AHC Limited (AHC) is a property development company based in Queensland. The company's business operations include incorporating contract residential and commercial building, property development for long-term asset portfolio creation and subdivision of land for residential and industrial development. AHC was listed on the Australian Stock Exchange on 24th of March 1988. The business operation is split in two divisions: commercial and housing divisions. Both businesses were operational in the geographic area between Hervey Bay, Queensland to Ballina in Northern New South Wales.
Within the commercial segment, the offerings of the company's consist of Worongary Town Center and Saltwater Estate. In addition, a medical center was completed with doctor, dentist and physiotherapy open at the end of the fiscal year June 30, 2007. Besides that, AHC commercial division specializes in the construction of service stations, shopping centers, factories, show rooms as well as low-rise office buildings.
On the other hand, within the housing segment of AHC, the office is situated at Helensvale on the Gold Coast. For the last twenty years, AHC homes have been engaged in the development of new homes for Queensland and Northern NSW families. AHC Homes have earned enviable reputation for stylish design and value for money and have been known as one of the innovators in the quality new home market. AHC display homes are located at Sea Breeze Estate, Pottsville and Regatta Waters Oxenford and Halpine Lake Mango Hill.
Currently, AHC Limited has 13 employees in total in the company. It is noted that there is no substantial shareholder in the company. The property development company also has a market cap of 11.84 million AUD on the ASX. The directors of AHC Limited are as follows:
a) Ian Roderick MacLeod
* Director of the Company since incorporation on 1 November 1984 and has had over 30 years experience with the property development industry.
b) Wayne Benson Lester
* Registered Master Builder for over 30 years. Associated with the company since January 1989.
c) Rod Lindsay MacLeod
* Graduate Australian Institute Company Directors. Associated with the company since January 1989
d) Vikki Anne Plehan
* Associated with the company since 2000. Also the Operations Manager of Housing Department.
e) Rodney Joseph Walsh
* 35 years in the Public Accounting including 20 years as self employed C.P.A.
The company currently holds bank overdraft amounting to 25,748 AUD. This overdraft is secured by a floating charge over the Company assets. Besides that, the bank bills are secured by first mortgages over certain freehold land, buildings and work in progress. National Australia Bank has a registered fixed and floating charge over the assets of the Company including:
* Registered mortgage over property situate 7 South Quay Drive, Biggera Waters Qld 4216
* Registered Mortgage Debenture over the whole of AHC Ltd assets including goodwill and uncalled capital and called but unpaid capital together with relative insurance policy assigned to the National Australia Bank Limited
* Registered Mortgage over property situate Worongary Village Shopping Centre 1 Mudgeeraba Road Worongary Qld more particularly described in Certificate of Title Reference 50310789.
* Registered Mortgage over property situate Caltex Service Station 2 Helensvale Drive Helensvale more particularly described in Certificate of Title Reference 50366042.
* Registered mortgage over property situate 9 South Quay Drive, Biggera Waters Qld 4216
* Registered mortgage over property situate Cnr Ramsay & Woolgar Roads, Gympie, Qld.
The bank bills amounting to 18,432,718 AUD are rolled over monthly and a variable rate of interest is payable on roll over. Specific to the development of the company's non-current asset Worongary Village Shopping Centre, The bill arrangement was originally established in 2003. As such, these bills are classified as non-current debt even though the company does not have an unconditional right to defer settlement for at least twelve months after reporting date.
The amount of Current Secured Loan totaling 4,278,352 AUD with Suncorp Metway Ltd is secured by a registered mortgage over property situated at Lots 400, 502 & 2 on SP 213534 Siganto Drive, Helensvale. It is noted that the company also has a bank guarantee facility in place with National Australia Bank amounting to 250,000 AUD.
Property Industry Outlook:
AHC Limited is categorized as part of the property development industry with the company operations divided into 2 divisions: Housing property and commercial property.
