YEAR IN REVIEW
Shareholders Newsletter
August 2014
image
Proposed Alexandria DA Perspective
MESSAGE FROM THE MD
audit is complete. The final dividend will
be announced at the Company’s Annual
General Meeting scheduled for Monday
24th November.
Bob Winnel AM
Managing Director
1. Financial
Performance
T
he following newsletter explains why
we are hopeful that the current 2014-15
year will show a record profit if current
expectations hold, despite the ongoing
decline in the ACT housing market.
You have already received a notice of an
Extraordinary General Meeting to be held
on Thursday 28th August to deal with
the acquisition of the company which
currently owns our new site in Arncliffe.
Please send in your Proxy Form should
you choose not to attend this meeting,
which will only deal with this one issue.
2. Alexandria
Sold!!
Audited financial statements for 2013/14
will be lodged with ASIC by 30 September
and will be available on the Company’s
website at that time. A pre-tax profit for
2013/14 of around $6m is anticipated,
inclusive of a $4m write back of VBC’s
share of Tralee rezoning costs which had
been previously written off.
Five years ago we began a new round
of acquisitions outside the ACT in the
expectation that the then ACT boom must
eventually stall. As part of this geographic
diversification, the Company entered into
an option agreement in September 2013
to acquire an apartment site in Alexandria,
Sydney for $20m, with settlement of
the site to occur on 8 December 2014.
Since then, we have spent substantial
sums and management time advancing
a DA for 155 apartments on the site.
An interim dividend of 2.5 cents per share
was paid in July representing a 0.5 cent
increase on the interim dividend paid over
the last 4 years. The Board will be making
a decision on the final dividend once the
We were subsequently approached by a
Government Agency wishing to purchase
the site, subject to a due diligence
process. The Agency has completed its
due diligence and contracts have now
been exchanged. By selling the site now at
a reasonable price that reflects our work
in advancing the DA, we have ensured a
good result for VBC in 2014/15, de-risked
the project and ensure further funding
towards new projects not yet identified.
The profit arising from this sale will be
reduced by the $1.65m stamp duty
payable on acquiring the company,
substantial consultants costs incurred in
progressing the Development Application,
various legal and accounting fees and
a commitment fee to our investors
who had committed to providing the
equity required in the event that the
development proceeded.
This transaction is testament to the
strength of the current Sydney market
and endorses the correctness of the
Company’s decision to move into Sydney
so as to offset the future Canberra
downturn, which finally emerged 2.5
years ago.
The acquisition of the site at Alexandria
also requires us to purchase shares in
the company that owns that property.
We will therefore in the future be asking
shareholders to also ratify the purchase
of the company owning Alexandria, in
the same manner as we will be doing at
the 28 August General Meeting for the
company owning the Arncliffe site.
The Village Building Co. Limited, Unit 7, 92 Hoskins Street, Mitchell, ACT, 2911 Ph 02 6241 6844
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3. Expanded Funding: Convertible Redeemable
Preference Shares
As
foreshadowed,
the
Company
introduced a second tranche of CRPS.
The franked dividend on Tranche 2 was
increased from 11.2 cents p.a. to 12.6
cents p.a. resulting in an increase in
the dividend yield, inclusive of franking
credits, from 16% to 18%. Dividends of
Tranche 2 are paid quarterly as opposed
to each 6 months for Tranche 1.
The CRPS has been very popular with our
shareholders and investors and we now
have $8.7m issued with a further $6.1m
committed to CRPS. Once funds for these
commitments are received, there will be
close to 15 million CRPS issued, making
this new class of share an important
component of the Company’s funding
structure.
Most of the money that has been invested
into CRPS has been new funds. The Board
also intends that the Dalecoal loans and
other shareholder loans continue to be
encouraged to convert to CRPS. This
conversion will reduce the Company’s
overall cost of capital, whilst increasing
the after-tax returns to investors by
utilising franking credits. There remains
a capacity to issue a further 3 million
CRPS. I urge you to give consideration to
a conversion of loans to CRPS, if you have
loans with us.
4. Strategic Review: Succession, Growth, Capital
Structure and Land Banking
The Board is undertaking a strategic
5 year review and has engaged two
consultants to assist and guide this
process. The review is considering such
things as the succession of the Board
and Management, the strategic growth
path for the business in terms of both
geographical diversification and product
diversification, the appropriate capital
structure for the Company, future growth
of shareholder funds and the processes
for establishing a longer term land bank.
