Nova goes for sales incentives

An email from the Nova development on Spence St popped into my inbox today:

Nova City Newsletter
Issue 02 – September 2017
when you purchase 1 – 2 bedroom units and opt for
(For limited period only!*)

Developer incentives and rental guarantees to promote sales are generally not regarded as a positive investment indicator. The developer of a Brisbane apartment building was recently even offering a free car.

Previous post: Nova City Valuations


Airport July

Cairns Airport were later than usual with their monthly numbers. July is typically the peak month for the year for domestic.

Domestic passengers increased 2.7% compared to the previous year. This was due to an additional 10,000 passengers (+3.2%) travelling on the combined Brisbane, Sydney and Melbourne routes. A total of 325,000 passengers flew on these three routes in July. All other routes were stable with a 0.3% passenger increase.

No mention of those school holidays this month. However growth in the 12 month moving average for domestic has been slowed somewhat in 2017 with some bumpy monthly volatility after peaking at 5.7% last October.

Airport July

International growth remained solid at 9.8% in July. Positive results for Japan and Singapore routes reported. Negative news on changes to Philippines flights from December. August is typically peak month for international passengers.

Source: Cairns Airport

Reef Spins Result

Something is spinning at Reef Casino but I’m not sure it’s either the roulette wheel or the pokies. The poor half year result announced today has been well flagged at the previous distribution announcement and AGM.

Trading and operating conditions
 The Chinese New Year season was soft for Cairns as a whole
 Our complex faced strong local electronic gaming competition
 Tourism into Cairns was generally softer
 Premium gaming was subdued with less than hoped for volume because of the arrests of marketing staff in China from another Australian casino operator which had a consequential impact on our own premium market.

The issue of the Crown Casino arrests in China a while ago now and premium gaming is a bit curious. Reef really doesn’t play in the genuine high roller market which they have previously acknowledged with lower bet limits to manage risk. Reef is the only listed casino operator which doesn’t provide ‘normalised’ results to adjust for variation from theoretical premium win rates. The reason given in a previous query is that it isn’t material.

Pokie numbers in Cairns Regional Council have increased over the last few years from 1,641 back in 2014 up to 1,809 in July this year. That is down from a 2016 peak presumably related to the Courthouse Hotel closure. Applications for expansion of hours have also been noted at suburban venues.

However a more interesting announcement from Reef today could be this:

Reef Corporate Services Limited ABN 66 057 599 621, in its capacity as responsible entity of the Reef Casino Trust ARSN 093 156 293 (RCT), has been advised that Casinos Austria AG (CASAG), a major RCT unitholder, has commenced a strategic review process which could result in the potential sale of its international casino portfolio including its interests in RCT (Process). RCT understands that the Process is currently at a preliminary stage. RCT will keep unitholders informed, based on information it receives. In the meantime, it’s business as usual for RCT.


Sugar charities and NAIF infrastructure

There is a good post from Gene Tunny at Queensland Economy Watch on sugar marketing: PC scathing of Qld sugar industry’s “dependency psyche” & “back to the future” re-regulation

One of the low points for the current Queensland Government occurred in late 2015, when it failed to stop the Real Choice in Marketing legislation advanced by Katter’s Australian Party with support from the Opposition and Billy Gordon. This provided cane growers the extraordinary power to force foreign owned milling company Wilmar and other millers to market their sugar through Queensland Sugar Ltd.

The problem I have always had is that this regulation came after growers had profited nicely from selling their own stakes in the mills. Interesting also that QSL is treated as a charity.

Gene has drawn his post from the most recent Trade and Assistance Review by the Productivity Commission. This also contains assessment of the Northern Australia Infrastructure Fund.

There is good commentary in that section on the investment criteria and specific sectors such as irrigation dams and coal, but without doubt the standout quote is:

The lack of transparency to date and the promotion of certain projects by politicians (in the absence of credible supporting investment data) has raised concerns about the viability of future investments under the NAIF.