With the recent global economy downturn due to the US sub prime mortgage crisis, Australia was the only G20 member that did not fall into a recession in 2009. However, the effects of the downturn negatively affected the property market. According to Westpac's outlook on the property market for the next three years, as the price increased in the residential sector in the beginning of 2009 and there are signs that commercial property have begun to recover, the outlook for the next three years would be continued growth. The challenge remains however for the property market to grow in a period when the stimulus package is removed.
According to Westpac's outlook, expectations for 2010 are for demand to remain healthy in the residential property market as job growth surges over the next few years in respond to the recovery of the economy. Interest rates are also expected to increase to ensure the property market will not be overheated. Even though the stimulus is being removed through the forecast period of 2010-2012, the recovery of the economy should stimulate demand in the property market as price stabilizes in 2010 due to expected rise in interest rates. These indications of probable signs of growth will bring positive impact on AHC Limited Housing Division's financial position as there will be more opportunities in the future.
As supply remained low and demands are expected to improve, the office market is near its peak in most markets over Australia, this is especially true in New South Wales. It is also stated in Westpac's outlook that while most markets have peaked, recovery of rents or values is not anticipated until later in the year of 2011. As the proposal of lending 5 million AUD to construct new office buildings in a fast growing area of Northern New South Wales is currently being considered, the future outlook looks well for AHC Limited. As supply of office buildings is currently low where market has peaked, it would be a good opportunity for AHC Limited to use the funds to construct these office buildings to take advantage of the expected outlook. As such, it would be reasonable to say that the funds lent to AHC Limited suits the purpose of the loan, as supply remains low and economy rising, the New South Wales market is expected to improve in future.
The commercial property markets are also said to be entering the recovery phase of the investment cycle (Property Council 2010). As total returns recorded for Australia's commercial property market has improved at the end of December 2009, the results indicates improvement for the markets and signifies the commercial property market recovering from a trough in the property investment cycle in mid 2009 (Property Council 2010). As such, it is safe to say that AHC Limited's decision to use the funds to invest in office buildings has a positive outlook and it is unlikely that the company would default on the loan.
Another similar article by Lynne Blundell (2010) stated that Australia's office market has retained their shine in comparison to other countries around the globe after the global financial crisis. Even though Australia withstood the global economic downturn better than most countries, the country still experienced a decline in office demands and rising vacancies in 2009. However, recent fall in national unemployment and rising rental incentives offered by landlords would indicate an intense competition for office blocks in 2010
Risk factors in Property Development Industry
A study conducted by Newell and Steglick (2006) shows that overall respondents in the study think that this phase of property development has the highest overall risk due to uncertainty in pre-construction phase and other factors being out of developer's control. The study also shows that Environmental risk which scored the highest among the risk ratings, is seen as the highest risk factor in this phase of property development. There are other risk factors which include risk in terms of approval, title, political, feasibility and infrastructure in the pre-construction phase. In mitigating such risks, various strategies are employed by the company such as analyzing cost impacts before committing to address environmental risk; purchase conditional on rezoning, confirm pre-DA if extra approvals are needed to address approval risk; evaluate land deficiency into land price to address market risk; and dealing only with experienced builders and developers to avoid experience risk. Such strategies would assist in reducing the risk involved when making decisions in the pre-construction phase.
Contract Negotiation Risk
The contract negotiation phase of property development is seen as the second highest overall risk in the study conducted by Newell and Steglick (2006). In this phase, it is found that land cost and acquisition terms are significant risk factors to manage in the contract negotiation phase. To address the land cost risk involved, proper price negotiation is done to provide adequate contingencies. Property developers also negotiates adjustment mechanisms for price and conditions to minimize acquisition term risks. By carefully mitigating those risks, property developers will gain a fair and flexible contract terms as well as allowing for reasonable profit margin.
In this phase of property development, there are three specific risk factors seen to be important in the overall development process: time delay risk, cost increase risk and engineering risk. In order to overcome time delay risk, property developers usually take steps in ensuring there is adequate insurance cover. Besides that, developers also usually penalize builders for any delay in the construction to avoid any time delay costs as delay of construction would lead to a breach of terms of construction contract and would cost the company. Cost increase risk on the other hand is usually overcome by negotiating fixed price building contract in order to avoid any sudden cost increase.