Category: Business

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In addition, he said the existing operator had done a “really good job” with the Windsor Castle Hotel.

“It’s a big pub with a good bistro, a strong local following and diversified earnings, which will continue to grow,” Mr Cornforth said.

Harvest Hotels are not the only ones seeing value in pubs in regional towns.

Rich Listers the Laundy family and Merivale boss Justin Hemmes have also been buying hotels outside the major capital cities in places such as Wagga Wagga and Narooma.

So has private equity-backed Black Fox Property, which purchased the Australian Hotel in Ballina on the NSW North Coast in June for $9.5 million. Byram Johnston, the former CEO and chairman of funds administrator Mainstream Group, bought the 150-year-old Tarana Hotel near Lithgow in central-western NSW for $5 million in May.

Also looking towards the regions is syndicator Nick Quinn who along with his investment partners – Wagga Wagga publishes Sean O’Hara and Michael Ireson – were the vendors of the Windsor Castle Hotel. The trio purchased the Manning River Hotel in Taree on the NSW Mid North Coast for about $20 million last month.

The acquisition of the Windsor Castle Hotel – a two-storey venue at 78 Lawes Street in East Maitland that comes with 30 gaming machine entitlements, a public bar, large bistro, beer garden, drive-thru bottle shop and accommodation rooms – takes Harvest Hotels ‘ portfolio to eight venues worth about $210 million and held in two funds.

In May, The Australian Financial Review‘s Street Talk column reported that Harvest Hotels was pitching a third fund at investors targeting venues in Adelaide and seeking to raise about $50 million.

Total returns of 17 per cent and a cash yield of 8 per cent were on offer, Harvest Hotels said, as it looked to acquire a $250 million portfolio within five years.

The sale of the Windsor Castle Hotel was brokered by JLL pub specialists Ben McDonald and Kate MacDonald.

“This transaction highlights the market’s willingness to pursue assets underpinned by robust trading fundamentals in key growth locations,” Mr McDonald said.

The sale follows JLL selling the leasehold to the Glenquarie Tavern in Macquarie Fields for $28 million last month – NSW’s largest ever leasehold transaction – and after the real estate firm listed The Oaks Hotel in Neutral Bay with price expectations of more than $175 million.

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“VW wants the capital to electrify their business and Porsche is on an electrification journey,” he says.

“We didn’t need to convince VW and Porsche to do the deal. They decided to do it.

“Then we pitched for it. They had a beauty parade and a big component of the equity story is going to be about electrification and the leadership that Porsche is showing to demonstrate that they will win the race to electrification.

‘You win… because you’ve been consulting’

“This is one example of the sort of transactions that my team and I will be actively involved in. Most of the IPOs we’re now doing these days, there’s a big energy or ESG component.”

Tuffley cringes when asked if investment bankers working in sustainability have to become more like consultants than bankers, given some companies need to be convinced of the merits of decarbonisation.

“You won’t find any bankers saying, ‘Oh, we’re consultants,’” he says. “They’ll say, ‘We’re dealing doers, we are bankers – consulting is for those other guys.

“But the reality is any good M&A banker has got to be taking ideas from clients constantly to win the deal. You can’t wait for the phone to ring.

“You’ve got to be out there, speaking to CEOs. You take them ideas, and give them advice on what they should be doing.

“You take them ideas on an acquisition or demerger or whatever it is. You win the transaction because you’ve been consulting.”

When Tuffley spoke to Chanticleer in April 2019 he had just been hired by Citi to provide advice to CEOs, chief financial officers and boards on transitioning their businesses towards net zero emissions.

At that time, he was adamant one of the growth areas for banking advice and transactions would be agriculture and food.

However, the majority of companies in these two sectors of the global economy have not been part of the wave of corporate commitments to net zero carbon emissions by 2050.

The agriculture challenge

Tuffley shares some compelling statistics that highlight the challenge facing the agriculture and food sector.

He says research by Citi analysts shows that food production accounts for a third of global greenhouse gas (GHG) emissions and yet about a third of food produced for human consumption is either lost or wasted – an annual loss of $US1 trillion.

He says eating habits will have to change given that every gram of protein from beef requires 20 times more land and emits 20 times more GHG emissions than do beans.

Demand for animal-based food is expected to rise by 80 per cent between 2006 and 2050, with beef consumption increasing by 95 per cent.

