 Tumblar Products
Property investment trends still strong
Commentators who had picked the kiwi dollar to now be worth closer to US60 cents than US70 cents are again making their predictions for the year ahead. Of course, this might be the year the consensus forecast is correct. But can an exporter afford to take that risk? Not if, like Christchurch-based Tumblar Products Limited, 80 percent of revenues are from offshore.
Founded by John Smith, Tumblar takes its name from the anti-static fabric softener pads it started manufacturing 26 years ago. Since then, the company has expanded into the contract manufacture of householder cleaners, insect repellents and associated products and is about to embark on the construction of new premises to add to the production facility it now occupies.
The task of shielding earnings from the impact of the volatile New Zealand dollar falls to Chief Financial Officer, Lynn Dilger. "Our focus is on protecting our costing rate," she says. "We don't get overly concerned by the daily fluctuations, as our overall goal is to lose nothing to foreign exchange."
"Typically we float a third of our currency exposure, have forward contracts in place for another third and use options for a third, depending on our cash flow projections."
Updates on currency trends and available strategies are provided daily by the foreign exchange team at Tumblar's bank, ANZ.
"Protecting earnings and cash flow is the basis of risk management," says ANZ Foreign Exchange Manager Paul Saunders. "Exposure to adverse market rates cannot be eliminated but it can be managed. Best placed are the firms who have clear and unambiguous policies, procedures and reporting and a systematic approach to managing financial risks."
Understanding the financial instruments that can help is not always easy. Lynn Dilger has taken advantage of the free seminars for exporters and importers offered by ANZ to customers and Canterbury Manufacturers Association members. More detailed three-day workshops are provided in conjunction with Lincoln University.
Encouraged by several years’ experience managing foreign exchange rate risk, Tumblar is now looking to manage its borrowing costs using interest rate swaps. David Walker, ANZ Manager Capital Markets, says an interest rate swap, used with a relating floating rate loan, can provide the certainty of a fixed interest rate when floating rates are rising. When the trend is falling, the swap can be restructured with more flexibility than may be possible with a traditional fixed rate loan to access lower rates by extending its term.
For more information contact: David Walker 03 364 5182,
david.walker@anznational.co.nz
Driven by the buoyant economy and low interest rates, property continues to be one of the top-performing investments.
All property sectors - commercial, industrial and residential - have delivered double-digit gains in the past 12 months. But what can we expect for the next 12 months and beyond?
ANZ Chief Economist Cameron Bagrie says the residential sector is well into a consolidation phase. Residential investment has contracted since mid-2004, with dwelling consents and house sales over 30 percent below their peaks. However, Mr Bagrie also said he expected the commercial and industrial sectors to remain strong for a while yet. Under investment in the past decade has pushed vacancy rates to historically low levels.
Jeff Greenslade, Managing Director of ANZ Corporate & Commercial Banking says, “sound propositions continue to be put before us by developers who have a pre-commitment from tenants. There appears to be no drop in the number or quality of these proposals.”
Interest from offshore investors is one factor pushing up prices. Property Council figures show that the nationwide purchase price of CBD offices rose 8 percent while rental returns increased by nearly 10 percent in the year to September 2005. Prices of industrial property rose by more than 11 percent. Tenants who want the efficiencies of new purpose-built space have been responsible for much of the new development that has taken place.
Gerald Rundle, Manager of Bayleys Research says speculative development has become less attractive due to rising land, construction and compliance costs. While tenant inquiry for office space may soften in some markets, the slow down in speculative development will serve to keep vacancies in check and, in most areas, steady rental growth will continue, Mr Rundle says.
Within the overall picture for commercial and industrial property, some regional trends are evident. Vacancy rates at the top end of the Auckland CBD market have fallen to an all-time low, and an eight-year low on the City fringe. Expanding government departments have been the principal reason for higher rents and new office construction in downtown Wellington. In regional tourism centres, such as Queenstown, Rotorua and Taupo, further strong growth in tourism is expected to lead to increased property demand.
The combination of all these factors means a positive outlook in the short to medium term for commercial property.
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