Senior Living & Golf Course Development

In mid-2018 the Club retained Golf Business Advisory Services (Jeff Blunden) to conduct a
comprehensive member survey and to facilitate the presentation of a strategic plan for the Club for 2018 – 2023.

In late 2018 the Club launched its Strategic Plan

The vision for the Club that the Board has adopted is to be ‘A recognised leading Australian club providing an exceptional golf, member and guest experience’. Delivery of that vision is orientated around six key pillars:

• Membership
• Golf Course
• Golf Operations
• Clubhouse and Hospitality
• Administration and Governance
• Land Development

The Club has made substantial progress in delivering the key initiatives under each pillar but there is more to do.

To understand how the potential development of the Club’s land fits into our strategy it is first necessary to review the ‘Golf Course’ pillar of our strategy.

The key goals under the golf course pillar are:

(i) Provide a golf course of the highest possible standard year round with playability and characteristic that can be enjoyed by golfers of all levels;

(ii) To plan and execute programs and procedures that maintain a superior golf experience as well as enhancing the aesthetics of the Club;

(iii) To consistently achieve a national course ranking inside the top 10 to 20 courses.
The key initiatives that were identified to achieve those goals were:

1. ‘Subject to the Club’s land development opportunity, commission a new course masterplan, addressing greens, bunkers and flooding. Additionally the plan should respect our Eric Apperly design and make maintenance cost effective’.
2. ‘Subject to the Club’s land development opportunity, undertake required course redevelopment work’.

The reason these particular initiatives were identified was because of feedback from the major member survey which identified low levels of satisfaction around the condition of bunkers, greens and green surrounds.

The survey showed these were all areas of high importance to member satisfaction and needed to be addressed.

Whilst the Club, if it adopted a business as usual approach, could quite possibly fund the works that would be required to address these areas of high importance to member satisfaction, it would involve going into significant levels of debt and take considerably longer, with considerably more disruption.

Additionally, while the financial performance of the Club has also improved in recent years it is unlikely the Club could ever reasonably get into a position of being able to address these areas of high importance and low satisfaction without adopting a major change in its operation.

The Club’s course has now slipped to No. 27 in the Golf Australian rankings and No. 28 in Australian Golf Digest. Action is required if we are to maintain our top 20 aspiration.

For the reasons above, and consistent with the approach of various Board’s over recent history, the Board adopted a ‘Land Development’ pillar in the strategic plan that has, as its goal, the delivery of long term sustainability to the Club.

The starting point when considering the Club’s land development opportunities was to look at our golf course and examine what land might be able to be made available for development without prejudicing or compromising our golf course and the facilities and member experience we are able to offer.

To determine what, if any, development opportunity the Club might be able to pursue Harrison Golf was retained to look at the opportunities that might be available.

The idea of developing part of the Club’s land is not new. In fact, the Development Control Plan prepared by Ross Watson Golf Architecture adopted by the Club in 2010 identified the potential to develop a 7,000sqm site where the current chipping green is located.

At the time the Club was looking at the potential for part of our land to be used for a supermarket.

The 7,000sqm identified was not suitable for that purpose because the site was not big enough and the difficult topographic and traffic environment in that area.

As part of Harrison Golf’s review a number of options were looked at. Taking into account two material constraints on our course – the boundary with Nelson Bay Road (and the consequential potential for golf balls to interact with motorists) and the flooding that occurs on the existing 16th and 17th, Harrison Golf came up with a new design which addressed those issues and created a substantial area of land that could be made available for development.

Other development options were looked at. For example, the potential for development of the driving range was considered. The main difficulty with this option was that it would be very difficult to find a satisfactory location for a driving range which is considered fundamental to our operation and an important point of difference for our Club.

We have also looked at solely developing the area occupied by the existing chipping green but the site was not big enough to provide a viable development nor was there considered to be a sufficient market for a standalone seniors living unit development in the area (which is the only form of residential development available without the need to engage in a rezoning process).

We have explored the potential for supermarkets, fast food, petrol, specialty retail and seniors living development for the development land.

At all times the Club has been clear that it is seeking a sustainable long term income stream to underpin our golf operations.

We have also made clear that the Club wishes to minimise its level of debt – debt having been identified as a key factor in the failure of many other golf clubs.

When looking at options such as retail, the Club would have been in a joint venture situation where, unless it was prepared to sell an interest in its land, would have ultimately had to borrow material amounts to buy out any joint venture partner to maintain ownership of the asset.

There would also be significant operational risks with such a model which were considered unacceptable.

Ultimately, looking at the land available, the risk profile of the Club, the requirement for a long term low risk income stream, the Board, in consultation with industry professionals, have concluded that the best model for the Club is the grant of a long term lease of the development land on the Nelson Bay Road frontage for the purpose of a senior’s housing development.

This is the most attractive option for the Club to execute its strategy and achieve its vision.