No pink in excel graphs

ABS regional labour force data continues to be positive for Cairns: Regional jobs data shows Cairns powering ahead

We know how dangerously volatile the regional data can be. Despite issues with the sample I have always liked to look at the male v female comparison:


This is a 12 month average. Female volatility over time is interesting but the standout is the recent improvement in the male rate and a significant break from previous trends. This is probably the most significant aspect in the data and perhaps not surprising given the obvious construction work underway in Cairns.

How does this look in employment:


The trend increase over this time has been more weighted to female employment.

Participation rates:


I always recall the rants of lapsed academic blogger Ricardian Ambivalence that the design of the ABS survey is the unemployment rate. Other data is secondary and reliant on assumed inputs.

Game of Mates

It may have escaped the notice of some that the 60 Minutes program has recently featured a story on the collapse of CEC back in 2011. In typically sensationalist style this paints Roy Lavis as a battler victim of the bank. The story was apparently based on a leaked report.

The Australian Financial Review has responded:

Why 60 Minutes stitched up the Commonwealth Bank

Liberal MP Warren Entsch set up anti-CommBank meeting

And further from AFR:

CommBank takedown a low point for the once-great 60 Minute

As a keen observer of corporate events in Cairns during that period I also posted last year on this: Revisionism at the Cairns Post

However the best response so far is probably a letter in todays Financial Review:

The company involved in the CEC case was large and listed.  It had an experienced and well connected board capable of, and responsible for, making business decisions.  It embarked on substantial investments, with borrowed money, with the aim of making a profit, at what turned out to be a bad time.
This wasn’t a case for the Small Business Ombudsman. Kate Carnell makes this clear when she explains she had to seek expertise from elsewhere to manage it.  It only makes matters worse that the case was a referral from a parliamentary review, which presumably takes us back to the well connected board.
The conclusion of the Ombudsman was populist.  The idea that the board is absolved of its task of making good decisions because the bank encouraged it in any manner is legal nonsense.  The notion that the bank should be pilloried for acting in accordance with the agreed terms of the loan because Ms Carnell is able to review events with the benefit of hindsight is also nonsense.
Ms Carnell has accepted a case neither she nor the Ombudsman were competent to run. She has used it as a vehicle to continue the vandalism of our banking system by career politicians.
She should be removed.
Thomas Miller
Darlinghurst, NSW

Thank you Thomas.

Note: Game of Mates is the title of a recently published book. Co-author Dr Cameron Murray will apparently be speaking at an event in Kuranda this Friday evening.

Back to school for Airport

Cairns Airport posted negative domestic monthly growth (-0.4%) in June. Continuing international growth (10.4%) dragged the total back into positive territory with 0.9% growth over June 2016. This has been attributed to school holidays:

June passenger numbers were slightly lower due to the 2017 school holidays starting one week later than 2016 in Queensland and New South Wales.

Problem is that isn’t correct. NSW and Qld both started in the equivalent week which means they were actually a day earlier in the month than last year. Victoria started a week later than last year to align the term with NSW ending 30 June. Qld term ended 23 June. Anyways:


Update: Sydney Airport has now posted June results with a strong growth driven by international:

“International traffic growth of 9.7% versus the prior corresponding period (pcp) is a fantastic result, and represents our strongest monthly result this year. Domestic traffic also grew strongly at 3.6% above the pcp, contributing to overall traffic growth of 5.8% for the month. International and domestic traffic continues to be driven by higher load factors and larger aircraft.”

June Rental Trends

RTA data for the June quarter continues recent trends with the rental gap between Cairns and Townsville increasing to $90/week for 3 bedroom houses based on new bonds lodged during the quarter.


3 bedroom houses are the largest overlapping category. 4 bedroom houses are not far behind any longer but the trend there is the same with the gap now at $95/week.



Nova City valuations

It is now more than two years since local media speculation that Aspial would start construction of the Nova City project on Spence St before July 1 2015 to qualify for development incentives. The marketing building was constructed in 2015. Two years hence while there have been operational works on the site and reports of pre-sales there has been no final building approval.

