Ex-Slater and Gordon boss earns 5% of firm’s value in pay

Slater & Gordon Chairman John Skippen leaves the company’s AGM in Melbourne. Photo by Jesse Marlow. . GRECH BRW 080515 MELB PIC BY JESSICA SHAPIRO… Andrew Grech, manageing Director of Slater & Gordon in his Melbourne office this morning. FBM FIRST USE ONLY PLEASE!!! SPECIALX 84853

MELBOURNE, AUSTRALIA 14 NOVEMBER 2013: Photo of James MacKenzie who is retiring as Chairman of Mirvac, during the company’s AGM meeting in Melbourne on Thursday 14 November 2013. AFR / LUIS ASCUI

Paying Slater and Gordon’s former chief executive Andrew Grech a remuneration package of $1.5 million in a year when the company almost collapsed isn’t a good look.

That the company is valued on the market at $28 million, after overseeing a strategy that resulted in the decimation of billions of dollars of shareholder funds, doesn’t help the optics.

Nor does a board decision to shell out a $1.6 million package to the chief financial officer, Bryce Houghton, whose resignation coincided with the company’s announced full-year loss of $547 million, including an impairment charge of $350 million on its disastrous UK acquisition in 2015.

The way executives are paid, in good times and bad, speaks volumes about a company’s culture. It also says a lot about the board.

Slater and Gordon went on a debt-fuelled acquisition binge that almost destroyed it. But along the way it forgot its core values, which include deep ties with the labour movement and representing the underdog, the victim.

This was epitomised by a decision in 2015 to spend millions of dollars on a high-profile, five-year sponsorship of the Olympics, at a time when money was precious.

Besides being a poor use of shareholders’ money, during the period of Slater and Gordon’s sponsorship, the AOC has been at the centre of a series of scandals in recent years.

Not the least being controversies around AOC president John Coates, including when Coates wrote to senior AOC staff that a young, female employee, who was being treated for cancer, should “get out in the real world” because the AOC was not a “sheltered workshop”.

How the Slater and Gordon board and senior management could have thought such an expensive Olympics sponsorship was a good fit with a law firm that represents blue-collar workers is hard to fathom. That it didn’t pull the plug after the scandals erupted is equally curious.

Grech resigned as managing director on June 29 as part of a recapitalisation agreement with hedge funds. That agreement included Grech remaining on the board as non-executive director until the completion of the recapitalisation agreement.

But a remuneration report released on Thursday night reveals Grech will continue to receive fees equivalent to his base salary as managing director at $560,384 until he leaves.

It says the board’s approach to remuneration is “balanced, fair and equitable”.

The question is fair to who? Shareholders who will be diluted to 5 per cent after the rescue plan is completed in mid-November?

Interestingly, directors, including chairman John Skippen, took home a similar level of director fees in 2017 as those approved by shareholders in 2015, back when the company was valued on the sharemarket at $2.8 billion.

It meant Skippen pocketed $240,000 during a year when the company had a negative cash flow, massive losses, was under investigation from ASIC and shareholders had launched a class action.

Skippen was chairman when the company received a “first strike” on its remuneration report in 2016 after thinking it was a good idea to pay bonuses to executives as well as issue performance rights to Grech when the company was essentially in a death spiral.

Part of Grech’s $1.5 million includes an expatriate allowance paid while he was in the UK trying to fix the mess and an “end of service benefit”, which he will receive when he ceases being a non-executive director.

In anyone’s books, this is a lot of money for running a company that almost went belly up from poor strategy and execution.

The board, particularly those members who signed off on a series of debt-funded acquisitions over the years, can’t escape blame. The role of the board is ultimately to take responsibility for strategy, culture and reputation.

In the case of Slater and Gordon, the $1.2 billion acquisition of a British personal injury law firm just shy of its own market capitalisation was a big risk. At the time of the announcement, I wrote that it would give it a “massive short-term sugar hit, but the long-term aftertaste could be a concern”.

Britain is a tough market, with a number of n companies losing a fortune. Hubris and greed would add Slater and Gordon to the list.

The consortium of international hedge funds that will take ownership of Slater and Gordon, in a plan announced on Thursday night, will appoint company director James MacKenzie chairman and clean out the other directors.

It will also roll out a new business strategy, which will make the company leaner and take it back to its roots. The strategy will involve growing its personal injury practices in Queensland, NSW and Victoria, improving and restoring its relationships with the union movement and leveraging third-party relationships to build referral networks.

It sounds simple enough but will take deft work and an ability to stop the exodus of good, high-profile lawyers.

Some of the decision makers have already jumped ship, getting off scot-free. Some have stuck around, for now.

But the rise and fall of Slater and Gordon, and the hopeful rise again, will be one for the corporate history books.

The rescue package means Slater and Gordon will remain a listed entity, with lead hedge fund Anchorage Capital committing to remain a shareholder for at least three years. The UK business has been hived off, the class action settled. Now it is a matter of wait and see.

Parramatta turns up heat on its city rivals

There has been a lot of talk about Parramatta in the press of late, and for a good reason.

The level of construction activity is in the billions, the offices are full, shop tills are ringing and industrial landlords are snapping up any land they can find.

It’s not having a day in the sun, more like the rest decade, if all the projections come true.

One of the latest projects is the $876 million South Quarter development by Dyldam, which includes a $225 million commercial hub, covering offices, retail and hospitality outlets over 39,000 square metres.

GPT Group is building a $230 million office tower, while Walker Corporation and Charter Hall are part of the revamp of the $6 billion Parramatta square development.

According to Savills’ research, getting a foothold in the office sector will be no mean feat with the private sector competing head-on with an expanding array of government offices all wanting space.

In the latest data from the Property Council of , vacancy for premium-grade office space is zero, while B-grade is filling up fast.

JLL’s director of leasing, Scott Butler, said Parramatta was undergoing “phenomenal regeneration”.

All this activity is leading to solid rental growth.

JLL Research is forecasting above-average prime gross effective rental growth over the next year, with prime grade vacancy zero, no prime-grade assets and only 10 secondary grade assets with more than 1000 sq m of space availability.