Pursuing the long term land lease of the identified land has the following advantages:

1. The Club can realise the value of the development land without selling it or losing control of how the land is developed.
2. The Club will obtain a long term income stream of approximately $750,000 a year to help keep our course in the best possible condition and keep our Club sustainable.
3. It allows the Club to address boundary issues that will become more difficult to manage as Nelson Bay Road becomes wider and busier.
4. It allows the Club to address flooding issues on our golf course (particularly on the existing 16th and 17th).
5. It is likely the standing of our important course will improve because we will be removing the flat, low lying holes and replacing them with holes in the more undulating country that our course is known for.
6. It provides us with an opportunity to address concerns expressed by our members in the member survey about the quality of our bunkers and greens with minimum disruption.
7. It potentially provides us with an opportunity in the future to make modest upgrades to our Clubhouse to provide the level of amenity and services the membership tells us it wants. In particular, our younger members (the future of our Club) have told us they would value a more modern clubhouse experience.
8. There is potential for a significant number of members to be obtained from the development increasing activity in the Clubs facilities and the vibrancy of the Club overall.
9. Improvements to our course and facilities should increase our visitor play and golf tourism.
10. The Club will avoid the inevitable cost of connecting our Clubhouse and maintenance shed to the sewer, the cost of fire safety upgrades which will ultimately be required for our Clubhouse, and the cost associated with drainage issues associated with our current car park. The cost of addressing these issues is likely to exceed $400,000 without the development proceeding.

1. There will be a period of disruption and business interference involved in completing the works necessary to change our course to accommodate the development.
2. If the work to our course is not carefully and sympathetically carried out there is a risk to the current standing of our ‘Eric Apperly’ designed layout.
3. We will need to spend a significant amount of money to complete the course works including up to $4.0M on the course and around $2M on biodiversity offsets because of the clearing required to build new holes;
4. The senior living development will be visible from some western areas of our course;
5. There is a risk that the Club may end up the operator of the seniors living development in the event the lease is terminated.

Initially the Club relied on local property knowledge to identify the Stevens Group as a development partner for the Club.

The view was taken that the Stevens Group had the right mix of experience with, at the time, large retail, fuel, fast food, seniors living and golf course development (having developed The Vintage).

When the Club decided that the joint venture model was unacceptable the Club engaged Strategic Property Partners (Tim Boyce) to review the proposal for seniors housing and to test the market.

A report on the process that SPP undertook will be provided shortly. After having carried out that market testing exercise SPP recommended to the Board that it pursue a long term lease arrangement with Principle Living (a Joint Venture between the Stevens Group, the McCloy Group  and the Sue Mann Group.

We have been working with the Principle Living team for some time now and have found them to be both professional and understanding of the Club’s priorities and objectives.

They have also been very tolerant of the limitations that come with dealing with a registered club.

To achieve the Club’s vision for our course and associated facilities requires a significant amount of investment.

The Club is not presently in a position to responsibly borrow money to invest in the course and facilities.

There is no realistic way, within our current business model, for the Club to deliver the improved facilities our members are telling us they want within our financial means and without major long term disruption.

For that reason, the Club’s long term vision cannot, in the Board’s view, be achieved without the development.

There are four things that need to occur for the development to proceed:

1. The members of the Club need to pass a resolution at a general meeting to adopt a new course masterplan to allow the changes that need to occur to the course;
2. The members of the Club need to pass a resolution to satisfy s41E of the Registered Clubs Act 1979 to allow the development land to be leased;
3. The Club and Principle Living needs to execute an Agreement for Lease; and
4. Development consent (and associated approvals) need to be obtained on satisfactory terms for both the changes to the golf course and the seniors living development.

Unlike the transactions being undertaken by other Clubs:

1. There is no transfer of our land to any other party;
2. The Club is taking its money in cash not ‘in kind’ so we have control over how our money is spent;
3. The Club receives a straight rental and the Club’s fortunes are not dependent on ‘deferred management fees’ and is not exposed to any regulatory risks associated with various retirement village models; and
4. The land remains ‘core property’, giving the members more control over what happens with the land in the long term.

Other Clubs have re-categorised their development land to ‘non-core’ giving the Board (rather than the membership) control over the land.

The Club has been working on this transaction for in excess of 4 years. The Board believes the transaction being recommended to our members is the best available transaction in the Club’s circumstances and fulfils the objectives set out in the Club’s Strategic Plan. If the Club does not support the proposed resolutions the transaction will not proceed and Principle Living will walk away from the project. In the Board’s view it will not be as simple as coming up with another project and finding another developer. A failure to proceed with this transaction will signal to any future market participant that the Club is a difficult and unreliable counter party to deal with. Such a result would severely impact on the Club’s capacity to deliver on its adopted strategy.

The Club has explored a variety of different development options.

All of these options have had advantages and disadvantages. The Board, in association with its advisers, have tried to balance the advantages and disadvantages to deliver the best long term result for the Club.

