Monthly Archives: February 2019

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Labor pledges crackdown on dodgy company directors

NewsMember for Fraser, Andrew Leigh outside his office which is 600m outside the new Fraser border. He will now need to move to a new office inside the new Fraser electorate. 7 July 2016Photo by Rohan ThomsonThe Canberra TimesPolitical Insider: Sign up for our newsletter
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All Australian company directors would be assigned special ID numbers under a new Labor policy designed to prevent them deliberately tanking their companies to avoid paying workers, creditors and the Tax Office.

The federal opposition is also promising tougher penalties for dodgy directors and stronger protections for employee entitlements under its plan for a crackdown on what is known as “phoenix activity”.

???The scourge of corporate Australia, phoenix activity costs the economy billions of dollars a year, but little has been done to stamp it out. It occurs when a company collapses with a mountain of debts and then rises from the ashes – like the mythical bird – with the same assets and customers to avoid paying bills.

Under Labor’s new policy – to be announced by frontbenchers Brendan O’Connor, Andrew Leigh and Katy Gallagher on Wednesday – all company directors would be forced to undergo a 100-point identity check.

Under current rules, it is easier to become a company director than it is to open a bank account. Applicants are not required to prove their identity or provide a record of their past corporate history, allowing unscrupulous directors to register a number of companies using different versions of their name.

Under the Labor plan, existing and prospective directors – about 2.5 million of them – would be assigned a director identification number via the Australian Securities and Investment Commission for a $50 fee.

The unique ID number would allow tracking of directors that have been involved in multiple failed companies and expose fictitious directors, considered the bane of credit rating agencies and the Tax Office.

The number would enable ASIC to build a database of directors’ corporate histories, helping it identify repeat offenders and candidates for disqualification from managing corporations. ???Labor will argue the ID number initiative will not add to red tape and could help cut down on paperwork by helping to pre-populate online forms.

Phoenix activity can have devastating impacts on small businesses, particularly suppliers and subcontractors, and employees. The issue has been particularly prevalent in the building industry but occurs across the economy.

Labor believes the more entrenched the activity becomes the worse it will get and the harder it will become to clamp down on.

ASIC recently said 11,494 companies had been identified as potentially engaging in illegal phoenix activity. The Tax Office told a recent Senate inquiry that the number of “potential” businesses illegitimately building their wealth through “fraudulent phoenix behaviours” was 19,800.

It estimates it is owed about $1.8 billion in debt from these entities.

The scandal that has rocked the Australian Tax Office has also been linked to phoenix activity, with reports that one of the accused co-conspirators of the $165 million fraud previously engaged in the activity.

The opposition says the current penalty regime is insufficient. It is proposing stiffer punishments for breaches of directors’ duties, managing companies while disqualified and refusing to open books to administrators.

The Productivity Commission has estimated phoenix activity costs the economy up to $3.2 billion a year, and has backed the idea of a unique ID number for directors. Experts and regulators have also called for more stringent ID standards.

Dr Leigh has described phoenix activity as “un-Australian”.

“The spread of phoenix activity throughout Australia hurts decent small businesses,” he said in February. “It hurts the people who worked for the failed company and the suppliers and subcontractors who worked with them. It also hurts honest taxpayers, who have to shell out more when some people don’t pay their fair share.”

In the last financial year, the Tax Office conducted almost 1000 audits into phoenix schemes and raided several offices.

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Coptic Church buys Woodend retreat for monastery

MARKET WRAP
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SALES

Woodend

The Coptic Orthodox Diocese of Melbourne has snapped up the historic Campaspe House at 29 Goldies Lane to turn it into the Archangel Michael Monastery for Nuns, as well as a retreat for women. The 7.28-hectare site formerly offered boutique accommodation. Market sources suggest the vendors wanted about $3.5 million. CBRE’s Scott Callow would not confirm sale details.

