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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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Investors and analysts turn bearish on banks

Australia’s banks have been on a tear in recent months, catching a tailwind from the so-called “Trump” trade that enabled one major Australian lender to outperform the soaring US banks which have helped drive indices like the Dow and S&P500 to record highs.
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But this month, a period of extraordinary investor returns appears to have dramatically come to an end as the entire Australian banking sector was heavily sold down – and analysts and fund managers are less than hopeful a recovery is in sight.

Between November 8, the day of the US election, and May 1, NAB soared 29.8 per cent. CBA rose 21.4 per cent, ANZ added 21.9 per cent, while Westpac rose a more modest 16.7 per cent.

None of the banks most directly affected by the US administration matched NAB’s spectacular performance up to the start of May.

JPMorgan gained 24.3 per cent over the period, Goldman Sachs rose 23.6 per cent, while Morgan Stanley added 28.3 per cent. Another similar bank, Wells Fargo, was hit with a lending scandal and so rose only 19.6 per cent over the period.

This is despite the US banks being far more exposed to the reflation trade, as well as US President Donald Trump’s unwinding of the Dodd-Frank regulations in February. The partial repeal pushed Goldman Sachs to a record high, but it has declined since. Local investors didn’t expect the changes to significantly feed through to Australian banks.

Since the start of May, Australia’s big four banks have lost ground, shedding a combined $50 billion in market capitalisation and between 7.2 per cent and 13.7 per cent off their share prices as they went ex-dividend, were hit by a banking levy in the budget, new macroprudential regulations and as ANZ’s earnings disappointed.

The rapid pace of the decline, JPMorgan’s equities team wrote, is surprising, but even after it the banks are not necessarily at fair value.

The big four don’t tend to do well in May, losing on average since 2000 1.6 per cent over the month. But that hasn’t stopped them surging the rest of the year before.

Two and a half decades without a recession and a decline in local interest rates “created a fertile backdrop for Australian banks to outperform both global banks and the broader Australian market”, wrote UBS equity strategist David Cassidy this month.

Since 1997, the MSCI World Bank Index, from a base of 100, hovers just above 200 index points. Australia’s banks are almost touching 1400 index points.

Peak performance in the Australian banks, Mr Cassidy wrote, was actually around the April bank reporting season in 2015. But since then, the bank bull market has proved “surprisingly stubborn”.

“Australian banks seem to have hitched a ride on the global banking rally which began in mid-2016 as bond yields started to inflect upwards. This is despite no direct benefit on Australian banks from a steeping yield curve.”

But looking ahead, Mr Cassidy is one of many analysts who now expect bank performance to decline. “Banks appear a ‘market performer’ at best from here … Headwinds and clouds seem to be accumulating”.

JP Morgan’s equity sales team wrote that “caution around house prices and impending APRA capital requirement announcements could see the sector needing to look optically cheap to increase interest on the long side”.

Many fund managers are also cautious on the sector.

The big four banks, which together comprise over a quarter of market capitalisation of the S&P/ASX200 index, are favourites with income-investors by virtue of their high dividends. But the bank levy, two of the banks said on Monday, would hit dividends – a view also expressed by many fund managers.

In his monthly note, Contango Asset Management chief investment officer George Boubouras said investors could still rely on high payouts from the banks, which in absolute terms would continue to be attractive. But “investors should simply expect that initially the growth of dividends will slow at first before we eventually see a dividend cut in the years ahead”, he wrote.

The big four have recovered somewhat in recent days, but Katana Asset Management portfolio manager Romano Sala Tenna said the “opportunistic buying” was unlikely to signal a recovery. “I’d suggest the balance of probabilities is still weighted to the downside,” he said.

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Melbourne’s unloved Harbour Town to get $150m makeover

Sydney boutique bank Ashe Morgan, has unveiled a new $150 million entertainment precinct for Harbour Town, on the edge of Melbourne’s Docklands.
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A new cinema and supermarket, designed to complement the 120-metre-high Melbourne Star ferris wheel and the Arena ice skating rink, is hoped to reinvigorate the precinct, which is plagued by strong winds and weak crowds.

Ashe Morgan principal and founder Michael Moss said the evolution of Harbour Town had not progressed as quickly as he would have liked since the group’s $150 million purchase in 2014, but he was confident of success.

“Nothing is ever as fast as you would want it to go but we can see the future. I see similarities to Darling Harbour 25 years ago, which was empty and windswept, but with a bit of love and attention and capital it can change,” Mr Moss said.

Darling Harbour, a shopping and tourist precinct built on a revamped wharf on Cockle Bay in the centre of Sydney, was opened in 1988 and struggled for an identity for many years.

“Our investors are with us. They like the place and the long-term strategy.”

“The demographics of this place are unlike anywhere in Australia. Two million people living within 20-25 minutes of this location,” Mr Moss said.

A new Woolworths supermarket and a fresh food market, covering 10,000 square metres, will round out the final stage of the revamp, complementing the Costco hypermarket.