The Board has proceeded on the basis that our members do not support the sale of the Club’s land and have had Harrison Golf look at a variety of golf course options to make land available for development.

The proposed layout that makes an attractive leasehold parcel of land available while balancing the benefits to the Club is the layout in the proposed Masterplan

The changes to the golf course are required to allow the benefits of the development to be realised.

In addition to the financial benefits the Club has agronomic issues with both its greens and bunkers which, on any view, need to be addressed in coming years.

While there will be some disruption associated with the development it is likely to be less disruptive over a shorter period of time than if the Club addresses these agronomic issues over time without altering the course.

The project minimises overall disruption to our members when the likely green replacement and bunker work that would otherwise need to be carried out is considered.

The Club has appointed Harrison Golf as its consulting course architect.

Golf course architecture is a specialist discipline and the Greens Committee and Board have utilised Bob Harrison for advice when carrying out work on the course.

Bob has been guided in his work by the requirements of the Club’s strategic plan that any changes must respect our existing Eric Apperly design and must make maintenance and operation of the course cost effective.

Other than the new holes required to make the development land available the other work proposed is ‘light touch’ and reflects both the Apperly plan, the Development Control Plan and sound principles of golf architecture.

It is focussed on achieving the potential of our site.

While the proposal involves a redesign there are many world class courses that are the product of successful redesign including Royal Dornoch, Kingston Heath, Muirfield, Augusta National and California Golf Club.

The Board considers that the proposed redesign produces the best available result for our site and will minimise long term operating expenses.

The proper design of a golf course is a complex task.

It is not as simple as removing 4 holes and replacing them somewhere else.

It is important that the golf course routing is functional, unified, and takes account of the characteristics of the land.

It is part art and part science. It must address subjects such as topography, soil types, agronomics, drainage, construction and maintenance cost, and a variety of other environmental issues.

In the case of our course it must consider its history and the design of those parts that do not require material change. It must also deliver a course suitable for the modern game of golf to ensure it continues to attract members and guests.

Harrison Golf prepared a number of potential layouts (at least 6) which produced a variety of different development options (many of which would not have been acceptable for a variety of reasons).

The proposal that has been put forward provides, in the Board’s view, the best long term golf outcome for our site while providing a significant feasible development opportunity to position the Club to provide the best golfing experience that it can for the future.

The question of what grass will be selected for our new greens is an important one.

The Club has retained a consultant agronomist Trevor Siviour to advise us on this important decision.

Trevor has worked with Bob Harrison on many courses including Ellerston. Trevor will work with our greens team and Bob Harrison to select an appropriate turf species.

The selection process will involve consideration of the green construction methods that are proposed, an analysis of our available water supply and our general maintenance practices.

Further work is required to select the most appropriate species for our environment, water situation and cultural practices but it is likely to be a species of bent (most likely Pure Distinction).

The changes required to make the development land available will occur over two stages.

That is all that is proposed at this stage.

There are three stages set out in the staging plans at pages at the end of the Masterplan (the third stage depicts green replacement and maintenance that will be considered for the balance of the course in the future).

Depending on season Stage 1 and 2 are estimated by Bob Harrison to take 16 months in total.

During this period we will continue to have an 18 hole golf course of a high standard but there will be up to 2 temporary greens.

It is proposed that the temporary greens will be of the highest practical standard possible.

Stage 3 does not form part of the current proposal and will be the subject of a future decision about how to proceed.

We have received an estimate of the cost of the works from Harrison Golf.

The cost of completing Stage 1 and 2 is expected to be about $3,300,000 (GST excl.).

The ecological offsets required for those works are presently expected to cost the Club about $1,800,000 (GST incl.).

Aboriginal archaeologists are currently estimated at $250,000 (GST excl.).

Stage 3 is subject to future consideration but is estimated to cost about $1,350,000 (GST incl.).

To construct the new holes required to make the development land available the Club will need to obtain development consent from Port Stephens Council.

A development application will need to be prepared which provides details of the works that are proposed and will need to be supported by a Statement of Environmental Effects, a Biodiversity Assessment Report, an Aboriginal Archaeology report and some other engineering reports.

The DA process is expected to take about 12 months and cost around $250,000.

Some of the studies required for the DA have already been commenced to allow the development to be designed and to address issues such as seasonality which can delay the preparation of reports.

Based on current projections, and bearing in mind that approval needs to be obtained for the seniors living development to provide the funds for the golf course construction work, it is estimated that golf course construction works would commence in about early 2022 and that stages 1 and 2 would be completed by early 2024.

There are a small number of members who have contacted the Board (or members of it) indicating that they oppose the changes proposed to our course. The Board has considered the views of those members but unanimously remain of the view that the proposed changes are in the best long-term interests of our Club and our course.