These areas have been considered
on an ongoing basis by the Board and
Management, but have not yet been
formally workshopped and documented
with the assistance of independent
advisors.
Perhaps a major focus of the Strategic
Review is succession planning given the
age of Albert Dabas, John Kenworthy and
myself.
Succession Planning
Bryan Leeming currently holds the
position of General Manager, Housing
and was recently appointed as the Deputy
Chief Executive Operations, reporting to
Albert and standing in for Albert when he
is away. This position was created to get a
focus on the need to diversify more assets
out of Canberra, the need to review the
future strategies for Coffs Harbour and
Port Hedland and the Board’s decision to
achieve a greater focus on occupational
health and safety on all Company
projects. Bryan Leeming is 42 and joined
Village Building Company over two and a
half years ago following a career of over
20 years in the housing and construction
industry in the UK. Bryan is playing an
increasing role in the Operations area and
has shown a high degree of commitment
to the Company. He and other younger
Managers will undoubtedly contribute to
the ongoing future of the Company as
current Senior Managers retire.
We have a number of other younger
Managers who are developing careers
within our Company. In coming years,
they will be able to step into the shoes
of current Senior Managers who will
begin to retire within the next few years.
Even some of our more Senior Managers
such as Ken Ineson who is 57, still have
7 or 8 years within the Company. Ken is
currently General Manager, Acquisitions
and in this area, as in other areas younger
Managers are already being trained.
We have already promoted one of our
younger Managers, (Damien Howse)
into the role of Chief Financial Officer,
enabling Vince Whiteside to focus on
more strategic work, financial structures
for major projects and liaison with
investors and shareholders. In this
context, Albert Dabas has indicated an
intention to retire as CEO Operations
in August 2016. After retiring as CEO
Operations however, Albert has indicated
a willingness to mentor other Senior
Operations staff and to play an advisory
role in strategic and financial issues, if
required. At that time he is willing to step
back and take up the position of QLD
State Manager on a 4 day a week basis,
until retiring fully from any executive role.
From January this year I reduced my
working week to four days. I work five
days most weeks, taking a one to two
week block of leave more frequently,
to achieve the four day average. At this
stage I plan to retire around August 2017
subject to discussions with the Board
about their intended succession process.
After retirement, I would be available to
mentor a successor for a brief period,
and/or be involved in advising the Board
on strategic issues including Government
relationships and future directions, if
required. Subject to the wishes of the
Board and Shareholders, I would also be
available to continue at a Board level for
several years after retirement in 2017.
We have developed a middle and lower
management team aged from early 30’s
to late 50’s to handle a progressive
handover from the current senior
management team to a younger, but
experienced and competent management
team. The first of the existing senior team
to retire was Hans Sommer who recently
left after a long and productive period
with the Company. We all wish Hans well
in his retirement in Beechworth, Victoria.
The outcomes of the Board’s Strategic
Review will be provided to shareholders
at the AGM on 24 November.
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v i l l a g e b u i l d i n g s h a re h o l d e r ’s n e ws l e t te r
5. New Projects
A number of new projects will commence in the following months;
(i) Arncliffe, NSW
The Company acquired a unit site in Arncliffe last month, having
previously held an option to acquire that site for 60 units. We
have since entered into two further options on adjacent sites.
These three sites combined will yield around 135 apartments
over 8 to 9 floors.
Work is progressing to obtain DA approval and construction
is projected to commence in April next year. At this point it is
anticipated that construction will be undertaken in either one
or two stages. As was the case at Alexandria, the value of the
site has increased significantly since the options were first
signed. Our Sydney Acquisitions Manager, John Jameson, is to
be congratulated on sourcing these sites.
Sydney CBD 10km
Sydney Football Stadium
SCG
Newtown
Sydney Airport
Waterworth Park
Wolli Creek Station
Princess Highway
Cahill Park
Arncliffe
Arncliffe West School
Kogarah Golf Course
Arncliffe Station
Brighton Le-Sands
Hurstville Westfield
Arncliffe, NSW
(ii) The Brickworks, Bulli, NSW
This project is now rezoned and DA approved.
Demolition is complete and the entry road, bulk
earthworks and site remediation are advanced.
Servicing of the first stage is expected to
commence early next year.
The anticipated yield is 173 dwellings being a
mixture of terrace, villa and courtyard homes
and land. Development will be undertaken in 3
stages over two and a half years. This project will
benefit from the strong Sydney market.
