Notice is given that an ordinary meeting of the Commercial Subcommittee will be held on:
Date:
Time:
Meeting Room:
Venue:
Friday 29 August 2014 1.30 pm
Tasman Council Chamber 189 Queen Street
Richmond
Commercial Subcommittee LATE ITEMS AGENDA
LATE ITEMS
6 REPORTS
6.5 Pohara Beach Top 10 Holiday Park - 2014/15 Capital Expenditure ... 5 6.6 Motueka Top 10 Holiday Park - 2014/15 Capital expenditure ... 11
Item 6. 5 6 REPORTS
6.5 POHARA BEACH TOP 10 HOLIDAY PARK - 2014/15 CAPITAL EXPENDITURE
Decision Required Report To: Commercial Subcommittee
Meeting Date: 29 August 2014
Report Author: Gene Cooper, Commercial Manager Report Number: RFN14-08-13
File Reference:
1 Summary
1.1 This report follows on from the Campground Financial strategy report prepared for this Commercial Subcommittee meeting.
1.2 This report is a late report for inclusion, on the basis that the information was not available at the time the agenda was prepared and that the work requires a decision and completion before November 2014 – for the 2014/2015 summer holiday season.
1.3 Pohara Beach Top 10 Holiday Park (PBTT) is one of the Council’s key campground properties.
1.4 PBTT in recent years has been starved of reinvestment in key infrastructure. The lessees instead have invested approximately $0.5m in infrastructure improvements over the past five or so years. The campground strategy paper placed before the Subcommittee focuses on the adoption of a single ownership model which is consistent with this request.
1.5 The Capex on infrastructure proposed is for the provision of a further 41 powered camp sites. This capital was not included in the 2014/15 Annual Plan.
1.6 This expenditure has not been budgeted for because of
1.6.1 the current policy not to fund infrastructure improvements.
1.6.2 the financial strategy for holiday parks was only finalised after the 2014/15 Annual Plan budgets has been set.
1.7 The funding of this capital expenditure will be by way of loan with interest and principal repayments met from increased income.
2 Draft Resolution
That the Commercial Subcommittee:
1) receives the Pohara Beach Top 10 Holiday Park report; and
2) recommends to Council that the unbudgeted power upgrade for Pohara Beach Top 10 Holiday Park campground be completed, at a cost of $60,000.
Item 6. 5
Tasman District Council Commercial Subcommittee Agenda – 29 August 2014
Agenda Page 6
3 Purpose of the Report
3.1 To seek the support of the Commercial Subcommittee in recommending to Council the unbudgeted investment in the upgrade of powered sites at PBTT, before the peak 2014/2015 summer holiday season.
4 Background and Discussion
4.1 This report is consistent with the earlier recommendation to adopt a single ownership model and financial strategy for infrastructure on all Council-owned campgrounds. That strategy report is on the Commercial Subcommittee agenda for this meeting.
4.2 This report is a late report on the basis that the information was not available at the time the agenda was prepared and that the work requires a Council decision and completion before November 2014 – for the 2014/2015 summer holiday season.
4.3 PBTT is one of the Council’s key campground properties. The campground asset has been starved of reinvestment in infrastructure. The lessees of PBTT have invested approximately
$0.5m in infrastructure improvements over the past five or so years.
4.4 The campground strategy paper placed before the committee for recommendation to Council focuses on the adoption of a single ownership model for improvements on campgrounds, which is consistent with this request.
4.5 If the financial strategy is approved by Council, a formal proposal on each campground asset will be supported by a full business case later this year, on the basis of a staged adoption across assets during the 2015/2016 financial year.
4.6 That aside, we have an immediate request from PBTT and this paper covers the proposed requirements for power improvements.
4.6.1 This expenditure has not been budgeted for because of the current policy not to fund infrastructure improvements and the financial strategy for holiday parks only being finalised after the 2014/15 Annual Plan budgets had been set.
4.7 We intend to loan fund the power work which has been estimated by a local electrician. Two quotes will be obtained before proceeding.