Some members have suggested that the Club should be restoring the Popplewell / Apperly design rather than embarking on the hybrid restoration / redesign proposal that is being put forward. Restoration is, in substance, what was proposed as part of the Development Control Plan adopted in 2010. In the last 10 years essentially no progress has been made on the works proposed in the Development Control Plan principally because the Club has not had the funds to progress it. While the financial performance of the Club has improved in recent years it has not improved to a point where we can sustainably fund the type of investment the membership tell us they want (particularly around greens and bunkers) and the Board considers this is required for the long term success of our Club. The hybrid restoration / redesign that is being put forward has more scope to yield improvement and, in this case, can be funded by the development transaction that is proposed. This secures the future of our Club and its course in the long term. Any alternative approach will leave the Club facing significant financial challenges.

It can be tempting for those who oppose changes to our course to talk about what they perceive might be the outcome of the changes rather than what is actually proposed. This can unnecessarily spread concern (and in some cases fear) amongst our membership. It is important for members who hear things that are of concern to them to refer back to the actual terms of the proposed Masterplan before accepting what they are told. Members should take the time to consider the Masterplan on its merits having regard to what it says rather than on what some perceive might occur. Members should ask questions if there are issues of concern and their questions will be addressed. When considering the views of those who oppose what is being put forward the Board asks all members to look objectively and holistically at what is proposed.

The starting point for answering this question is the condition of our current greens. As explained at previous information nights our existing greens and bunkers have agronomic issues that will need to be resolved at some point if we are to deliver better greens year round and bunkers which do not suffer from the playability issues we currently experience. Whether the Club chooses to proceed with the proposed development or not, the issues with our greens and bunker will need to be addressed. The issues presented by our greens and bunkers were noted in the Development Control Plan that was adopted into the Club’s Constitution in 2010.  Under the 2010 Development Control Plan, which is the document that currently guides how our course is managed, every green was to be changed and every bunker that is to be retained would be rebuilt. These changes would involve disruption. The Development Control Plan proposed a spare par 3 hole beside the existing 14th which could be used to replace the greens one at a time. This approach to addressing the issues associated with the greens and bunkers proposed in the Development Control Plan would involve a disruption to our usual playing conditions over a 6 year to 8 year period (and may still involve temporary greens). Rebuilding greens one at a time would give rise to a problem retaining appropriate contractors and maintaining consistency across the course. This will inevitably lead to multiple greens being replaced at the same time and will require the use of temporary greens.

The disruption that members will experience during the implementation of the Masterplan the Board is recommending will be limited to a maximum of 2 temporary greens over a 2 – 3 year period. The works will be fully funded by the proposed lease arrangements and be completed by experts in golf course construction to the specification recommended by the consulting agronomist the Club has appointed. The works required under the existing Development Control Plan, if fully implemented, are estimated to cost between $3M and $3.5M. While that cost is lower than the cost of fully implementing the Harrison Masterplan the Club does not presently have the funding required to complete those works.

If members were to choose not to proceed with the Harrison Masterplan or the development transaction then the Board will need to start a process of green renewal and bunker improvement in accordance with the Development Control Plan. This work is presently unfunded and will take a significant amount of time to complete and pay for. It will also involve disruption over a longer period than the proposal presently being recommended by the Board and, in the Board’s view, is unlikely to deliver the quality result that the proposed Masterplan and transaction will be able to deliver.

Golf course rankings are subjective and the Board is not putting forward the proposal on the basis of course rankings. Course rankings are, however, one measure of the standard of the course and they are a key driver of golf related tourism. Our stated vision is to be a “recognised leading Australian club providing an exceptional member and guest experience”. To achieve our vision the Board has set the target of consistently achieving a ranking in the top 20 courses in Australia. We are currently number 27 in one of the Australian golf magazines and 28 in the other. Our ranking is dropping notwithstanding the fact that our course is in very good condition and still widely admired. When looking at rankings going forward there have been a number of high quality relatively new courses that have entered the market. These include Cape Wickham, Barnbougle Dunes, Barnbougle Dunes Lost Farm, Ellerston, The National (Old, Moonah, and Gunnamatta), Cathedral Lodge, St Andrews Beach, and The Dunes. There are also many Clubs that have done major works to their course/s. These include Royal Melbourne (West and East), Kingston Heath, NSW, Peninsula Kingswood (North and South), Victoria, The Lakes, The Australian, Kooyonga, and Royal Canberra. All of these courses are ahead of Newcastle in the current rankings. In fact the only courses ahead of Newcastle which are not relatively new or which have not been the subject of major work in recent years are Royal Adelaide, Metropolitan, Barwon Heads and Woodlands (and even some of those courses are going through changes or green renewal directed at further improving their standing). If we are to provide the exceptional member and guest experience that we are aiming for then Newcastle, like all of the Club’s ahead of it in the course rankings, needs to make a significant investment in improving its standing. The proposed development provides an opportunity for that investment to occur in a financially responsible way with a minimum of disruption and provides the best prospect of maximising the course’s standing among its peers over the short term.

