Archive | Sectors

Turnaround at Richina Pacific

Richina Pacific Ltd turned round from a $15.3 million loss in 2001 to an $8.2 million profit in 2002, on revenue down 23% to $498.1 million.

The difference was unusuals, which took out $18.6 million in 2001 but nothing in 2002. Earnings/share improved from negative 21.2c to 11.3c/share.

Chairman Alastair MacCormick said the lift came mostly from the Chinese leather operations, which contributed $13.1 million to the total operating surplus, up 386%. It’s the 1st major contribution from the business.

Richina Pacific wants to raise $US10.5 million through a rights issue to increase production capacity.

In New Zealand, the Mainzeal construction & development business contributed $6.8 million, compared to a $2.3 million loss in 2001. Mr MacCormick said Mainzeal benefited from the recent surge in commissioning of substantial construction projects and from its policy of concentrating on the quality end of the construction market.

At balance date Mainzeal had a forward order book valued at $162 million.

The Beijing Blue Zoo made a $657,000 net surplus, compared to a $20 million loss in 2001 when its book value was written down to reflect market.

Mr MacCormick said 2001 revenue included $159 million from businesses no longer owned. The construction sector’s revenue also fell $22 million in 2002.

Richina Pacific won’t pay a dividend, instead reinvesting the surplus for growth.

The profit figure doesn’t include any contribution from the $66 million sale of Mobil-on-the-Park in Wellington in September 2002. Settlement is due on 30 June, and at that time the company anticipates booking a $2.5 million contribution to surplus. It will also have $26.5 million in extra cash after settling mortgages & other commitments.

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Glum Francis faces shareholders

Entertainment centre weighs heavily on Force’s plans

The Force Entertainment Centre legal dispute with MTM Funds Management of Australia obviously weighs heavily on Force Corporation.

More than a court battle over which side will end up owning an asset neither wants, the dispute has stopped Force’s progress during the year.

It owns an asset worth around $70 million — the precise figure is a question to be answered once the litigation is over (assuming Force wins; the other way round, it’ll just go on the market in due course) — and it has a $50 million MTM loan to build the centre, which has been accruing no interest since the practical completion date of 30 December 1999.

The estimated cost of the centre pre-construction was $60 million and estimated value on completion $73 million. “I think with all the tenancy inducements we’ve got it [the cost] up to about $75 million. About $10 million has been written off,” chairman and controlling shareholder Peter Francis (left) said.

Assuming Force wins the High Court case, centred on whether the practical completion certificate was valid, MTM would take over the centre at a price agreed by independent valuation as at the date of practical completion and get its $50 million back.

Assuming MTM wins, it would get its loan back and walk away from the purchase. Force would have a large asset which it still wants to sell. Force would have had a net deficit of $7.8 million from the entertainment centre if the dispute had been settled in MTM’s favour by 30 June.

Centre cashflow positive

However — and despite the many difficulties encountered in getting through the centre’s first year — the Queen St centre is cashflow positive, Mr Francis said.

That is an achievement in itself, because Force has ended up owning 80% of the Planet Hollywood operation (the Asian franchiseholder has the other 20%) after the theme restaurant group failed to attract a local partner at a high-enough price, the Imax operator (Cinema Plus of Australia) collapsed and now the operator of the theatre restaurant facing Aotea Square has gone into receivership.

Mr Francis said Cinema Plus’ failure caused a $3 million writeoff and the restaurant was paying no rent, although he expected a sale of the lease soon. “The tenant spent $1.3 million on the restaurant and we have two restaurateurs looking at taking it over at the moment. Someone will come in and get a very cheap restaurant.”

Fiji, Argentina add to woes

Added to those woes, Mr Francis said it had been a bad year for movies — although the lineup for the next few months is looking much better — the Fijian coup stopped the strong Suva business in its tracks and the Argentinean operation performed poorly.

In Argentina, he said, “the economy is in its deepest recession for more than 20 years, with gdp growth of minus 2.1%.” Force had 35% of the Argentine cinema market, but its return was down around 2% and a similar return was likely this year.

As with the Queen St entertainment centre, property sales in a better market would have released Mr Francis from his anguish. “We own some very good real estate. The plan has been to sell that. This would repay all the debt and we would end up with a chain [of cinema businesses] for very little. The property market means we won’t sell that.”