Citi calculated that agriculture and food production use 70 per cent of global freshwater and are responsible for 80 per cent of deforestation. Also, the pace of degradation of land has accelerated, reaching 30 to 35 times the historical rate.

Tuffley says the agriculture and food sectors have been “laggards” when it comes to carbon reduction, but he does not blame the sectors’ leaders.

“I think it’s all of us who haven’t really listened to the science and elevated it to the same level that we’ve been so focused on in energy,” he says.

“Food and agriculture is even more complex than energy because we’re emotionally tied to food.

“Changing human behavior is hard. And, you actually don’t know what damage is being done in the preparation of food because it’s very hard to measure the greenhouse gas emissions.”

Tuffley says the growth of his division is a tribute to his boss Manolo Falco, who is Citi’s global co-head for banking, capital markets and advisory, and the fact that most global corporations are progressive about carbon reduction.

“For example, Total in France are very progressive – we don’t have to convince them about energy transition, they’re already doing it. What we have to do is help them to execute it,” he says.

Unique claim to fame

“In other parts of the world, we have to convince the companies – and I won’t name them – that this is actually important because their business model won’t exist in 30 years’ time.”

Tuffley, who oversaw the merger of the Australian operations of Goldman Sachs and JBWere in 2003, has a unique claim to fame in investment banking circles.

After the merger with JBWere, he was given the license by Goldman Sachs CEO Hank Paulson in New York to go on a hiring spree for up-and-coming bankers.

This was the catalyst for the hiring of six bankers who went on to be heads of investment banking.

I have hired Tony Osmond, who later became head of corporate and investment banking at Citi; Christian Johnston, who went on to head investment banking at Goldman Sachs; Paul Uren, who is now JPMorgan’s co-head of global investment banking in the Asia-Pacific; Nick Sims, who is co-head of investment banking at Goldman Sachs for Australia and New Zealand; Joe Fayyad, who is CEO and Australia country executive for Bank of America; and James McMurdo, the former head of Deutsche Bank’s corporate and investment Bank for Asia-Pacific.

Other deals the Citi team have worked on or are working on include the Daimler Mercedes Truck demerger; the IPO of Dubai Electricity & Water Utility; the Harley-Davidson/Livewire de-SPAC; to Rhino $150 million Conservation Bond; the $US80 billion Nubank IPO, the Hyzon de-SPAC (an electric/hydrogen trucks business); and the Li-Cycle Holdings de-SPAC (a battery technologies company).

We learned last week inflation is officially 6.1% – way above the average over the past 20 years of 2.5%. This is right in the middle of the Reserve Bank’s 2-3% target band.

But although the rate is now 6.1%, not everyone faces it. It depends on what you buy.

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And there’s one big anomaly right now.

The “basket” of goods and services whose prices the Bureau of Statistics uses to work out the consumer price index is dominated by one item, one most Australians rarely buy.

It is what the bureau calls “new dwelling purchase by owner-occupiers”.

This is mostly the cost of building a new home (excluding the cost of the land) and also the cost of major renovations, but not repairs.

We rarely build a house, and rarely pay up front

Even though very few Australians pay this cost in any given year, and some never pay it, it makes up almost 9% of the total basket, a heavier weight than any other single item in the Consumer Price Index.

By way of comparison, bread – a product most households buy every day – makes up only 0.53% of the index. “New dwelling purchase” makes up 8.67%.

New dwelling purchase gets such a big weight because it is so expensive, sometimes as much as half a million dollars or more. Like most other items in the consumer price index, bread is cheaper.

We buy bread more often, but it scarcely counts

Normally when the price of “new dwelling purchase” isn’t moving by much (or by much more than other prices) it doesn’t much move the index.

But material and labor shortages mean that over the past year alone, the cost of new dwelling purchase has jumped by more than 20%. In the June quarter it was responsible for almost a third – 0.5 points – of the 1.8% increase in the entire consumer price index.

If your interest is the change in household cost of living, the inclusion of the cost of buying a new house is a problem as the very few people who pay it mostly don’t pay it upfront. They take out a loan which they pay off slowly.

Measured differently, costs didn’t rise 6.1%

Before 1998 the bureau used a different so-called “outlays” approach to measuring inflation that measured payments made to gain access to goods and services.

The resulting weight of housing in the index was much lower.

The bureau still uses the outlays method to calculate separately-published living cost indexes published on Wednesday.

