THE KEY REGIONAL ASSETS SECTOR CONSISTS OF GISBORNE AIRPORT, ALONG WITH THE COMMERCIAL PROPERTY PORTFOLIO WHICH IS FOCUSED PRIMARILY ON THE INNER HARBOUR, BUT INCLUDES AGRICULTURE LAND, WAREHOUSING AND DISTRIBUTION CENTRES AND SOME OPERATIONALLY SIGNIFICANT RESIDENTIAL PROPERTIES.
For the Group’s commercial property tenants, the impact of a static economy and consumers having less discretionary spend, means the challenges faced by many have been magnified, particularly as most are in the hospitality or retail industry. The focus has been on retaining high calibre businesses with an established and proven track record. These businesses have also stuck to the fundamentals throughout the recession and continue to trade successfully.
THE INNER HARBOUR WILL BECOME MORE AND MORE CENTRAL TO GISBORNE AND ITS COMMUNITY.
The Group continues to work to create an exciting and vibrant area in the Inner Harbour, with a diverse range of businesses. This gives a wide variety of people a reason to visit the precinct, spend time there and make the most of what is on offer. This has been done through developing office space as well as creating additional parking space and markings. With continuing development, more reasons to be there, and improved access to the area, the Inner Harbour will become more and more central to Gisborne and its community. An example of this is the recent opening of another significant attraction to the area, the Gisborne Wine Centre.
Overall, the property strategy focuses on delivering the greatest possible value from existing assets, while continuing to look for new opportunities both in current land holdings and in areas that have a direct link to the operations of the Group.
As part of this sector, the Gisborne Airport is a significant contributor to both Eastland Group and the region as a whole. It is the main gateway into Tairawhiti with regular scheduled services to Auckland and Wellington, and sees some 134,600 passengers passing through the doors each year. Under
a 15+15 year lease with the Gisborne District Council since 1 April 2005, the Group has managed, operated and undertaken commercial development of Gisborne Airport. At the end of this lease, the Gisborne Airport assets will be returned to the Gisborne District Council in a “same or better” condition.
In this time the Airport’s revenue streams have been added to significantly with several small, but vital changes, such as revitalizing the V2 Café and Bar, extending the public car park, and introducing paid parking. New hangars for private aircraft owners have been built, and a new distribution warehouse has also been constructed. Synergies within the Group’s sister companies have been maximised through solutions such as providing space for storage of logs and bark disposal.
However, of concern going forward is the level of maintenance and renewal expenditure that the Gisborne Airport is likely to incur, and the return on investment that the Airport can generate from this ongoing investment. The Airport is a vital regional asset, and its continuing uninterrupted operation is key to this region’s growth, and therefore ongoing investment is critical.
This is only possible if there is reasonable return on investment. With that in mind there will be a full review and consultation of airport landing fees during the 2011/12 financial year. This will include review and consultation on the methodology for pricing, the inputs such as Weighted Average Cost of Capital (WACC) and asset valuation, and ultimately the level at which landing fees should be to generate a reasonable return.
In summary, the Key Regional Assets sector has weathered the economic storm well but there will continue to be significant challenges going forward. The Group will continue to focus on managing costs down in the business, investing as and when required, in a way that will produce a reasonable return on these investments.