5 Options
5.1 The Commercial Subcommittee can approve or decline a recommendation to proceed at this time.
5.2 The lessees are regularly unable to let these unpowered sites. The industry has seen a move away from unpowered, and from camping to roofed accommodation. The lessees have a shortage of powered sites during peak times and are seeking better maximisation of returns.
5.3 If Council declined the request, it would simply have fixed costs associated with space that cannot be let. Cost is minimal and the extension will capitalise on existing infrastructure.
Item 6. 5
5.4 If the recommendation to Council is not supported, the remaining option is to do nothing.
This will have two impacts;
Stunt further income growth from this asset (limited use of unpowered sites);
Create pressure between the lessor (Council) and lessee which may have three effects;
o Lessee questioning Council on their commitment to past, present and future campground activities;
o Lessee completing the work and adding to the conflict of interest situation and limiting further Council’s potential income streams from PBTT.
6 Strategic Challenges / Risks
6.1 Strategic Challenge One – Service to customers. This applies based on our monopolistic ownership of campgrounds and the Council’s challenge to add value, by being responsive and timely in the delivery of assets and services our customer requires. In recent times, Council has left the improvement of assets, to the lessees of the campgrounds, rather than owning and addressing the changing customer trends. The financial impact of this is well articulated.
6.2 Strategic Challenge Two – Financial Sustainability. The approach of developing the roles of the Commercial Subcommittee and Commercial Manager was to review the financial sustainability and performance of all its commercial assets. The direct focus is to improve those returns across the board. It has been recognised that this will require changes to the way Council has historically funded assets and structured investments. Council’s decision to remove trading profits from these assets to fund other operations in Council has had
negative impacts on the performance of the campground assets, limiting the future financial return and will in turn result in a continuing decline in percentage of campground turnover.
6.3 Strategic Challenge Three – Partnership and Neighbours. We are building stronger relationships with our key partners and getting buy-in through open and transparent
discussions to ensure our partners understand why Council is making commercial decisions.
Our key operators at Motueka have been complimentary around recent commercial appointments and subsequent focus. Our partners here claim historical reasoning and inconsistency has not allowed them to actively plan their business future.
7 Policy / Legal Requirements / Plan
7.1 Council policy on campgrounds is contained within the current Commercial Property AMP.
There are no direct levels of service (LOS) applicable to this asset, only generic application via the commercial AMP.
7.2 The activity of campgrounds is a permitted activity on reserve land and is covered by the Reserves Act 1977. The campgrounds cannot easily be sold as they occupy reserve land.
7.3 There are no impacts under the TRMP and no changes in ownership are proposed.
Item 6. 5
Tasman District Council Commercial Subcommittee Agenda – 29 August 2014
Agenda Page 8
7.4 Council financial strategy on campgrounds is before the same meeting this paper. This decision is consistent with the adoption of that strategy paper. Originally Council’s policy was ownership of all land and improvements and we are promoting a return to that policy.
8 Consideration of Financial or Budgetary Implications
8.1 The impacts of a single ownership model are well articulated in topics of this Commercial Subcommittee meeting, to ensure Council maximises its commercial return from the campground assets.
8.2 Council’s decision to use trading cash surpluses from the campground assets for other priorities, effectively starved them of reinvestment capital. This, combined with no funding for expansion, has seen Council returns drop with potential for further damage. A change in Financial Strategy is required to protect Council’s existing investment in these assets.
8.3 Before Council assesses the potential buyback of all improvement infrastructure later this year, and subject to a full business case on each asset, there are interim requirements.
Those requirements provide for immediate capital maintenance and improvements which have been unduly delayed in the past two or so years.
8.4 There are no current budget provisions for this capital expenditure. In the context of Council’s $51m capital works programme for 2014/15, this investment is not significant.
8.5 It has been identified in the Financial Strategy paper before the Subcommittee, that Council will need to continually fund the maintenance and capital infrastructure needs of
campgrounds, as the general trend from camp sites to roofed accommodation and from unpowered to powered sites continues to occur.
8.6 The lessees believe they can gain an additional $30 per site per day for 20 days of year =
$600 per annum x 41 sites = $24,600 per annum. Council share would be 30% = $7,380 per annum, a 12% return on investment and a simple 8.1 year pay back period.