“We think the concentration of the retail offer will make it a much stronger shopping destination,” Mr Moss said.

The area also suffers from strong winds from the south and the east but new roofing and strategically placed buildings and walls are being constructed to shield Harbour Town and create a sheltered piazza, he said.

The centrepiece of the new redevelopment will be an eight-screen Hoyts cinema next to Costco boasting Christie laser projection, Dolby Atmos sound and motorised reclining seats. Two of the auditoriums will be fitted out with the “Hoyts Xtremescreen”, with 24-metre-wide screens.

FunLab, the owner of Strike bowling alleys and Holey Moley mini-golf, will also open in the precinct, along with hawker-style restaurant 8EightStreet and pancake house Route 66.

Singapore-based SC Capital Partners paid $146 million for a 50 per cent stake in the 40,000 square metre project just one year after Ashe Morgan bought the precinct from ING Real Estate.

The precinct struggled for years, plagued by the Melbourne Star’s safety problems and the poorly located discount shopping arcade.

A swanky theme park with roller coasters was once the headline plan for the western corner of the Docklands urban renewal project. Redevelopment of the 146-hectare docks area started in 1997 and is two-thirds finished.

Investment worth $12 billion has been pumped into the CBD-fringe suburb, including massive office and residential towers.

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SurfStitch faces $100m class action over share wipeout

Online fashion retailer SurfStitch is facing a $100 million class action launched on behalf of shareholders whose investments have been wiped out by the troubled company’s plunging share price.
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Quinn Emanuel partner Damian Scattini said the law firm filed the open class action in the Supreme Court of Queensland on Monday on behalf of anyone who bought or held SurfStitch shares between August 27, 2015 and June 9, 2016.

The action accuses SurfStitch of misleading and deceptive conduct and breaching its continuous disclosure obligations over comments about the future of the business that it claims led the market to believe the shares were worth more than their true value.

SurfStitch said in a statement to the ASX on Tuesday that it had not received any claim or other communication relating to the class action.

SurfStitch listed at $1 in late 2014 and was trading at a record high of $2.09 in November 2015. It shares had fallen 90 per cent to 22?? by June 2016 following three profit warnings.

Mr Scattini said SurfStitch’s decline had been a “tragedy” for the many “mum and dad” investors who bought the company’s pitch of becoming the Amazon of surfwear, with about $500 million of shareholder value eroded.

The statement of claim says SurfStitch on several occasions told the market it expected earnings before interest, tax, depreciation and amortisation (EBITDA) of between $15 million and $18 million in 2015-16.

These claims were made without reasonable grounds, the claim says. It also accuses SurfStitch’s board and management of failing to appropriately disclose to the market that EBITDA would be lower than forecast.

In August, SurfStitch revealed an EBITDA loss for 2015-16 of $18.8 million, and a statutory EBITDA loss of $139.1 million, sparking a sell-off that cut its share price in half.

Mr Scattini said Quinn Emanuel would investigate what assets SurfStitch had and look into cross-claims against directors and auditors, which was KPMG in the relevant year. The action will be funded by Vannin Capital. iFrameResize({enablePublicMethods : true, heightCalculationMethod : “lowestElement”,resizedCallback : function(messageData){}, checkOrigin: false},”#pez_iframeA”);

Yet another earnings downgrade on Monday sent SurfStitch shares plunging around 30 per cent to a record intraday low of 6.9??, before closing 23.5 per cent down at 7.5??. The company said it now expected to report an EBITDA loss of between $10.5 million and $11.5 million this financial year, double its previous forecast of a $5 million to $6.5 million loss.

The shares had fallen another 6.6 per cent by Tuesday afternoon.

The business has been in turmoil since Justin Cameron, its co-founder and CEO, unexpectedly quit the business in March last year to weigh up a privatisation bid.

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Goodman Group restructures debt, wins a ratings upgrade

Goodman Group has restructured its capital management with a reduction in gearing and amended US based banking covenants, the group has revealed.
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This has led to an improvement in credit rating from both S&P and Moody’s Investors Services.

According to the chief executive Greg Goodman, these changes provide the group with greater operational and balance sheet flexibility for the long term.

“As part of the Group’s capital management strategy, Goodman has been focussed on reducing our financial leverage in the business to counterbalance our active earnings,” Mr Goodman said.

Under the changes, Goodman has reduced its gearing targets in its Financial Risk Management Policy (FRM) from 25-35 per cent to 0-25 per cent. Mr Goodman said the change brings the FRM in line with the group’s current operating practice.

Mr Goodman said the level of the group’s gearing will be “determined with reference to the mix of earnings and credit ratios consistent with the rating of the group”. There are no changes to the forecast 2017 financial year operating earnings of the group, of 7.5 per cent.

Moody’s vice president and senior credit officer, Maurice O’Connell, said of the news: “Goodman’s revised gearing policy will result in a stronger credit profile through the cycle, which underpins a higher rating.”

