Agenda 1 Agenda
RECAP FROM MEMBER BRIEFING MEETING 5
2
BUSINESS MODELLING PART 2: DEBT REDUCTION : 2013 - 2018
Patrick Campion Chairman, City Tattersalls Club Anthony Guilfoyle CEO, City Tattersalls Club
1.
Recap from Member Briefing Meeting 3
2.
3
BUSINESS MODELLING Business - Interim Club PART 2:Modelling DEBT REDUCTION : 2019 - 2025
3.
Business Modelling - Future Club
4.
Projected Debt Levels
5.
Development Management Agreement Update General Manager, National New Business STAGE 1 DEVELOPMENT APPLICATION
6.
Stage 1 Development Application Update
Development, Mirvac
7.
Timelines 6 MEMBER COMMUNICATION – DROP IN SESSIONS
Patrick Campion Chairman, City Tattersalls Club
8.
Corporate Governance
9.
4
DEVELOPMENT MANAGEMENT AGREEMENT
Oliver Shtein Executive Lawyer, Bartier Perry David Perram
5
CORPORATE GOVERNANCE
7 Agenda for Members Briefing Meeting 5
10. Q&As 8
Philip Price Director, RSM Bird Cameron
MEMBER COMMUNICATION - TIMELINES
James Kennedy Associate Director, Real Estate Advisory Services, Corporate Finance Advisory, KPMG Patrick Campion Chairman, City Tattersalls Club
2
Recap From Members Briefing 5 1. Business Modelling Part 1- Forecast analysis on operating profit: Club Operation :
2013-2015
Interim Club Operation:
2016-2018
Future Club Operation:
2013 v 2019
2. Development Management Agreement 3. Stage 1 Development Application 4. Timelines 5. Corporate Governance
3
What does this mean for the Club? 1. Retain City Tattersalls Club (CTC) as a registered Club recognising and
ensuring compliance with the CTC ACT and Rules.
2. Retain ownership of all assets by our Club* 3. Primary focus on Club, subsidiary clubs and members both now and in the future 4. Maximise value of the Club assets in short, medium and long term 5. Minimise cost and maximise benefits of the Club 6. Minimise risk to the Club 7. Achieve a long term reduction in financial dependence on gaming and secure the long term financial future of the Club 8. Create a long term new business model for Club 9. Continued trading of the Club
* Possible sale of Private Apartments 4
City Tattersalls Club Proposed Development 7 Floors of Upgraded Dedicated Club Facilities (Floors G - 6) 2 shared sub-basement floors Restaurant, Bar and Hotel Lobby (Floors 7 & 8) 7 Floors of Hotel Accommodation (Floors 9 – 13) 32 Floors of High Quality Designer Apartments (Floors 14 – 44)
5
Mirvac will: Build the 7 floors of Club to ‘cold shell’ stage Build restaurant and bar to ‘warm shell’ stage Build the 100 Room Hotel and Lobby to ‘warm shell’ stage Provide the Club with a sum of money
Funding of Fitout The funding for the fitout costs (interim and future Club) will come from: a) Money paid by Mirvac b) Money generated by interim Club and either: ďƒ˜ Option 1 Using proceeds of sale of some equity in hotel (no increase to present debt level and share ownership of hotel) ďƒ˜ Option 2 Borrowing (increase present debt level and retain 100% ownership of hotel)
Option 1:
No Increase to Present Debt Levels Use proceeds from sale of an equity share in the Hotel To fit out the future Club, without increasing present debt levels, the Committee may need to consider several options for the hotel: Sale of equity share to a third party to allow for a joint venture Owner Operator Leasing the hotel Granting management rights to an operator The Club must consider these options to ensure: The best operations aligned to City Tattersalls Club Maximum financial opportunities Reduction in the risk to the Club To achieve the best outcome, the Committee will oversee a properly conducted public Expression of Interest (EOI) in a corporate governance environment. .
