absence of such information and I intend to write to the minister to express our views. I am proposing that the additional cost of continuing this level of service is 50% funded from within Auckland Transport’s existing budgets and 50% by additional funding from rates.

“I have also proposed partial funding of the additional strategic land acquisition and supported the drawdown of funds from the diversified financial assets portfolio to manage our debt within prudent limits. These assets are not, in my view, core to the functions of council and it is appropriate to utilise them to prudently manage our debt & debt ratios, and by so doing maintain our AA credit rating.

“The net result of these proposals is an interest:revenue ratio of 11.5% and a debt:revenue ratio of 265%.”

Auckland Transport land acquisition:

Auckland Transport asked for $80 million more for strategic land purchase: “The long-term plan includes a number of transport projects which will require land acquisition, and largely these are budgeted close to the time when the project would commence. However, as development is progressing at such speed, it has become apparent that on some sites it would make more sense to designate & potentially acquire the land now before any development takes place and make the acquisition significantly more expensive.”

“3 categories of acquisition are identified – projects that are planned and in the budget but at a later date (effectively this is bringing budgeted expenditure forward); projects that are identified but beyond the current long-term plan and there is an opportunity to designate/secure land now; acquisition associated with a light rail depot that, should that project be approved, would be the most suitable location and will only be available for a relatively short period of time.”

With regard to light rail, the mayor said: “There is still a significant amount of work to do before either ourselves or the Government is ready to give the green light on that project. I recognise the limited opportunities to identify & designate land in critical spots in the central area. I am proposing that we enter into discussion with the NZ Transport Agency, which currently owns the land in question, and seek the ability to keep this land available until there is a decision on the future of light rail. Should this become an urgent matter of consideration before the next budget, then it can be brought back to the council of the day.”

Town & local centre clean-up initiatives:

“During the discussions with local boards, we heard a lot about dissatisfaction with levels of service around basics such as mowing & street cleaning. I am aware that there is a process underway to review the way we deliver some of these services. The outcome of that is expected to be an improved level of service and this will roll out over the next 12-18 months. While this is the underlying issue that needs to be resolved, there are other activities we can leverage for relatively small amounts of budget.

“I am proposing a small budget of $150,000 to deliver a number of town & local centre clean-ups across the region. Resources will be targeted towards those areas that are in high demand for graffiti & other clean-ups. The council’s service providers will support & work with business owners, business improvement districts, business associations & others to remove any graffiti vandalism that is outside the scope of the council’s normal service delivery. Typically this means graffiti that is on private premises such as storefronts, rubbish skips, private signs & fences. The clean-ups will also include litter removal, weeding, and painting of fascias where possible & permitted. This new initiative will help to improve the overall look of local business environments across the region. The service will help to strengthen & enhance the council’s relationships with business owners, business improvement districts & business associations across the region.

“The proposed budget of $150,000/year allows for up to 50 clean-ups throughout the year. At a minimum, and over the first year of operation, 32 clean-up initiatives will be delivered. Town & local centres will be prioritized, based on the council’s extensive data on graffiti ‘hot-spot’ areas as well as call centre information on demand for council services.”

Image above: Mayor Len Brown alighting from a new double-decker bus last November.

  • I’ll update during the day if there’s any major change from the course set out above, and on the final figures adopted.

Finance & performance committee agenda
Alternative sources of financing reports (as one large pdf attachment to 19 November committee agenda)

Earlier stories:
10 February 2016: Council annual plan consultation starts next Monday
11 December 2015: Council back next week to debate rates rise
13 November 2015: Reports released on Auckland’s alternatives to rates

Attribution: Council committee agenda.

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Council approves initial budget advance for HQ cladding repairs

It took Auckland Council’s finance & performance committee 50 minutes yesterday to decide to bring $4.7 million of budgeted maintenance on its new headquarters building forward to remedy cladding issues. The work is expected to take at least 18 months.

The time taken to deal with what seemed a straightforward issue wasn’t altogether surprising, considering the council’s governing body took 6 hours the day before to conclude that a process decision excluding consultation on a unitary plan zoning change was plain wrong.