Other property prospects brighter (for exiting)

Apart from the entertainment centre on Queen St, Force’s New Zealand property prospects are brighter. The company’s agreement with Westfield to introduce cinemas to shopping malls means Force gets new premises to operate, and is taken out of its lease commitments on existing premises.

The proposal in Newmarket, for example, is to move from the Olympic pool complex at the Parnell end of Broadway to the proposed new mega-mall on the former Mercury Energy site on Remuera Rd. Force’s Highland Park cinemas will be closed when Westfield refurbishes and expands its Pakuranga shopping centre.

The first of these new developments is at WestCity, opening in mid-2001 and replacing the New Lynn complex.

“We are working our way out of most of our property assets,” Mr Francis said. Its Domain Centre investment is down to about $1 million, with most of that off-Broadway venture with Symphony Group sold.

The Harvey Norman Centre at Mt Wellington is fully leased and up for tender. The old St James complex, across Queen St from the entertainment centre, is also being refurbished, is almost fully tenanted and will be offered for sale in mid-2001.

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Fletcher Forests happy to be trading profitably

Company keen to report positive note at four-month stage

Fletcher Challenge Forests Ltd told the annual meeting in Auckland yesterday the company traded profitably through the first four months of its June 2002 financial year.

Chief executive Terry McFadgen reported net earnings after tax of $7 million, excluding foreign exchange movements & non-recurring items, on $18 million of earnings before interest & tax (ebit), measured on the same basis.

The company got net debt down from $323 million in June to $300 million, had already achieved the Fletcher group separation target of saving $15 million in overhead costs, and was expanding into new markets with better marketing capacity 7 product innovation.

Based on current prices, forest operating earnings should double over the next decade through increased volume and wood value.

Fletcher Challenge Forests owns or manages almost 300,000ha of forests, and 10 sawmilling & remanufacturing facilities.

Its return on that land base & manufacturing performance has been indecently paltry: as a division of Fletcher Challenge, it made net earnings after unusuals of $4 million in the December 1999 half, $19 million in the June 2000 year and just $1 million in the December 2000 half.

It wrote down the Central North Island forest partnership with Citic of China in the December 2000 half by $529 million to make a net loss for the half of $498 million.

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SEA offers bonds to take out minorities

Shareholders would get 10-year bond, CCN holders 6-year bond

Trans Tasman Properties Ltd’s major shareholder, Jesse Lu of Hong Kong-based SEA Holdings, has found a way of giving small shareholders the return they are otherwise not likely to see for several years — a switch from equity to 10% secured bonds.

The switch by small shareholders and convertible capital noteholders would get them out of his hair, end the difficulties the huge discount to net tangible asset backing causes for the company, and make SEA the only shareholder in New Zealand’s biggest listed property entity. It has a $1.3 billion portfolio in Australia and New Zealand, and 49.2% of Australian Growth Properties Ltd.

Shareholders will be offered 35c face value for shares trading around 19c. CCN holders will be offered a $1 bond for notes currently trading around 89c. Both new securities would be listed.

Appraisal report, then approval meetings in May

The company said in its Tuesday afternoon announcement the offer process would have to be approved by the High Court under part XV of the Companies Act and investors would get an information memo, investment statement and independent appraisal report.

Investor meetings would be held in mid-May to approve the proposal.

SEA will not participate in the offer or vote on the proposal, which would rank the bonds above SEA’s equity .

Trans Tasman executive chairman Don Fletcher said if the appraisal report was not satisfactory, the proposal wouldn’t be put to shareholders.

Only way to give small investors a distribution

The company said the bonds would enable small shareholders to get distributions which they haven’t able to receive because writedowns have exceeded $20 million-plus annual operating profits.

“Trans Tasman has not paid a dividend since October 1998. It is constrained from doing so by covenants in the convertible note deed, while it continues to book valuation writedowns in excess of surpluses.

“Directors are of the view that, under the current structure, ongoing capital expenditure requirements and an uncertain valuation outlook make the reinstatement of dividends unlikely in the near term.”

What’s proposed

Trans Tasman will offer minority shareholders 35 $1 secured bonds for every 100 shares (35c a share compared to current market price of 19c). The bonds will have a 10% coupon payable quarterly and be redeemed for cash at maturity on 27 June 2011.

Noteholders will get a $1 bond for every $1 note, also with a 10% coupon payable quarterly, with redemption for cash at maturity on 27 June 2007.

Trans Tasman’s 2000 result

How do you escape from writedown demoralisation?

