Thursday, July 31, 2014

Building approvals: the south fights back?

Building approvals data from the ABS were generally weaker than expected in June although there was a decent bounce for the month in Cairns. Details and trend analysis at Conus: Building approvals slip but the FNQ data holds up

Pete has some commentary there of an improving trend on the Cassowary Coast. Looking at the regional SA2 data the way was led by Cairns-South with 38 approvals including 18 at Edmonton. That is the first time since 2012 that the South has strung together two successive monthly wins over the Aquis-infused North. So it could be that the southern regions in general may be looking stronger and approvals more balanced across the region.

For the now completed financial year that still leaves Cairns LGA languishing in last place for approvals relative to population compared to other large councils. However there have been reports that the significant strata proposal from Singapore's Aspial may not be far away : Approval sought for $200m seven-tower project on Spence St Cairns

I also previously posted on the most recent land valuation for this vacant Spence St site from the Valuer-General: Land valuation weirdnesses revisited. I did send a query to the V-G but didn't receive a reply.

It will be interesting to see how this project is marketed with overseas investors being significant players in capital city apartments. While this has mostly been from China there has also been growing interest from Singapore following restrictions there to cool the property market: Singaporean investors hungry for a piece of the Australian housing market; Singapore's central bank warns residents against investing in overseas property markets; Singapore house prices are now falling

Note: despite the comment by the Cairns Post that Aspial is a "major builder around Australia" as far as I am aware they haven't yet built anything here, but have acquired some high profile sites in the past year. The acquisition of the Melbourne residential tower project has been suggested by some pundits as brave given the project had been on the drawing boards a while in the well supplied Melbourne market.

Sunday, July 27, 2014

Airport passenger numbers stay grounded in June

Cairns Airport monthly traffic can be sourced either from the airport website or the ASX release by stakeholder Auckland Airport (AIA). As can be seen these don't necessarily provide exactly the same information:

My presumption has been that the AIA numbers (top) strip out the domestic passengers through the international terminal rather than lump them in with T1 transits as the airport does, but may not also strip out domestic transits. AIA issued a subsequent correction on the April numbers which hadn't seemed to correlate on any basis. Previous attempts to reconcile some historical numbers from the airport have defied my limited skill-set and patience.
Regardless of the precise numbers there was a surprise decline for domestic traffic in June from the previous year which the airport attributed to a later school holiday:    
T1 (International) had a 7% increase of arriving and departing passengers on jet flights which operated in both June 2013 and June 2014.These routes are Auckland, Guam, Hong Kong, Osaka and Tokyo. T2 (Domestic) numbers were reduced by the later start of the mid-year school holidays compared to 2013.
A quick look and the later school holiday start really only applies to Queensland and not interstate while the period for all still straddles the month end. So will have to wait and see how strong the rebound is in July which is always the strongest month of the year anyway. The EAI (Esplanade Activity Index) has appeared quite buoyant so far this month from casual people watching observation.

June also coincides with weaker post-budget consumer sentiment which have included warnings of weakness from such as Flight Centre and the airlines. The start to winter down south was also comparatively balmy although has since turned a tad more chilly.

Interesting commentary also there to try and make something positive from the weaker international traffic although including the comparative data is a good move. This was the June commentary from AIA: 
In the past year passenger volumes at North Queensland Airports have been impacted by a number of factors including service reductions, schedule changes, cyclones and the downturn in the mining industry (impacting predominantly Mackay). However, total passenger numbers at Cairns have grown 2.6% for the 12 months ended 30 June 2014 on the back of 4.6% domestic passenger growth. This domestic growth has developed due to more international passengers visiting Cairns on domestic flights from within Australia, following reductions in direct international services to Cairns.
June is the first Y-o-Y negative growth month since last November which was itself coming off the back of high traffic for the previous years eclipse. This is my graph of monthly domestic growth with a 12 month moving average based on domestic terminal numbers (ex transits) from the airport:

Source: Cairns Airport
Note: I think I made a comment last year that September school holidays in Queensland had shifted to align with NSW and Victoria rather than the previous weeks overlap. The mid year break has now also shifted back a week to align the three rather than a weeks overlap. Is this a positive or negative for tourism? I would have thought negative?