Using these indexes, ANU modeling suggests about 80% of households had a living cost increase below the consumer price index of 6.1%.

The median (typical) increase over the past year is 4.7%, meaning half of households had increases in living costs below 4.7%.

Half of us faced less than 4.7%

Among the households whose living costs have climbed by less than 6.1% would be almost all of those headed by people on the JobSeeker unemployment benefit.

The cost of living for these households climbed by 5%.

Yet in September this year the benefit will increase in total by the increase in the consumer price index, meaning that for once the living standards of households receiving those benefits will move ahead.

Wage earner living costs have increased by just 4.6%, suggesting wage increases in line with the consumer price index would also leave them ahead.

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Read more: Inflation hasn’t been higher for 32 years. What now?

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Our modeling suggests high income families suffered a cost of living increase of only 4.5%, compared to 4.9% for lower income families.

For the moment, the lower living cost indexes are a better guide to changes in the cost of living than the consumer price index.

In time, as the increases in the cost of new dwellings subside, the difference will become less stark. Indeed, as mortgage rates increase over the year growth in the living cost indexes might exceed the consumer price index.

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Read more: What’s in the CPI and what does it actually measure?

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State and federal energy ministers are poised next week to put environment back into the country’s National Electricity Objective in what will be a landmark move to underpin the shift from fossil fuels towards 100 per cent renewables.

The lack of environment in the NEO – mysteriously dropped at the last minute by the Howard government as the rules of the current system were finalized more than two decades ago – has hamstrung the shift to renewables because it has stymied key rulings made by regulators and rule makers.

Its inclusion is likely to lead to a rethink of key rules and regulations, and their interpretation, and pave the way for tens of billions of dollars in new infrastructure, generation and storage that will fast-track the shift from coal and gas to a renewables -based grid.

The exclusion of environment from the NEO has obliged regulators to make some clearly absurd decisions, such as endorsing new diesel generators rather than a storage option at Broken Hill, mainly because they were forced to consider only narrow economic factors.

See: Regulatory madness promotes dirty diesel over renewable mini grid at Broken Hill

It has also led to poor outcomes in assessing the net worth of new transmissions projects, causing delays that have left the country short of grid capacity even as the new government assumes the country will somehow reach 82 per cent renewables by 2030.

The issue has come to a head in the redesign of the market rules being managed by the Energy Security Board, particularly in its proposal for a so-called “capacity mechanism” that even its own modeling shows will favor existing dirty thermal generators over new clean firming technologies.

A proposal to put environment into the NEO has been worked on by the ACT government since last September, and at the last energy ministers meeting there was a general agreement on the move, but not the how.

This will be formally put to other state ministers ahead of a joint meeting next week, the ACT climate minister Shane Rattenbury confirmed after the first publication of this story.

“Reflecting emissions reduction goals in the NEO is important for ensuring emissions intensity of generation is considered and reducing emissions is prioritized. I am pleased that this work has progressed well and will be discussed at the upcoming Energy Ministers Meeting this month,” he said in a statement.

“We cannot deny the need to decarbonise our energy supply. We need to act quickly if we are to have any chance of meeting Australia’s net zero emissions by 2050 target, and this means rapidly reducing emissions from the energy sector.

“Reflecting the net zero emissions goal in the NEO will help to ensure an efficient and coordinated national approach to decarbonisation, so that we can make this transition as smooth as possible.”

See also: ACT to quit gas by 2045, shift to all-electric homes and businesses

RenewEconomy understands that the proposal has the overwhelming support of all energy ministers.

The move follows a plea from the ESB itself – in response to the controversy over the nature of its capacity market proposals – for guidance from ministers on whether emissions should play a part in its considerations.

The answer to that is of course it should, given the country has a soon-to-be legislated net zero target for 2050, and a 43 per cent emissions reduction target for 2030 that will need to be lifted in coming years.

“There’s many, many capacity markets around the world, many of which have been implemented to manage the transition, which tend to have the complementary emissions reduction mechanisms that go with them,” Anna Collyer, the head of the Australian Energy Markets Commission, said last month

“So that’s what we would like to get further advice on, so that we can do that in a deliberate way and build out what we see that we need, in terms of that right mix of resources.”

The inclusion of an environmental, and even an emissions target, will also make it easier for important planning blueprints such as the Australian Energy Market Operator’s objective Integrated System Plan, which has already accelerated its central scenario to “step change” and could lift this to “hydrogen superpower” next time round.