Option 2: Increase Present Debt Levels
Retain 100% Ownership Of the Hotel
ďƒ˜ To retain 100% ownership of the hotel asset, the Committee may consider borrowing a portion of the necessary funds to help cover the total costs associated to the fit out of the future Club, hotel and restaurant ďƒ˜ If Option 2 is pursued, the Club will have increased debt in the short to medium term. We will look in detail at how our different debt levels will be rapidly reduced when the future Club and Business Model is fully operational
Summary RETAIN 100% HOTEL OWNERSHIP
MAINTAIN CURRENT DEBT LEVELS
OPTION 1
NO
YES
OPTION 2
YES
NO
Corporate Governance
ďƒ˜ Proper Corporate Governance at all times in respect of all aspects ďƒ˜ KPMG will continue to oversee and supervise
Interest Bearing Liabilities 2015 - 2018
ďƒ˜
Reduce through to 2015
ďƒ˜
Stabilise from 2016 - 2018
Business Modelling Overview All business models presented tonight have been developed by Club Management and Committee and independently vetted by RSM Bird Cameron 2016 -2018 forecasts allow for the Club to continue trading in the 202 - 204 Pitt Street building 2019 forecasts have been benchmarked against industry standards The Club has been conservative in all areas that require outsourced operators, as the Club will embark on a tender process to maximise the profit potential of these areas
Part II: Business Model – Financial Analysis Operating Profit and Debt Reduction 2013 - 2018 Presented by Anthony Guilfoyle, CEO, City Tattersalls Club
Business Modelling Part 2
Operating Profit
2013 – 2018
Interest Bearing Liabilities
2013 - 2018
Debt/ Equity Ratio
2013 – 2018
City Tattersalls Club Actions
2013 - 2018
Operating Profit Forecast Analysis 2013 - 2018
NORMAL CLUB OPERATION 2013
2014
2015
INTERIM CLUB OPERATION 2016
2017
2018
TOTAL REVENUE
26,966,697 27,481,665 27,625,920 24,380,396 24,466,164 24,552,154
TOTAL EXPENSES
26,412,812 26,944,987 26,913,978 23,559,359 23,739,432 23,861,796
NET PROFIT/(LOSS) CLUB OPERATION
553,885
536,678
711,942
821,037
726,732
690,358
Interim Club Operating Profit Forecast Analysis 2013 - 2018 Considerations for 2013 – 2015 Consistent revenue and expenses across 3 years Considerations for 2016 – 2018 Allowance for a decrease in revenue during the three year interim build period Expenses have decreased due to a smaller Club operation Consistent net operating profit as per pervious years Conservative assumption applied to revenue
Interest Bearing Liabilities Forecast Analysis 2013 – 2015 Dec 13 Bank Overdraft
Dec 14
236,636
Cash at Bank
Dec 15 326,777
-440,106
Commercial Bill
5,075,000
5,125,000
4,175,000
580,590
463,133
349,933
5,892,226
5,148,027
4,851,710
Major Works
2,000,000
1,400,000
800,000
194 Pitt Street
9,750,000
9,750,000
9,750,000
17,642,226
16,298,027
15,401,710
Lease Liability Sub Total
Total
Interest Bearing Liabilities Considerations for 2014 and 2015 2014
2015
Major Works Repayments $50K x 12
$600,000
$600,000
Commercial Bill Repayment $75K x 4
$300,000
$300,000
Commercial Bill Repayment 31/12/14 & 31/3/15
$150,000
$150,000
Commercial Bill Drawdown 15/5/14
$500,000
Commercial Bill Drawdown 30/06/15
$200,000
Commercial Bill Repayment 31/8/2015
$300,000
Leasing will continue as needed
Interest Bearing Liabilities Forecast Analysis 2016-2018 (Build Period)
Bank Overdraft
Dec 15
Dec 16
Dec 17
Dec 18
326,777
326,710
326,710
326,710
4,175,000
4,175,000
4,175,000
4,175,000
349,933
350,00
350,000
350,000
4,851,710
4,851,710
4,851,710
4,851,710
800,000
800,000
800,000
800,000
9,750,000
9,750,000
9,750,000
9,750,000
15,401,710
15,401,710
15,401,710
15,401,710
Cash at Bank Commercial Bill Lease Liability Sub Total Major Works 194 Pitt Street Total