Once it became clear that a seniors living development was likely to be the best long term model for the Club given its circumstances and risk appetite the Board retained Strategic Property Partners to test the market of seniors living operators.

Many of the established operators were not attracted to the leasehold model the Club required.

A copy of the report on the market testing from SPP will be provided. Based on the advice of SPP the Board identified that Principle Living were the most suitable developer for the land.

Principle Living is proposing a seniors living development that is made up of mixture of housing types.

The proposal involves 27 golf residences (generally along the golf course frontage).

There will be 34 duplexes (68 residences) which will be a mixture of 2 and 3 bedroom.

There will be two 4 storey residential flat buildings over basement car parking with each building containing 40 units.

There will be 1, 2, and 3 bedroom units within the residential flat buildings. There will be a community facility for the village that is proposed to contain an indoor pool, bowling green and BBQ area.

The development will be connected to the Club’s facilities via the carpark.

Under the proposed layout, the current proposal involves 175 residences.

Principle Living is a relatively new seniors living operator which is seeking to establish 5 villages in the Lower Hunter (The Vintage, Rutherford, Thornton, Medowie and our site).

Principle Living is a joint venture between two of the Hunter’s biggest developers (Stevens Group  and McCloy Group) and an aged care service provider (Sue Mann Group).

Click here to read more details about Principle Living.

The Principle Living development has evolved to respond to the constraints of the site.

The major constraint is the impact of filling on flooding in the area.

Principle Living have retained Northrop Consulting Engineers to develop a flood model for the area and that model has been used to design the fill pad to maximise the development potential without unacceptably impacting on flood levels on adjoining land.

The stormwater arrangement for the development has also required modelling and has resulted in the need to establish a water body in the bottom of the existing first hole.

This waterbody is connected to an area of compensatory cut in the northern part of the site to manage stormwater and flooding issues.

The proposal will also have to address a variety of other issues including bush fire and archaeology and these issues will be addressed further as the development application is prepared.

The Board will be exploring the opportunity for the onsite treatment of wastewater with a view to establishing a supplementary water supply.

The Club’s land is zoned RE2 Private Recreation.

The RE2 zone is an urban zone for the purpose of State Environmental Planning Policy (Housing for Seniors and People with a Disability) 2004 (SEPP Seniors Living).

It is also the site of a registered club.

Development of the land for the purpose of seniors housing is permitted on the land. SEPP Seniors Living requires a ‘site compatibility statement’ to be obtained from the Department of Planning and Environment for the development of seniors living development on the site of a registered club.

Principle Living has had preliminary discussions with the Department and there do not appear to be any reasons why a site compatibility certificate will not be issued for the proposed development.

Principle Living and representatives of the Club have also attended a formal pre-DA meeting with Port Stephens Council and the Council staff were supportive of what is proposed.

Because the seniors living development involves an intersection with Nelson Bay Road approval from the RMS is required.

Preliminary discussions have taken place with the RMS and, provided the entry is a left in / left out arrangement and is located on dual carriageway it is likely the RMS’ approval will be able to be obtained.

The development has been designed to address this requirement.

If the DA for the seniors living development or the golf course is refused or approved on unacceptable conditions then the ‘conditions precedent’ under the Agreement for Lease will not have been met and the transaction will not proceed.

Stages 1 and 2 of the course works identified in the Masterplan will be completed prior to the development commencing.

This work is expected to take 16 – 24 months once it is commenced.

Principle Living will be under an obligation to proceed with and complete the development as soon as possible with an overriding obligation to complete the works associated with the seniors living development within 12 years of commencing the development.

The opportunity to address issues associated with flooding and Nelson Bay Road are a fortunate by-product of the proposal put forward – not the reason for it. Why those who established our Club chose to build holes on the flood prone parts of the site and near the road involves a bit of speculation. The original 9-hole course on our site was constructed in about 1915. It comprised the present 1st, 2nd, 10th, 13th 14th 17th and 18th holes (with 2 other par 3s). It is likely these holes were put where they are because of their proximity to the ferry and Nelson Bay Road. Based on aerial photos from the 1930’s (and the vegetation shown in the Apperly plan) the western part of the site was relatively cleared when it was acquired which would have made course construction materially easier and less expensive given the relatively simple equipment that would have been available for construction at the time. Flooding and road related issues were probably not the issue they would become – especially for a young Club seeking to get its new golf course up and running.

Eric Apperly was engaged in about 1935 to prepare a design for a new 9. Based on the plan he produced it appears he was instructed to incorporate the then existing 9 holes into the layout. This probably explains why the area in the north eastern corner of our property was not used – it was not needed to produce the 9 additional holes that Apperly was commissioned to design. The area where the new holes are proposed is rolling dunal country that is similar to the country on which our best (and most critically acclaimed) holes are located. In short, notwithstanding the historical significance of the holes that will be lost, there is a fairly compelling argument that replacing the holes that suffer from flooding and road related constraints with holes more in keeping with the best parts of our course best fulfils the golf potential of our site. Although it is speculation, if the founders of our Club had the equipment and resources available to them in 1915 that we have today it would be surprising if they would have chosen to use the flood prone land near the road when there was such high quality undulating land that was available further east.