The cladding presents serious dangers to visitors to the building at 135 Albert St, on the corner of Wellesley St, but most of the debate was on peripheral issues – the council should sell the building, the council shouldn’t have bought it in the first place.

That might have made Cllr Cathy Casey’s joke at the end of the debate all the more pertinent: she noted that corporate finance & property general manager Kevin Ramsay had said in his presentation the council was responsible “for the safety of staff, tenants & visitors to the building & surrounding area” and, in his report: “Health & safety for staff, tenants & the public has been at the forefront of the actions to date.”

Said Cllr Casey: “What about the councillors?” I’m sure there was a general shrug of the shoulders around the back of the chamber.

The council bought the former ASB Bank Centre from Brookfield Multiplex for $104 million in 2012. It’s since spent $25 million directly on fitting the premises out and another $28 million on additional works, all budgeted for.

The additional works have included building plant & lighting system upgrades (LED introduced), and $4.2 million was set aside to deal with known issues with the building façade.

Mr Ramsay said nothing in the due diligence investigations in 2012 or in subsequent examination identified structural stability issues or weathertightness concerns, and there was “a low likelihood” of anything falling from the building: “The issue is around the stonework cladding and how it is fixed to the building.”

Invasive examination by Mott MacDonald in 2013, including removal of some stone at the podium level, identified quality issues in relation to the fixings, including:

  • non-standard fixing design
  • insufficient, missing or loose bolts & pins
  • inadequate or missing packing, which meant the pins were supporting the weight of the stones
  • some deflection in the fixings, support rails & stone
  • corrosion in bolts & support rails, and
  • some stone had no mechanical fixing, and was adhered using epoxy with an uncertain lifecycle.

The budget advance is to make the cladding safe, including enabling works. The first part of that exercise will be to hang scaffolding at the top of the 29-storey building to stop anything falling, and a working platform over the podium to capture anything falling before or during project works.

The peripheral issues

Cllr Christine Fletcher said the 2012 purchase was hotly contested and that buying a 25-year-old building was questioned: “The best thing to do would be to sell that building. Obviously you have to do the work. We now have this dilemma. I’m only raising it because I don’t want to see the same thing in the future. I’d like to see us sell it and see some new information relating to procurement.”

Mr Ramsay: “At the time a full business case was undertaken. The valuation was significantly less than the other option at the time. We do know the valuation of the building has gone up, we know people find it an attractive building. Part of the task now is to look at our property portfolio and see where we go. It is functioning very well for what was intended.”

Cllr Fletcher: “One of the smartest things to do would have been to put in smart lifts.”

Mr Ramsay: “It is something to be looked at. At the time, there was concern about spending any more money.”

Cllr Chris Darby: “I personally don’t feel it’s worth relitigating the purchase. This is potentially an enormous problem because we don’t know what’s in behind yet. Let’s sight the warranties. That legal redress is quite important.”

Mr Ramsay said the building was unlikely to have a 25-year warranty on the products, but staff would exhaust the warranty liability issues.

Cllr Callum Penrose was one who’d changed his mind on the purchase: “I said at the time we didn’t have a full list of assets. We shouldn’t have bought the building. Since then we’ve moved 3 buildings into one. The shortage of office space in Auckland now, I know the chief executive has had an offer from a company in Europe to purchase it. A building of that size & where it is, you’re going to have costs. We’ve just got to get on with the job.”

Cllr Dick Quax noted that “there still seem to be quite a few unknowns about this. This is not going to be cheap by the look of things. We just have to suck the seed.”

Cllr Quax thought the latest valuation on the building was $133 million, but Mr Ramsay said that was the valuation for rating purposes. It had reached $150 million in 2014 and was due for revaluation in 2017.

Cllr Mike Lee said he’d never supported buying the bank building or the move away from the civic square: “I would put this up, I’m sure we could get a reasonable price especially with the city rail link [an entry to the new Aotea station will be a short distance from the Albert St building’s door], some uplift there.