9 Significance and Consultation
9.1 The decision has low significance. Under Council’s significance policy, this matter does not trip any thresholds or sale of interests, and continues with existing commercial activities (although it involves an asset considered ‘strategic’ – being a reserve).
9.2 This move is aligned with the proposed single ownership model strategy, widely discussed with the lessees and before the Commercial Subcommittee today.
10 Conclusion
10.1 Based on the financial case, staff request that the Commercial Subcommittee recommend Council approves the unbudgeted $60,000 spend on infrastructure at PBTT as outlined.
Item 6. 5
11 Next Steps / Timeline
11.1 The Commercial Subcommittee recommendation is considered by Council.
11.2 Council approval obtained.
11.3 Confirmation of approval to proceed advised to the lessees and request that two quotes be obtained.
11.4 Council staff to appoint contractor and manage the work with the lessees. Installation completed by 30 November 2014.
12 Attachments
Nil
Item 6. 6
6.6 MOTUEKA TOP 10 HOLIDAY PARK - 2014/15 CAPITAL EXPENDITURE
Decision Required Report To: Commercial Subcommittee
Meeting Date: 29 August 2014
Report Author: Gene Cooper, Commercial Manager Report Number: RFN14-08-12
File Reference:
1 Summary
1.1 This report follows on from the Campground strategy report prepared for this Commercial Subcommittee meeting. It assumes that the strategy will receive Council approval.
1.2 Motueka Top 10 Holiday Park (MTT) is one of the Council’s key campground properties.
1.3 This report is a late report to the Subcommittee. The information supporting the report was not available when the agenda was compiled and an urgent decision is needed for
commercial reasons.
1.4 Substantial work and maintenance is required on key campground infrastructure, and it has a seasonal deadline for a decision and implementation before November 2014. The
proposed work covers a combination of maintenance and improvements to MTT required before the commencement of the 2014/2015 summer holiday season.
1.5 MTT in recent years has been starved of reinvestment in key infrastructure. The lessees instead have invested approximately $1m in infrastructure improvements over the past five or so years. The campground strategy paper placed before the Subcommittee today focuses on the adoption of a single ownership model which is consistent with this request.
1.6 The Capex on infrastructure proposed, is split into three sub-topics;
1.6.1 Work shed upgrade. The current shed is shared 50/50 with Council’s Engineering department who house key water services. Engineering have requested the full shed use, as they intend to complete the upgrade of facilities in September 2014. To maintain their operations, the lessees require replacement facilities at an estimated cost of $60,000.
1.6.2 There are currently ten workers cabins (circa 1950s) on site, which are in poor state of repair with rotten exteriors, and are no longer weatherproof. The proposal is to replace these with 10 x 2 bedroom cabins at a cost of $170,000. They are proposed as re- locatable cabins and the lessee will complete all onsite management, landscaping and installation costs/overruns (includes power and plumbing connections).
1.6.3 The main road access into the campground requires rebuilding. It has been repaired three times by current management and Council’s Engineering department have inspected and recommended replacement, citing repairs will not last. They have estimated the cost to be approximately $150,000. The road currently has significant pot-holing, water build up etc which is unsightly and is accelerating the deterioration of the road.
Item 6. 6
Tasman District Council Commercial Subcommittee Agenda – 29 August 2014
Agenda Page 12
1.7 This expenditure has not been budgeted for in the 2014/15 Annual Plan because of the current policy not to fund infrastructure improvements. Council has funds of $906,000 available in the Motueka Harbour and Coastal Works account (MCWA) for use on
commercial activities in accordance with the Motueka Harbour and Coastal Works Account Policies and Processes (attached). This project falls within work that can be financed through that policy. Investment of the funds here, rather than elsewhere in the district, is likely to find strong local support.
2 Draft Resolution
That the Commercial Subcommittee:
1) receives the Motueka Top 10 Holiday Park - 2014/15 Capital expenditure RFN14-08-12; and
2) recommends to Council that the proposed unbudgeted expenditure on maintenance and upgrades for Motueka Top 10 Holiday Park campground infrastructure be
approved at an estimated cost of $380,000.