Interest Bearing Liabilities Considerations for 2016 - 2018 Major works, Commercial Bills and 194 Pitt Street loans will be interest only with no principle repayments for 3 years New banking arrangements with reduced covenants will be made during the build period (2016-2018) Provision has been made for capital expenditure for the new fitness centre equipment for the future Club in late 2018 and payment will be made from cash flow Net cash will be used towards the fit out of the future Club Conservative forecasts on available cash
Debt/Equity Ratio NORMAL CLUB OPERATION 2013 NET DEBT NET ASSETS
2014
INTERIM CLUB OPERATION
2015
2016
2017
2018
17,642,226
16,298,027
15,401,710
15,401,710
15,401,710
15,401,710
45,492,213
46,028,891
46,740,833
47,561,870
48,288,602
48,978,960
0.39
0.35
0.33
0.32
0.32
0.31
RATIO
These ratios do not take into account any future movements for building valuations These ratios do not reflect any funds spent on Airspace Project during build period Additional cash surplus is not included due to being used for future Club fit out
Existing Loans and Borrowings to Net Asset Ratio 45.00%
38.78%
40.00%
35.41%
35.00%
32.95%
32.38%
31.90%
30.00%
31.45%
25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2013 Club operations -‌
2014
2015
2016
2017
2018
Interim and Future Club Total Fit Out Costs The Club will ensure it: 1) Secures
appropriate funding for the total fit out costs
2) Receives
the lowest costs for the Interim and future Club fit out
3) Maximises
the hotel value with all options explored
The Club has or will complete a set of actions to ensure the best outcome for the Club.
Action1
Independent Quantity Surveyor
Independent Quantity Surveyor costing of all Club works including: 1) Interim Club fit out 2) Cold shell* works to finished future Club works - approximately 6,000m² 3) All other Club works - approximately 4,000m² of existing Club space 4) Warm shell* to finished hotel works 5) Warm shell* to finished restaurant and bar * Refer to information presented in the Information Memorandum
Action 2
Competitive Tender Process
Competitive tendering will take place of all Club works at the appropriate times: ďƒ˜ ďƒ˜
Interim Club works All future Club works
This will ensure the Club receives the best price when compared to the Quantity Surveyor estimates for each job
Action 3
Independent Valuation
Independent valuation of a 100 room 4 star hotel located at 194-204 Pitt Street, Sydney Independent valuation will also include: Total Club premises – Approximately 10,200m² Restaurant and Bar on Level 7 Common property for Club, restaurant & bar, 100 room hotel and basement Retail space on Pitt Street as required by Sydney City Council
Action 4
Independent Report for City Tattersalls Club Hotel
The independent report will be conducted with City Tattersalls Club and an outside Hotel Specialist creating a full brief to take to the market place. Defining: Objectives
Demand / Precinct / Catchment Area etc
Hotel
What is the complete offering
Determining
Room size / fit out level / brand etc
Many other aspects will be incorporated within this report
Action 5
Maximise the Value of the Hotel
The Club will take all hotel options to the open market at the appropriate time with the best suited agent. Hotel options include:
Owner Operator Leasing the hotel Granting management rights to an operator Sale of equity share to a third party to allow for a joint venture
To achieve this the Committee will oversee a properly conducted public Expression of Interest (EOI) in a corporate governance environment to ensure City Tattersalls Club receives the best outcome.