The Brickworks Bulli, NSW
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(iii) Tralee Village and Adjacent Sites, Queanbeyan, NSW
Work on the DA for South Tralee is progressing with Queanbeyan
City Council and we are working towards an approval for
the upfront infrastructure to allow works to commence on
site in October/November. The NSW Government are now
establishing a Project Control Group, Chaired by Planning NSW
and including representatives from NSW Premiers Department
and Queanbeyan City Council, with inputs as required from the
ACT Government, Village Building Co. and other adjacent land
owners.
We had an early release of the first two stages of land, to
take advantage of the current shortage of land available
to ACT builders and have achieved 114 sales to date.
The anticipated yield for this project is expected to be around
1,348 dwellings including a mixture of houses, terraces,
apartments and blocks of land. There will also be around 6,000
square metres of commercial space.
The request for the rezoning of North Tralee for industrial
purposes is with the NSW Planning Minister and is expected
to be put on public exhibition in the next few weeks.
In addition to the land at Tralee, the Company holds options
over land to the south, which is undergoing a rezoning. It is
anticipated that this land will yield upwards of 500 dwelling
sites.
Our most Senior Engineering Manager, John Kenworthy, who
has been with the Company since its inception, is managing
the DA approval processes at Tralee inception assisted by our
Senior Project Manager, Daniel Collings.
(iv) WoodLinks Village, Collingwood Park, QLD
The Company settled on a large subdivision site in Collingwood
Park in April after over 12 months of negotiations with a
liquidator. The site is expected to yield around 800 dwelling
sites. The DA and structure plan for the entire site including
detailed subdivision design for the first 335 allotments has
been lodged with Ipswich City Council. We are hopeful that DA
approval will be achieved by October with works commencing
immediately following this approval.
Based on a projected yield of 800, the raw land cost per
dwelling is approximately $13,000 presenting an opportunity
for significant value uplift as the Brisbane market recovers.
(v) Further Acquisitions
With the sale of Alexandria, the Company is seeking to replace
this site in the buoyant Sydney market and continues looking
for further projects in Brisbane which is displaying early signs
of recovery.
Ipswich M
otorway
15km to
Ipswich CBD
Redbank Plaza
Shopping
Centre
30km to
Brisbane CBD
Woodlinks
Brookwater
Woodlinks, Collingwood Park QLD
v i l l a g e b u i l d i n g s h a re h o l d e r ’s n e ws l e t te r
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6. Current Projects
a) Australian Capital Territory
i) Nexus, Franklin, ACT
Stage 1 consisted of 56 apartments and was completed in
February last year. Stage 2 was redesigned to a reduced yield of
29 terrace homes all of which are sold. Construction of Stage 2 is
substantially complete and settlement of this Stage is expected
in October of this year. The project produced a reasonable
outcome. The latter half of the project was redesigned, replacing
units with a lower number of townhouses in order to respond to
the ACT market downturn. Whilst the reduction in the number
of dwellings reduced the net outcome, this change enabled the
timely completion of the project and withdrawal of funds.
Nexus, Franklin ACT
ii) Jacka, ACT
This project consists of 4 multi-unit sites in the new suburb of
Jacka yielding 125 townhouses in total. The first two sites are
complete and construction is well underway on the third site.
72 of the 125 townhouses are sold. This project also performed
below budget as a consequence of the current market downturn.
Jacka, ACT
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iii) Broadview, Ngunnawal, ACT
Broadview consists of 558 dwelling sites across 9 stages.
Civil construction of Stage 7 is nearing completion, with
Stage 8 underway. To date, we have achieved 472 sales of
which 312 were sold as blocks of land and 160 as house/
land packages.
Due to high demand for land by builders, we recently released
78 blocks of land to builders in Stages 7, 8 and 9, previously
intended to be sold as house/land packages. The blocks
sold readily. The anticipated final outcome however, remains
below budget as a consequence of the current ACT downturn.
Broadview, Ngunnawal ACT
v i l l a g e b u i l d i n g s h a re h o l d e r ’s n e ws l e t te r
iv) Nirvana, Harrison, ACT
Nirvana comprises 60 dwellings being a mix of apartments
and terraces. It was developed under the National Rental
Affordability Scheme (NRAS). NRAS is a Commonwealth
Government initiative designed to provide rental accommodation
at a 20% discount on market rents, to low and moderate income
households. Tax and land price incentives have been granted
by both the Commonwealth and ACT Governments, to investors
buying NRAS dwellings, to compensate them for offering these
properties at a reduced rent. The acquisition and timely delivery
of this project will assist us to deliver a good result in a difficult
year.