There are many great courses that are the product of thoughtful redesign. Examples include Royal Dornoch, Kingston Heath, Augusta National, Muirfield, and Royal County Down. More recent examples include Turnburry, Royal Portrush and the California Golf Club. The brief that was provided to Bob Harrison was focussed on delivery of the best available golf course on the land we have available while respecting our important Eric Apperly designed course. The Board regards the layout proposed in the Masterplan achieves that objective and, fortunately, also addresses flooding and road related issues that the Club has. The Board believes the proposal presently being considered maximises the golfing potential of our site while addressing the Club’s major challenges in a coordinated and cost-effective way with a minimum level of disruption to our members. It also provides the opportunity to fund the course improvement works that are necessary without placing the Club under material financial pressure.

The Club has, of recent years, traded more profitably than it has over the 5 to 10 years before that. While that improved trading has allowed the Club to improve its financial position it does not put it in a financial position to carry out the works to our course that are needed. As has previously been explained our greens have agronomic challenges and are nearing the end of their useful life. The Board has also had consistent feedback about the shortcomings of our bunkers. While our trading conditions have improved they are still insufficient to make the significant investment in our course that is required to address the issues that have been raised and to allow it to achieve its full potential. If the Club does not proceed with the development proposal then the Club will still need to initiate a program of green and bunker reconstruction. That will increase the financial pressure that the Club’s trading activities will be placed under and will make it very difficult to address the issues members have said are important to them. If the Club decided not to proceed with the current proposal but then found itself in a position down the track where it reconsidered that decision it is likely that at least some of the investment that was made in the course in the meantime would be wasted. If members are of the view that it is likely that at some point the Club will need to change its course and make land available for development then supporting that decision now would avoid the potential waste of the Club’s resources brought about by deferring what is the best long term decision for the Club. There are also demographic, planning and environmental reasons why now is an attractive time to proceed with the development.

The deal that is on offer from Principle Living is outlined in detail in the transaction documents and members are encouraged to review those documents (when they shortly become available) to fully understand and assess the proposed transaction.

The key financial elements of the transaction are that the Club will receive an upfront payment of $50,000 per approved residence (a minimum of $7,550,000 based on 151 residences but $8,750,000 based on the current proposal) and a share of some potential fill savings (currently estimated at $100,000 – $250,000).

There will be a 5 year rent free period following which rent will commence.

The rent commences at $500,000 per year and increases $50,000 per year until it reaches $750,000.

Thereafter the rent will be increased at 1% per year and reviewed (with a cap and collar) at the end of each 10 year period.

The Net Present Value of the deal on offer has been calculated by the Valuer engaged by the Club at $13,250,000 (excluding various works in kind and potential revenue from fill savings).

The land, were it to be sold as a development site, has been valued at $8,500,000. A copy of the valuation will be provided prior to the EGM.

The objective of the Board has been to minimise the amount of disruption to our existing golf business in the circumstances.

Notwithstanding that objective it is inevitable that there will be some disruption brought about by the presence of temporary greens in our layout.

The Club has prepared a cash flow forecast that takes account of the cash flows as they are either known or estimated.

An amount of $300,000 per year has been allowed for the two years when our golf course will experience disruption. This estimate is based on empirical experiences that other Clubs have experienced (The Lakes and Concord being two examples).

The Club will explore what other arrangements might be able to be put in place to minimise disruption to our golf business.

A full projected cash flow will be provided prior to the EGM.

The Board has endeavoured to ensure to manage cash flow associated with the development project to minimise the Club’s debt levels.

Based on current predictions there may be a short period (less than 12 months) where the Club may need to use an overdraft or borrow money to fund a cashflow shortfall.

In the predicted worst case this would involve a short term facility for up to $1,300,000.

The extent to which borrowings will be required will depend on the level of business interruption the Club experiences and its trading over the time between now and when course construction commences.

The Club will hold a bank guarantee at all times for the equivalent of 6 months rent.

There will also be parent company guarantees from the Stevens Group, McCloy Group and the Sue Mann Group for at least the first 12 years of the long term lease while the construction of the seniors living project is completed.

There are strict conditions on the release of the parent company guarantees to minimise the risks to the Club.

The obligations of Principle Living are jointly and severally guaranteed, until construction is completed, by the Stevens Group, McCloy Group and Sue Mann Group.

The Club’s investigations, conducted by SPP, have shown each of those entities to be well capitalised and solvent (having a combined net assets exceeding $350,000,000).

If Principle Living was to become insolvent it would be an event of default under the lease entitling the Club to terminate the lease.

If the Club was to terminate the long term lease it (or its nominee) would, as a consequence of the Retirement Villages Act and the long term lease, become the operator of the retirement village.

