Saturday, November 23, 2013

Hedley nostalgia offer rolled out

As previously posted this week saw lodged with ASIC the offer document to re-float the remnants of the Hedley pub empire following reports of a successful institutional bookbuild: Hotel Property Investments

FNQ hotels remaining in the 41 pub portfolio along with current valuations include:

Barron River Hotel      $  5.6 million
Dunwoodys                 $17.1 million
Grafton Hotel               $ 5.65 million
Palm Cove Tavern       $ 5.6 million
Sole on Sheridan          $ 6.8 million
Trinity Beach               $12.5 million

A clutch of remaining bottle shops also at Bella Vista, Centenary Heights, Edge Hill, Manunda, and Kewarra Beach. There are also a number of pubs and bottle shops in Townsville.

Sole on Sheridan may be more familiar to some as the FirstChoice bottle shop. Valuations are not greatly different from when HLG was floated in 2007. However punters in the poorly structured and managed 2007 offer who stayed in lost their shirts, including many from FNQ.

The current offer is geared at far more conservative levels and Coles is the tenant for the entire portfolio. The previous fund included pubs leased to the highly stressed Hedz and NLG which both failed. Hedley also had a sometimes controversial stake in NLG.

The attraction of the pubs for Coles (Wesfarmers) is of course Queensland's arcane liquor laws which restrict bottle shop rights to the pub licence (three each).

Thursday, November 21, 2013

Housing & mortgages

The ABS has released some data on housing ownership, rentals, and mortgages: Perspectives on Regional Australia, Housing Arrangements - Homes Owned with a Mortgage in Local Government Areas, 2011

This based on census data from 2006 and 2011 for local government areas. Among the larger Queensland regional and metropolitan councils Cairns is near the bottom in growth of mortgage repayments between 2006 and 2011.

This is probably what should be anticipated although the property market remained hot for a year or  more following the 2006 census. Gold Coast takes bottom place while resource growth centres of Mackay and Gladstone are at the top.

Growth in median mortgage repayments 2006-2011 (%)
 
The relatively high growth rate in Bundaberg probably reflects some catch up from a low base and it remains at the bottom along with Fraser Coast with the lowest median mortgage repayments. 
 
Median mortgage repayments
 
Cairns also has the largest rental proportion v home ownership among these areas.

lunatic runs asylum

David Murray, former CEO at the Commonwealth Bank, is to chair a "root and branch" review of Australia's financial system. I don't have a high regard for Murray. Perhaps a keen sense of irony has led the "adults" in Canberra to appoint a lunatic to report on the asylum.

David Murray.

"Murray’s professed views on the causes of the GFC make the point. He blames the event squarely upon the governments, as if banks and the banking system didn’t do everything in its power to maximise short term gains at the expense of long term stability (without being too precise about it).
Mr Murray’s expertise and insider knowledge would be invaluable at the inquiry. But he should be there presenting evidence not running it."   
- MacroBusiness

"David Murray, an ex-banker and former chairman of the Future Fund with very definite ideas of his own about the financial system, is a poor choice to head Treasurer Joe Hockey’s financial system inquiry.
As several senior figures have said, including the chiefs of big banks, the credibility of any such major inquiry would be enhanced by not having someone with links to the industry." 
- Andrew Cornell, AFR

Wednesday, November 20, 2013

Who are the food bowl rentiers?

Some commentary floating about this morning on a speech by former ACCC boss Graeme Samuel which includes as a target the our northern food bowl: Former ACCC head blasts queue of 'rent seekers'
A new conga line of rent seekers is lining up to take the place of those that have fallen out of favour, such as the car industry, former competition tsar Graeme Samuel says.
They included proponents of a “food bowl” in northern Australia and other “vested interests” whose ideas did not pass the basis test of public versus private interest, Mr Samuel told a Committee for Economic Development of Australia (CEDA) lunch in Melbourne.
Offering “a word of warning”, Mr Samuel said that as the subsidy-dependent car industry sought more taxpayer funding as a condition of continuing to invest in Australia, others were looking to divert the industry’s subsidies to their own use.
“They are vested interests,” the former Australian Competition and Consumer Commission chairman said.
He said he had applied his five-part test of public-versus-private interest and efficiency to the proposals and “in every case they failed dismally”.
There is also robust commentary at Macrobusiness: Australia's conga line of rent seekers

There has been much political spin and wind in recent times on northern policy and the food bowl. We haven't heard quite so much however on these private food bowl rentiers. Just who I ask could be the participants in this conga line of food bowl rent seekers to whom Samuel refers?