A similar proposal was advocated by a Greens-led Senate inquiry in 2016, and put forward by Victoria, but rejected by the then Coalition government because it said it would be “too complex.”

Then Labor energy spokesman Mark Butler said at the time the rules of the market were not fit for purpose because of the absence of environment objectives, and meant that implementing policies, such as the renewable energy target, “end up feeling like trying to bang a square peg into a round hole.”

It is understood current federal climate and energy minister Chris Bowen supports the move. And he needs to, if Labor is to deliver anywhere near that 82 per cent renewable target it is now loudly promoting after securing the reluctant support of the Greens for the more modest 43 per cent emissions reduction target.

Clean energy investors hope that putting environment, and an emissions objective, into the considerations of the rule makers and the regulators will help change their current thinking about the design of capacity markets and other key rulings such as locational pricing.

Simon Corbell, the former ACT energy minister who now heads the Clean Energy Investment Group, which includes many of the biggest renewable and storage investors in Australia, says the environmental reform would be a landmark event.

He says the CEIG – among others – has been lobbying ministers and departments for an environmental and emissions outcome, and it will be a landmark moment if approved as expected next week.

The CEIG’s latests survey of its members shows a bleak outlook for investment in the short term, despite the need to mobilize tens of gigawatts of new capacity to meet the scenario of 80 per cent renewables painted by the federal Labor government and the Australian Energy Market Operator .

Corbell says the current crisis engulfing Australia’s energy markets could and should be the last – if the country can shift to renewables and storage – but it will require a wholesale reform of the market and its governance.

“Ministers have to provide a clear signal to urgently reform governance of the NEM and direct the market bodies to accelerate transformation,” he says.

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West Melbourne, Melbourne city, Docklands and Southbank all posted record-breaking annual rental growth of 34 per cent, 33.6 per cent, 33.2 per cent and 32.6 per cent respectively.

Median unit rents across inner Sydney suburbs Ultimo, Haymarket, Pyrmont and Zetland also rose sharply, jumping by 20.5 per cent, 20 per cent, 19.5 per cent and 18.6 per cent respectively.

At the height of the pandemic lockdowns, apartment rents across inner Melbourne had dropped by up to 25 per cent as tenants avoided high-density housing for fear of catching the virus. Demand was further dented by the lack of foreign students who normally rented in these areas.

“We did see demand fall sharply in inner Sydney and inner Melbourne in particular at the onset of the pandemic, and now they’re bouncing back extraordinarily quickly to well above pre-COVID-19 levels, simply because they were very affordable for starters, and we’re starting to see capital cities becoming more vibrant as workers move back to the office,” Mr Lawless said.

“Now that’s probably being amplified by more migrants coming back, which we know will be a key area where a lot of that overseas migration lands.”

Strong demand for freestanding houses lifted median rent by more than 21 per cent in Brighton-le-Sands in Sydney and by a similar amount in inner Brisbane suburbs Hendra and Ascot.

The trend in rising rents is also evident across each of the capital city and broad rest of state markets with median rental value rising by more than 10 per cent nationally.

Mr Lawless said rising rents and falling home values ​​would fuel a rapid recovery in rental yields and attract more investors into the market.

“Even though investors are generally mostly motivated by capital gains, you’d have to think that the stronger buying conditions, opportunities for higher yields and then positioning for medium to long term capital gains will be quite appealing for the next six to 12 months or so,” he said.

Sydney-based buyer’s agent Jack Henderson of Henderson Advocacy said the number of investors looking to buy had risen since the RBA started rising rates.

“We just had our biggest month ever in signing up new clients and 90 per cent of those are planning to invest,” Mr Henderson said/

“Many of them have built up a lot of equity in their owner-occupied homes over the last two years and have since refinanced to access that equity. Now they want to use that money to buy. Investors are also motivated by the rising rents and yields.”

Across the combined capital cities, the gross yield has increased from a record low of 2.96 per cent in February this year to 3.2 per cent in July. Sydney rose to 2.8 per cent, Melbourne to 3 per cent, Brisbane 3.6 per cent, Adelaide 3.7 per cent and Perth 4.4 per cent. Hobart rose to 3.8 per cent, Darwin 6.1 per cent and Canberra 3.8 per cent.