“Not only have we seen commercial values appreciate very strongly over the past three years in Parramatta, but the net increase in stock over the next three years will likely be the largest of any of Sydney’s commercial markets.”

Mr Butler said Parramatta is the geographic centre of metropolitan Sydney, and a key piece in the formulation of government infrastructure policy. This will include development of the Parramatta Light Rail, as well as early feasibility works under way for the Sydney Metro West.

However, Parramatta’s occupier profile is diverse. JLL’s head of research, , Andrew Ballantyne said Parramatta already had a strong representation of corporate , with seven of the top-20 ASX-listed companies in its CBD.

“Western Sydney is a population growth corridor of NSW and will record strong growth in the working age population. We believe that organisations are increasingly undertaking more sophisticated workforce population mapping exercises and will consider Parramatta as a strategic location to assist with the work-life balance of employees,” he said. Retail booming

Knight Frank’s senior research manager, NSW, Alex Pham said the Parramatta CBD was experiencing a massive development boom, with more than 21 DA-endorsed mixed-use developments in the pipeline. According to the City of Parramatta, projects could yield nearly 9200 extra dwellings and about 170,000 sq m more commercial floor space.

The retail vacancy rate in the Parramatta CBD retail core measured 2.8 per cent as at July 2017, marginally higher than that in the Sydney CBD at 2.6 per cent.

“Currently dominated by food outlets, we expect the tenant profile in Parramatta to change over the coming years as a larger variety of fashion, footwear and technology retailers take up space in the Parramatta Square development. With the Parramatta light rail linking surrounding suburbs, Parramatta will become a more attractive retail destination for western Sydney residents,” Mr Pham said.

“Food retailing was the most dominant retail category in Parramatta as at July 2017, accounting for 27 per cent of the total tenancy mix.”

Knight Frank research shows most food retailers were street-front takeaway shops, restaurants and cafes, which accounted for 82 per cent of the total number of food retailers in Parramatta. Clothing and footwear retailers had the second-largest presence in the city, representing 19 per cent of the total retail units. This is in contrast to the Sydney CBD’s retail tenancy mix, which has clothing and footwear as the most dominant retail category, 39 per cent, followed by food retailing at 18 per cent.

The angst about our productivity? Totally unproductive

What a joke. A scholarly article in Treasury’s latest Economic Roundup has admitted that all the years of handwringing over our poor productivity performance was just jumping at shadows.

Turns out all the angst was caused by not much more than the figures being distorted by the mining industry’s construction boom.

This after our top econocrats gave speech after speech urging “more micro reform” to improve productivity and keep living standards rising. (They’d have advocated more reform even if productivity was improving at record rates; its supposed weakness was just a convenient selling proposition.)

Meanwhile, the business lobby groups, led by the Business Council of , claimed – without any evidence – the supposed weakness had been caused by the “reregulation” of wage fixing under Labor’s evil Fair Work changes, and demanded the balance of bargaining power be shifted yet further in favour of employers. (A claim even the Productivity Commission wasn’t convinced by.)

Even at the time, it seemed the contortions of the mining industry during the decade-long resources boom were a big part of the story, but that didn’t stop people who should have known better going into panic mode.

“Despite concerns”, the paper by Simon Campbell and Harry Withers, says with masterful understatement that “‘s labour productivity growth over recent years is in line with its longer-term performance.

“In the five years to 2015-16, labour productivity in the whole economy has grown at an average annual rate of 1.8 per cent.

“This compares to an average annual rate of 1.4 per cent over the past 15 years, and 1.6 per cent over the past 30 years,” says. A productivity primer

Let’s take a step back. Productivity compares the quantity of the economy’s output of goods and services with the quantity of inputs of resources used to produce the output.

When output grows faster than inputs – as it does most years – we’re left better off. This improvement in our productivity is the overwhelming reason for the increase in our material standard of living over the years and centuries.

Productivity can be measured different ways. The simplest (and least likely to be inaccurate) way is to measure the productivity of labour: growth in output per worker or, better, per hour worked.

Labour productivity improvement is caused by two factors. The first is by increases in the ratio of labour to (physical) capital used in the economy.

This known as “capital deepening” – translation: giving workers more tools and machines to work with, which makes them more productive.

The second driver of labour productivity is improvements in the efficiency with which labour inputs and capital inputs are used, arising from such things as improved management practices. This known as MFP – multi-factor productivity.

In recent years the figures have shown multi-factor productivity growth to be zero or even negative, causing great concern among some economists, including the Productivity Commission.

But Campbell and Withers argue this focus on MFP is misplaced. They remind us that MFP is calculated as a residual (the product of a sum), meaning its likelihood of mismeasurement is high.

And they criticise the conventional view that physical capital should grow no faster than output – known as “balanced growth” – because capital deepening is an inferior source of productivity improvement to MFP. Forget ‘balanced growth’

People take this view because (making the unrealistic assumption that the economy is closed to transactions with foreigners) increased investment in physical capital must come at the expense spending on consumption.

The authors point out that achieving improved MFP isn’t costless, while the price of capital goods (most of which are imported) has fallen persistently relative to the price of consumption goods.

“This has allowed to sustain its high rate of capital deepening without forgoing ever higher levels of consumption,” they say.

Actually, they say, our economy has never fitted the “balanced growth” story. Of the 30-year average of 1.6 per cent annual growth in labour productivity, MFP contributed only 0.7 percentage points, while capital deepening contributed 0.9 points.

Next the authors examine the causes of the ups and downs in labour productivity improvement overall by breaking the economy into six sectors: agriculture, mining, manufacturing, utilities, construction and services (everything else).

They find that labour productivity in agriculture is now 2 1/2 times its level in 1989, but it’s too small a part of the economy – 2.5 per cent – for this to make much difference to the economy-wide story.

The utilities sector showed strong productivity growth until the turn of the century, before steadily declining through to 2011-12, mainly because of one-off developments such as the building, then mothballing of many desal plants. The key factor

The story of mining is well-known: its productivity fell because of the delay between companies hiring more workers to build new mines and gas facilities and that extra production coming on line. Since 2012-13, however, mining productivity has shot up. What a surprise.