Aspial have finally got around to spinning off their non- Singaporean property developments on the higher risk Singapore Exchange second board. The prospectus contains valuation details for Australian properties. The only building in the body of the document related to valuations (p 94) for Australian projects which does not provide a capital value is Cairns. Note 4 provides further details:

There is no Capital Value attributed to the property. The proposed development plans for Nova City were in the midst of being finalised and the sales launch of the residential units in Tower 1 of Nova City (including residential units located in the podium connecting Tower 1 and Tower 2) had not commenced when the independent valuer, Jones Lang LaSalle Advisory Services Pty Limited, commenced its valuation of the aforementioned property. Accordingly, the valuation for Nova City / 81-83 Spence Street and 112-114 Bunda Street, Cairns, Queensland, Australia is based on the market value of the land on an “As Is” basis, and not based on the proposed development plans of Nova City. The market value of the land as appraised by Jones Lang LaSalle Advisory Services Pty Limited, is A$15.0 million, which was lower than the acquisition price of A$18.9 million paid by
our Company.

The explanation doesn’t appear to be consistent with the independent valuation report from Jones Lang Lasalle in Appendix B dated April 2017 which does refer to the relevant pre-sales and marketing which had commenced five months before the valuation.

As at date of inspection preliminary site works were in progress, these are associated with the stormwater drainage easement along the southern boundary. We understand marketing of the apartments for Stage 1 officially commenced in November 2016 and we have been advised by the Developer that 28 contracts of sale (or circa 14% of the total number of apartments) had been issued.

However the only valuation provided in Appendix B is the land value which has been reduced from acquisition value as stated. Capital valuations have been provided for development properties in Brisbane where marketing has not yet commenced.

There are some comments in the Appendix B Jones Lang LaSalle valuation report worth noting:

Based on our analysis we do not consider the proposed development is representative of the highest and best use of the site in the current market. The site it-self (sic) in our opinion is not considered an ‘A-Grade’ location in terms of the Cairns CBD with the prime locations especially from a residential amenity point of view being those situated along the Esplanade or Water (sic) front areas.

There is also this suggestion in the independent valuation:

Strengths: A large development site on the southern fringe of the Cairns CBD which has the potential to be subdivided into smaller parcels, for which we consider there would be a wider market appeal.

Source:  World Class Global


Oh deary me!

Smithfield business owner welcomes bypass. Albeit somewhat conditional apparently:

“Anything that takes traffic away from driving past the shopping centre is not good for the shopping centre, as far as I’m concerned,” he said.

Interesting the way this yarn is framed differently by the Compost in different spaces such as social media but perhaps Bastiat summarised this best with his negative railroad a couple of centuries ago.

I have said that as long as one has regard, as unfortunately happens, only to the interest of the producer, it is impossible to avoid running counter to the general interest, since the producer, as such, demands nothing but the multiplication of obstacles, wants, and efforts.
I find a remarkable illustration of this in a Bordeaux newspaper.
M. Simiot raises the following question:
Should there be a break in the tracks at Bordeaux on the railroad from Paris to Spain?
He answers the question in the affirmative and offers a number of reasons, of which I propose to examine only this:
There should be a break in the railroad from Paris to Bayonne at Bordeaux; for, if goods and passengers are forced to stop at that city, this will be profitable for boatmen, porters, owners of hotels, etc.
Here again we see clearly how the interests of those who perform services are given priority over the interests of the consumers.
But if Bordeaux has a right to profit from a break in the tracks, and if this profit is consistent with the public interest, then Angoulême, Poitiers, Tours, Orléans, and, in fact, all the intermediate points, including Ruffec, Châtellerault, etc., etc., ought also to demand breaks in the tracks, on the ground of the general interest—in the interest, that is, of domestic industry—for the more there are of these breaks in the line, the greater will be the amount paid for storage, porters, and cartage at every point along the way. By this means, we shall end by having a railroad composed of a whole series of breaks in the tracks, i.e., a negative railroad.

*bangs head on desk*