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Calan raises surplus 26% with tighter focus

Unrealised valuations boost bottom line 119%

Calan Healthcare Properties Trust lifted its net surplus after-tax by 26% to $4.7 million in the December half, and increased the margin over the December 2002 half’s bottom line by $2 million through investment property revaluations.

After $1.673 million of unrealised revaluations plus $20,000 of foreign currency translation reserve movement, compared to negative movements of $379,000 & $447,000 in those 2 categories in the previous period, the surplus was 119% higher at $6.4 million.

Calan chairman Bruce Davidson said the trust cut expenses by 38%, or $1.2 million, to $1.98 million and sold non-core assets. However, with construction of the Epworth Eastern project in Melbourne, non-current assets rose $10 million to $184.7 million and total assets rose $7 million to $201.8 million.

“We are continuing with the implementation of our new strategic direction, which is for Calan to be a specialist health-sector investor, focusing on properties in quality locations occupied by quality tenants. Within that plan we are aggressively working to either advance or exit all non-revenue-producing assets,” Mr Davidson said.

The asset sales cut rent by 6.6% to $7 million, but the pretax surplus rose 16.7% to $5.2 million and earnings/unit rose 23% to 3.498c/unit.

The quarterly distribution of 2c/unit made an unchanged 4c/unit for the half.

The Trust’s debt:asset ratio is 25%, with capacity under the trust deed to increase to 35%, which gives Calan the debt-funding capability to complete Epworth Eastern. Construction is scheduled for completion in late October.

The Melbourne project will be worth $NZ50 million and return 9.5%.

“Our focus in the short to medium term is to complete the projects on our books, namely ensuring the sale of land at Waitemata in Auckland goes unconditional, exiting our equity investment in Ascot Hospital & Clinics, converting Ascot Clinics into a yielding investment and completing Epworth Eastern.

“We are also looking at potential acquisitions which fit with our strategic direction and will contribute to our earnings growth,” Mr Davidson said.

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Woolworths acquisition a big boost for Foodland Associated

Farmers raises earnings but that won’t stop sale

Foodland Associated Ltd, owner of the Progressive supermarket chain and buyer of the Woolworths chain in New Zealand, increased net profit after tax for the 26 weeks to 2 February by 26.8% to $A60 million, a record result on record 1st-half sales from continuing operations which rose 50.5% to $A3.22 billion.

Earnings before interest, tax & goodwill amortisation (ebita) from continuing operations (& before unusuals) rose 49.2% to $A144 million.

After buying Woolworths NZ Ltd in June 2002, FAL said Progressive’s supermarkets division increased ebita by 150.6% to $A67.4 million.

Earnings/share from continuing operations before unusuals & goodwill amortisation rose 14.9% to A70c. Earnings/share from all sources rose 5.3% to 51.8c, which FAL said was well ahead of expectations when it bought Woolworths.

The board has increased the interim dividend by 14.9% to A38.5c, fully franked, representing a 55% earnings/share payout before goodwill amortisation. The company said its final dividend for the year might not be fully franked, and in those circumstances it would adjust the payout ratio to compensate.

The board said FAL’s dividend reinvestment plan would be suspended pending the outcome of the review of the Farmers department store & consumer finance division, which might lead to its sale. Farmers increased earnings by 24% to $A23.8 million, despite the weather’s disruption of the summer clothing sales season.

Group managing director Trevor Coates said the expected Woolworths synergies had already been exceeded and were growing. “Our latest indications are that fiscal 2003 synergy benefits will exceed $NZ26 million, well in excess of the original $NZ10 million forecast, and we expect these will continue to increase. In addition, the performance of Progressive’s Countdown and Foodtown supermarket banner groups continues to improve as a consequence of enhanced customer value & brand presence, more attractive stores & improved standards.

“Work on extending the Auckland distribution centre is well underway and we expect to complete the centralisation of distribution operations prior to the end of the financial year. Plans are well advanced to refurbish & rebrand the majority of the nine Woolworths Big Fresh stores and several new greenfield sites are under consideration.”

Mr Coates said the Action supermarkets division continued to improve its performance in Queensland. “Sales are showing an improving trend as brand recognition improves, house brand ranges are extended and store standards are lifted. Sales mix & margins are benefiting from the phased introduction of concepts operating successfully in West Australian fresh food departments.”