Melbourne

Another strata office has been sold off the plan in the new Aurora Melbourne Central development on La Trobe Street, at $10,350 per sq m. Colliers International’s Chris Ling, Anthony Kirwan and Oliver Hay sold the 189 sq m workspace to Asia Pacific Education Consultants (APEC) for $1,956,150.

Brighton

Fitzroys’ Mark Talbot and James Lockwood sold 167 Martin Street for $1.55 million under the hammer on an exceptionally tight 2.2 per cent yield. The shop, on a popular strip between Nepean Highway and Gardenvale train station, is leased to Gatto Rosso Trattoria and Pizza.

Port Melbourne

Rigging, flying effects, staging, corporate event and theatre services business Show Tech has bought a multi-level office and warehouse at 210-212 Lorimer Street in an off-market deal for $3.6 million. Nicholas Ott of Ott Properties represented the vendor and CBRE’s Guy Naselli and Jake George negotiated the deal.

Mornington

A fully leased 13-year-old medical centre with eight consulting rooms, two treatment rooms and a separate pathology area at 93-95 Tanti Avenue sold for $3,701,000 CBRE’s Josh Twelftree, Sandro Peluso and Rorey James said. The property sold 33 per cent above reserve to a general practitioner. Meanwhile, Mr Twelftree, Mr Peluso, Lewis Tong and Chao Zhang sold the 3765 sq m Canterbury site of a former aged care facility at 14 Balwyn Road for $6,888,000.

Camberwell

Two adjoining double-storey Victorian-era shops at 766 and 768 Camberwell Road have sold. Both were owned by same family since they were built in the 1930s, Prowse Burns Commercial’s Philip Prowse and Fred Bartlett said. The corner shop at 768 Burke went for $1.75 million on a 2.9 per cent net yield and No. 766 sold for $1.6 million on a 3.7 per cent net yield.

Malvern East

Land rates in Melbourne’s east are rising. Gross Waddell’s Andrew Thorburn and Alex Ham sold a single-level showroom at 608-610 Warrigal Road for $1.6 million, a land rate of $3912 per sq m. The property sold with a permit for an 11-unit development over 5 levels.

Dandenong South

Cameron’s Al Armstrong and Angus Clark have successfully sold a office-warehouse off the plan in the Logis Eco Industrial estate. The 1367 sq m structure at 41 Babbage Drive sold for $2.05 million to a passive investor.

Clifton Hill

Another former East West Link property sold to an owner-occupier, the fourth such sale, all to owner-occupiers, in the past three months, Savills Australia’s Mark Stafford, Julian Heatherich and Nick Peden said. The 50-52 Alexandra Parade property sold privately for $860,000.

Moorabbin

An older-style warehouse with updated office and kitchen facilities at 40-42 Isabella Street sold at auction in front of 35 people for more than $1.32 million. A combined 40 bids from three potential owner-occupiers pushed the price to around $2220 per sq m for the 595 sq m building, Nixon Industrial’s Nikola Drendel said. “We are seeing a lot of interest at the moment from owner-occupiers for quality warehouses.”

Oakleigh

A site at 1370-1372 North Road sold under the hammer for $1,965,000. Rodney King and Chris McKenzie of Crabtrees Real Estate said the former petrol station in an industrial zone had a month-to-month tenancy in place and sold to a local business that intends to build a showroom.

Flemington

Hairdressing salon Ninety Six Degrees in The Shade has sold its premises at 40 Pin Oak Crescent to Metro Chinese Medicine Clinic. The 71 sq m building sold for $834,000, ICR Property Group’s Raff De Luise and Julian Materia said.

Ripponlea

A double-storey building with yoga/pilates downstairs and a two-bedroom dwelling upstairs at 82 Glen Eira Road sold for $1.77 million, Kenny Oliver of Hocking Stuart Commercial said. The net yield of 3 per cent was one of the lowest achieved in the Ripponlea Shopping Village, he said.