Productivity in manufacturing and construction has grown at similar rates to the economy overall, as has productivity in the services sector (hardly a surprise since services now account for 70 per cent of gross domestic product).

Over the past five years, more than half of our total labour productivity improvement was attributable to the services sector, compared with about a quarter attributable to mining.

Apart from productivity improvement in the various sectors, overall productivity can be affected when changes in the industry structure of the economy cause workers to shift from lower-productivity sectors to higher-productivity sectors, or vice versa.

Because mining, being highly capital-intensive, has by far the highest level of labour productivity, the authors say it’s really only when workers move in or out of mining that structural change has much effect on economy-wide productivity.

“These movements of labour into and out of mining have been the key driver behind the fluctuations in … aggregate labour productivity growth,” the report concludes.

Now they tell us.

Ross Gittins is the Herald’s economics editor.

Retirement ownership in for a shake-up

Ownership of retirement properties is set for a major shake-up as operators look to gain funds for growth, and reduce risk, by introducing capital partners.

In comes as the retirement industry faces heated media, regulator, government and financial market scrutiny over questionable business practices including churning of residents, excessive fees and charges, high exit fees and exorbitant refurbishment costs.

Retirement village giant Aveo, under pressure from regulators and facing a NSW government inquiry, recently said it would simplify contracts with elderly residents and provide money-back guarantees and shortened buyback periods.

In terms of ownership it is a very fragmented sector, and pundits say consolidation is needed to push along regulation reforms.

Lendlease, which has $1.7 billion invested in retirement ownership, told investors this week it was “exploring the introduction of capital partners to help fund the growth of the business”. Reports suggest there are a number of interested parties.

Analysts said China Investment Corp was a very interested partner as it looks to expand its footprint into the sector. Morgan Stanley and Gresham are overseeing the process, which could run into early November.

Other potential parties could include Singapore’s sovereign wealth fund GIC, Blackstone’s real estate arm, Canada Pension Plan Investment Board and China’s Cindat Capital Management.

“We are looking to bring in a partner,” chief executive of Lendlease Steven McCann said.

“We’re not going to obviously get specific on dates. But we’re in the process of those discussions currently and the aim is to find the right partner at the right price to enable us to continue to grow that business.”

Average retirement unit resale prices were up 11 per cent, reflecting the broader strength of the residential and retirement living market.

“The underlying demographics of the sector remain compelling and we acquired the remaining 50 per cent of Brighton on the Bay and Townsend Park, taking the portfolio to 71 villages,” Mr McCann said.

Macquarie Equities analyst said Lendlease also lowered the weighted average discount rate by 30 basis points to 13 per cent in the retirement business, with the weighted average future growth rate also declining about 10 basis points to 3.7 per cent.

Lendlease’s n communities and retirement development business was in “good shape”, although production delays over the year slowed down completions, the group said.

Diversified developer Stockland, also a big player in retirement living, has 12,000 residents in its portfolio.

The retirement business returned 11 per cent growth over the past year and, while it had previously pursued joint venture options, it was not actively considering them now.

In September last year, Stockland hired Macquarie Capital to find investors for its $1.1 billion retirement business in , with a potential spin-off under consideration.

“At this stage, we’re not exploring that. We have done a lot of work on that over the last couple of years,” Stockland’s chief executive of retirement living Stephen Bull said.

“While we’ve been very pleased with the response to that in terms of giving us a lot of comfort … the business is growing really strongly and we’re really happy with that growth profile. So, certainly, at this stage, we’re not exploring that further,” he said.

Stockland was diversifying its offering by building retirement apartments such as the Birtinya at Oceanside in Queensland.

“This type of product allows us to attract the customer that previously hasn’t been a customer that would come into one of our villages. So, it’s enabling us to drive growth,” Mr Bull said.

Billions made and lost but what did we really learn?

For the past month listed companies and their investors have been enthralled by the August earnings season.

The were some big winners, and big losers, surprises and puzzlers.

Here the BusinessDay reporting team take at some of the biggest sectors on the index to show who hit and who missed across banks, retail, mining, media and telcos, real estate, insurers and agribusiness . CBA blowbank bumps banks

Bank profits appear to be defying the doomsayers again, helped by very low numbers of borrowers getting into financial strife, and recent hikes in some home loan interest rates.

However, the performance is being overshadowed by fierce political scrutiny, which has been turned up another notch thanks to the bombshell allegations involving the Commonwealth Bank.

CBA, a bellwether for the industry, delivered earnings that were better than expected for year to June, with profits of $9.9 billion and a bigger dividend.

For several years, the market has been bracing for bank profits to be hit by a rise in bad debts – but CBA’s result showed the opposite had occurred. Its impaired loans as a share of total assets fell to 0.15 per cent, the lowest in recent years.

Westpac, ANZ Bank and National Bank all told a similar story in their trading updates, saying credit quality had improved.

Regulator-imposed caps on the mortgage market have also led to banks increasing their interest rates on interest-only home loans in recent months, and this is helping profit margins.

However, the good news for CBA shareholders arrived as the bank was engulfed by allegations from Austrac that it breached anti-money laundering (AML) laws more than 53,000 times.

In weeks since then, CBA’s share price has fallen about 10 per cent, as other regulators have announced their own inquiries into the bank, and analysts have predicted its share price will be held back by the allegations.

Commonwealth Bank CEO Ian Narev will retire by June 2018. Photo: DEAN LEWINS

“We continue to see CBA as one of the world’s premium banking franchises. However, we believe the AML allegations are likely to be an ongoing drag on its reputation, provide unwanted management distraction and lead to elevated costs,” UBS analyst Jonathan Mott wrote after the bank’s results.

While other banks are not in Austrac’s sights, some observers believe the episode has increased the odds of a royal commission into banks, which would likely be viewed as bad news for all bank shares. Retail’s mixed bag

n retailers delivered a mixed bag in what could be their last full year of trade before e-commerce giant Amazon opens locally and causes – depending on who you ask – either widespread carnage or little more than a splash.