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$1.1 billion deal for Westfield in US

23.9% Rodamco stake gives Westfield entry to portfolio management

Westfield Holdings Ltd has bought a 23.9% interest in Rodamco North America from Holland’s largest pension fund, ABP, for 537 million euros (NZ1.1 billion).

The deal gives Westfield entry to 41 shopping centres across the US. Westfield chairman Frank Lowy looked on the transaction as one that would give the Australian group numerous opportunities, starting with board representation, discussion of strategic direction and Westfield’s involvement with the company.

“This will include management, leasing, revenue and capital initiatives, a long-term redevelopment program designed to maximize the portfolio’s potential and a potential merger of RNA and Westfield America Trust’s operations.”

Westfield will use three funding sources:

An $A450 million equity issue through a bookbuild of Westfield Holdings shares, underwritten by UBS Warburg

A share purchase plan raising up to $A60 million, giving its shareholders an opportunity to participate in the capital raising at the same price as institutions (up to a maximum of $A3000/shareholder)

Existing debt facilities.

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January building consents up 14.3%

Average size & cost up

Residential building consents increased in January by 14.3% over January 2001, to 1526 consents, one less than in January 2000. [Correction: Story originally said rise was 18.8% which is the margin over December 2000 figure].

The tally for the January year was 20,730, up 4.2% on the previous year and 21.3% below the January 2000 year, which was when the 1999 boom began to peter out.

According to Statistics NZ, “the trend in the number of new dwelling units has been increasing since January 2001, but appears to be slowing in the last few months.”

It depends what you compare with, but on my reckoning this is demonstrably not so if the comparison is with the previous year. Consent levels were higher in 7 of the past 12 months than in the same month the pervious year, and 4 of those better months were the last 4.

December 2000-January 2001 were the pits, with a paltry 1285 consents in December & 1335 in January. This summer, the figures were up to 1497 in December & the 1526 in January — healthier, not over the top.

Other comparisons show a general trend towards larger & more expensive dwellings, and a steady rise in cost.

The average size for this January’s dwellings was 190m², up from 184.3m² in January 2001 & 165.7m² in January 2000. The average for the year to January was 178.8m², up from 175.3m² the previous year & 163.1m² in the year to January 2000.

The average house cost in January 2002 was $165,727, up nearly $10,000 on the previous January & $29,000 on January 2000.

The average house cost in the January year was $154,124, up from $146,479 the previous year & $134,970 in the year to January 2000.

The average cost/m² in January 2002 was $872.07, up 3% in a year from $846.34 & up 5.6% on 2 years ago, when the average cost was $825.69/m². On an annual basis, the cost in the year to January 2002 was $862.12/m², up from $835.41 the previous year & $827.21 in the year to January 2000.

The total value of residential consents in January was $312.8 million, including $49.3 million for additions, alterations & outbuildings.

The 107 apartment consents (developments of fewer than 10 units aren’t counted) were worth $11.5 million at $107,477/unit, compared to nearly $171,000/unit in December, $120,000 the previous January & $69,000 in January 2000.

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Leaky-buildings report doesn’t point finger

Overview group looks at solutions for future

Owners of modern homes with designer leaks will not find satisfaction in the report of an overview group to the Building Industry Authority.

Specifically, they will not find a finger pointed at:

Who decided to combine an industry switch to untreated kiln-dried framing timber with a trend to inadequate flashings

Who decided this untreated timber should be used in a position where it was guaranteed to be susceptible to leaks

Who decided this timber should be marketed/accepted for use in places where it was entirely inappropriate

Who decided to design homes to meet tighter plot ratios, omitting essential weather protection

Who should pay for quality deficiency.20 sets of recommendations

They will find a long list of considered recommendations to improve construction industry performance, and they will find numerous recommendations which would make the Building Industry Authority a more powerful overseer of a more controlled construction & development industry.

They will also find recommendations showing the authority isn’t making a grab for power but is intent on setting up communication lines for long-term industry betterment.

The report of the 3-man overview group (ex-State Services Commission Don Hunn in the chair, Ian Bond & David Kernohan) spends less time looking back, more at stopping the same inadequacies being repeated.

Industry-wide failure to research

It points to an industry-wide failure to research, given that most of the affected New Zealand homes have been built since US & Canadian action on the “leaky condo” problem began to be taken in 1993.

Mostly, the report points to a failure to communicate across a greatly changed industry where the contractor is no longer in charge of a workforce but has a bevy of subcontractors, and where responsibility has been fractured and nobody is accountable.