Construction of this project was completed between late October
and mid June, to meet a Government deadline of June 30. This
was an excellent performance by our design and construction
teams including Construction Manager, Mark Azzopardi and
Site Supervisor Goran Hajdar. Our CFO Damien Howse and
our General Manager Housing, Bryan Leeming, along with our
Solicitor John Harris, played significant roles in liaisoning with
the ACT and Federal Governments and with our Joint Venture
Partners (the Vietnamese Buddhist Congregation of Canberra)
to gain government approvals. Our Company Secretary and
Treasurer, Vince Whiteside, negotiated the Joint Venture
agreement. This vital project offered a heavily discounted land
price and an annual subsidy of nearly $8,000 each year for 10
years for our purchaser/investors in this project.
As a consequence of an excellent effort by the sales team in a
difficult market, the project is fully sold and tenants have moved
into most of the 46 units already let.
Nirvana, Harrison ACT
v) Completed Projects
Since the last shareholders newsletter, our Brindabella 2 project
at Macgregor and The Fair project at North Watson
reached highly successful completions with excellent returns
for shareholders and investors.
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b) New South Wales
i) Rosedale, St. Ives, NSW
This project consists of three, five
storey apartment buildings yielding 124
apartments in total. Construction of
Stage 1 is nearing completion and all 46
units in this building are sold. Settlements
are expected to commence in October.
Stage 2 construction has commenced
and 25 of the 45 apartments have been
sold. We will now finalise arrangements
to commence the Stage 3 basement
and release Stage 3 for sale around
October/November this year. Rosedale
is expected to produce a very good
return to investors and shareholders, if
the current buoyant market persists in
Sydney for another 9 to 12 months. We
expect the Sydney market to continue
to be buoyant well beyond this period,
subject to ongoing outflow of Chinese
money into the Sydney unit market.
Rosedale, St Ives NSW
ii) The Summit and Big Banana, Coffs Harbour, NSW
The housing market in Coffs Harbour remains subdued, with
only small positive signs of improvement. This has resulted in
significant impairments to these projects in recent years. We are
hopeful that these impairments will be reversed when the Coffs
Harbour housing and tourism markets recover.
We are currently pursuing plans to restart housing construction
in Coffs Harbour in coming months, so as to retrieve equity
from these projects and respond to mild recent market
improvements. Designs have progressed on smaller more
affordable townhouses and single level lifted apartments in
buildings of 5 levels at The Summit. We are also preparing
for a release of premium land on the Ridge Top above The Big
Banana. This land will be linked into The Summit community
title adjoining The Big Banana property, as The Summit has a
superior exit onto an egress from the Pacific Highway. This land
has spectacular panoramic ocean views to the north and east.
The trading of The Big Banana has improved substantially since
the severe downturn following the 2008 GFC.
We are pleased to have a new and very competent Manager of
The Big Banana in Michael Lockman. Michael has increased the
number of attractions and returned the business to reasonable
and growing profitability, as the effects of the GFC recede.
The Summit and Big Banana, Coffs Harbour NSW
v i l l a g e b u i l d i n g s h a re h o l d e r ’s n e ws l e t te r
c) Queensland
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are being finalised for the first batch of 10 homes which will very
shortly be released to market.
i) Abode, Kallangur, QLD
This integrated development located 25 km north of Brisbane
is composed of 111 house/land packages, along with 8 blocks
of land which are to be sold back to the QLD Department of
Communities.
This project will produce a reasonable outcome in the context of
a lengthy period of very poor sales and low pricing in Brisbane.
The outer Brisbane market is only now showing the first tentative
signs of recovery.
Currently the first two stages are fully serviced and all of the
61 dwellings/blocks in these stages are sold. Civil works have
commenced on Stages 3 to 5 comprising 58 lots and designs
Abode, Kallangur QLD
ii) Acacia Grove, Beerburrum, QLD
This small 77 lot land subdivision is located in Beerburrum within
the Sunshine Coast Hinterland. Stages 1 and 2 consisting of 20
lots are fully serviced and 14 of the 20 lots in these stages are
sold. As a consequence of unreasonable density restrictions by
the regional sewerage authority and a very poor Brisbane market
over recent years, this project will only produce a breakeven and
we continue to examine ways of increasing the yield to improve
the outcome.
purposes. Although at the time of purchase the site was within
the footprint of the SEQ Regional Plan for future residential
development, Council are not supportive of a “spot” rezoning
for a site of this size (currently zoned Sustainable Cane Lands).