Nominations: 1) Keith De Lacy/IFED   2) ??


Note: Warren Entsch is appearing at the monthly Cairns Chamber lunch next week to talk about the whitepaper on Northern Australia policy. Sadly I am still absent from Cairns so will be unable to attend another rambling dissertation in search of a point from the big man.

Tuesday, November 19, 2013

Growth eclipse blip

Airport numbers for the domestic terminal continued to grow albeit at a much slower rate of 2.8% for October compared to the previous year. Could this be the eclipse effect previously flagged? In 2012 October and November were the standout highest growth months with the eclipse falling on November 14th. Hopefully any blip will be as brief as was my glimpse of the cloud interrupted eclipse!


Overall the consistent positive growth trend remains intact with October numbers also typically supported by school holidays and a long weekend.

 
International numbers appear reasonably consistent in recent months above previous lows but a turnaround to the clear positive trends evident at the domestic terminal is yet to emerge.
 

Sunday, November 17, 2013

Window-free solution for strata insurance

A report from JCU has recommended that if windows are abolished then insurance premiums for strata buildings will be lower. Well not quite, but windows and water ingress from wind driven rain were determined a significant factor in strata insurance claims: Pilot study: Examination of strata building risks from cyclonic weather by utilizing policy claims data

The report was commissioned by the Insurance Council and prepared by the Cyclone Testing Station at JCU based on strata insurance claims data following Cyclone Yasi. The media release includes the usual spin from the Insurance Council and their summary of recommendations based on the limited terms of reference provided for the detailed study:


Perhaps unexpected was the finding of higher claims in multi-storey building because they have more windows and doors exposed to wind driven rain. Also the age of the property had less influence on claims than many seem to have expected. These two findings are possibly related?


The recommendations do not guarantee a reduction in premiums. There are some indications that the strata insurance premium hikes may have peaked while underlying issues remain unresolved: North Queensland strata cover: signs of hope?
James Cook University’s research on north Queensland strata prices highlights some of the problems of insuring property in cyclone-prone areas and makes suggestions for risk mitigation, but insurers are unlikely to return to the market on the strength of its recommendations.
A more detailed reading of the report and associated Insurance Council spin may throw up some further questions!?!

Thursday, November 14, 2013

Butter & Baccarat

As the mining boom recedes it is increased interest in agribusiness and tourism that appear set to drive the next consumer phase of Sinophilia. This is reflected in takeover activity on the ASX this week with the action in butter and baccarat.

The bidding war for Warrnambool Cheese & Butter Factory (WCB) continues to escalate much to the delight of grateful shareholders. Reef Casino (RCT) holders have also now backed a winner. These are 3 year charts for both RCT and WCB.

 
 
It would seem less likely that a bidding war will ensue for RCT however with Echo and Packer engaged in battle elsewhere while Packer courts Sri Lanka as the Macau of India. WCB has at times traded above its most recent offer in anticipation of a higher bid. RCT continues to trade comfortably below the bid from Aquis.
 
RCT is not very liquid and thinly traded with 70% of the stock tied up by the operators Accor and Casinos Austria, so doesn't attract much interest from bigger investors or institutions. It traded around $4 yesterday, still well below the offer price of $4.354, and slipped back throughout today to close at $3.86.
 
Presumably the discount reflects a risk perception that the offer may not proceed successfully to conclusion? It may make sense for some to sell all or part of a holding to lock in gains now rather than risk the downside if the offer falls through. I suspect there would be many FNQ locals with small holdings in RCT who can pocket a nice Christmas bonus.
 