Coles blamed Woolworths cutting prices, Aldi’s expansion westward, and poor shopper sentiment for slow sales growth and a slide in earnings.

But its owner Wesfarmers was again saved by its conglomerate structure, with an earnings windfall from better coal prices and solid growth from Kmart and Bunnings sending its profit skyward.

Rolling out Bunnings in Britain and Ireland was costing more and taking longer than expected though, alarming some analysts.

At Woolworths there was impressive sales growth but that came at the expense of profit, as it cut prices and improved service. Worse-than-expected losses at its discount chain Big W dampened the good news and another turnaround plan – Big W’s third in four years – was announced.

Amazon loomed large as it started work on its first local distribution centre in Melbourne’s south-east.

JB Hi-Fi struck a defiant tone, insisting it would remain the go-to showroom for consumer electronics in the eyes of shoppers and suppliers. Its profit was up, but some analysts remained concerned the consumer electronics giant was not doing enough to prepare for Amazon’s disruption.

Gerry Harvey, ever the contrarian, said current economic conditions were favourable and helped Harvey Norman record an “unprecedented” result: profit grew and it said a share buy-back was on the cards.

But investors were disappointed by a dividend cut and slowing sales in the last quarter and Harvey Norman stock fell 7 per cent.

One-time darling Domino’s Pizza continued its fall to earth – profit grew but it flagged much slower sales growth going forward. Almost $1 billion was wiped from its market valuation in the ensuing sell-off. Mining dividends

Dividends were a stand-out feature as mining companies unveiled a big surge in profitability. Over coming weeks n mining companies will pay billions of dollars in fully franked dividends to investors.

Rio will pay $US2 billion in dividends, BHP $US2.3 billion, Fortescue $US778.5 million, and South32 $US334 million.

On top of this, Rio Tinto and South32 pleased the market by announcing substantial increases in share buybacks.

And on the days that the major miners released their results, they were not shy about highlighting their generosity and focus on shareholders.

Rio Tinto chief executive Jean-Sebastien Jacques said his company was “delivering superior cash returns to shareholders”.

Companies are cutting the dividends they will pay.

While Andrew Mackenzie, chief executive officer of BHP, said the revitalised miner had “laid strong foundations to grow value and support shareholder returns for decades to come”.

Given the large dividend cash splash, perhaps it wasn’t surprising that the miners were keen to emphasise their cash returns. And they certainly could afford it, having benefited from better prices for some key commodities during fiscal 2017.

The average price of a tonne of iron ore shipped to Qingdao in China in 2016-17, was $US69.51, according to Bloomberg, compared to a much lower $US51.42 the previous year.

Coal prices also jumped, pushing up BHP’s coal earnings before interest, tax, depreciation and amortisation 496 per cent in fiscal 2017.

So what were they saying to investors by lifting their dividends? The message seemed to be something like this – ‘stick with us, we’ll reward you well’.

BHP’s Mr Mackenzie virtually said this himself, in an investor and analyst briefing. “At BHP, our purpose is to create value for shareholders. This is at the centre of everything we do,” he said, very early in his speech.

The world’s biggest miner might also have been sending a message either about, or to, the activist investor Elliott Management – which has called for an overhaul of BHP and better returns to shareholders – that BHP was well aware of the importance of sharing its profits with shareholders.

Some of BHP’s key decisions and statements over recent weeks, such as the increased dividend and decision to exit the controversial US onshore shale assets, seemed to show that BHP had been listening to what Elliott and others had been saying, and it had acted.

BHP Billitonhad a clear message for investors. Photo: JOE CASTRO

Perhaps the push from Elliott, that shareholders need to be well rewarded, has reverberated around the wider mining industry, benefiting shareholders in a range of companies in the process.

The outlook for the miners and their shareholders looks positive, with commodity prices stronger than 2015-16 and demand continuing from China. On the day Rio released its half-year results, Rio CEO Jean-Sebastien Jacques gave a positive assessment of the outlook for the Chinese economy for the next couple of years.

And BHP shareholders will be hoping that the analysis of Peter O’Connor, metals and mining analyst at Shaw and Partners, holds.

In a recent report he said BHP shares could climb above $40 over the next few years thanks to a collection of factors, which he described as: historical precedent, the crown jewel assets, margin and return on invested capital leverage, capital management and divestments, and macro and commodity tailwinds. Awful August for media

‘s major media and telecommunications companies revealed lousy results this reporting season. The exception was out of home advertising, which is growing so well that TV and radio broadcaster Southern Cross Austereo announced it, too, will be getting in on the digital billboard action.

But for traditional businesses, the news was not good. Telstra has finally made the decision to stop paying out over 90 per cent of profits in dividends. Shareholders were most unhappy that this unusually high payout ratio won’t continue forever, with Telstra predicting dividends will drop from 31?? this fiscal year to 22?? in 2018.

Analysts have pointed out the yield is still about 6 per cent, but it was up around 8 per cent before the change. Telstra’s results were flat, with revenue up 0.4 per cent to $26 billion and a full-year profit of $3.9 billion. Telstra now has to prove it can find a way to plug the revenue being taken away by NBN Co’s new infrastructure.

Vocus Group has been having a rocky year and terminated due diligence on two private equity bidders just a week before its results. It saw increases in revenue and underlying net profit of $152 million. But it also booked a $1.5 billion goodwill impairment, dragging its result down to a $1.4 billion loss.

TPG will report its results in late September.

For television and print media, results were a chance to prove they have thrown enough excess weight overboard in the past year to stay afloat, all while watching one of their own slip under the surface. The industry is also in a holding pattern while it waits to see if the government can get ownership reforms through the Senate.

Seven West Media wrote off $1 billion in the value of licences and subsidiaries, thus turning a $168 million profit into a $745 million loss. It also complained about the increasing cost of sports rights, a year after defending the high price it has been paying for sports. It halved the dividend to 2?? and shares were this week testing historical lows under 70??.

