• Building value in the property sector

    BDO and Honeycombes Property Group.

Case Study:

Building value in the property sector: BDO and Honeycombes Property Group

30 March 2016

Australia's property market has certainly seen a lot of turbulence in recent years. As a result, companies in the sector are re-evaluating their operations and considering where costs can be reduced.

One of our Queensland clients, Honeycombes Property Group (HPG), has seen the impact of these issues firsthand. Since the Global Financial Crisis (GFC), they have been working closely with BDO to develop a growth strategy to guide them through these difficult market conditions.

Navigating the relationship with JV partners

Honeycombes has been a BDO client since 2010, when they were looking for a change from their existing advisory relationship. BDO had the opportunity to tender for the work and was successful, and now provide dedicated tax, compliance and auditing services to Honeycombes.

The core work we now deliver on an ongoing basis includes managing compliance for new projects, along with advisory support (both from a tax and audit perspective) when it comes to changing standards and the relationship with joint venture (JV) partners.

Within the taxation side, we continue to assist HPG with various tax issues that arise from time to time as a business of this nature grows. Besides the core services of tax compliance work including the tax effect accounting, we assist with Peter and his team with navigating the tax implications of specific transactions when required. In terms of auditing, we have also provided guidance on the changing audit landscape that Australia has seen over recent years, with a lot of work on maintaining compliance with new standards.

Expanding in a challenging market

By far the biggest challenge for Honeycombes over the last five years has been the continuing fallout from the global financial crisis (GFC). In 2010, Honeycombes was mostly Townsville based, so they didn't see the same turbulence as Queensland’s capital city Brisbane. They were also more reliant on government work than property companies in the capital.

Despite this degree of protection, the company still had to address these trends shaping the sector. Peter Honeycombe, the managing director of Honeycombes Property Group, highlighted how the GFC affected the company and the property sector as a whole.

"The GFC hit the property industry hard. Many of our competitors fell away, but with BDO's support over the last four years, we have been able to retain clarity within our business and grow our development platform. BDO's national credibility has assisted us greatly in gaining improved discussion with both prospective debt and equity partners," Mr Honeycombe said.

Addressing this risk has involved expanding the company's breadth of operations to Brisbane, with the company undertaking their largest project in the city - the Coorparoo Square development. There are a number of other projects in the works and this diversification has been crucial for improving the company's performance.

These projects came about largely through Peter's experience and knowledge of the property sector. BDO was able to add value by helping the company to structure new projects in a way that promised the best outcome. On each new initiative, our advice has been focussed on the structuring the relationship with those JV partners to get the best result.

The Coorparoo site has really put Honeycombes Property Group on the map outside of Townsville, so it has had a considerable benefit for expanding their reach.

Overcoming administrative challenges

A major part of BDO’s own work has been coordinating with the client's internal accounting team to assist with the implementation of new accounting standards. Honeycombes has seen significant changes to its internal operations, making this an area where we were able to add value.

What we do with Honeycombes' internal accounting team is provide extensive support and advice more than anything. We support them where they need it, and that involves us flying up to Townsville and working with them directly. That usually requires us to provide guidance on auditing standards and we get asked a lot of the hairier questions that need answers in order to meet the company's tight deadlines.

"The implementation and impact of amended Accounting Standards was a complex transition but BDO assisted in guiding us through this," says Peter. "We changed our whole internal accounting team and they helped us work through much of this."

Adding value to the client relationship

Beyond simply providing the depth of accounting knowledge and services that clients like Peter need, BDO has been able to connect him with other business opportunities through our existing network of partners and clients.

Opening these doors to complementary sectors - such as retail organisations looking for new premises - is one of the ways we have been able to add value to this relationship over the last five years.

Looking towards the future of Australia's property market

Now that the global financial crisis has ended, the housing sector is in an upswing - creating a new set of challenges compared to five years ago. For organisations working in apartment construction, this means finding ways to manage new growth in order to create long-term value.

There are many ways this might be achieved, but one strategy we often suggest companies follow is to ensure the mix of contracts within each development is maintained in favour of owner occupiers. These individuals are likely to have fewer incentives to pull out from a contract and will play an important role in the success of a project.

In many of the developments Honeycombes has been undertaking, the focus has also been on delivering a mix of different property types. This adds significantly greater value to the finished project for potential retail occupants looking for areas with high foot traffic.

Delivering value to the property sector

A key service BDO’s provide to property clients, beyond tax-effective accounting, is advisory services for future developments. Many property developers focus on blue-sky thinking, so our role is to help temper that optimism with the right advice.

When property developers are working with equity partners, we can also provide specialised support. Every project is going to come with different JV partners who will be looking for transparency from the developer. What we can offer is hopefully provide a stamp of approval, giving investors the comfort that we have done an audit of the development's figures. For Honeycombes, both the JV partners and board of directors were looking for this transparency from our services.

Every company in the property sector is ultimately relationship driven and building this value is precisely where working with an organisation like the BDO can add value.