 
Update: RCT continues to trade well below the offer price on Friday with the price down again on typically smallish volumes. Someone definitely decided they wanted their Christmas bonus early with a few small transactions totalling a few thousand at the start of trade below $3.60! The odds at that price may be better than inside the Casino? Note: This post is general commentary and nothing posted here is intended as advice of any kind.

Headline hyperbole warning

There is a headline hyperbole warning current after the unemployment rate in FNQ did a sharp fall from 9.4% last month to 6.4% in October. Last time we had such a sharp move down a certain local politician made something of a goose of himself with exuberant commentary. He hasn't been heard from since or posted any comment when the ABS have released subsequent monthly numbers.

Caution, as always, is required in interpretation of this volatile series so this post has been wisely delayed to await and defer to the derived trend numbers from Conus Economics Blog: FNQ Unemployment rate falls on some volatile data; even the Trend paints a more +ve picture
The Conus Trend series shows us a picture which is much less bullish, but also one that is significantly improved from last month. Our Trend employment series sees some major revisions to previous months employment numbers so that despite a small decline this month (down 100 from 134.4 in Sept) the decline in Trend employment has improved from a fall of 7,000 since Jan last month to a 6,200 fall this. This is not a major revision, and the weakening trend remains clearly in place, but it is at least some sign that the slide may be slowing.
A sample size warning from ABS is also noted on the unemployment rate. This is typical of subsets in the data such as for male and female components but not usual for the widely reported total headline rate.

Among those subsets it is notable that the jump in estimated employment from the previous month was mostly a jump in the female component. That would be welcome if true but will need to be confirmed by trends in coming months.


Update: Conus has suggested that that the hyperbole warning be cancelled! Perhaps it should be downgraded to only 'slightly skewed' warning? Cairns Post on yesterday's FNQ jobs numbers

Wednesday, November 13, 2013

Reef Casino Shanghaied

A shock move by Tony Fung with a takeover offer from Aquis for the Cairns Reef Casino and Canberra Casino.  This certainly raises a few questions and it is noted that the proposal does not seem to be conditional on approval of the Aquis project.

Assuming Aquis approval what is the future of the Reef Casino in its current location? It is reported that Fung will use the Licence for the Aquis project. Campbell Newman has suggested that there would be up to seven casinos in Queensland with three additional casino licences with two regional. Previously it could be assumed that Aquis would be one of those additional licences but presumably that could now mean three additional licences elsewhere as well as Aquis?






The offer of $4.354 per unit would seem almost too good to refuse at a large premium to recent prices. Reef is currently up 40% today trading at $4.00 after gains also in the previous four days. The previous 52 week trading range has been $2.24 to $2.85.

The casino boom rolls on with formal approval for Packers high roller venue at Barangaroo in Sydney yesterday. As previously posted Echo have also placed the Townsville casino on the market with a reported asking price of $75 million.


Links:

A Hong Kong Billionaire Is Making A Bid For Casinos In Cairns And Canberra

Echo unveils $1.5bn Queensland casino plans

James Packer rolls NSW Labor over Barangaroo casino:
With such a comprehensive victory in Sydney, Packer can move on to Queensland where Premier Campbell Newman has swallowed the international tourism excuse for issuing new casino licences. That actually works when there is a competitive cluster of casinos offering a much bigger gambling experience (Macau, Las Vegas) or a single spectacular development in a geographically advantaged position without much competition from alternative tourism attractions (Singapore).
Packer's business with a dodgy regime

AQUIS PLANS NOW CLEAR - REMOVE CASINO FROM CAIRNS CBD AND ELIMINATE ANY REASON FOR ANYONE TO GO ANYWHERE IN CAIRNS BUT AQUIS


Update: PR release from Aquis
Once the Aquis project is fully developed, the Reef Casino will be integrated into the development as a “CBD campus” and linked casino venue.
There seems to be an assumption here that the existing licence would allow two such venues? As previously posted the Reef Casino licence comes with favourable tax concessions: Casino taxes: Queensland v The Rest


Update2: View from Rupert's window: Tony Fung wants Reef Hotel Casino licence for Aquis mega-resort casino at Yorkeys Knob




Monday, November 11, 2013

Party like it's 2007

The latest property advertorial from Nick Dalton at the Cairns Post is all nostalgic for the era of Chris Skase. Elsewhere today it is revealed that the remains of Tom Hedley's collapsed pub empire is to again be relaunched.