Action 6
Forecast Debt Level: 2019
The new Club Business Model will include a range of debt levels at 2019 - 2025. This business model will include: ďƒ˜ Conservative (low range) income assumption for the hotel each year from 2019 – 2025 Three debt levels will be used: 1. 2018 Debt 2. Low range 3. High range
No increase to debt level as at 2018 Increase 2018 debt level by $8m Increase 2018 debt level by $15m
Cash reserves will be utilised for the future Club fitout
Action 7
Total Funding For CTC Fitout Cost
Combined net cash from trade 2016 – 2018 and payments by Mirvac will be put towards total Club fitout. Additional fitout cost range $8m - $15m funded by additional borrowings or sale of JV equity in hotel . Why use a range for $8m to $15m? a)
Better Trade
Exceeding forecast during the interim period 2016 – 2018 resulting in additional cash reserves
b)
Lower Cash Reserves
Ensuring the Club meets all necessary requirements during the build period from 2016 – 2018
c)
Better Competitive Tender Pricing
Exceeding forecast by the Quantity Surveyor for all building works
Action 8
Approved Loan
The Club intends to have an approved loan to cover any additional necessary borrowings for total fitout. The facility will be obtained at the appropriate time to ensure best outcomes for the Club. These options utilise:
Lower debt facility range Club cash reserves for building works Lower competitor tender building works Mirvac cash towards building work Option if Club offers a JV arrangement in respect of hotel asset
Guiding Principles for the Proposed Development All 8 actions allow the Club to deliver the guiding principles below: 1.
Retain City Tattersalls Club (CTC) as a registered Club recognising and ensuring compliance with the CTC Act and Rules
2.
Retain ownership of all assets by our Club*
3.
Primary focus on Club, subsidiary clubs and members both now and in the future
4.
Maximise value of the Club assets in short, medium and long term
5.
Minimise cost and maximise benefits of the Club
6.
Minimise risk to the Club
7.
Achieve a long term reduction in financial dependence on gaming and secure the long term financial future of the Club
8.
Create a long term new business model for Club
9.
Continued trading of the Club
* Possible sale of private apartments
FUTURE CLUB Part II: Business Model & Financial Analysis
Future Business Model of Proposed Club Operations 7 FLOORS OF UPGRADED DEDICATED CLUB FACILITIES & 7 FLOORS OF HOTEL ACCOMMODATION
FUTURE CLUB Part II: Business Model - Financial Analysis Operating Profit and Debt Reduction 2019-2025 Presented by Philip Price, Director, RSM Bird Cameron
Club Operating Profit 2013 v 2019 Forecast Analysis 2013
2019
TOTAL REVENUE
26,966,697
31,275,004
TOTAL EXPENSES
26,412,812
27,455,671
553,885
3,819,333
NET PROFIT/(LOSS) CLUB OPERATION
Income generated from the hotel is not included in the 2019 forecasts
Club Operating Profit 2013 vs 2019 Considerations Net profit forecasts secure the Clubs future Complete new business model in operation Significant growth from 2018 due to the complete new offerings Conservative Revenue growth has been applied from 2018-2019 in comparison the actual offering of the future Club. Expenses have significantly reduced due to the improved efficiencies of the new business model for the Club Assume first full year of trade in 2019
Future Club Operating Profit Forecast Analysis 2019 - 2025
2019
2020
2021
2022
2023
2024
2025
TOTAL REVENUE
32,479,230
33,128,815
33,791,391
34,467,219
35,516,563
35,859,695
36,576,889
TOTAL EXPENSES
28,645,898
28,922,933
28,189,638
29,444,949
29,687,735
29,916,793
30,211,846
3,833,322
4,205,881
4,601,753
5,022,270
5,468,828
5,942,901
6,365,043
NET PROFIT
Forecast Analysis 2019 - 2025
Considerations for 2019 - 2025 Consistent revenue and expenses across 7 years CPI Increase of 2% (excluding interest and depreciation) New offerings of function rooms, passive rental from restaurants and hotel income give rise to positive cash flows. Current forecast analysis includes conservative hotel income forecasts
City Tattersalls Club Actions Forecasted Debt Level: 2019 - 2025 The new Club Business Model will include a range of debt levels at 2019 - 2025. Three ranges of debt levels will be used: 1. No increase to debt level as at 2018 2. Low range increase to debt level as at 2018 – $8m 3. High range increase to debt levels as at 2018 - $15m Cash reserves will be utilised for the future Club fit out The debt required will depend on: a) Cash reserves from operation of interim Club b) Savings in fit out from tendering pressure
Recap Forecast Net Debt (after Cash) Analysis - 75% Free Cash Flow End 2020 <2 Years
Mid 2022 <4 Years
Mid 2022
Late 2023
Mid 2025
Forecast Net Debt Analysis 2019 – 2025 Considerations for 2019 - 2025 Assumptions on variations in debt are dependent on cash from operations during interim Club and from the competitive tender outcome Additional debt of $8m (low range) will be returned to initial net debt levels within approximately 2 years. ie Mid 2020 Additional debt of $14m will be returned to initial net debt levels within approximately 3.5 years. ie Mid 2022 75% free cash flow applied to reduce liability balances. Surplus cash reserve offset against outstanding debt balance. No additional debt - repaid by late 2021. Additional debt of $8m repaid by early 2023.