Item 6. 6
3 Purpose of the Report
3.1 To seek support of the Subcommittee for a recommendation to Council to complete the unbudgeted upgrade of key infrastructure requirements of work shed, cabins and roading at MTT in the current financial year, before the peak holiday season.
4 Background and Discussion
4.1 This report is consistent with the earlier recommendation to adopt a single ownership model and strategy for land and infrastructure on all Council-owned campgrounds – strategy report prepared for the Commercial Subcommittee.
4.2 The late inclusion of this report has been on the basis that the scale of infrastructure work and seasonal urgency is required, so as not to interfere with, and leverage returns from, the peak 2014/2015 holiday season (starts 1 December 2014). The lessees had identified this issue before the current Commercial Manager’s arrival, but no progress was made due to Council priorities and its existing strategy. The lessees in recent months have been finalising plans and costings, and this has been a large part of the delay in being able to progress the matter to Council, with appropriate detail necessary to confirm costs.
4.3 MTT is one of the Council’s key campground properties. The other key campground asset is the Pohara Beach Top 10 Holiday Park (PBTT). Both have been starved of reinvestment in infrastructure by Council. The lessees of MTT have invested approximately $1m in
infrastructure improvements over the past five or so years. The lessees of PBTT have invested approximately $0.5m in infrastructure improvements over the past five or so years.
4.4 The campground strategy paper placed before the Subcommittee today focuses on the adoption of a single ownership model for all land and improvements on campgrounds, which is consistent with this request.
4.5 If such a strategy is approved by Council, a formal proposal on each campground asset will be supported by a full business case later this year for the purchase of user-built
infrastructure, on the basis of a staged adoption across assets during the full 2015/2016 financial year.
4.6 That aside, we have immediate improvement needs at MTT and this paper covers the proposed requirements for a combination of maintenance and improvements to campground infrastructure at Motueka. In a commercial sense, this work is required now, and whilst it could be delayed, this will have material impacts on the MTT asset performance over the coming season. Council staff would argue this work has been identified in the last two or three years but has simply not been acted upon and this has caused some friction with the lessee who feels Council is not investing enough in its asset. The lessees have restrictions of capital and cannot continue to fund replacements for all Council’s aging assets at MTT.
4.7 The current ten workers cabins are nominally leased because of ill state of repair. That business is being directed elsewhere to assets the lessee owns. Council is getting nominal return on that income stream. The lessees advise they have very strong school markets for these cabins and currently turn away accommodation requests because of not having enough quality cabin accommodation. This is consistent with the industry move to roofed
Item 6. 6
Tasman District Council Commercial Subcommittee Agenda – 29 August 2014
Agenda Page 14
4.8 The work shed currently on site is shared 50/50 with Engineering Department who house a water bore, pumping and filtration system in their half. The lessees have used their share for repairs and maintenance work and machinery storage. They have long since outgrown their space, instead having to acquire several containers scattered around the park to
accommodate needs as a temporary solution.
4.9 Engineering have requested use of the full shed, as they intend to complete an upgrade of services for Motueka in September 2014. We are investigating a lease to Engineering who would pay commercial rates for lease of that space.
4.10 The lessees require a shed for the space lost and to address the temporary storage solution.
The lessees approached Council last year on this matter, when Engineering department first promoted their intended upgrade. This was subsequently delayed until the current year. The design and cost work has been completed by the lessees and the cost of construction is
$60,000. We are seeking Council approval for the expenditure to complete construction. The new shed will provide fit-for-purpose facilities which have had growing demands based on the successful operation and expansion of MTT in the past 8-10 years. It will also remove the need for containers, will increase the area available for slightly larger cabins (as per point 4.11 below), create better efficiencies for the lessee and improve visual aspects of the MTT campground.
4.11 There are currently ten workers cabins - erected during the 1950s, which are in poor state of repair. They have rotted exteriors and are no longer weatherproof. The proposal is to
replace these with 10 x 2 bedroom cabins at a cost of $170,000. We are seeking Council approval for the fixed price unit expenditure. These items are pre-made cabins transported to site and installed on piles. The vendor will complete all onsite management, landscaping and installation costs (plumbing and electrical) and overruns.