“But I think some mistakes buying this building, moving away from the civic square, the best approach is to sell it to the private sector, move back to the civic building and if extra accommodation is needed do some work around the land we own on the civic square.”

Cllr Ross Clow expected the value “will be well above $200 million at the moment”. Given present international economic conditions including negative central bank interest rates around the world, sale could be timely.

Deputy mayor Penny Hulse said this would be raised when the council discusses its asset sales review.

Comment: After all that, one question that eluded the councillors was the time it might take for the council to grant itself resource & building consent for the work. You might think a quick decision would be automatic but, as the owners of many other buildings around the city have discovered with cladding problems, the solutions are not often simple – and liability precludes haste.

Image: The view from the old civic administration building across the Aotea Centre to the ASB Bank building before the council bought it in 2012.

Earlier stories:
22 February 2016: Council HQ cladding fix turns into a major
19 July 2012: Council confirms it will buy ASB Bank Centre

Attribution: Council committee meeting.

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Council annual plan consultation starts next Monday

Auckland Council’s annual plan will go out to public consultation on Monday 15 February with a proposed overall increase of 3.2%, although it could still be cut to 2.5%. The closing date for consultation has been extended from 15 March to 24 March.

The council’s governing body adopted supporting information for the consultation process and the draft operating plan today, with some last-minute tinkering.

The consultation document & feedback options will be on the council’s Shape Auckland website, its Our Auckland publication will contain a summary, and the council will hold 27 Have your say events around the region (all listed on Shape Auckland). It wasn’t finally determined if large-print documents would be available, which Cllrs Cathy Casey & Wayne Walker had advocated.

Local board briefings & workshops will be held from 13-28 April and the council’s finance & performance committee will hold discussions with the boards, plus briefings & workshops from then until 11 May, making a decision on 13 May.

The governing body will meet to adopt the final annual plan on 30 June.

Cllr Ross Clow, who put forward an alternative to the mayor’s annual plan & rating proposal last year based on a 2.5% overall increase, questioned going out to consultation with a 3.2% increase proposed when nobody round the council table had any intention of the rates hitting that level.

Mayor Len Brown said that, ultimately, he hoped to move a 2.5% increase “justified by our reading of the balance sheet. The sentiment is there but we haven’t backed that with a resolution. Without a specific recommendation you have to go with the long-term plan”.

That 10-year plan through to 2025 has rating levels budgeted every year, and 3.2% is the figure for the next financial year, starting 1 July.

Financial strategy & planning general manager Matthew Walker thought staff had captured the spirit of the mayor direction, but said: “We think you would be jumping the gun [writing in the possibility of a 2.5% rise]. There is plenty of pressure all over the business. It could well be your interim transport levy settings that determine where the overall levy ends up.”

Link: Shape Auckland

Attribution: Council meeting.

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Propbd on Q Th17Dec15 – 1 sells at apartments auction, council consultation agreed, Quax storms out

1 sold, one passed in at Ray White apartments auction
Councillors agree on annual plan consultation
Councillor storms out over zoning motion

1 sold, one passed in at Ray White apartments auction

One unit was sold under the hammer today at Ray White City Apartments’ final auction for the year, and the other property offered was passed in after the fourth offer by the sole bidder still didn’t meet the reserve. Auction results:

Alpha, 17 Vogel Lane, unit 1405, sold for $395,000, Krister Samuel & Ellen Sparnon
The Wakefield, 18 Wakefield St, unit 4G, passed in at $750,000, May Ma & Mark Li

Councillors agree on annual plan consultation

Auckland Council’s governing body agreed today on what should be consulted on when it puts its annual plan out to the public in February.

The specified options are as they were presented in the agenda for today’s meeting:

  • A uniform annual general charge range between $350-650
  • Changing the interim transport levy on business ratepayers from a fixed charge to capital value
  • Adding to the transport levy consultation an option from Cllr Ross Clow
  • Options on the Maori freehold land remissions & postponement policy
  • Reducing the differential for 50ha-plus far & lifestyle properties from 80% to 60% of the urban general residential rate, and
  • Noting that the council will also consider options in the EY & Cameron Partners reports on alternative sources of financing.

