2018-08-31 Special Meeting Minutes

SPECIAL MEETING AGENDA                                                               31 AUGUST 2018


Financial Implications

To ensure that the financial implications of any potential site purchase are fully considered, 10 year
financial modelling has been undertaken based on a number of known buy and retain scenarios
(to effectively understand the worst case financial position should the site be acquired and
operated).

There are a myriad of scenarios that could eventuate regarding the future use of the site under
Council control, however only the following have been modelled for the purposes of the
investigation (with buy and resell options not yet considered):

     Scenario 1 – Full commercial lease return (with 9 sub scenarios regarding alternative site
      purchase cost and differing lease rates per m2).
     Scenario 2 – Part commercial lease (assuming only 50% of the building footprint is leased
      with 9 sub scenarios regarding alternative purchase prices and differing lease rates per m2).
     Scenario 3 – Community lease (with 3 sub scenarios regarding alternative site purchase
      cost).

The modelling incorporated the estimated rectification costs required to bring the buildings online
in addition to including annual operating and maintenance forecasts. Operating forecasts were
derived from comparison with other similar sized Council buildings (i.e. utilities, power, cleaning,
information communication), with other operating cost forecasts derived from first principles (i.e.
land management costs, rates, staff resourcing). Maintenance forecasts were utilised directly from
the building condition assessment results. Attachment 3 includes the list of general modelling
assumptions used in determining annual revenue, expense and net present value (NPV)
outcomes.

NPV is essentially a measurement of return calculated by subtracting the present values of cash
outflows (including any initial purchase cost) from the present values of cash inflows over a period
of time. After the cash flow for each period is calculated, the present value is achieved by
discounting the future value at a periodic rate of return (in Council’s case the likely rate of borrowing
funds from Queensland Treasury Corporation). Business and government use this approach to
determine if potential investments will provide a sufficient return (i.e. the net present value must be
nil or higher). Whilst this approach is not simple for local government projects with broader benefits
(social, economic, environmental) it is a good indicator of the likely financial impact on ratepayers
when making decisions.

The following graph outlines the NPV cost per ratepayer for the 3 scenarios. Assuming a
conservative approach to revenue generation (i.e. lease rates of $150m2 achieved) the potential
net cost to each ratepayer ranges from $258 to $296 over the 10 year period (on average a $25 to
$30 investment per annum). This would equate to an upfront general rate increase between 2%
and 2.6% to maintain Council’s current financial sustainability position.




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