Friday, July 25, 2014

Benchmarking council rates

A report noted at the Cairns Post this week: Aquis: ‘A whole new paradigm‘ to finances and infrastructure Cairns would need to support it. Also reported at the ABC: Mayor warns of Aquis project 'wild ride'

Behind this story was a rates benchmarking analysis tabled at this weeks ordinary meeting of Cairns Regional Council, as reported by the Cairns Post:
The report compared rates and utility charges across several council areas for a residential property paying the minimum rate; a residential property with the average Cairns valuation of $165,000; and a strata title property, (which is usually an apartment or townhouse), paying the minimum rate.
Here is the graph from council benchmarking the average cairns valuation of $165k for a residential property.

The first thing to note is why use an average valuation at all? It is more typical to refer to the median (middle number in a count) than an average for property and land valuations. This is what the Valuer-General reports. Almost the only people who consistently refer to and use averages this way are councils in their budget spin.
The average will typically skew above the median for property which is why it is typically ignored. The average adopted in the council analysis is well above the V-G reported residential land median for Cairns of $143K from the most recent valuation. I have previously posted the V-G medians by suburb and if it isn't too confusing you have to go out to Kewarra Beach, which is nearer the top of the range, to find a suburb with a median which matches the Cairns average being used here by council. Perhaps there is some intricacy in council land categorization I am missing but don't think it makes much difference to my criticism of the flaws in this analysis anyway.
More critically, why apply the Cairns average (or median) to a benchmarking comparison with other councils? There are substantial differences in land valuation between the regions and particularly SEQ. General rates are determined by the relative valuations within each council area so the median (or average if you really want) for each is what is relevant.
To illustrate let me graph the median land valuations for the larger relevant councils in the study provided by the V-G and the general rate component for each council based on the $165K valuation across all:

There is a clear inverse correlation here. Yes, the council methodology effectively provides a benchmark comparison of land valuations between councils rather than any rates benchmark. Councils with higher land valuations will have a lower rate in the dollar for general rates.
So let's more appropriately graph the general rate based on the median valuation for each council from the most recent V-G data available:
(data to be confirmed and reformatted in a subsequent post)

Compiling the data on this from each council can be a tedious task. I need to go back and confirm some of this data compiled last night and particularly Townsville and Mackay. Unlike council staff I am not being paid for the time. Median valuations for Sunshine Coast and Rocky were not updated this year and de-amalgamations there may have some influence. Also these numbers don't account for any early payment discount.
I don't think any of that is going to refute the criticism here that the council analysis methodology on general rates comparison is flawed. The Mayor in comment specifically drew attention to the lower rates base in Brisbane. However as soon as we adopt an appropriate median comparison for each council this illusion evaporates like the SEQ water supply in a drought.
The Brisbane general rate on this remains just a few dollars below Cairns but from eyeballing the other council data on their graph total rates in Brisbane actually go past Cairns, mostly attributable to water usage. Note also that on any measure Cairns rates are not comparatively high as is sometimes claimed, and were not either under the previous administration.
Note: I left out some of our neighbouring regional councils from the council analysis for simplicity and relevance but this may be taken up further at Conus: How NOT to compare rates across councils

Wednesday, July 23, 2014

Reef Casino trading well below Aquis offer

There has been some interesting media reports and comments from our local vanguard re the ACCC intervention on Aquis bid for Reef Casino deserving of a further post: Cairns civic leaders join forces to reject Aquis anti-competition claims

Submissions are now closed on that with a decision next month. I would have thought it probably unlikely the ACCC will block the takeover although the risk of that is possible and the ASX market action in Reef (RCT) has appeared less than fully confident in the outcome.

RCT is currently trading down at $3.68 following the ACCC announcement, well below the offer price of $4.354. That would provide a nominal return of 18% should the takeover be consummated. An annualised return calculation on that could be quite impressive depending on time to any successful completion. The offer is open until 31st October although could be extended depending on the probity and licence process.