After legislative changes, the council no longer has to issue a draft annual plan. Instead, it just has to produce a consultation document outlining any proposed changes to its long-term plan, which has itself just gone through consultation. A number of topics have also already been debated by the council’s finance & performance committee.

The projected overall rate rise is 3.2% overall, possibly reducing to 2.5% if enough internal savings can be found.

Councillor storms out over zoning motion

Cllr Dick Quax stormed out of today’s meeting of Auckland Council’s governing body after mayor Len Brown refused to entertain discussion on a motion the councillor tried to put, calling for public consultation on changes that would intensify suburban residential zones.

Cllr Quax raised a point of order seeking clarification of the decision the mayor had already made pre-meeting not to accept the motion.

But when the councillor started to discuss detail of his motion, the mayor told Cllr Quax he wasn’t raising a point of order but making a speech.

Cllr Quax said it was outrageous, packed up and stormed out.

The motion, signed by Cllr Quax & 8 other councillors, called for a halt to rezoning for more intensive use until there’s public consultation on it.

The issue is before the independent panel hearing submissions on the unitary plan and will go to hearing next year. The panel is due to deliver its recommendations to the council in July, for the council to make its decisions on the plan before the October local body elections.

Attribution: Auction, council meeting.

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Council back next week to debate rates rise

Auckland mayor Len Brown moved away yesterday from his firm target of a 2.5% annual rates rise for the 2016-17 year – which he was hugely unsuccessful at achieving for this year’s rates.

He’d like to see a 2.5% rise, but said the current programme would set it at 3.2%.

And then comes the interim transport levy, to support transport programmes other than the city rail link. For this year’s rates, Mr Brown introduced a surprise levy set at fixed rates of $113.85 (including gst) for residential & farm/lifestyle ratepayers, $182.85 (including gst) for business ratepayers.

For the next year, he’s proposed an option to increase the share of the interim transport levy to be met by businesses from 14.7% to 32.7%, and 32.3% for 2017-18, calculated on capital value instead of as a fixed rate, in line with the business portion of general rates.

That’s also in line with a proposal from Whau councillor Ross Clow, who tried to introduce a more equitable transport levy for this year. Cllr Clow said his proposal would result in an overall 2.5% increase – 1.59% residential, 4.07% for business.

Orakei councillor Cameron Brewer said a levy based on capital value would hit the many businesses sitting on properties worth $750,000-2 million, which would see this levy rise 145% for them, from $183 to $450/year.

The committee agreed positions in October on 4 issues to be taken to consultation as part of the annual plan process – Maori land rates, a rural rates review, the uniform annual general charge (consultation on a range from $395-650) and the structure of the interim transport levy.

A capital programme of $1.9 billion includes $720 million for transport, $440 million for water & wastewater, $170 million for parks, sport & recreation.

The council’s governing body will consider the mayoral proposal next Thursday, 17 December.

Earlier stories:
Propbd on Q W28Oct15 – Council settles consultation points on 4 rates issues; results from 5 auction rooms
26 October 2015: Council report suggests transport levy options for consultation
26 October 2015: Paper sets out uniform charge options
29 June 2015: One vote short of chaos versus a levy to take Auckland forward
25 June 2015: Council approves rates, transport levy & long-term plan after 2 close shaves

Attribution: Council & councillor releases (I wasn’t at the meeting and haven’t seen the broadcast).

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Propbd on Q Th10Dec15 – Council annual plan, Lunn Ave sale, apartments auction

Mayor tables annual plan proposal
Lunn Ave property sells for $46 million
6 apartments sell but Spencer on Byron units passed in

Mayor tables annual plan proposal

Auckland mayor Len Brown has tabled his proposal for the council’s annual plan today, at the finance & performance committee meeting. It was a late addition to the agenda.

Unfortunately I need a nap – will get to this when I come to.