Mid 2021
Mid 2023
End 2023
End 2025
Forecast Loans and Borrowings Repayment Analysis-75% free cash flow Considerations for 2019 - 2025 Based on 75% and 50% of annual free cash flow applied to reduce debt Significant accumulation of cash reserves Additional debt of $8m (low range) will be returned to initial debt levels within approximately 2.5 years. Additional debt of $14m will be returned to initial debt levels within approximately 4.5 years. No additional debt - repaid by late 2022 Significant accumulation of cash reserves make is appropriate to reconsider Net Debt (after cash) analysis Very minor difference to debt payback under 75% or 50% scenarios. Where approximately additional two years required to return to original debt levels.
Recap Forecast Net Debt (after Cash) Analysis - 75% Free Cash Flow
End 2020 <2 Years
Mid 2022 <4 Years
Mid 2022
Late 2023
Mid 2025
Balance Sheet Considerations 2019-2025 Debt - Equity impact 2019 - 2025 New business model and income streams allow Committee additional flexibility with asset management The benefits to members of taking on debt compared to not taking on debt: • 100% retention of asset possible with utilisation of debt • Realistically favourable debt reduction strategy and repayment • Long term wealth creation for future Club operations and future members Rapidly falling debt to equity Forecasts extinguishes all net debt during 2025 in highest debt scenario “No additional debt” requires potential divestment of assets via Joint Venture arrangement on Hotel assets This has the effect of reducing future member assets
Development Management Agreement
Presented by Oliver Shtein, Executive Lawyer, Bartier Perry
Development Management Agreement Update The Development Management Agreement (DMA) is the main agreement and defines Mirvac’s and the Club’s rights and obligations to each other. Meetings have been held with Mirvac and their lawyers and the legal structure and basic terms of the DMA have been agreed in principle. Negotiation of detailed DMA provisions is progressing well but it will take several further iterations of the document before it is finalised.
Development Management Agreement Update
Under the DMA, Mirvac will: – build the Club, including the new restaurant, to ‘cold shell’ stage – do specified heritage bar works – build the hotel works to ‘warm shell’ stage – build the residential works
The Club will retain ownership of all its land during the project
Development Management Agreement Update
The Club will fit out the new Club and the interim premises at the Club’s expense.
Mirvac will perform at Mirvac’s expense the necessary utility services works (gas, electricity, telecoms, power, sewerage, drainage) to the interim Club premises.
Development Management Agreement Update ď&#x192;&#x2DC; The DMA will provide for co-ordination of all preliminary works by each party including the interim premises fit-out and utility services works. ď&#x192;&#x2DC; The DMA provides that issue of the Stage 2 DA activates the entire project to commence. Once the interim premises are fitted out, full handover of the site to Mirvac can occur so the main development work can then be done by Mirvac. ď&#x192;&#x2DC; There will be agreed timelines and a construction plan which will govern the full program of works and the period for completion.
Development Management Agreement Update Under the DMA Mirvac must make cash contributions to the Club: – at the time of signing of the DMA; and – at the time of issue of an acceptable Stage 2 DA The Club may use cash contributions may be used to reimburse the Club’s expenses in respect of the development and towards the cost of the new Club fit-out.
Development Management Agreement Update All the works to be done by Mirvac are at its risk, cost and expense. The DMA provides that Mirvac’s right to construct the residential tower and sell the residential units is at Mirvac’s risk, benefit and expense. There will be an ‘off the plan’ sales process for the residential units.