Hedley Leisure & Gaming was renamed Redcape when Tom was given the boot from management control and the HQ was relocated from Aumuller St to Melbourne. Substantial local FNQ wealth was flushed down the toilet as net assets evaporated and evil death star Goldman Sachs wiped up what was left: Pub fund to test thirst for shares
Hotel Property Investments, formerly Redcape Property Services, will list on the ASX in December at an initial value of up $285 million.
In the initial public offering the new pub real estate investment trust will offer units at between $2 to $2.15 and will have a portfolio of 41 pubs and 7 detached bottle shops and some specialty stores, most of which are located in Queensland with the remainder in South Australia.
The group derives close to 95 per cent of its income from Coles-run outlets and will look to source other assets once listed.
Analysts said it would be similar to the ALE Property Group, which owns a large amount of pubs leased to Woolworths.
The joint advisors, Goldman Sachs and JPMorgan will lodge the prospectus on Thursday, November 21, with a listing date of December 12.
JPMorgan analysts valued HPI above $500 million, of which half will come from the float, and said the company should come to market with a 7.8 per cent distribution yield. It reckons HPI investors could expect a 12 per cent internal rate of return.
The pub float is the first in the sector for at least five years after the now-defunct ING Real Estate Entertainment Fund, which changed its name to Lantern Hotel Group last year. It also comes two months before the planned float of John Singelton/Carnegie-backed Australian Pub Fund.
The new fund should still hold several FNQ pubs and bottle shops so I await the prospectus with interest and nostalgic memories of those halcyon days when Tom was the local hero at the Cairns Post. Party like it's 2007!

Sunday, November 10, 2013

Property warning from an unusual source

A warning on property and banks this weekend from an unusual source:  Housing, banks at risk of significant overvaluation
Two markets are at risk of significant overvaluation – Australia’s $4 trillion housing sector and the $405 billion big banks that furnish most of the funding we use to buy homes.
Two of the majors, Commonwealth Bank of Australia and Westpac, are worth more than $100 billion each – more than global icons such as McDonald’s and American Express. Amazingly, CBA’s market capitalisation is loftier than the world’s largest chip manufacturer, Intel.
Unusual because Joye has been closely aligned with the property sector and was part of the RP Data Rismark group. Generally he has more usually been an advocate against claims that Australian property is a bubble, or overvalued based on price to income metrics.
But here is what worries me. I estimate that Australia’s price-to-income ratio will be back up around 4.1 times by the end of December. If the market keeps running at its current pace while disposable incomes track wages, the price-to-income ratio will exceed its all-time high by June next year.
The bottom line is that we may be only six months away from Australia’s housing ­market being more expensive than it ever has been. That should give all of us pause.
Source: Financial Review

Does this conflict with recent positive assessments of the Cairns property market? Not necessarily. FNQ is a comparatively small market which has mostly performed poorly in recent years and has historically not always aligned closely with the major capitals which drive the national metrics.


Update: A recent graph tweeted from David Scutt @David_Scutt may also be interesting in context of current property debates:


Update: A recent graph tweeted from @

Embedded image permalink

Friday, November 8, 2013

Airport Hijacking Hijinks

This decision, apparently related to parking wars around the airport, does not appear to reflect well on our largest and most critical infrastructure business: Cairns Airport Pty Ltd of Queensland, Australia, Guilty Of Reverse Domain Name Hijacking (RDNH)