At that point the Club would either need to fulfil the role of operator or, more likely, find another operator.

By the time the parent company guarantees are released the seniors living business will have been established and will be generating a cash flow as a consequence of recurrent charges and deferred management fees.

The Club expects there will be a market for the cash flow associated with the seniors living development and it is likely that an alternate operator will be able to be found on satisfactory terms.

The Club is currently exempt from tax because it falls within Tax Ruling TR97/22.

While ever that ruling applies and the Club falls within it, the Club is not liable for tax.

The Club has completed a risk assessment for the project which will be provided prior to the EGM.

The Club has obtained an estimate of the construction cost from Harrison Golf for Stages 1 and 2 of the proposed course works. A summary of the estimate is set out below:

The estimate has taken into account about $30,000 worth of investigative work that has been done to ensure the conditions in the construction area are understood. Samples of the sand at each green site have been tested and agronomic advice has been obtained from Trevor Sivior about green construction and its likely cost. Various areas of our course have been sampled and tested to see if suitable sand for bunker construction is available on site (those searches have been unsuccessful so far). Harrison Golf have liaised with the Flemming Group, a golf course construction company, about the expected cost of the works proposed. They have also compared the estimated cost with the cost of other work they have done. The Board is satisfied that a sufficient amount of due diligence has been done on the construction cost to date to have confidence in the cost estimate that has been provided. Until the Club is in a position to enter into a contract to carry out the work it is not possible obtain a better estimate. In any event, like any significant capital project that would be considered by the Club, the Club will focus on staying within its budget and obtaining value for money. A project manager will also be engaged to assist in delivering value and efficiency. The Board is satisfied that appropriate steps have been taken to obtain a reliable estimate of the construction cost.

The golf course construction work will be overseen by Principle Living whose owners are experienced project managers. A project manager will be appointed and will be responsible for overseeing all aspects of the construction work including approvals, procurement, contract management, and construction supervision. Principle Living has been appointed to this role as part of the negotiation because they have a vested interest in seeing the project completed on time and on budget. It will be up front funding from Principle Living (provided before they obtain possession of the development site) that will be used by the Club to complete the golf course works. Principle Living, understandably, want to make sure the money they provide before receiving possession of the development land, is spent on the works needed to make the development land available. They also have an interest in the ultimate result because the better the overall outcome of the course construction the better marketing the course will provide for their seniors living project. The arrangement will be documented through a Development Management Agreement which will require the development manager to deliver the course works within the budget that has been set. Having Principle Living as the Development Manager manages any risk associated with the project being delayed – if there are delays in handing over the development land then Principle Living will have control over that delay and could not sensibly criticise the Club (or the Club’s contractors) for its management of the works.

The summary of short term cash flow that has been provided has predicted that the development, when considered in isolation from our ‘business as usual’ cash flow, would create a short term demand for cash in excess of what has been received from the development for about 5 months and for an amount of up to $700,000. The Club’s cash flow is currently quite strong from its ‘business as usual’ activities and by the time the course works are actually being undertaken is likely to have sufficient cash resources to cover the short term cash demands of the course construction works. It is possible the Club will not need to borrow any money or, if it does, it will be for a very short period of time. The Club’s cash flow is very strong around the time that annual subscriptions are due and those funds are received up front and used over the course of the year. Depending on what time of the year the demand for cash arises it may mean the Club does not need to borrow any money at all to complete the course construction works. Even if it does, it will be a manageable amount over a very short period of time. The amount that might need to be borrowed under the “Development” scenario is materially lower than would need to be borrowed to implement the Development Control Plan works over a reasonable period. If the development were not to proceed and the Development Control Plan works were to take place it is likely the Club would need to take on debt (maybe up to $3M depending on the scale of works undertaken) which would take decades to repay. At the end of 10 years it is estimated that the Club will be more than $5M better off (in cash terms) in the “Development” scenario than it would be in the “No Development” scenario. After that period, the Club would have a future revenue stream of $750,000 a year in the “Development” scenario and no additional ‘non–golf’ revenue stream in the “No Development” scenario. The additional long term cashflow has a present value of about $4.75M. The Club is therefore significantly financially better off (by somewhere in the order of $9M – $10M in today’s dollars) in the “Development” scenario than it would be in the “No Development” scenario.

The implementation of the development transaction may cause some short term disruption for our members.

The Board is hopeful that our members will understand that the longer term benefits of the proposed transaction outweigh the short term inconvenience that will be experienced.

The transaction has the objective of addressing the issues members have told us are important to them.

It is unrealistic to think that issues such as soft bunkers and greens can be rectified without there being some inconvenience. It is also likely that at least some of the residents who elect to move into the seniors living development will want to become members of our Club.

We will also consider imposing a joining fee on any member who leaves the Club during the transaction and then wishes to rejoin when the work is completed.

There should be no change in the ability for members to book tee times to play our course.

Golf carts have become a good source of profitable revenue for our Club.