4.12 The main road access into the campground requires rebuilding. It has been repaired three times by the current lessees in recent years. Council’s Engineering department have inspected and recommended replacement, as repairs will not last. They have estimated the cost to be around $150,000. We currently have significant pot-holing, water build up etc which is accelerating the deterioration of the road.
4.13 This expenditure has not been budgeted for because of the timing of budget preparation and the current policy not to fund infrastructure improvements. Council has funds of $906,000 available in the Motueka Harbour and Coastal Works account. The policy over the use of these funds would support their use on this project (attached). The investment of these funds in Motueka is likely to obtain strong local support.
5 Options
5.1 Council can fund all three capital projects, or selectively approach a combination of one or more of these items. In reality, if Council continues to be involved in commercial activities, it comes with an acceptance of the need to continually maintain infrastructure. The MTT asset has been stripped of past trading profits, rather than addressing infrastructural needs and maintenance as they have been required. We now need to make a major investment to address this.
Item 6. 6
5.2 The lessees have funded the majority of recent upgrades over the past five years. Council’s income has dropped from 30% to the current 14% in (2014 year) and will be expected to continue to reduce towards the bare land return of 4%.
5.3 The only way to avoid this ongoing reduction in income and maximise Council’s commercial return from these assets, is to adopt the proposed single ownership model (land and
improvements).
5.4 The pros of each item are discussed in the following points;
5.4.1 Roading has been delayed for two years and the lessee will no longer provide short term fix, as the backbone of the road is broken. Single two chip coat, applied three times in the past five years (as advised by the lessee) will no longer provide an effective fix. This spend is pure maintenance, it is not an improvement or new asset.
5.4.2 Cabins, an historical issue that has been delayed for quite some time (years). The older style of these cabins is not in high demand and the condition has reached its final stages of failure. Replacement with 2 bedroom cabins in the same design as already held on the MTT site, will provide some element of upgrade as well as address the current infrastructure’s poor state of repair. By not proceeding, Council will not gain any notable revenue from this source. As discussed above, based on percentage occupancy, Council is effectively missing revenue of $35,000 per annum based on current usage, being the difference of;
Current income from cabins $45,000 @ 30% = $15,000 Proposed Income $167,000 @ 30% = $50,000
Payback based on current tenancy would be 5 years (cost $170,000/$35,000), which, given these are 50 year assets, this is acceptable.
5.4.3 Work shed, currently not functional or adequate. The lessees would be within their rights to deny Engineering use as it is having an impact on maintenance and asset protection.
5.5 If not adopted by Council, the remaining option is to do nothing. This will have three impacts;
Stunt further growth from this asset (limited use of cabins);
Give the asset the external view of looking tired and rundown in parts (existing cabins and roadway);
Create pressure between the lessor (Council) and lessee which may have three effects;
o Lessee questioning Council on their commitment to past, present and future campground activities;
o Lessee completing the work and adding to the conflict of interest situation and limiting further Council’s potential income streams from MTT;
o Lessee looking for recompense from Council under the current lease, for which Council has a commitment to keep the asset in good condition, given the aging infrastructure. The whole lease has been written on a good faith basis between parties and neither has promoted avoiding their obligations
Item 6. 6
Tasman District Council Commercial Subcommittee Agenda – 29 August 2014
Agenda Page 16
6 Strategic Challenges / Risks
6.1 Strategic Challenge One – Service to customers. This applies based on our monopolistic ownership of campgrounds and the Council’s challenge to add value, by being responsive and timely in the delivery of assets and services our customer requires. In recent times, Council has left the improvement of assets, to the lessees of the campgrounds, rather than owning and addressing the changing customer trends. The financial impact of this is well articulated.
6.2 Strategic Challenge Two – Financial Sustainability. The approach of developing the roles of the Commercial Subcommittee and Commercial Manager was to review the financial sustainability and performance of all its commercial assets. The direct focus is to improve those returns across the board. It has been recognised that this will require changes to the way Council has historically funded assets and structured investments. Council’s decision to remove trading profits from these assets to fund other operations in Council has had
negative impacts on the performance of the campground assets, limiting the future financial return and will in turn result in a continuing decline in percentage of campground turnover.