It seems extraordinary that the overview group should suggest, now, in its catalogue of possible research topics:

Do treated & untreated timber deteriorate differently due to the presence of water?

What practices affect the condition of timber off- & on-site before a building is closed in?

What are the generic requirements for flashings at doors, windows & other junctions & wall penetrations?Fundamental change can happen on whim

It’s extraordinary that, as these questions have evidently not been considered to any depth (hence the multi-million-dollar leakage issue), fundamental change in New Zealand’s biggest industry can apparently happen on a whim.

Instead of pointing a finger directly, as litigants would hope, the overview group said:

“Overseas imagery & changes in lifestyle aspirations have led to consumer preferences for buildings that adopt a ‘Mediterranean’ appearance of plaster & adobe finishes. Typically, the style can be identified by its flush plaster finishes, lack of eaves, use of parapets and with balconies both internal & external to the building’s principal form. The increased availability of new & cheaper forms of building construction, notably monolithic panel systems, has had a clear association with these changes in preferences. There is consumer expectation that such buildings will be cost-efficient and low-maintenance. Holding prices down (cost cutting) both in terms of the finished product & in its construction has become paramount and has led to some inadequate practices, largely driven by cost & economic pressures…

“Even though a main contractor may be employed there is often a multitude of ‘labour-only’ subcontractors engaged, which means that the subcontractors & subtrades, the actual workers, are often not well known to the main contractor and even less to the project manager & developer.

No-one takes responsibility any more

“This has led to comments such as ‘No-one takes overall responsibility for the project anymore’. The respective roles & responsibilities of architects, main contractors, subcontractors, specialist subtrades and project managers & developers become very complicated, hard to define and consequently unclear & hard to understand. There can be over 50 subcontractors on a large site. The co-ordination & sequencing of cladders, flashers, plumbers for instance is often difficult and not given adequate priority due to time & cost constraints. Such an environment results in poor planning, co-ordination and a lack of individual responsibility & co-operation between the various subtrades. It has been reported to the overview group that more & more often responsibilities & liabilities are being passed ‘down the line’ to the subcontractors and subtrades. Whatever the reality of this, the circumstances result in a collective system failure — and buildings that leak.”

On technical issues, the overview group said:

“Consumer & developer preferences for innovations in the design of multi-unit housing has led to the design of complex building forms with a multiplicity of junctions & penetrations. The implications of constructing such complexity are not well considered at the design stage…

“On-site, cutting, joining, fixing & coating panels effectively requires knowledge & skill. These are not always available or used properly or effectively. The performance of flashings, sill trays, sealants and jointing materials & compounds and their proper application is not well understood. Most surprisingly, there has been much evidence of a general lack of understanding of the importance of , and in some cases even the need for, flashings at junctions & penetrations (even at windows & doors). Their use can be often minimal and in the worst cases non-existent. Thus, there are systemic problems in the way in which component products are put together rather than necessarily any specifically identifiable problem with one product. In addition, there is a lack of understanding of the science relating to issues of differential thermal conductivity between materials; and the relationship between rigid panel & flexible framing and the need for special control (movement) joints, both of which lead to failure of the integrity of the joint and resultant leakage…

2 fundamentals bypassed

“At a detailed technical level, 2 fundamentals of good detailed construction design seem to be being bypassed in some instances. The first is the loss of the traditional ‘belt and braces’ approach to construction practice. This accepts that water will penetrate the exterior of a building and that there should be a ‘second line of defence’, a means of getting the water away and a means of drying out any wet elements. The second is the lack of or misuse of flashings at junctions & penetrations. These are being dispensed with or are detailed or constructed inadequately. Although reinstating such fundamentals would have what some might see as adverse cost consequences, the consensus from builders is that the incremental cost of incorporating such features in the original construction is not significant to the bottomline capital cost and would have significant whole-of-life cost benefits…

“… the nature of the weathertightness problem is the apparent inability of monolithic cladding panels to prevent external water entering the framework where it is unable to dry. There are issues of the performance of rigid cladding panel systems fixed in particular to flexible timber framing. The issues relate to the differential movements between materials from creeping (due to drying out) and thermal conductivity; loading conditions; and movement caused by wind & earthquake action. The integrity of the joints is reduced by these circumstances and is lost over time — sometimes surprisingly quickly. Areas where jointing is particularly vulnerable are inter-storey joints, joints at opening/cladding interfaces, vertical joints in panels, joints at penetrations through panels.”