A simple chart of trading over the past year and three significant events stand out. The initial announcement last November, followed by a formal takeover implementation agreement in February, then the ACCC intervention this month.

As previously mentioned RCT is a thinly traded stock with comparatively low daily trading volumes. Trading activity in RCT during this recent period appears more indicative of a relatively substantial player(s) reducing risk persistently feeding the sell side rather than nervous mums and dads bailing out.

Disclaimer: This is commentary and NOT investment advice. I maintain a small holding in RCT.

Saturday, July 19, 2014

Boneheaded Stupidity

Way back in 1990 was when I made my first trip to Cairns on an east coast sojourn. The subsequent year I migrated to Queensland from an only slightly more southern state. At that time a prominent local business in Emerald attempted to secure its monopoly on local tyre supply with a new mining development by displaying, a 'keep out not wanted here' sign to all new employees who had come to work in the largest underground coal resource development in Australia, and where Queenslanders had limited skill depth and experience.

I recall my first weekend voyage into Rockhampton subsequent to migration. I was confused. Why were all the shops in the largest shopping centre pulling down their shutters at lunchtime on a Saturday? Well, that was Queensland apparently and it was for the good of our local economy and the virtue of decrepit undercapitalised independent retail outlets with a stock range less than the expectations of the average consumer, or possibly even the proprietors themselves.

Roll on twenty-three years and things have changed in Queensland, not much.  Unlike less fortunate locations in the state as an international tourist centre we privileged in the Cairns CBD can now decadently buy lamb chops right up until 9pm of a Sunday night. Almost unthinkable in Joh's day. Well most days we can, but yesterday was Cairns Show day.

A fine day it was too. An evening walk and a pleasant view to take in the ambience and then a detour through the local CBD Woolworths to gather supplies for the nights culinary adventure. But what? The door was blocked by security at 5.30pm right in the middle of the evening tourist rush attempting to stem the flow of shoppers. Was it a terrorist threat or perhaps a mass shooting I asked? No, it was Queensland shopping laws.

The unpatriotic disgrace of consumers attempting to consume on Cairns Show day! How dare they! Why weren't they doing the proper thing and attending the show to smell cattle faeces, observe prize-winning sugar cane varieties, or partake of a dagwood dog?

A group of Chinese tourists appeared particularly confused and only my heroic intervention prevented a riot overwhelming the security man and looting of the entire stock of homebrand milk powder at the CBD Woolworths!*

Queensland open for business while tossing tourists out of shops? Cutting red tape? Give me a break, surely even an Ass Tourism Minister wouldn't swallow that when it comes to shopping regulation?

Note: Queensland Economy Watch has been a keen advocate for reform of retail regulation.

*Possibly exaggerated.

Thursday, July 17, 2014

What goes up ......

Well this time it was the unrealistically pronounced bounce in female unemployment from last month which turned around and went back down again:

Although there are still some 'weirdnesses' there in the unadjusted ABS data with female participation and number unemployed unusually low. The raw numbers here for June would have us believe the male unemployment rate was up at 12.2% while the female rate was down at just 3.3%. Perhaps there was too much sport on TV in June?
The components will inevitably become less reliable as they break down into diminishing sample sizes as evident again with that controversial youth unemployment rate. Pete Faulkner at Conus has done a good update on this with his trend numbers and a nice graph in this months post:  Cairns unemployment ticks higher but Trend is still down 
The Conus Trend overall in Cairns for the month was slightly more positive:
The Conus Trend employment series shows a total of 700 new jobs (down slightly from +800 in May). {The original ABS data shows a monthly decline of 6,600 jobs after a gain of 8,900 the previous month; which gives us some idea of why the unadjusted data is of such limited use!} The Conus Trend unemployment rate for June now stands at 7.6% which is a slight fall from the (upwardly revised) level of 7.7% last month. Trend participation remains unchanged at 61.5.
Pete has also compiled and made available in excel format trend data for all Queensland regions. So I have taken the liberty to compile from this a comparison of employment in our tropical coastal regions which all have a labour force of similar size.
 Data source: Conus Trend
Surprising how closely Cairns and Townsville have correlated on this metric over the last two years!

