Upload
george-wood
View
214
Download
0
Embed Size (px)
Citation preview
8/20/2019 Recent EY and CameronPartners reports: Summary by |Brian Gaynor
http://slidepdf.com/reader/full/recent-ey-and-cameronpartners-reports-summary-by-brian-gaynor 1/5
Liveable city faces some tough choices
Brian Gaynor
Achieving theAucklandCouncil’s ambitiousgoalswillrequire amore rigorousapproach to itsfinancialposition
TheErnst &Young (EY) andCameron Partnersreports onAuckland Council’slong term$18.7billioncapital
expenditure programme raiseanumberof important issues. Theseinclude:■ Shouldratesincreases beused tofund theseprojects?■ Can thecouncil rely primarily on
debtfunding?■ Should the capitalexpenditureprogramme be partlyfunded throughthesaleof councilassets?
Auckland’sinfrastructuredemandsare soaringbecause theregion’spopulationgrewby 33,800people,to 1,527,000, in theJune2014year andby a further 43,500, to1,570,500, in the latestJune year.
Thepopulationisexpectedto grow by a further 440,000, to 2million,by2033andisexpectedtoreach2.2 millionby 2043.
Basedon recent growthtrends,theseprojectionscouldbe fartoo
conservative and Auckland’spopulationcouldbeinexcessof2.3millionby2033and2.6millionby2043.
Thiswillcreateahugedemandforadditional infrastructure assets, mostofwhichwillhavetobeorganisedandfinanced by the Auckland Council.
The council’sLong Term Plan, which is from 2015 to 2025, requirestotal capital expenditure of $18.7 billion over the 10-year period. Thisincludes the constructionof newinfrastructureassetsandtheupgradeof existing assets.
Auckland’s fivemajor 2015-25
infrastructure projects are:■ CityRailLink($2.5billion).Thisisthe3.4kmrailtunnelconnecting
Br tomarttonewstat onsnearAoteaSquareand Karangahape Rd. These will be linked to a redeveloped MountEdenstation■ Central Interceptor($966 million).A new wastewaterconveyancing andstorage pipeline■ AMETI ($552million). Transportimprovements to the GlenInnes,Panmure, Pakuranga and Botanycorridor■ WaikatoWaterTreatmentPlant No2 ($400million). Additionaltreatment plant capacityfromtheWaikatoRiver■ HuiaWaterTreatment Plant($241million). Thereplacementof theHuiaWater Treatment Plant.
Nearly$8billion,or42percent,of thetotalcapital expenditurewill beon transport facilities; $4.7 billion,or25percent,onwaterassets;and$3.4 billion, or 18 per cent, will be onenvironmental,social andcommunity projects.
Approximately 70per cent of the
totalspendwillbeonnewassets,withtheremaining30percentontheupgrade of existing infrastructure.
Thecouncil hasthe following objective:“Auckland’svision is to become the world’smost liveablecity”.
Achievingthisgoal willbe difficultandcostly—probablyfarinexcessof $18.7billion — becausethe councilfacesenormous pressure,primarilyfromchangingdemographics.Itwill be a huge task to turn Auckland intothe “world’smost liveable city” because of burgeoning immigration,a massive increase in populationand
an ageing existing population.The situation is exacerbated
because the council has to fund its day
to dayoperating activities in additionto itsambitious LongTerm Plan.
Atpresent,47.8percentofitsdayto dayactivitiesare fundedby rates,33.9percentbyfees,9.3percentthrough subsidiesand grants,6.5 percentfromfueltax,finesandinfringement fees and2.5 percentfrom interest and dividendsfrominvestments.
Howwillthecouncilfinanceits$18.7billion infrastructureprogrammeifrates,fees,parking finesand dividendsare allcommittedto dayto day activities?
Cameron Partnersidentifiestwomainoptions—borrowingandassetsales— whilethe council’sprojectionsindicate thatits annualoperating surpluswillmake thelargestcontributionto its infrastructurespend.
Rates,whichareprojectedtoincreaseby3.5percentperannumover 2015-25,are nota directoption but they could be raised by more than
3.5percentperannumtoboostthecouncil’sannual operating surplus.Cameronargues thereis no “free
lunch”but notes that the2015-25LongTermPlanrevealsthat“Aucklanders. . . haveno appetite for
large increasesin rates or councildebt”.