Lunn Ave property sells for $46 million

The Mitre 10 Mega site on Lunn Avenue, Mt Wellington, plus adjoining tenancies have been sold for $46 million in an off-market sale. The site is made up of 3 properties on Lunn Avenue & Marua Rd.

Isthmus east

Mt Wellington

72 Lunn Avenue & 202 & 174B Marua Rd:
Features: 31,082m² site, building area of over 14,600m², accommodating Mitre 10 Mega as well as adjoining tenants including Wet & Forget, Repco, Factory Frames, Smart Marine and Transfield Holdings Ltd
Outcome: sold off-market to an Auckland investor for $46 million
Agent: Grant Hargrave (NAI Harcourts North Shore Commercial)

6 apartments sell but Spencer on Byron units passed in

6 apartments were sold under the hammer at Ray White City Apartments’ auction today and 5 – including 2 in the Spencer on Byron in Takapuna offered together – were passed in. Auction results:

The Beaumont, 220 Victoria St West, unit 3J, sold for $1.045 million, Damian Piggin & Daniel Horrobin
Nautilus, 18 Hobson St, unit 5B, sold for $370,000, Damian Piggin & Daniel Horrobin
Nova en Scotia, 18 Scotia Place, unit 2B, sold for $383,650, Ryan Bridgman & Mitch Agnew
The Quadrant, 10 Waterloo Quadrant, unit 1225, sold for $300,000, Damian Piggin & Daniel Horrobin
The Quadrant, 10 Waterloo Quadrant, unit 1619, sold for $390,000, Damian Piggin & Daniel Horrobin
Nova en Scotia, 18 Scotia Place, unit 8F, passed in at $450,000, Ryan Bridgman & Mitch Agnew
Unilodge on Anzac, 138 Anzac Avenue, unit 1310, sold for $98,000 + gst, Jean Ooi
St Mary’s Bay, 21 Hargreaves St, unit 1H, no bid, Damian Piggin & Daniel Horrobin
Takapuna, Spencer on Byron, 9-17 Byron Avenue, units 1805 & 1806, passed in $440,000 for both, Gillian Gibson & James Mairs
96 on Symonds, 96 Symonds St, unit 901, passed in at $190,000, Victor Liu

Attribution: Company release.

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Lee says consultants didn’t examine consequences once council assets sold

Auckland councillor Mike Lee, chair of the regional council when it returned Ports of Auckland Ltd to full public-sector ownership, almost sprang to the rescue yesterday of the sell-side capitalists among his colleagues.

But not quite – they weren’t going to listen to him.

Cllr Lee was one of 4 councillors, along with Chris Darby, Wayne Walker & Sir John Walker, to suggest the $490,000 of reports on alternative council financing produced by Ernst & Young and Cameron Partners were far short of adequate.

Cllr Lee was predictable in his opposition to asset sales, which were promoted by both consultancies as a way of earning income where the assets weren’t core. But he also pointed to the absence of documentation on what happens once the sale has been completed, debt has been reduced or the money has been spent on new assets or operations.

“Asset sales, don’t call it recycling please, the public can see through all of that…. Was anyone giving advice on why to hold assets?” he asked.

It ought to have been a central section of the 2 advisory reports because Cllr Lee is right on that point, councils will quickly apportion money from a sale, and soon after they will lift debt again to a level that’s allowed – the same as before but one less asset available for future use.

Cllr Lee said an income-earning asset might be sold to pay for construction of the city rail link. But then he asked, “What’s going to pay for upkeep?

“The point about this whole process (of consulting on finance) is about asset sales. Ports of Auckland is actually performing excellently. It is a genuine alternative funding scheme, as is Auckland International Airport; to sell those assets for a short-term benefit will mean we are destroying our main sources of alternative income.”

Cllr Darby was also blunt when he quizzed Wellington-based EY partner Chris Money: “We were looking for alternative sources of financing. I was struggling to find where you homed in on that question.”