The overview group has guessed at the cost of the problem — maybe 505 of the monolithic-clad apartment buildings requiring repair at a average $20,000 could produce an annual $12-24 million repair bill.

Contributing factors

The group has listed 8 potential contributing factors:

Inadequacy in the building code & approved documents

Inadequate documentation supplied for building consent

Insufficient checking at building consent, during construction, and at code compliance stages

Inadequacy of building products, materials & components, including evaluation of their suitability or fitness for purpose

Insufficient technical information provided by manufacturer’s literature & instructions

Inadequate contract documentation

Inadequate trade skills and supervision on site

Lack of co-operation and sharing of responsibility on site.System failure causes

Among the causes of system failure, the overview group mentioned:

Town planning criteria relating to plot ratio and yard distances that inadvertently lead to particular building solutions or contribute to the choice of building style

Imperatives of cost & speed (cutting corners)

Emphasis among product manufacturers on product rather than building system

Lack of effective supervision/inspection practices

Lack of detail, prescription, performance criteria & guidance in the approved documents (both the acceptable solution and the verification method) regarding weathertightness compared to other aspects such as structural integrity.”Given that the problem is multi-faceted, no single solution is possible and no single group is wholly at fault. Indeed, it would be counter-productive for the matter to be pursued in a recriminatory manner. That is not to say that individual owners or others should not exercise their legal rights to seek redress, but that any formal procedures to remedy the problem should seek to draw in the sector as a whole in an attempt to find solutions which will have wide support.”

The full report is on the Building Industry Authority’s website.

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Neil fails to get uniform charges changed

Shore councillors totally against annual charge reduction for developer

North Shore City Council is struggling under the weight of infrastructure costs, so any application for a reduction is likely to get short shrift.

Which is precisely what happened when Neil Construction general manager Grant Brebner turned up at the council’s strategy & finance committee meeting today to argue a case for reducing uniform annual charges levied against vacant subdivision sections.

In fact, Mr Brebner’s argument probably got more discussion than it deserved before the committee — which comprises the whole council — voted unanimously to decline the application.

Similar to 1999 application, defeated in High Court

The council received a similar application from Green & McCahill Residential Ltd in 1999 after enactment of the Rating Valuations Act and new rules by the Valuer-general meant all separately titled sections within a subdivision would be treated as separately ratable properties.

Developers challenged the council’s policy in the High Court last year, but the court found in the council’s favour in November.

The council’s revenue manager, Tom Wong Kam, said in his report all vacant sections in the city are levied the uniform annual general charge, uniform annual sewerage charge if the property is serviceable (within 30m of a public sewer), and a waste management charge. The waste charge is not a uniform one, though it certainly sounds like one.

Mr Wong Kam set a scene in his report which was not adequately challenged by Mr Brebner in his solo application: “The fact that Green & McCahill [in the 1999 application, Neil this year] owns a number of properties does not in itself mean that it would be reasonable to cancel or reduce the charges on some of them. Each property separately benefits from the services generally provided by the council, and in particular the council infrastructure.

“That benefit would be reflected in the value of each of the properties to be sold by Green & McCahill. Green & McCahill itself treats each property as a separate entity, and indeed the purpose of the subdivision would have been so that each property could be separately realised as an investment in its own right…

“Each of the properties separately receives the benefit of the council’s sewerage services; there is, for example, no reduction in the level of that benefit, solely as a result of the fact that Green & McCahill happens to own all of them.

“As to the reference to Green & McCahill contributing to the provision of such services by way of development contributions, the fact that the company may have paid financial contributions is not considered relevant to the reasonableness of it also paying sewerage charges on each of its properties, because those payments are for different purposes.”

Mr Wong Kam said the sewerage charges related to annual spending for services, whereas financial contributions in resource consents “generally represent the capital costs of council works attributable to the activity requiring the resource consent.”

Mr Brebner said rates for which the company questioned liability included uniform annual charges of $158,529 for two years — $905.88/lot on 117 sections last year and 58 this year in four subdivisions.

Different view of court ruling

His view of the court ruling was that the council was not entitled to issue individual valuation assessments in 1999. For the 2000-01 year, he said the company wanted the uniform annual charges knocked back to one set for each subdivision, and a rebate for past years of ownership. Meanwhile, Neil has an appeal filed in the Appeal Court.