“Reverse Domain Name Hijacking is defined under the Rules as “using the Policy in bad faith to attempt to deprive a registered domain-name holder of a domain name”.
“The Panel finds that the First Respondent’s contentions as to a course of conduct on the part of the Complainant to harass him and undermine his business, exploiting its superior financial power, to be credible in light of the evidence tendered by the First Respondent and not contradicted by the Complainant.”
“In the opinion of the Panel, these proceedings form a part of that conduct in that it is clear that Complainant has been parsimonious with the facts behind the dispute, which were amply evidenced by the First Respondent, in particular when it commenced use of the name “Cairns Airport”.
“When faced with the First Respondent’s evidence the Complainant did not refile but sought leave to file a supplement to the Complaint which did nothing to rebut the First Respondent’s evidence and, indeed tended to repeat the partial and prejudicial statements already made.”
“Whilst a finding of Reverse Domain Name hijacking will rarely be found in the case of a genuine dispute, in the circumstances of this case the Panel finds that the Complainant, was well aware of the prior use by the First Respondent of the business name “Cairns Airport Parking” and the effect of that on the Respondents’ rights. In bringing this Complaint in the light of that knowledge and offering an incomplete account of the history of the name, the Complainant has engaged in Reverse Domain Name Hijacking.”

Wednesday, November 6, 2013

Reasons to invest in Cairns?

Some interesting comments from one of the more reputable property observers Terry Ryder, who has also been around a while: There's many reasons to invest in Cairns, but a grandiose resort complex is not one of them.
 
Terry is somewhat sceptical of the proposed scale of Aquis and suggests it really isn't necessary as a reason to invest in Cairns property anyway. This aspect fits my own view that Aquis is not the only alternative to a "bleak" future as is being promoted. I think Aquis is likely to proceed or certainly be approved, contrary to the scepticism here, albeit with some (unintended?) adverse consequences, particularly related to the scale.
 
Not sure Terry is fully up to date with local activity, such as the now scratched entertainment centre, but an interesting perspective form an 'outsider':


There are many reasons to consider buying in Cairns. But a grandiose plan for a $4.2 billion resort complex should not be one of them.

Earlier this year, Hong Kong businessman Tony Fung announced his plan for the biggest tourism property development Australia has seen. Aquis will have nine hotels with 3,750 rooms plus 1,200 apartments, a sports stadium, a convention centre, an 18-hole golf course and an aquarium clustered around an aquatic paradise. The artist’s impression looks like something you might expect to see in Dubai or Macau.
  
Queensland Premier Campbell Newman got quite excited about it and promised to wave it through the approval processes as only a conservative Queensland government can.
  
And, according to reports, many developers and investors are excited, too. Suddenly Cairns is on the radar screen, in a way that hasn't happened since the frothy days of Japanese mega investment in the eighties. There's been a surge in building applications which the council says is inspired by the Aquis proposal.  
Frankly, it's all rather ridiculous; a $4.2 billion resort development in a regional city of 150,000? I'll believe it when I see it.
  
There are, however, good reasons to consider investment in Cairns - reasons grounded in reality.  
Money is being spent on infrastructure. A $450 million hospital project is under way. The Cairns International Airport has completed a $200 million upgrade and further major improvements are planned. Various highway upgrades are happening and there is a $110 million expansion in the pipeline for the port.  
Other proposals include a $94 million performing arts centre, a $117 million tropical medicine project, a $35 million aquarium and an $85 million shopping centre.
  
The Cairns region has a resources economy, rather surprisingly given an image mostly associated with the reef, the rainforest and all things touristic.
  
The resources sector is the third biggest industry in the region, after tourism and agriculture. There is also a substantial number of local residents who work in the resources sector is distant locations as fly-in-fly-out workers. The resources boom in Papua New Guinea is having spinoffs for Cairns as well.
  
The city council is seeking to generate development and local jobs by offering to waive major fees for developers. It says $400 million in local construction projects were fast tracked after if reduced its headworks charges.
  
It's all part of the Cairns fight back, after hovering too long in the shadow of Townsville, the much larger and economically stronger city to the south.
  
Cairns realises it needs to generate economic diversity, while recognising that tourism is and probably always will be its bread and butter.
  
Tourism is rebounding strongly, helped along by an upturn in visitors from China. There are now direct flights to Cairns by Chinese airlines, as well as growing markets between Cairns and Japan, PNG and Hong Kong. Cairns is now ranked the No.1 regional destination in Australia for international conventions.  
And with tourism comes investment.
  
It's presumably the motivation for the grand resort plan of Tony Fung.
  
For residential investors who like Cairns’ prospects, there is some pretty good buying right now, especially in the unit market. This is because values have dropped considerably in recent years. The Cairns market has been one of the poorest in Queensland for capital growth in the past five years. The median unit price for Cairns City has dropped 10% in the past 12 months.