Mr Money: “I guess I’d start with the first point, what you consider to be conventional financing. I’d probably start with rates & user charges. If that is then the basis on which you start, alternative financing is potentially everything other than that. There’s also the question of the mix of funding & financing across the council, between rates & user charges. There’s variations around the theme, around these different ways of funding, financing council operations. There’s sponsorship, recycling… The critical thing, the application to services is where the trick lies. For example, a sponsored bus stop, a lot of other cities use these to fund cycling programmes.”

John Walker looks at repercussions

While Mr Money steered away from asset sales in that part of his response, Sir John Walker wasn’t having it: “Many years ago Bill Birch came through the council (after he retired as finance minister), improved things by selling assets. You can’t sell them again. Basically what I see you people are trying to do is sell assets.”

Cllr Penny Webster, who chairs the council’s finance & performance committee, gave Sir John the first odd serve on that comment: “To be fair, no one is suggesting we sell assets.”

Eventually, after telling several councillors the word ‘sale’ wasn’t among the matters they were discussing, Cllr Webster acknowledged what was plain for all to see: Cllrs Cameron Brewer & Dick Quax had posted a series of amendments to get staff looking at specific issues before a councillor workshop in February. And those amendments were, essentially, to consider the degree of selldown of certain assets such as Ports of Auckland, Auckland International Airport Ltd and office space, while putting other sales – such as the Remuera golfcourse – on the back burner.

Those amendments were in due course carried 13-7.

Cllr Wayne Walker said timing ought to have been addressed in relation to selling assets: “Auckland is on a roll because of integration (of councils). The value of any assets – port & airport – is going to go up, the value of real estate is going to go up.”

Wayne Walker says wider study was needed

He said the US state of Oregon was trialling taxing vehicles according to distance travelled because electric vehicles would start reducing the amount of fuel tax paid: “I don’t see that here. There’s a very small commentary around tax increment funding when we complete the city rail link, things we could put into the mix which are very simple. I’d like to see a lot more of that.”

On the regional council’s decision to buy the rest of Ports of Auckland, Cllr Walker commented: “All that development down in Wynyard wouldn’t have happened (if Ports hadn’t been bought back). We know we can’t leave to the market a whole lot of things that are civic. One of the options I put on the table is revisiting the civic building, and reconstituting the heart, maybe pulling out of Albert St. Make that work, and I’d suggest there’s a strong economic case for doing that. We can flog off our green space but we know once you’ve done that you’ll never get it back.”

Darby says wrong time to cherrypick

Cllr Darby didn’t accept the timing of the amendments, getting staff to focus on possible asset sales before councillors return to the topic in February: “I thought the intention was to hold a discussion before we go cherrypicking.”

He said the consultants’ ideas weren’t new: “Every 5-8 years they come around and the council’s always looking for a silver bullet, but there is no silver bullet. The report topic was alternative financing, but we haven’t received that – Ernst & Young a little, Cameron Partners significantly less. I just see this as a reprise of 1980s Rogernomics. I don’t see a lot here that our organisation is not already embarking on.”

He said the council should look more closely at non-rateable Crown land – $8.7 million/year of rates foregone, while ratepayers paid $241 million/year in gst on their rates bills, a tax on a tax which wasn’t mentioned in the consultants’ reports.

Brewer amendments lead 2016 focus

Cllr Brewer said the amendments, aimed at prioritising further study before discussion next year, didn’t focus on whether the council could or should try to take control of the Auckland Energy Consumers Trust ahead of schedule, or on privatisation of Watercare Services Ltd, or on selling the council’s 1400 homes for the elderly, or community assets, particularly golfcourses and particularly in Remuera (in his ward).

“It puts focus on our commercial assets. This is all about enabling greater transport infrastructure, community assets. Politically I would see these as the lowest hanging fruit. This is about selling some of the old family silver and getting some new family silver. The proceeds (from the airport & port companies) will never stack up against the dividends we receive. Ports of Tauranga have been the best-performing stock on the NZX. Perhaps it’s time to explore that.”

Earlier story:
13 November 2015: Reports released on Auckland’s alternatives to rates

Link: Alternative sources of financing reports (as one large pdf attachment to 19 November committee agenda)

Attribution: Council committee meeting, reports.

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