South Melbourne

Three bidders vied for a 326 sq m warehouse at 60-66 Gladstone Street, submitting more than 200 bids. The winner paid $2,115,000 or $6487 per sq m on a strong 2.37 per cent yield. The property was leased for a five-year term returning $50,198 a year net, said Mark Smedley and John Pratt of Dixon Kestles & Co.

Windsor

An old two-storey shop and residence on the corner of 9 Chapel Street and Dandenong Road sold via an executor’s auction for $1.1 million. The 130 sq m building generates income from the shop, dwelling and prominent signboard, James Glen from Nichols Crowder said.

Hawthorn

Queensland-based Hello Harry Burgers will open in Shop 1 at 672 Glenferrie Road after leasing 160 sq m for $145,000 per annum. Morley Commercial’s Jonathan Lu said competition for the site was fierce, with a number of national tenants expressing interest.

LEASES

Camberwell

Homemaker brand Sheridan is bedding down at 781-783 Burke Road after signing a long lease at $200,000 per annum. Fitzroys’ Chris James negotiated the 5x5x5-year deal for the 182 sq m ground floor plus first-floor mezzanine. It will house Sheridan’s new Studio format, typically larger than its traditional shops and stock Australian-made furniture and items including sofas, beds, bedding, towels and linen items, side tables, and other homewares.

Northcote

An acupuncture and myotherapy clinic has taken a lease at the Northcote Plaza in a deal brokered by Teska Carson’s Luke Bisset and Fergus Evans. The 56 sq m shop 12, a former Maxibags store, was leased on four-year term with a four-year option for $30,000 per annum net.

Dandenong South

A 2560 sq m building at 88-92 Micro Circuit has been leased for $192,000 on a three-year term to a new tenant Aqua Rush by Cameron’s Al Armstrong and Angus Clark.

Moorabbin

Armstrong’s Foodservice will move to a larger facility, subleasing its 6 Trent Street property (584 sq m) to storage company Brosline. Colliers International’s Richard Wilkinson and James Stott negotiated the three-year lease term between the two suppliers at $82 per sq m. Meanwhile, Winemaking supply store Grapeworks has moved to a new 2342 sq m warehouse at Dingley Village. Mr Stott negotiated the rental at $87 per sq m for four years. Trident Financial Group has moved to 21 Shierlaw Avenue in Canterbury, Colliers International’s Damien Adkins said. He negotiated a five-year lease at $260-$290 per sq m, with options to renew.

Moonee Ponds

A hair salon will move into 127 Puckle Street in a deal brokered by Fitzroys’ Terence Yeh. The 150 sq m space was leased on a seven-year term at $65,000 per annum plus outgoings and GST.

MOVERS

After only one year, Colliers International’s new Lifestyle Estates brand is expanding with the appointment of a manager, Lisa Fraser-Smith, previously from RT Edgar Mornington Peninsula. The Lifestyle brand is a division of Rural & Agribusiness.

Allard Shelton has appointed Jessica Fulton as a sales and leasing executive. Ms Fulton spent time with Asia Pacific Group, Savills and Fletchers Real Estate projects division.

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Mathieson sells $23m industrial site leased to CSR

A large industrial warehouse leased to a subsidiary of building products giant CSR in Melbourne’s south-eastern industrial heartland is setting fresh benchmarks for industrial yields, selling for $23 million.
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The property across two titles at 13-27 and 29-43 Whiteside Road in Clayton South covers a 39,720 sq m site with a warehouse and office space leased to Viridian, one of Australia’s largest manufacturers of glass.

Cushman & Wakefield’s head of industrial Andrew O’Connell, who managed the sale with colleague Robert Colaneri, said the property sold on a yield of 6.56 per cent, at the lower end of the range for industrial assets in a market where increased competition is driving strong sales.

But tightening yields across the industrial sector were worrying sign that some investors were “buying and paying a premium for cashflow” which could disappear when a lease expired, Quintissential fund manager Shane Quinn said.