Tuesday, July 15, 2014

Aquis EIS: slapdash and unprofessional

Question? Why is 'Chapter 13 Economic' of the Aquis EIS talking about the benefits of 2 x 2,500 theatres while 'Chapter 4 Project Description' says this has been downgraded to 2 x 600 which is also what has been reported?

Chapter 4:
Initial: 2 x 2500 seat theatres. Current: 2 x 600 seat theatres. Scale reduced.

The 600 seat theatres will be used as an Entertainment component but, with appropriate programming, it can also be made available as an additional plenary space to support major conferences.

Chapter 13:
13.3.8 Theatres
A theatre for night time entertainment is a common part of large integrated resort development.
The Aquis Resort will have 7500 hotel rooms and accommodate 12 000 at peak occupancy. The two...
2 500 seat theatres would be in scale to provide nightly entertainment plus contribute to local needs.
Cairns city has an active residential cultural life that supports one main and a number of smaller
theatre venues. Cairns Civic Theatre has a current seat capacity of 669.
The Cairns Convention Centre can take larger audiences but it is not set up as a theatre. Larger open
air concerts have been occasionally held at Fogarty Park, the Cairns Showgrounds, and Cairns
Botanic Gardens.
The current Civic Centre Theatre was built and opened in 1974 when Cairns’ urban population was
approximately 50 000 which reflects about one-third the current size of Cairns. It is estimated to be
subsidised by ratepayers by about $600 000 a year excluding depreciation.
The Council has been developing plans over the past decade for establishment of an upgraded
Performing Arts Centre including a theatre capacity of about 1 200 and expanded stage and back of
stage facilities to cater for larger touring productions. Even then, there would be concerts and
productions that this scale of theatre could not accommodate. The city is struggling to find the capital
funds for this development and there have been issues about location.
Two 2 500 seat facilities would give the city venues to take large touring stage productions and very
large concerts.
This is not intended as a comment on theatre requirements for Cairns at all and should one think I am being too pedantic, Chapter 4 also gives three (3) entirely separate numbers for the floor area of the convention facility, separated by some magnitude! All that within just a few minutes browsing? This from an outfit that couldn't even register the correct name: Gateway to the Greta Barrier Reef
There is no doubt in my mind that Aquis will be approved. I make no judgement on the merit of the proposal. However the EIS document itself as presented is slapdash, unprofessional, and incompetently drafted.

Sunday, July 13, 2014

Rental tortoises and hares

The Residential Tenancies Authority has updated their quarterly data for weekly rents based on new rental bonds lodged during the period. Albeit in an annoying excel format structure this usually throws up something of interest. Data is provided back to the March quarter 2009 and a comparison of the coastal regional centres is quite illuminating.

The two largest rental sectors shared across these cities are generally 3 bedroom houses and 2 bedroom units so I have chosen those from the data provided:


It may come as a surprise to many to find that Cairns is now a relative outperformer over the period on rental increases. Particularly relative to Townsville, shown here in traditional brown. However should that necessarily be seen as a positive?

Cairns has a higher proportion of renters v home owners compared to the other centres (and consequently a higher proportion of rental stock). These rental increases in Cairns while still modest are despite a weak labour market over the period, and also correspond with a subdued building approvals supply recovery running about last as a comparative percentage of population.

The RTA also supply an aggregate of rental bonds outstanding and the change over the past year may even appear anomalous to the above graphs but actually aligns pretty well with the pattern referred to above on building approvals.

Some caution as the regions provided here don't strictly align with the other data. However there are some aspects on this related to Aquis where I think rental impacts while addressed may have been downplayed if anything in the EIS. Particularly crowding out of affordable student accommodation around JCU and withdrawal of tourist accommodation stock for construction workers. Will perhaps defer further discussion on that to a subsequent post after closer perusal of the EIS ......

The lingering effects of our convict heritage

It’s Raining Men! Hallelujah?