Thisisahugecontradiction.We want world class transport,recreationalfacilitiesand waterbutdon’twanttoraiserates,increasedebtorsellassetstopayforthese.
Thecouncilwillhavetorelyonacombinationof borrowings,asset
realisationsandratesincreasesinexcessof3.5percentperannum(to boost its annual operating surplus) inordertofunditsLongTermPlan.
Page 1 of 5
21 Nov 2015
Weekend Herald, Auckland
Author: Brian Gaynor • Section: Business News • Article type : News Item Audience : 204,549 • Page: 4 • Printed Size: 1298.00cm² • Market: NZCountry: New Zealand • ASR: NZD 12,980 • Words: 1389 • Item ID: 500906520
PMCA licensed copy. You may not further copy, reproduce, record, retransmit, sell, publish, distribute, share or
store this information without the prior written consent of the Print Media Copyright Agency. Phone +64-4-4984487
or email [email protected] for further information.
8/20/2019 Recent EY and CameronPartners reports: Summary by |Brian Gaynor
http://slidepdf.com/reader/full/recent-ey-and-cameronpartners-reports-summary-by-brian-gaynor 2/5
De tisa via eoption utEY warns that “the downside of debt isthe interest payments incurred andtherisk of adverse interest rate orinflation movements”.
Interest rate increases wouldhavetobefundedfromoperating expenditure thatcould result in ratesincreasesinexcessofthe3.5percentperannumforecastoverthe 2015-25period.
CameronandEYbelievethattheCouncilhas additional debtcapacity
ofnomorethan$1billionto$2billion—wellshortofthe$18.7billionrequired over thenext decade.
Consequently,Cameron believesthatassetsalescouldpartlyfundtheregion’sLong TermPlan.
Theinvestmentbankhasanumberof commentson theseassets,particularlythe council’scommercialassets, whichare listedin theaccompanyingtable.
Auckland Councilowns 22.4 percent of Auckland InternationalAirport,with a marketvalueof $1.4 billion. Cameron notes that aselldown of the council’sairport stake
from22.4percentto10percent would realise nearly $750 million. A10percentstakeshouldbemaintained because this wouldblockany attempted takeoveroffer.
Cameron notes “itis impracticaltoconsider thesaleof Ports of Auckland(orpartsale)untilthecouncilreview
process currentlyunderway iscompleted. The uncertaintyregarding business plan and valuation would likely see a materialdiscount to value”.
However, the reportsuggeststhatthelandshould be separatedfromtheportoperations andthe council
should consider sellingthe latter, withthelandremainingin publicownership.
Thesaleof thecouncil’scommercial parkingassets couldcreateissues because thenew ownerscould raise prices or reducethenumber of downtown parkingspaces,particularlyif theseassets aresold with associated development rights.
The council’sDiversified FinancialAsset Portfolioconsistsof stocksand bonds which are held in reserve tomeetanyunforeseenliquidityorfunding events.
Thehousingfor older personscouldbemovedtocentral
government or private sectoroperators couldprovide theseservices undercontract. Themarinas, whichconsist of Westhaven,Silo,Hobson West and ViaductHarbour assets, couldbe sold, with
publicobjectionsmet throughcontractual and regulatory means.
Two otherinterestingassets arethe13 golf courses, whichhavearateablevalueof$61.2millionbutanalternative usevalueof $2.1 billion,and Watercare.
The fivemost valuable alternativeusegolfcoursesareRemuera($517million), ChamberlainPark ($316million), Pupuke($307 million),Takapuna ($230 million)andWaitemata($212 million).
Cameron doesn’t recommend thedisposalofgolfcourses,parksandcommunity facilities butrecommendsthateach oftheseassetsshould be analysed carefully to assessthevaluethatisforgonebycontinuingto operatethemas non-commercial assets.
Finally, Watercare, whichisclassifiedby Cameron asan
infrastructure assetand is valuedat$8.4billion. Cameron doesn’trecommendthefullorpartialsaleof Watercare but gives a clearmessagethatthe company should considerselling surplus land.