Nine Entertainment Company posted a profit of $124 million, but again this was turned into a loss by writing down its broadcasting licence, redundancy costs and an onerous output contract with US suppliers. Its full-year dividend decreased from 12?? to 9.5??. Nine’s share price was getting a boost before the results, but has since been dragged down on news US broadcasting giant CBS might be buying Network Ten out of administration.

Ten usually waits until October to report full-year results, but this year has a note from its administrators excusing it from financial reporting for the time being.

CBS will take over Ten Network. Photo: Jessica Hromas

Fairfax and News Corp’s results showed spending on print advertising continues to decline, but online real estate advertising remains healthy.

Fairfax delivered a $97 million profit and focused on the performance of its real estate site Domain, which it will be listing on the sharemarket in November. Total dividend for the year was 4?? per share. It did the heavy lifting on masthead write-downs in 2016.

It was a mixed reporting season for the n real estate investment trusts with the rise in the office and industrial sectors offsetting the decline in the retail landlords.

Overall, the retail sector, which has a 60 per cent weighting in the S&P REIT index, fell by 20 per cent in the reporting season, while the office and industrial rose by 20 per cent, in terms of prices. For the year to August 31, the whole sector was down 7 per cent. Offices, sheds win as malls struggle

Office leasing and demand for physical assets has put a base under the sector and e-commerce growth looks set to keep warehouses busy, while struggling retailers are putting a strain on malls as new tenants replace failed ones at lower rents.

Winston Sammut, managing director, Folkestone Maxim Asset Management, noted the divergence, pointing out retail landlords including Westfield Corporation, Scentre Group and Vicinity Centres underperforming the overall property sector.

“The main concern with the outlook for the retail landlords seems to be the tough conditions impacting on leasing, coupled with the uncertainty of the extent of the impact from Amazon’s entry into the n market early next year,” Mr Sammut said.

“While the outlook for the office sub-sector is considered sound, earnings per security guidance was surprisingly less supportive of a continuing positive outcome for commercial property. Nevertheless, strong revaluation gains were recorded across the board with expectations that rental growth for Sydney will likely continue at around current levels, while this is likely to be the case for Melbourne to a lesser extent.”

Mr Sammut said on the residential front, ‘s low-interest-rate environment has seen volumes rising despite tighter credit controls coming into play. Even though the residential cycle appears to be continuing longer than previously expected, it would appear volumes are reaching their peak.

At the end of August the A-REIT sector is trading on a distribution yield of around 5.2 per cent, which remains attractive from an income perspective compared to the current cash rate and the 10-year bond rate currently around 2.6 per cent.

Citi analysts said it was a “solid reporting season”, with a better-than-expected 2018 outlook, scope for guidance upgrades and improving valuation appeal.

“Investor positioning could result in renewed interest in the sector. However, a challenging retail outlook remains a key drag on potential sector outperformance. Fund from operations (FFO) growth is becoming more concentrated as 80 per cent of sector growth is driven from 50 per cent of market capitalisation,” Citi says.

“Goodman, Stockland, Mirvac and Scentre Group are the key drivers of sector growth and only AREITs with 4 per cent forecast 2018 FFO growth, despite what felt like better-than-expected outlooks from the AREITs.”

Retail portfolios reported solid comparative net operating income growth of 3.5 per cent, but comparable specialty sales growth weakened for all retail portfolios, indicating challenges may persist and sentiment could remain soft. Treasury leads way

Agribusiness companies flew under the radar this season but there were a couple of notable exceptions.

One result was the handsome $269.1 million full-year net profit posted by ‘s biggest wine company, Treasury Wine Estates.

Treasury’s net profit was up 55 per cent on the previous year, as it continued its revitalisation under chief executive Michael Clarke. The market responded positively to the result, pushing shares in the company to record highs well above the $14 mark. Just two years ago the stock was trading at less than $5.90.

Sales figures showed that Treasury, which owns some of the nation’s best known wine brands including Penfolds, recorded a 34.5 per cent jump to $394.3 million in sales to Asia, as the company rode the wave of growing demand in Asia for n wine.

It was the kind of growth that would have made the leaders of the nation’s biggest dairy processor, Murray Goulburn, more than envious, if they actually had the time to look outside their own struggling organisation.

Murray Goulburn slumped to a $370.8 million net loss after tax, revealed that revenue fell 10.3 per cent to $2.49 billion in fiscal 2017, and milk intake fell a whopping 21.8 per cent to 2.7 billion litres.

The story for Murray Goulburn is that its future is on the line as its revenue shrinks, it loses farmers to other dairy processors, and it assesses “unsolicited proposals from third parties” ranging from the sale of non-core assets, to a “whole of company transaction”.

“The coming months will be pivotal for the future of the business,” Ari Mervis, Murray Goulburn’s chief executive, said.

It was no understatement. In a few short months, the business might have actually changed hands. Insurers’ pressure at the margins

‘s biggest insurance companies are benefiting from a trend towards rising premiums, which helped to strengthen share prices over the first half of this year.

Suncorp, Insurance Group and QBE Group all confirmed they expected further hikes in premiums, but their results were also marred by disappointing guidance.

IAG shares hit a record high earlier this year, after it released reserves because lower cost of claims, but on results day it forecast skinnier margins over the year ahead due in part to higher expected costs from motor claims.

Suncorp, the other dominant firm in motor and home insurance, also left some investors underwhelmed when it delivered full-year results. Its earnings were lower than expected, and some analysts grumbled about its plan to bring forward $100 million in spending to develop a “marketplace” for financial services through an overhaul of its online presence, physical stores and brokers.

QBE Group also forecast full-year profitability for the year ahead would be at the low end of previous guidance it had provided in June, when it was slammed in the market for another profit downgrade.

QBE’s earnings rose 30 per cent in the first half, but investors are demanding the global insurer do more to eliminate surprises, after a big loss in its emerging markets business undermined confidence in its turnaround.

Cosmetic retailers are the sought-after tenants

It has been dubbed lipstick wars in the past, but now the retail landlords are embracing the cosmetics sector as one of the most favoured tenant in their malls.