 Pauline Grosjean and Rose Khattar

We document the implications of missing women in the short and long run. We exploit a natural historical experiment, which sent large numbers of male convicts and far fewer female convicts to Australia in the 18th and 19th century. In areas with higher gender imbalance, women historically married more, worked less, and were less likely to occupy high-rank occupations. Today, people living in those areas have more conservative attitudes towards women working and women are still less likely to have high-ranking occupations. We document the role of vertical cultural transmission and of homogamy in the marriage market in sustaining cultural persistence. Conservative gender norms may have been beneficial historically, but are no longer necessarily so. Historical gender imbalance is associated with an aggregate income loss estimated at $800 per year, per person. Our results are robust to a wide array of geographic, historical and present-day controls, including migration and state fixed effects, and to instrumenting the overall sex ratio by the sex ratio among convicts.

Keywords: Culture, gender roles, sex ratio, natural experiment, Australia
JEL: I31 N37 J16



Sunday, July 6, 2014

A perspective on building approvals

The Cairns Post headline:

This came with a slightly more measured report from Grace Uhr in the Weekend edition: Building approvals up 35pc for Far North Queensland. Which was based on the PR release from the Master Builders: Unit approvals drive building approvals spike. The units spike here related to national and state data with the first unit approvals in two years still on the agenda for Cairns City!

The 35% is based on a yearly moving average comparison with the previous period to May 2013 and flatters the performance of Cairns if anything.  The Conus analysis from Pete Faulkner: Building Approvals data hiding weakness
Unfortunately here in the Far North things are also looking a little weaker. In Cairns unadjusted data showed 53 approvals (up from 40 in Apr) but the Conus Trend series remained unchanged at 46 (following a sharp downward revision to previous months). The Trend rate now sits 2.1% below its level a year ago.
I have previously alluded that building approvals in Cairns actually remain relatively weak despite some recovery from an extremely low base so how do we compare with other regions?  This is approvals in the more significant Local Government Areas as a proportion of population for houses, units, and total dwellings for the 11 months to May 2014 from the most recent ABS data:

I tried to format the unit approvals for Cairns in a different colour on that graph but the data point was too small to grab in my excel chart. The data does not yet de-amalgamate Douglas where the 4 units approved was the sum total for CRC.

Despite the hyperbole on the recovery to date, and the potentially positive outlook, building approvals over the past year have been a disappointment and certainly fallen short of my expectations and really gone nowhere at all in that time.

However an interesting point this month was that for the first time in yonks approvals on the southside surpassed the north of Cairns.

RP Research Blog: May 2014 dwelling approvals

Thursday, July 3, 2014

ACCC questions Aquis takeover of Reef Casino

The ACCC has released a statement of issues on the Aquis takeover of Reef Casino and invited comments from interested parties: ACCC calls for comment on the Aquis proposed acquisition of Reef Hotel Casino

The components of the statement most relevant to key issues:

28. The ACCC’s preliminary view is that without the proposed acquisition the Reef Casino would be likely to continue to operate either under its current ownership or under the ownership of another non-Aquis operator. However the ACCC received submissions during the course of market inquiries suggesting that Cairns could not sustain two commercially viable casinos. As a result of this material, the ACCC is considering the likely impact of the Aquis Resort on the Reef Casino’s ongoing viability.

The ACCC invites comments from market participants on its preliminary view regarding the operation and viability of the Reef Casino if the proposed acquisition does not proceed. In commenting on these issues, market participants may wish to consider:

1) The Reef Casino’s current financial circumstances

2) The types of customers that visit the Reef Casino, or that would visit the Reef Casino in the future, and whether those customers would instead be likely to visit the Aquis Resort once it opened

3) The population of Cairns, the expected number of tourists that would travel to Cairns in the future if the Aquis Resort were developed, and how many of those tourists would be likely to visit the Reef Casino.

29. Before the Aquis Resort can be developed, it needs to obtain various regulatory approvals, including:

a. A casino licence from the Queensland Government as part of its bid process

b. Various probity and other regulatory approvals relating to the resort from the Queensland Office of Liquor and Gaming Regulation

c. Environmental approvals from state and federal governments

d. Local planning approvals.