6.3 Strategic Challenge Three – Partnership and Neighbours. We are building stronger relationships with our key partners and getting buy-in through open and transparent
discussions to ensure our partners understand why Council is making commercial decisions.
Our key operators at Motueka have been complimentary around recent commercial appointments and subsequent focus. Our partners here claim historical reasoning and inconsistency has not allowed them to actively plan their business future.
6.4 There are commercial risks in continuing to under-invest in these commercial operations and these have been highlighted above.
7 Policy / Legal Requirements / Plan
7.1 Council policy on campgrounds is contained within the current Commercial Property AMP.
There are no direct levels of service (LOS) applicable to this asset, only generic application via the commercial AMP.
7.2 The activity of campgrounds is a permitted activity on reserve land and is covered by the Reserves Act 1977. The campgrounds cannot easily be sold as they occupy reserve land.
7.3 There are no impacts under the TRMP and no changes in ownership are proposed.
7.4 Council’s financial strategy on campgrounds is before the same meeting as this paper.
Support for this request is consistent with the adoption of that strategy paper. Originally Council’s policy was ownership of all land and improvements and we are promoting a return to that policy.
7.5 Council’s decision to use trading cash surpluses from the campground assets, effectively starved them of reinvestment, combined with no funding of expansion, has seen returns drop with potential for further damage. A change in financial strategy is required to protect these Council assets and improve commercial returns.
Item 6. 6
8 Consideration of Financial or Budgetary Implications
8.1 The impacts of a single ownership model are well articulated in topics of this Commercial Subcommittee meeting, to ensure Council maximises its commercial return from the campground assets.
8.2 Before Council assesses the potential buyback of all improvement infrastructure later this year, and subject to a full business case on each asset, there are interim requirements.
Those requirements provide for immediate maintenance and improvements which have been unduly delayed in the past two or so years, around roading, cabins and work shed space.
8.3 There are no current budget provisions for this expenditure, due to Council’s currently adopted strategy of nil investment – instead passing that responsibility to lessees in recent years. However, the Motueka Harbour and Coastal Works account has available funds for commercial activities up to $906,000.
8.4 It has been identified in our strategy paper before Council today, that Council will need to continually fund the maintenance and capital infrastructure needs of campgrounds, as the general trend from camp sites to roofed accommodation continues to occur.
8.5 The infrastructure requested in this $380,000 spend is difficult to estimate as a return to Council. Roading maintenance and the shed are inherently difficult to estimate but clearly help support this operation that has grown dramatically and Council is reaping stronger lease returns. The Cabins provide a 5 year payback.
9 Significance and Consultation
9.1 The decision has low significance. Under Council’s significance policy, this matter does not trip any thresholds or sale of interests, and continues with existing commercial activities (although it involves an asset considered strategic – being a reserve).
9.2 This move is aligned with the proposed single ownership model strategy, widely discussed with lessees and before the Commercial Subcommittee today. We have agreement the current pick’n mix model is not working for either party, principally failing to provide a clear delineation between Council and lease responsibilities.
9.3 Due to the decision’s low significance, formal consultation is not considered necessary.
10 Conclusion
10.1 The proposed unbudgeted capital expenditure related to the Motueka Top 10 Holiday Park is necessary to preserve and enhance Council investment in the park. The Subcommittee’s support in recommending to Council approval of the $380,000 spend on Infrastructure at MTT is essential if the projects are to proceed.
11 Next Steps / Timeline
Item 6. 6
Tasman District Council Commercial Subcommittee Agenda – 29 August 2014
Agenda Page 18
11.2 On approval Council staff will provide written confirmation to the lessees.
11.3 Shed and cabins require order confirmation, and consent is already before Council.
11.4 Engineering Department is to complete work.
12 Attachments
1. Motueka Harbour and Coastal Works Account Policies and Processes 19
Att ac hm ent 1 Item 6. 6
Att ac hm ent 1 Item 6. 6
Tasman District Council Commercial Subcommittee Agenda – 29 August 2014
Agenda Page 20