While beauty and cosmetics are sought-after online, the stores, such as Sephora and Mecca Cosmetica, have successfully breached the barriers between the internet and bricks and mortar as their shops offer an experience.

In the latest results for the retail landlords, cosmetics was one of the best performers in terms of sales. As a result, as apparel brands close or look for smaller premises, the cosmetic retailers are moving in.

Sephora will open its 11th n store in Westfield Bondi Junction, which adds to Sydney’s five stores in Pitt Street Mall, Broadway, Macquarie, Warringah, Macarthur Square and the soon to open Charlestown in the Hunter Valley location. It launched in in 2014 and is owned by LVMH.

Libby Amelia, the Sephora country manager, said it’s been a big year for Sephora , and there’s no sign of the brand slowing down.

“On August 21 we launched a new Wellness category on Sephora成都夜网.au, and Westfield Bondi Junction will be one of our first retail locations to house the new in-store hub, really completing the loop on our omnichannel offering,” Ms Amelia said.

“With brands like KORA Organics, The Beauty Chef and WelleCo, alongside luxe haircare brand Ouai and natural efficacious skincare like Peter Thomas Roth and Ole Henriksen, we are bringing Bondi the best in beauty, from the inside out.”

Westfield regional manager, Scott Moore, said Bondi Junction customers seek the best of international and n brands and “we’re thrilled to welcome Sephora to Westfield Bondi Junction”.

Susan MacDonald, head of retail at Mirvac, said while food and beverage were one of the best performers for the group, “the category such as general retail and particularly cosmetics” has been strong. “We are seeing food and cosmetics becoming the new fashion,” Ms MacDonald said.

This comes as Craig James, the chief economist at CommSec, said the perception is that n consumers are gloomy.

But in reality the latest reading of consumer sentiment is broadly in line with short and longer-term averages.

“Consumers are not exuberant, but neither are they significantly downbeat. Simply there are a lot of issues at present so it is probably better to describe consumers as reflective,” Mr James said .

“And clearly if consumers were very pessimistic, they wouldn’t be spending the way they are at present. Annual growth of real retail spending is 2.5 per cent – in line with the decade average. And the 1.5 per cent real lift in retail spending for the June quarter hasn’t been bettered in eight years.”

He said the measure of whether it was a good time to buy a major household item has generally held above the long-term average since May, confirming that consumers are open to spending if the price is right.

Hume sale highlights industrial investment interest

Demand for quality industrial properties has seen a 10,000-square metre Hume site sold pre-auction to a Sydney-based institutional investor for $4.45 million.

The sale of 78 Sawmill Circuit, negotiated by Colliers International, continues the competition for industrial assets in the ACT.

Director Tim Mutton says there had been strong enquiries from local and interstate investors.

“The vendor indicated an interest in receiving offers before the auction,” he says.

“It’s not surprising we received a strong offer given the demand and competition for the asset.”

The property comprises a hard stand yard of 7541 square metres, plus a warehouse building and a covered work area. It is leased to Ausco Modular until June 2024 with options until 2034.

Just a month earlier, a 5000-square metre site at 4 Sawmill Circuit sold for $4.31 million. It is leased to tyre specialist Bridgestone for 15 years with options until 2042.

Hume has emerged as Canberra’s premier industrial precinct in the last five to 10 years and Mutton highlights key factors in its success.

“The area has benefited from significant capital investment in upgrades to the Monaro Highway and Majura Road,” he says.

“Changing land use has also increased rents and land values in Fyshwick, pushing large warehouse users to Hume.”

Colliers was also active in Fyshwick with the sale of the AXS Business Centre to the Hadley Green Investment Group for $17 million.

The centre comprises five office buildings on 10,102 square metres with 136 car spaces. The centre is occupied by seven tenants, anchored by the federal government.

Other industrial areas are also benefiting from an upswing in activity.

Mitchell is enjoying a buoyant year with its relative proximity to the Hume Highway also making it a popular choice for warehousing and logistics.

Some 20 properties are advertised on All Homes ranging from 90-square-metre office suites to warehouse complexes on nearly 10,000 square metres.

Across the border, George Miller, director of Ian McNamee & Partners, has seen a new level of confidence return to the Queanbeyan market in small industrial properties.

“We’re seeing a lot more activity in factory-style units in the 200 to 600-square-metre range,” he says.

“It’s hard to say what’s driving that pick-up, but it’s likely to be a combination of factors – low interest rates, proximity to Canberra and even people moving into Googong who want to establish or relocate businesses closer to home.”

Latest Abbott essay reveals his reactionary footing

You can’t stop progress, the saying goes. But former prime minister Tony Abbott has turned that on its head this weekend, arguing that, “You can’t stop regress.”

He argues should build a new coal-fired power station to “keep the lights on”.

He also called for the abolition of the Human Rights Commission because it is “a kind of politically-correct thought police” and supported a nuclear-powered submarine which would “strike fear into the hearts of any potential enemy”.

Abbott argues these are all commonsense proposals so they are inevitable.

Wrong. They are neither commonsense nor inevitable.

As the Western n Liberal Party holds its conference this weekend at which Abbott and Prime Minister Malcolm Turnbull will attend, Abbott has written in the party’s magazine Contributor with his delusional three policies and will distribute hard copies at the conference.

I say delusional because in arguing for these policies he says that the “challenge is not to fall silent, because a majority that stays silent does not remain a majority”.

But majorities in opinion polls reject coal-fired power stations and support same-sex marriage. I have not seen any polls on a nuclear submarine or abolition of the Human Rights Commission, but my guess is that they would not have majority support.

The delusion is that a majority think the same way he does on a range of questions.

He did mention reducing immigration. Immigration has had a fair amount of support in the past, but on this Abbott is striking an increasingly supported position, but not for the dog-whistling reasons he has. (The right deed for the wrong reasons.) To the contrary, people seeking reduced immigration are worried as much about the environment as house prices or being “swamped”.

More delusion. Abbott vowed to remain “as a vocal MP for as long as Liberal-conservative values need a strong advocate”.