“We’ve got big concerns people are paying a premium over their asset’s replacement value around the country,” Mr Quinn said.

Mr Quinn said in the current market it was “hard” to stick to fundamentals, but the banks’ recent tightening of lending standards for investment-grade stock would result in “good buying over next six to 12 months at sensible metrics”.

Investment in Melbourne’s industrial sector totalled $200 million in the first quarter of this year, with the second quarter on track to match the volumes seen in the same period last year when $309 million in assets sold.

The property, bought by a private Chinese Australian investor, had a WALE of 7.75 years and returned net annual income of $1,574,157.

The same investor snapped up a double-story brick warehouse at 575 Burwood Highway in Knoxfield late last year and owns a shopping centre in Hawthorn.

The property was sold by DMS Glass Properties, a company owned by Don Mathieson, the brother of wealthy hotelier Bruce Mathieson.

“There is lack of quality industrial investments with strong lease covenants in Melbourne’s south-east, and there is an investment appetite for industrial sites up to $50 million,” Mr Colaneri said.

Results this quarter include 40 Howley’s Road in Notting Hill which sold for $10.55 million, an asset in the Altona Logistics Park on Toll Drive which went for $7 million, and 68 Kirkham Road in Keysborough which fetched $15 million, he said.

Two large investment portfolio deals had also boosted sales over the quarter.

“We expect to see the fundamentals of the industrial market and constrained stock levels underpin increased competition for assets for the remainder of this year,” Mr O’Connell said.

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Will the government line up for another bank tax?

Treasurer Scott Morrison delivers his post-Budget address in the Great Hall at Parliament House in Canberra on Wednesday 10 May 2017. fedpol Photo: Alex Ellinghausen If the Turnbull government’s primary aim in slugging the banks with a levy is to raise $6.2 billion over four years, then it may have miscalculated.
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The new tax could fall well short of this amount, according to experts who have now digested Monday’s statements by the big banks on the impact to their profits.

This raises the spectre that the government could move to increase the tax down the track.

“The banks’ disclosures seem to confirm our view that a levy of 6 basis points would not raise enough to meet the government revenue-raising objective of at least $1.5 billion per annum. In fact, we believe the levy may only raise about $1 billion in its first full year. We therefore think the rate could be adjusted accordingly,” according to Morgan Stanley.

It is a view echoed by Deutsche Bank, which sent a note to clients on Tuesday saying the banks’ statements about the effect the tax would have on their profits “suggest that the aggregate amount to be collected by the government is likely to fall short of the $6.2 billion targeted in the budget over the four-year period, hence we see a risk that the 6 basis point levy could be lifted.”

The prospect that the government could lift the tax is what bank insiders are really sweating about and it creates a serious dilemma for the banks grappling with how to fight back against the new tax.

If the banks engage in all-out warfare against the government now, they risk an even bigger punitive response later.

For its part, the government has found comfort and support in the fact that the community is solidly supportive of hitting the banks up for part of the bill for budget repair.

The banks have little ammunition other than to warn Australians that, in the end, they will be slugged with the bill, primarily through increased interest rates, lower interest rates on deposits, or lower dividends – and lower dividends result in lower bank share prices.

The community is less moved by bank arguments that the government’s decision undermines the strength of the financial sector and therefore the nation.

Morgan Stanley reckons interest rates will go up by between 5 basis points for owner-occupier borrowers paying interest and principal, and 25 basis points for investors with interest-only loans.

Thus those borrowing to fund investment properties will receive a disproportionate slug to their financing costs, having already been hit with bigger borrowing rates over the past year.

Deutsche Bank agrees the repricing of various portfolios, on loans and/or deposits, may provide some offset, but notes that the Australian Competition and Consumer Commission’s monitoring will make this a little more difficult.

The government continues to warn it will look very unfavourably on banks that respond by passing the cost on to customers and seems less concerned about shrinking dividends.