TheEYandCameronreportsare balanced and do not recommend the wholesale disposal of the council’sassets.
However, they do give a very clearmessage thatAuckland Councilneedsto adopt a farmorerigorousapproachto itsfinancialposition asit cannotrely mainlyon an annualoperating surplusto fund itsmassive$18.7 billion infrastructure spend over thenextdecade.● Disclosureof interests;BrianGaynor is anexecutive directorof MilfordAssetManagement, whichholdsAucklandInternationalAirportshares onbehalfof clients.
Page 2 of 5
21 Nov 2015
Weekend Herald, Auckland
Author: Brian Gaynor • Section: Business News • Article type : News Item Audience : 204,549 • Page: 4 • Printed Size: 1298.00cm² • Market: NZCountry: New Zealand • ASR: NZD 12,980 • Words: 1389 • Item ID: 500906520
PMCA licensed copy. You may not further copy, reproduce, record, retransmit, sell, publish, distribute, share or
store this information without the prior written consent of the Print Media Copyright Agency. Phone +64-4-4984487
or email [email protected] for further information.
8/20/2019 Recent EY and CameronPartners reports: Summary by |Brian Gaynor
http://slidepdf.com/reader/full/recent-ey-and-cameronpartners-reports-summary-by-brian-gaynor 3/5
AucklandCouncil’s commercial assets
Auckland International Airport
Ports of Auckland
Commercial parking
DiversifiedFinancialAssetPortfolio
Housing for older persons
$870m
$779m
$153m
$328m
$200m
Book value
$1398m
$1121m
$153m
$328m
$225m
Marketvalue
Herald graphic
PanukuDevelopmentAucklandMarinas
Total
$80m
$2410m
$80m
$3305m
Based on recent growthtrends . . . Auckland’spopulation could be inexcess of 2.3 millionby 2033
WithAucklandgrowing fast, the council willhavetodecidethebestuse forassetssuch asPortsofAuckland(left), AucklandInternational Airport(top)andWatercare (above). Pictures / Brett Phibbs, NZME
Page 3 of 5
21 Nov 2015
Weekend Herald, Auckland
Author: Brian Gaynor • Section: Business News • Article type : News Item Audience : 204,549 • Page: 4 • Printed Size: 1298.00cm² • Market: NZCountry: New Zealand • ASR: NZD 12,980 • Words: 1389 • Item ID: 500906520
PMCA licensed copy. You may not further copy, reproduce, record, retransmit, sell, publish, distribute, share or
store this information without the prior written consent of the Print Media Copyright Agency. Phone +64-4-4984487
or email [email protected] for further information.
8/20/2019 Recent EY and CameronPartners reports: Summary by |Brian Gaynor
http://slidepdf.com/reader/full/recent-ey-and-cameronpartners-reports-summary-by-brian-gaynor 4/5
Page 4 of 5
21 Nov 2015
Weekend Herald, Auckland
Author: Brian Gaynor • Section: Business News • Article type : News Item Audience : 204,549 • Page: 4 • Printed Size: 1298.00cm² • Market: NZCountry: New Zealand • ASR: NZD 12,980 • Words: 1389 • Item ID: 500906520
PMCA licensed copy. You may not further copy, reproduce, record, retransmit, sell, publish, distribute, share or
store this information without the prior written consent of the Print Media Copyright Agency. Phone +64-4-4984487
or email [email protected] for further information.
8/20/2019 Recent EY and CameronPartners reports: Summary by |Brian Gaynor
http://slidepdf.com/reader/full/recent-ey-and-cameronpartners-reports-summary-by-brian-gaynor 5/5
Page 5 of 5
21 Nov 2015
Weekend Herald, Auckland
Author: Brian Gaynor • Section: Business News • Article type : News Item Audience : 204,549 • Page: 4 • Printed Size: 1298.00cm² • Market: NZCountry: New Zealand • ASR: NZD 12,980 • Words: 1389 • Item ID: 500906520
PMCA licensed copy. You may not further copy, reproduce, record, retransmit, sell, publish, distribute, share or
store this information without the prior written consent of the Print Media Copyright Agency. Phone +64-4-4984487
or email [email protected] for further information.