But a new coal-fired power station is not a conservative proposition. It is a reactionary one. Much of Abbott’s agenda is reactionary not conservative. It seeks to go back to an earlier world which is no longer sustainable – cheap coal-generated electricity. Conservatives, on the other hand, want to conserve and sustain their societies. To do that you have to move with them, albeit slowly.

The latest Abbott essay is viewed as another swipe at Turnbull. But I don’t think it is primarily so. Abbott wants to fight for the rearguard reactionary program against what Turnbull might do if the pressure from the reactionary wing is off.

In that respect Abbott is lucky, because so many people were wrong about Turnbull. They thought he would push for the things he believes in and move his party to the majority position on a lot of questions. Instead, he has turned out to be the man who wants to be Prime Minister for the sake of being Prime Minister, not someone who wants to be Prime Minister to do something.

It means that Abbott has not had to work very hard to ensure that the nation does not move (at least for now) to where he does not want it to go.

Abbott does not understand “valve” changes – ones in which a change goes through a valve and there is no going back, scream and kick as he might.

Conservatives will agree or even actively promote “valve” changes if they feel there is widespread support for them. That is what conservatives do.

Good examples are the New Zealand National Party and the British Conservative Party legislating for marriage equality and John Howard legislating for strong gun control in defiance of reactionaries who rejected new majority opinion.

A example of “valve” change, with attendant legislation, in in the past decade or more, has been the unacceptability of discrimination or being offensive against minorities.

Earlier it was slavery, male-only suffrage, child labour. No-one would argue that these are commonsense therefore inevitable, to use Abbott’s words. Their abolition were valve changes.

Similarly, once becomes a republic, has marriage equality and abolishes Christian prayers at the beginning of parliamentary sessions, there will be no going back. No-one will wake up afterwards and say, “Let’s ask Britain if we can borrow their monarch,” or “Let’s restrict marriage,” or “Let’s have prayers.” The reason is that the previous position was exposed as untenable and seen that way by an increasing number of people until it became the majority position. That is the time conservatives take it on, as they have taken on the n national anthem while reactionaries would prefer God Save the Queen.

The previous position was only tenable because it was an unquestioned status quo.

The only exceptions have been prime minister’s “captain’s calls”, which rather proves the valve-change rule. The reactionary restoration of knights and dames, for example, was made by one captain and did not need (and most certainly would not have got) approval by Cabinet, the party room or the Parliament, let alone the people.

The fact that the madly out-of-tune decision could and was made by just one person without reference to anyone else puts it in a category of its own, where what would normally be a valve decision is reversed. But one-person calls can be just as easily cancelled, and are.

Leaving aside “captain’s picks”, with its hopelessly inappropriate team-sport analogy in a disparate society like ours whose members do not cheer at the same time, Abbott’s conduct invites a brief reflection on n leadership.

Active, let’s-get-on-with-it leadership (Gough Whitlam and John Hewson) has its scary moments, but it beats reaction or do-nothing stagnation.

has had far too much do-nothing stagnation. From the vibrant days of the 1993 election when both Keating and Hewson presented direction and vision (whichever one you preferred), we have had quarter of a century of small targets; same-song-sheet; risk-averse leadership with a brief interlude of Howard’s courageous gun control and GST ventures and the Rudd-Swan response to the global financial crisis.

The lack of direction and vision these days means that Hewson is now vying with Kim Beazley as the best prime minister we never had. At least he had a program. On social issues he would have progressed rather than dug in and the hard edges of his economic policies would have been rounded out and the most workable been adopted. His publications since joining the Crawford School at ANU show this.

After the GST, the Howard-Costello government lapsed into buying votes on the back of the mining boom and little else. And the Rudd government abdicated leadership after it dropped its “greatest moral issue of our time” climate-change policy when the Greens allowed perfection to get in the way of the doable and blocked it in the Senate. Since then, leadership has wallowed with few exceptions (like the national disability scheme).

What or who can bring courageous leadership back? Certainly not Tony Abbott and his reactionary slogans and one-liners.

Semi’s hat-trick helps nervy Eels seal top-four spot

Brad Arthur reckons the Eels have a “free throw at the stumps” in their daunting week-one finals clash against the Storm juggernaut, claiming his side are a chance of shocking the runaway minor premiers “if we’re allowed to play football”.

Frustrated with a stalled ruck during Parramatta’s nervy top four-sealing win against the patched-up Rabbitohs on Friday night, Arthur already staked a marker for next week’s clash with the ruthlessly efficient Melbourne and cheekily railed for a speedy play-the-ball at AAMI Park.

“We’re playing Melbourne and we’re looking forward to the challenge,” Arthur said after Semi Radradra’s hat-trick inspired an unconvincing 22-16 win over the Rabbitohs at ANZ Stadium. “No one’s going to give us a chance and it’s a free throw at the stumps. If we’re allowed to play a bit of football we’re a chance.

“They’re the masters at [slowing the ruck], they tackle well and they’ve got great systems. They’re not going to beat themselves. We’ve got to complete and be positive with our ball movement. If you give them opportunities they make you pay.”

Perhaps the gulf between the Storm and Eels can be measured by the plucky Rabbitohs, who copped a 64-6 caning at the hands of the Melbourne before a weakened side pushed the Eels all the way just a week later.

Asked about the Eels’ chances in Melbourne, Rabbitohs coach Michael Maguire quipped: “After last week … good luck. They’re running red hot at the moment and unfortunately last week we were on the end of it.

“I think when you come into a finals series it starts next week for the teams. It’s really up to the team that turns up ready to go. It’s a really, really tight competition. If Parramatta turn up they’ll give themselves a chance.”

Maguire made a head-spinning seven positional or personnel changes to Souths’ starting line-up due to illness and injury with captain Sam Burgess, Adam Reynolds, Angus Crichton and Aaron Gray all dropping out of the starting 13 named on Tuesday.

But for large parts the Robbie Farah-led Rabbitohs looked on the brink of one of the upsets of the season, potentially robbing the Eels of their anticipated second chance saloon.