(Westpac took the step of quantifying the impact to dividends, saying the tax would shrink dividends by 4.3 per cent).

The notion that banks will reduce costs is less likely because they have been taking costs out for years and there are probably limitations to how much further they can go.

Additionally, raising interest rates could perversely lead to additional risks if it reduces demand for new loans or, just as importantly, pushes some existing borrowers into financial stress and increases default rates on loan portfolios.

Even before factoring in the levy, bank profit growth is under pressure as the housing market is increasingly viewed as having peaked.

So who among the banks gets hit the hardest?

According to Morgan Stanley: “All else [being] equal, the levy equates to between ~2 per cent and ~3.5 per cent of our FY18E group profit forecasts, and we continue to believe that it will have the most earnings impact at ANZ and National Australia Bank,and the least impact at the Commonwealth Bank.”

Deutsche agrees that based on a percentage hit to profits, CBA will be the least affected, followed by Westpac, while NAB and ANZ will be hit hardest.

Bank shares continued to fall in Tuesday morning trading.

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Gas price forces Woodside to pursue low-cost expansion options

Faced with declining oil and gas prices – and forecasts they could remain low for some time – Woodside Petroleum is seeking to maximise cash from existing operations as it pursues a range of potential low-cost expansion options.
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“In the near term, we expect to generate increasing cash flow and returns from our existing business and committed projects, and we see further upside potential from lower capital intensity and quicker to market opportunities,” chief executive Peter Coleman told analysts Tuesday.

Any expansion of capacity will hinge on rising demand globally for gas and an anticipated supply shortfall. The company is looking to new sources of demand, such as Pakistan, which it believes could emerge as a top-five buyer of liquefied natural gas globally within the next five years or so.

“Woodside is well positioned to capitalise on an expected increase in demand from emerging Asian markets,” Mr Coleman said.

Between 2017 and 2020, gas output will rise around 15 per cent, he said, with the start up of the large Wheatstone project and the Greater Enfield project. Beyond 2020 expansion of its Pluto project and possible output from an oil project off Senegal, are likely, he said.

Woodside has admitted that seeking to launch large new projects in the present market was “challenging”, which was why it is focused on capturing “new value from low-cost extensions or expansions to existing projects developments”, he said.

“Recent contracts have been signed at lower prices than previously, in line with market conditions,” he said.

A number of buyers globally, most notably Japan, have baulked at continuing to pay a premium price for gas imports, as other buyers have turned from long-term contracts to buying for shorter periods as the spot market for gas has emerged.

Additionally, in recent months, a “buyers club” the largest liquefied natural gas importers – all Asian – have teamed up to secure more flexible supply contracts. Korea Gas Corp (KOGAS), Japan’s JERA and China National Offshore Oil Corp (CNOOC) have all agreed to exchange information and cooperate in joint gas purchases. JERA is half owned by Tokyo Electric and Chubu Electric, two large Japanese energy utilities. Between them, this group absorbs a third of global LNG production.

Mr Coleman conceded that the growing impact of trading in the spot market had forced producers to accept lower prices for some shipments, although the trader took the credit risk for the transaction, while at the same time opening up new markets, such as Egypt.

“We’re not concerned about it, but we’re watching,” he said. “It also means prices will remain low [on those sales] but it will develop new markets.”

The West Australian gas producer is also hoping to develop a range of smaller domestic markets as mine and truck operators in the country’s north west switch to using gas from diesel, along with converting its own shipping fleet, which will help extend the use of gas into new markets.

When discussing gas field developments Woodside has on its horizon, there was little mention of the giant Sunrise field, straddling the Australia and East Timor borders, which has been delayed pending resolution of a lengthy boundary dispute between the two countries.

“It will happen one day,” Mr Coleman said of the potential development of this resource. “There is a lot of work going on in the background … particularly around border negotiations.”

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