30. The ACCC notes there is a degree of uncertainty inherent in the Aquis Resort proposal. The Aquis Resort would be of a scale that is unprecedented in Australia, and the viability of an ambitious project of this scale may be less certain than a smaller project would be. There is also some uncertainty as to whether wealthy Chinese patrons will visit the Aquis Resort in such numbers as Aquis hopes.

31. Aquis has told the ACCC that the Aquis Resort will not be developed in the absence of the proposed acquisition, because:

a. Aquis needs to obtain finance for its resort - the first phase of the first stage of the Aquis Resort is estimated to cost approximately $4 billion to construct. Aquis has told the ACCC that it is unlikely to be able to raise sufficient funds from debt and/or capital markets to construct the Aquis Resort in the absence of the proposed acquisition.

b. Aquis needs to use the existing Reef Casino as a platform from which to develop its profile with its intended customers (predominantly international VIPs), and train its workforce, while the Aquis Resort is being constructed.


32. The ACCC’s preliminary view, based on the information presently available, is that the Aquis Resort is likely to be developed (in the sense of being a realistic commercial proposition) with or without the proposed acquisition. In reaching this view, the ACCC has taken into account factors including that:

a. Aquis is investing significant funds in the proposed development and clearly intends to build it, subject to regulatory approvals being received on commercial terms.

b. Aquis holds an option to acquire the land on which it plans to build the resort.

c. As discussed above at paragraph 10, the Queensland Government has included the Aquis resort in a shortlist of two developments for the award of up to two casino licences as part of the Queensland Government bid process.
d. Aquis has commenced the process of seeking regulatory approvals – it has released an Environmental Impact Statement for public consultation.8

33. The ACCC understands that the proposed acquisition may provide Aquis with certain advantages in developing the Aquis Resort. However, the ACCC’s preliminary view is that the proposed acquisition is not necessarily essential to Aquis obtaining finance for the development of the resort, or the successful promotion and opening of the resort.

The ACCC invites comments from market participants on its preliminary view regarding the likelihood of the Aquis Resort being developed. In particular, market participants may wish to comment on:

1) The likelihood of the Aquis Resort receiving a casino licence as a result of the Queensland Government bid process, and the conditions on which any licence may be issued

2) Any commercial, legislative, economic, regulatory, demographic or other impediments to the Aquis Resort being developed

3) Whether and how the proposed acquisition might affect the likelihood of the Aquis Resort being developed, including but not limited to:

a) Whether Aquis would be able to secure finance (through debt and/or capital markets) to develop the Aquis Resort if it did not acquire the Reef Casino

b) Whether the Aquis Resort is likely to be commercially successful if it is not able to make use of the Reef Casino to help develop an international profile and experienced workforce while the Aquis Resort is being constructed.

If anything the ACCC have also provided there more information than has been released so far on the risks, viability and financing of Aquis? Reef Casino Trust is ex distribution this week and trading down on small volume today.

The Cairns Central Cannibal?

Cairns Central shopping centre was initially a development between the old Coles Myer and Suncorp. This is why it was stacked with Myer, Coles, BI-LO, and Target as the anchor tenants. The potential for cannibalisation between the various divisions had always been an issue. Myer was subsequently split off before Wesfarmers took over the remainder which also includes K-Mart.

The BI-LO supermarket stores have also been strategically problematic and the Cairns Central store today transforms and opens as a K-Mart directly above the Target store downstairs. Which is interesting because just yesterday Wesfarmers announced a big write-down on the valuation of Target: Wesfarmers not giving up on family
Goyder, however, sticks to his theory that Kmart and Target can co-exist under the Wesfarmers umbrella and both make a good return. The fact that most of the profit decrease from Target over the past three years is matched by Kmart's gains suggests otherwise. However, this is not just about straight cannibalisation as others in the discount department store space have experienced mixed fortunes.
So it will be interesting to observe how this works out at Central with the two now trading in such close proximity.

Wednesday, July 2, 2014

The great disabled parking controversy of 2014

What more can one say? Not so much a King Parrot as a Princess Parrot?

Note: All defamation writs should be delivered via the tradesmen's entrance.