A central feature of his argument was that these vacant sections “are not currently making any demand on council services or infrastructure and the capital cost of the works necessary to connect the subdivision to council infrastructure has been met by the company. The company also made significant financial contributions to the upgrading of existing council infrastructure.”

He argued that “the benefits and services funded by uniform annual charges are not used by developers. Developers are paying an unfair and disproportionate contribution to the rating burden for services not actually received…. The levying of further maintenance and upgrade charges during the selldown period is an unfair distribution of the rating burden.”

Two telling sentences on costs and benefits

Two sentences in Mr Brebner’s submission to the committee are telling. In the first, he said: “The imposition of uniform annual charges on each section while owned by Neils significantly increases holding costs and hence the cost of development.”

Councillors seems entirely unimpressed by any pain of such cost rises, taking the view that the developer will gouge the extra out of a section buyer. That ignores the ultimate impact on first-home buyers’ upfront costs, which flow through to higher mortgages and into higher total housing costs.

It also turns a blind eye to the ability of the council to do its own future gouging — by having properties which are more expensive than they might have been, the council can impose rates which in percentage terms don’t seem so high. It can, in effect, seem reasonable while imposing higher rates.

But if the developer can recoup that extra holding cost, the company’s argument would seem to have been diminished.

Land value well up

The second of these telling sentences could be used to advantage by both sides of the argument: “The land value of Neils’ land at the above subdivisions has increased considerably as a result of the development.”

Mr Brebner said the council was reaping the benefit through the rise in value-based rates, which he said had rise by more than 50% on developed sections.

Equally, the council can argue that the rates rise is a proportion of a greater gain by the company while the land sits vacant but prepared for use. Mr Brebner said the company had installed or contributed heavily to installation of infrastructure. That’s a prior contract the company has agreed with the council (whether under pressure or not is immaterial to the subsequent user charges argument).

The potential for immediate use, of a section which can be tapped into services now rather than in several years, has a value to the company realised through sale at a higher price than bare, unprepared and unserviced land would get.

Mr Brebner didn’t address that aspect of subdivision, that these sections are no longer truly vacant land but are land undergoing value addition which is related to the servicing at the heart of the charges.

Three key points from two councillors

In the discussion among councillors before they declined the application, three key points came from Cllrs Andrew Eaglen and Joel Cayford.

Cllr Eaglen’s first point was a suspect one: that a subdivision causes costs beyond its boundaries, such as the need for road widening to cope with a population increase. That ought to be taken care of in the resource consent contributions process.

Secondly, he said that although developers were paying substantial costs, “you’re still being subsidised by other ratepayers.” Cllr Cayford picked up on that, saying Neil appeared to be paying about $6000/section in various levies, but councillors were advised it cost $15,000-25,000/lot for the council to provide infrastructure.

“Ratepayers are complaining about growth-related infrastructure being paid for by existing ratepayers,” Cllr Cayford said.”

Those figures were neither confirmed nor challenged at the meeting, but the clear message was that there is a wide margin between cost and contributions so councillors were not about to offer any cuts to Neil.

Wider perspective

That argument boils down to an anti-developer sentiment at a time when North Shore needs to speed up its progress towards a northern sector agreement as part of the regional growth strategy.

The councils in the north of the Auckland region are behind the south in working towards a sector agreement, partly hampered by the absence of councillors in Rodney for the past year but also because the North Shore council itself has not had the internal structures in place until the past couple of months for staff to work sensibly towards this sort of goal.

The growth strategy is about providing the infrastructure for the region’s population to double over the next 50 years. An anti-developer sentiment among councillors — and therefore hearings commissioners — makes it hard for a co-operative spirit to be engendered, while subdivisions such as those along Oteha Valley make it hard for anyone to sympathise with an industry bent on profit before quality.

Mr Brebner brought some sense to the argument, which is bound to continue, when he said developers were not opposed to contributions altogether, but wanted certainty. “If we knew when we went to buy a block of land we had certainty [of charges], we could cost that into our development, but over the last 10 years it’s been a very moving target.”

It will probably take until the end of this year for that to change. North Shore’s council is awaiting the agreement on Rodney’s plan change 62 — the parties were back in Environment Court mediation on Tuesday — which should short-circuit the planning of councils around the country on financial contributions regimes.

Given agreement on a workable model there soon, North Shore’s staff may be able to adapt it to create the city’s own capital costings definitions for inclusion in the annual plan round at the end of this year.

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