The result condemns premiers Cronulla to either fifth or sixth spot and the prospect of winning four straight games throughout the finals to defend their title.

The indifferent Eels effort will be dissected in detail, one which hardly had the feel of a side ready to go deep into the play-offs. But Arthur will be relieved the NRL’s feel-good story can at least plan to be playing over the next fortnight.

“We’re happy with where we finished,” Arthur said. “As I said to the boys, ‘You don’t win 16 games by fluke’. The performance was patchy tonight, but Souths came out and had a red-hot crack and played for their coach. It was probably exactly what we needed. Two years ago we might have thrown that away in the last three minutes.”

Brothers Michael and Robert Jennings traded tries on opposite sides of the ruck and on the same side of the field in an enthralling opening 15 minutes where it looked anything like a top-four team playing against one who could be holidaying in the Top End next week.

Michael sliced through and stood up fill-in fullback Damien Cook to start what many thought would be an Eels procession, but Robert’s sharp response for the Rabbitohs indicated anything but the one-way traffic it was supposed to have been.

Kyle Turner slid over after some neat work by Cameron Murray and Farah on the first set after Corey Norman’s careless behind-the-back flick pass surrendered possession.

If not for Radradra darting over in the shadows of half-time – giving them a lead they scarcely deserved – the red-faced Eels may have been able to compare notes with the red-cheeked Arthur after a half-time rev-up.

If his side didn’t hear the half-time message properly, they would have heard it loud and clear during the second stanza – Arthur anxiously balancing on the edge of his sideline seat and bouncing out of it for the most part.

Radradra’s second – this time a simple scurry on the end of an inch-perfect Corey Norman floater – couldn’t even calm the coach.

He knew why. Jennings Jnr outdid Jennings Snr when burrowing over in the corner for his second, albeit off a blatant forward pass to keep the rookie Rabbitohs within touching distance.

But Radradra’s late intervention was enough. It usually always is. But will it be enough to stop the Storm?

Parramatta Eels 22 (Semi Radradra 3, Michael Jennings tries; Mitchell Moses 3 goals) defeated South Sydney Rabbitohs 16 (Robert Jennings 2, Kyle Turner tries; Bryson Goodwin 2 goals) at ANZ Stadium. Referees: Gavin Badger, Chris Butler. Crowd: 21,533.

Getting economic messaging right requires courage

The Liberal government wants you to imagine how high taxes will be if Labor is elected at the next election. A couple weeks ago, Treasurer Scott Morrison was spruiking independent modelling that showed Labor would increase taxes by $167 billion over the next 10 years. Last week, Finance Minister Mathias Cormann was talking about $150 billion plus additional tax burden.

It is no longer surprising that these messages got little or no traction. None of the senior figures in either the Abbott or Turnbull governments have handled economic messaging well. They have been unable or unwilling to do the hard work necessary to hammer home the problems to an electorate made complacent by 26 years of uninterrupted growth.

The messages have changed too often, and been repeated too infrequently, for people to believe they are real. There is a genuine possibility it is now too late for this government ??? after four years and four budgets, they have made little progress on cutting taxation or eliminating the deficit.

In many respects it is more important for the Liberals to figure out why these messages are failing than to continue to pretend the current tactics are working when they’re not. At least then they could develop an alternative approach that, if it doesn’t work for this government, might give them something to work with in opposition.

It goes beyond the salesperson, even though there have been clear mistakes made by Joe Hockey, Scott Morrison and others. For example, the Parliamentary Budget Office disclaiming Morrison’s figures almost immediately was an embarrassing (and predictable) blunder.

Events have also often conspired to overtake the economic message. Recent tensions between North Korea and the US, exacerbated by the unpredictability of President Donald Trump, would swamp economic concerns anyway.

However, some of these events have their genesis within the government. Leadership tensions have never been allowed to settle, giving any spending cut “losers” from a rallying point for opposition. Same-sex marriage too has been continually forced to the front of political debate by its proponents, to the point where the momentum has overtaken the party leadership.

Moreover, the same kind of self-inflicted bad luck that haunted the Gillard minority government seems to be plaguing the Turnbull bare majority. These citizenship issues could have arisen at any time in the past decade, when they would have had little impact on the validity of the government, but they are here now, at the time when they could be a massive problem for the Prime Minister.

But there are two things specifically undermining the Liberal government’s case for economic reform.

First, they simply have not been consistent in their policy prescriptions. It is hard for the government to convince the electorate that increasing taxation is a problem when the Coalition themselves have been increasing tax rates and forecasting increasing revenue in every budget.

They introduced a temporary deficit levy. They raised fees and charges on foreign investors in property. Taxation on superannuation was also increased, and the complexity of the super regime grew substantially.

Indeed, Morrison had to stop pitching his message on Bill Shorten’s tax hike because two days later the government introduced legislation to push up the Medicare levy. The electorate aren’t fools: either tax rises are a problem or they are a solution. They can’t be both.

And there isn’t enough space to talk about all the new and expanded spending initiatives in the past four budgets. When the Coalition is raising income tax through the Medicare levy to pay for Gonski and the NDIS, it can hardly complain about other parties’ tax and spend tendencies.

But what is perhaps of greater concern is that across the western world the economic inclinations of voters seem to be shifting. At the last election, Labor ran on a platform of bigger deficits, higher taxes and more unfunded spending ??? something Rudd, Hawke and Keating all eschewed. The Democrats in the US and Jeremy Corbyn’s UK Labour all proposed huge new spending while only mouthing vague platitudes on how it would be paid for.

On the right too, hard-line conservatives and populists are zeroing in on limiting immigration as the key to reducing government spending. Pride in your ability to support yourself no matter what has been replaced with expectation of getting “your tax dollars back” and not spending them on “free-riders”.

Neither unfairness nor immigrants are causing these budgetary problems. People sense the truth ??? that the average person receives too much government support for what they pay in tax ??? but they don’t want to believe it. Unfortunately it takes little courage to front an ill-informed populist mob; but telling the truth is deemed very “courageous” indeed.

Simon Cowan is Research Manager at the Centre for Independent Studies.