We are therefore in the process of approaching adjoining land
owners with the intention of developing a Structure Plan for a
broader area.
The market on the Sunshine Coast, particularly in the Hinterland,
has not yet moved into recovery and sales enquiry is low. An
external agent located in a neighbouring village has been
engaged to assist with the marketing of this project.
Port Hedland
This small 1,214 square metre parcel of land overlooking the
ocean in Port Hedland was acquired in December 2012 with
a view to constructing 19 apartments. The market which was
buoyant at the time of purchase has slowed in line with the
downturn in capital expenditure in the mining sector. This project
is on hold until the market recovers, but is being redesigned to
better respond to current demand when recovery occurs.
iii) Forest Glen, Sunshine Coast, QLD
This 4 hectare site was acquired with the intention of developing
it for either residential (approximately 30 lots) or industrial
d) Western Australia
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7. Community Relationships
Voices In the Forest Concert 30 November
Village Building continues to sponsor an
annual event in the National Arboretum
to which the Company contributed $1m
over a four year period. This year the
concert will be held at 4.45pm on Sunday
30 November finishing at 8.30pm.
seats offer excellent views and acoustics
in a spectacular setting within the
Arboretum Amphitheatre. Anyone wishing
to purchase in any other section will
receive a discount of $40 off the ticket
price to the public.
Last year we had just under 5,000
attendees at the concert. Because
of the involvement of the company in
supporting and organising the event,
seats on the grass are available at $15
to any shareholder ($45 to the public) or
$30 for a comfortable seat in Section D
($79 to members of the public). These
We have an outstanding international cast
and details are available on our website
at www.voicesintheforest.com.au. The
Chief Minister will be in attendance. The
Governor General and other Government
leaders have also been invited.
This is the fourth concert that we have
organised and includes an array of
well known Broadway songs along with
the best known operatic arias. It is a
night of exquisite music and I would
urge shareholders to attend what has
become a truly spectacular event in a
truly spectacular setting. We are putting
in considerable effort to get the concert
to a breakeven over the next three
years and are working closely with the
ACT Government to achieve this goal.
Damiana Vigone will shortly write to all
shareholders with further details.
VOICES IN THE FOREST GALLERY
v i l l a g e b u i l d i n g s h a re h o l d e r ’s n e ws l e t te r
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8. Shareholder Meetings
If you are unable to make the Extraordinary Meeting on 28 August, please provide a proxy to the Chairman. We currently hold proxies
covering around 70% of shareholders. I also look forward to seeing you at our AGM at 5.00pm on Monday 24 November at The
Brassey Hotel followed by dinner at 6.00pm.
I believe that the Company has taken those actions required to ensure good financial outcomes during the most significant downturn
in our major market since the 1994 to 1997 ACT housing downturn.
Regards,
Bob Winnel AM
Managing Director
20 August 2014
SUNDAY 30 NOVEMBER 2014
4.45pm-8.30pm | Gates open 1.30pm
NATIONAL ARBORETUM CANBERRA
Contact Canberra Ticketing and quote VBC SHAREHOLDER when booking your tickets to receive the discount
for shareholders and investors.
www.canberraticketing.com.au or phone 6275 2700
Nexus Apartment at Franklin
Our affordable flagship – Brindabella at Macgregor
Rosedale at St Ives
Display Home: Abode in Kallangur, Qld
OFFICES:
Registered Office
Maxim Chartered Accountants
Level 2, 59 Wentworth Avenue
Kingston, ACT, 2604
National Office (Operational Unit)
Unit 7, Argyle Corner
92 Hoskins Street Mitchell ACT 2911
Ph 02 6241 6844 Fx 02 6241 6677
National Office (Strategic Planning Unit)
Level 10, 221 London Circuit
Canberra City, ACT, 2601
Ph 02 6246 3400 Fx 02 6246 3499
Illawarra Regional Office
4 Corkwood Circuit Woonona NSW 2517
Ph 02 4285 3122 Fx 02 4283 5299
Queensland Regional Office
2 Calvert Close Murrumba Downs QLD 4503
Ph 07 3886 0244 Fx 07 3886 0255
Coffs Harbour Regional Office
The Big Banana
351 Pacific Highway
Coffs Harbour, NSW 2450
Ph 02 6651 1929 Fx 02 6650 9126
Sydney Regional Office
Level 1, 237
Mona Vale Road
St Ives NSW 2075
Ph 02 9416 0844 Fx 02 9416 0810
villagebuilding.com.au