The Board has taken the difficult decision to discontinue the limited number of private carts that have been being used on our course.

There are a number of reasons why this has been done (one of which is to ensure all members are treated equally) but one particular advantage is that it allows the Club to control the cart use that may be generated by the proposed seniors living development.

It is likely that many of the residents of the proposed development will take up motorised carts that will allow the Club to expand its cart fleet (which is useful for larger corporate days) and increase the return to the Club from cart operations.

It is expected that one of the features that will attract residents to the proposed retirement village will be its proximity to our golf course and its amenities. The residents will, however, be treated in the same way as all of our existing members. Any resident wishing to join our Club will do so in the usual way and will pay the usual membership fees that apply to all other members. While there will be a substantial number of new residents it is unlikely that they would all become members of our Club. The Club is presently monitoring its membership numbers and will regulate our membership intake based on the economic circumstances of the Club and our capacity to provide the kind of membership experience our strategy is directed at. The proposed retirement village should provide the Club with a pipeline of new members over time who will add to, not detract from, the culture of our Club. The village residents will not become a “club within the club” but valuable members who will integrate with our existing and future membership.

A Clubhouse masterplan has been prepared to address a number of issues such as disabled access and to provide a framework for works to occur to the Clubhouse as funds permit.

Some work has been done over the years but there are no current plans to undertake any works in our Clubhouse other than minor cosmetic works within our normal operating budget.

The Clubhouse and Greens shed remain connected to septic tanks.

Port Stephens Council has, for many years, been endeavouring to get the Club to connect the Clubhouse and Greens shed to the sewer. The cost of that work has been prohibitive.

The Club, as part of its proposed transaction with Principle Living, has negotiated for Principle Living to meet the cost of connecting the Clubhouse and the Greens shed to the sewer.

Principle Living will also provide a fire hydrant required for fire protection purposes at the Clubhouse.

These are material benefits of the proposal for the Club and will save the Club (when combined with the car park works) at least $400,000 it would otherwise have needed to spend over coming years.

The connection of the proposed development to our current carpark is likely to remove about 4 spaces.

We also have a stormwater drainage issue in our carpark with stormwater currently being directed towards the Links Motel. We also frequently have cars parking in the driveway and in some cases in the ‘dust bowl’ when we have substantial fields.

We have negotiated, as part of the Principle Living transaction, for the drainage issue in the carpark to be resolved by the extension of the carpark to the south and the integration of the carpark drainage system with the stormwater drainage system associated with the development.

It is expected that this will produce a further 20 – 25 car spaces in the primary car park and significantly reduce the need for cars to park up the driveway.

It is anticipated that the carpark, hydrant and sewer works will take place at the same time the fill pad works associated with the development site take place.

This should occur within 12 months of the development land being handed over.

Although a detailed construction management plan has not yet been prepared it is not expected that the development proposal will have any material impact on car parking at the Club.

The main entrance to the proposed retirement village will be a ‘left in / left out” intersection on Nelson Bay Road. There is a connection between the retirement village and the Club’s car park proposed. We have confirmed with Principle Living that that access will be for pedestrian and golf cart access only. It may also be used for emergency access if it is required. It will not be available for general retirement village traffic. The connection will result in the Club losing about 4 car parks but the proposed transaction requires Principle Living to extend the Club’s car park to the south. This should provide an extra 22 – 24 car parks and will allow the Club to manage the storm water issues that currently sees stormwater directed toward The Links Motel. This work is at no cost to the Club. The retirement village will provide its own visitor car parking and visitors to the retirement village will not rely on the Club’s car park. The entry arrangements between the Club and the retirement village will remain separate. People attending the Club will continue to use the current Vardon Road entry while village residents and visitors will use the entry off Nelson Bay Road.

It is likely that a significant volume of unsuitable fill will need to be disposed of at the eastern end of the practice fairway.

This will be used to extend the practice fairway and to create a bund on southern side of the practice fairway to improve the separation between our facilities and the adjoining primary school.

It is not expected that the works proposed will have any material impact on the operation of the practice fairway or its use by members or the JLGA.

The current chipping green is part of the proposed development site and will need to be removed during the construction of the fill pad.

Fill from the hill on which the existing chipping green is located will need to be used as part of the construction associated with the development.

It is proposed that a new chipping facility will be constructed.

The existing putting green will also be expanded at the same time as work is completed on the existing 2nd green.
These practice facilities will be completed as soon as possible in the construction program.

Both the vote to adopt the Harrison Masterplan and to proceed with the proposed transaction require a majority (not less than 50%) vote at a General Meeting.

An Extraordinary General Meeting (EGM) is proposed to take place late August, or early September.

If you wish to vote on the resolutions to adopt the Masterplan and / or proceed with the transaction with Principle Living you should attend and vote at the EGM if you are eligible.

If you have any further questions you can contact our General Manager Christian Gillott or email Christian at gm@newcastlegolf.com.au.