So it's possible to buy well - but whether it's good buying or not depends on whether Cairns can do better in the next five years than it did in the past five.
  
Indications are that it will, based on improvements in core industries like tourism, increasing spending in infrastructure, and efforts to broaden the economic base and encourage local development and employment.


Another recent post from Terry Ryder may also be of interest: Investor focus should switch to Queensland

Monday, November 4, 2013

Foreign invasion called off

The Cairns Post has done it again: Mother country cashing in on Cairns as $15m in investment comes from United Kingdom.

FOREIGN ownership of land in Cairns has more than tripled in the past year, as cashed-up Brits spend more than $15 million in the Cairns region.
Not quite! The number being reported here which tripled is foreign acquisitions of land by value compared to the previous year for the Cairns council area, not foreign holdings of land. Presumably there are also foreign disposals of land. Never mind, the good journal also reported holdings of land:

The total land area owned by overseas investors in Cairns has reached 2529ha last financial year, or more than 1180 land  parcels (1184).

Which seems to imply that the tripling growth has reached new heights of land held. Except that both the area of land and number of parcels held by foreigners actually declined for the year! The number of parcels held edged down from 1186 to 1184 while area held fell from 2,614Ha to 2,529Ha. Are standards in journalism really so poor that something so simple can be so badly misreported?

The data here is not in the most convenient format or well documented so the number of land parcels held was the easiest to dissect. Apart from "others" there have been six nations which have appeared in the top ten every year since 2004 when compilation of the data commenced.

 
 
This numbers are for council area so there is a big jump in 2008 when Douglas is included with Cairns. Apart from that any significant trends relate more to the components than the total. While Japan has declined there has in recent years been a substantial increase from PNG. Is this related to resources or corruption? 
 
China still does not appear in the top ten on this land parcels basis although does so in land area held. The growth on the "others" category here reflects changes in composition of ownership beyond the six stayers with increased representation from Asia, including China.

Sunday, November 3, 2013

Airport still flying straight

A quick update on the September traffic numbers from Cairns Airport. Trend domestic traffic growth was sustained following the weaker patch earlier in the year. So no new news really and as previously suggested the period up to Christmas will now be interesting. Nothing particularly remarkable for comment in international terminal numbers either.


Source: Cairns Airport

Previous Post: August Airport Update

Friday, November 1, 2013

Corks pop as Cairns property clock ticks

A relaxing southern sojourn visiting family on the NSW coast is responsible for the gap in recent blog posts rather than absence of issues. Posts on building height limits, ports strategy, and Aquis may appear sometime. In the meantime Rick Carr at HTW has popped his champagne cork in the most recent CairnsWatch and finally moved the Cairns property from the bottom of his cyclical clock and into recovery mode.

I'm sure Rick feels some relief at this. At his 2012 Cairns Chamber lunch presentation Rick started out by saying his presentation would be the same as the previous year when Cairns was at the bottom and set for recovery. I wonder if Cairns has set some kind of record for the length of time spent at the bottom of the THW clock?

Despite a weak employment market the effervescence is already brimming over the top of the glass at the Cairns Post with the link headline: We Have Lift-off. Nick Dalton has previously reported several dozen of previously non existant lift-offs so the probability is he must get one right eventually?

Nick is impressed that Virgin has opened its biggest regional airport lounge. Perhaps that be because Cairns be biggest regional airport and has been for how long? Lift-off credit, such as Aquis, are apportioned because there must be specific reasons to make sources appear wise while yet again the long held Loose Change outlook that "what goes around comes around" has been overlooked. Conus also has an interesting post on another recent yarn in the Compost: Error-ridden Cairns Post tourism article

Post journalists may be relieved by the prospect of job saving real estate advertising but the "lift-off" has yet to translate into an improved labour market. Rick has this month incorporated internet ads into his Cairns Post job ads series. Will be interesting to see how this goes as there are some difficulties around this which have previously arisen at the widely reported ANZ national job ads series.

Anyway, the tide is in, the sun is shining, and there are better things to do .......