Development Management Agreement Update ď&#x192;&#x2DC; Mirvac requires security over the development site because the Club retains ownership. ď&#x192;&#x2DC; The Mirvac security will be limited to the residential part once that part is legally separate to the Club and Hotel. ď&#x192;&#x2DC; The Club, ANZ and Mirvac are negotiating an agreement to protect their respective interests in the site during the redevelopment and sale of the residential units.
Proposed Development Update
Presented by David Perrim, General Manager, National New Business Development, Mirvac
Planning Process Stage 1 Development Application (DA) has been prepared and will be lodged shortly. Identifies the architectural design principles for the Stage 1 DA Envelope Design Concepts have been established through an analysis of the site, existing heritage buildings, surrounding context and planning controls Envelope proposal has been developed in a way to provide maximum opportunity and flexibility for the Stage 2 DA competitive design process
Planning Process The Stage 1 DA seeks concept/ staged approval for: •
Construction of a mixed use development comprising retail, club, hotel and residential uses.
•
Building envelope to comply with the Hyde Park West sun access plane.
•
Demolition of 196 Pitt Street.
•
Provision of a basement car park up to 7 levels accessed from Pitt Street, to accommodate servicing and loading for the non-residential uses and approximately 100 car parking spaces for residential uses.
•
Partial conservation and adaptation of the existing heritage items at 194, 198200 and 202-204 Pitt Street.
Member Communication â&#x20AC;&#x201C; Drop in Sessions
Presented by Patrick Campion, Chairman, City Tattersalls Club
Member Communication - Drop In Sessions We will be offering casual day time drop-in sessions where members can come in and ask questions about the development. Beginning Tuesday 20 May 2014, these drop-in sessions will be held three times a week at the Members Information Display Area on the ground floor. The sessions will be held: Tuesday Thursday Friday
11.30am to 1pm 4.30pm to 6pm 11.30am to 1pm
The session are planned to be held until Thursday 18 July 2014, subject to members’ demand.
Corporate Governance
Presented by James Kennedy Associate Director, Real Estate Advisory Services, Corporate Finance Advisory, KPMG
Corporate Governance 1)
The Governance Structure The Committee The Finance Sub-Committee CEO and professional advisors
2)
Process â&#x20AC;&#x201C; Retaining Professional Advisors Real Estate Agents Lawyers Quantity Surveyors Valuers Financial modelling and taxation
3)
Process â&#x20AC;&#x201C; Expression of Interest Open offer Short listing Preferred
Corporate Governance 4)
Evaluation â&#x20AC;&#x201C; Focussed on deal structure Finance Sub-Committee Real Estate Agents Lawyers Quantity Surveyors Valuers Financial modelling and taxation The Committee
5)
Development Management Agreement Lawyers Financial modelling and taxation ANZ Bank Concluding Remarks Structure and process appropriate to the scale of the project and its criticality to the Club.
Member Communication - Timelines
Presented by Patrick Campion, Chairman, City Tattersalls Club
Member Communication - Timelines MEMBER BRIEFING MEETING
TOPICS
MEMBER BRIEFING MEETING 7 Tuesday 27 May 2014 Immediately Following the AGM
• Business Modelling Covering all Aspects • Development Update Covering all Aspects • Development Management Agreement Covering all Aspects • Corporate Governance
MEMBER BRIEFING MEETING 8 Thursday 26 June 2014 at 6.45pm & Monday 30 June 2014 at 12.30pm
• A Complete Overview of the Resolution that will be put to Members • Q & A Session • Corporate Governance
Member Vote - Updated Timelines PROPOSED DATE
PROCEDURE FOR PUTTING A RESOLUTION TO VOTING MEMBERS BY WAY OF POSTAL BALLOT
Monday 30 June 2014
Postal Ballot*
Tuesday 5 August 2014
Special General Meeting*
*This timeline was correct as at Members Briefing Meeting 6 on Tuesday 20 May 2014. The Club will endeavour to meet the proposed timelines, however these dates may extend to ensure members receive all pertinent information regarding the proposed development.
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