“The rating reflects Goodman’s strong market position and brand name as the largest owner of good-quality industrial properties in Australia and its market-leading position globally. This situation helps underpin the Baa1 rating,” Mr O’Connell said.

But the stock has had some mixed reviews with Credit Suisse issuing a downgrade to neutral, based on the fact it is trading 6 per cent below the analysts’ target price.

But the analyst added that Goodman is the most obvious “winner” from the growth of online retail globally, and in particular Amazon’s flagged entry into the Australian market.

It has been said Goodman is in discussions with Amazon to lease its first fulfillment centre at the Oakdale industrial estate at Eastern Creek Sydney. The site is already home to DHL which is a key delivering group for parcels.

“If we assume that Goodman is awarded two of our three assumed 90,000-square-metre distribution centres, this implies about $300 million of additional Goodman Australian development work, versus Australian Work In Progress of about $630 million, as at December 31, 2016,” Credit Suisse analysts said.

“Over the longer term – and as we have highlighted in previous research, we would expect Goodman to benefit from supply chain reconfigurations by existing retailers adapting to meet a new competitive threat.”

The analyst at CLSA, Sholto Maconochie, has maintained his buy recommendation, saying he likes Goodman due to the favourable thematics associated with the e-commerce trend and as traditional retailers focus on supply chain efficiencies and online channels/sales.

“This should see work in progress being elevated at or above the current $3.5 billion across 16 countries. We believe Goodman is Amazon’s preferred developer for its rollout in Australia which we estimate could be 1.0-3.6 per cent accretive to 2018 earnings per security, with Amazon currently Goodman’s second-largest tenant,” Mr Maconochie says in a recent note to clients.

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Zara commits to Australia as sales jump

Spanish fast-fashion chain Zara will continue to support its Australian operations after the offshoot posted another year of double-digit sales growth.
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Zara sells clothing, footwear and accessories and is among the highest-profile international fashion chains to enter Australia in recent years.

It began trading here in April 2011 and had grown to 18 stores and almost 1700 employees by the end of January this year.

Zara generated $256.36 million in sales during the year to January 31, its accounts show, thanks partly to three new stores in the Sydney suburb of Parramatta, the Gold Coast and Brisbane. The accounts suggest Zara increased its staff numbers by 600 over 12 months.

The $256.36 million sales figure was a 15.5 per cent improvement on the previous year’s $221.95 million – strong growth in the tough apparel market but a slowdown on the previous year’s growth of 24 per cent.

But the company’s profit fell to $10.3 million, from $15.26 million previously, accounts filed with the Australian Securities and Investments Commission show.

Furthermore, the accounts show that Zara’s net profit as a percentage of sales has fallen to 4 per cent from 6.8 per cent over the past two years.

This was better than the likes of Swedish fast-fashion chain H&M but inferior to many Australian retailers, one retail executive said.

Group Zara Australia is 90 per cent owned by its Spanish parent, Inditex, and 10 per cent by Peter Lew’s International Brand Management. Peter Lew is the son of billionaire rag trader Solomon Lew.

Inditex and Mr Lew’s company last financial year enjoyed $55.6 million in dividends from the Australian business.

These dividends, and $51 million in inter-company loans due next January, led to a blowout in Group Zara Australia’s net current liabilities to $56.8 million.

“The continuity of such ordinary activities is dependent upon the continual financial support of its parent entity, Inditex SA (the parent entity),” the accounts state.

“The parent entity has committed to continue providing such support to the company for the forseeable future.”

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Lloyd Williams sells city car park to Hong Kong investors for $120m

Property tycoon and horse racing identity Lloyd Williams has more than doubled his money with the sale of a 16-storey carpark in Melbourne’s Flinders Street to a Hong Kong private company for about $120 million.
Nanjing Night Net

The multi-storey car park at 114 Flinders Street is the first Melbourne asset acquired by HK Realway, a family-run Hong Kong property investment business headed by Ling Wong and Yun Choi.

The building has a height restriction on the land title preventing it from being developed and intruding on the views of top-end tenants in the upmarket 101 Collins building located behind in Collins Street.

Market sources say 114 Flinders fetched around $120 million, selling on unconditional basis with no due diligence on a yield around 5 per cent.

It includes an 864-space car park and offices leased by the Australian Housing and Urban Research Institute and Consulate General of Rwanda among others.

Mr Williams has held the property under a company called Cavehall after purchasing it for $54.5 million 10 years ago.

CBRE’s Mark Wizel, Kieran Pillai, Lewis Tong and Knight Frank Martin O’Sullivan handled the transaction.

Eu Ming Lim of Thomson Geer Lawyers confirmed his client HK Realway acquired the asset shortly after the close of a competitive bidding process last Friday.

HK Realway has been quietly building a property portfolio in Australia.

They own several properties in Sydney, including an office tower at 140 Arthur Street that was purchased from fund manager CorVal for $58 million two years ago, the Cinema Centre Car Park in the CBD and another office tower at 309 George Street they purchased for $112.3 million.

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