A STRATEGIC ALLIANCE for managing the AUSTRALIAN GOVERNMENT

1
A STRATEGIC ALLIANCE for managing
theAUSTRALIAN GOVERNMENTS NON-DEFENCE
PROPERTY PORTFOLIO

• Presentation to TWN Phil Bowen
• Oslo/Copenhagen General Manager
• May 2001 Property Group
• Department of Finance and
• Administration

2
A DIVERSE PORTFOLIO

• 380 properties in 50 countries
• - more than half overseas
• - Australian embassies
• - Official residences overseas
• - Commercial office buildings
• - Law courts
• - Laboratories
• - Detention centres

3
A COMMERCIAL PORTFOLIO

• Value A2.5 billion
• Commercial leases at market rents
• Annual revenue A260 million
• ROI in excess of 8
• MER less than 0.6
• Capital Works Program A300 million
• Divestment past three years A1.3 billion
• - 2000/01 program A257 million

4
PORTFOLIO OBJECTIVES

• Earn a commercial return on investment
• Contain management expenses to market benchmark
• Pay agreed dividends to the Government
• Repay equity from property sales to the
  Government
• Maintain portfolio condition to industry
  standards
• Meet tenant needs as agreed by Government

5
THE DECISION TO SEEK AN ALLIANCE

• Major progress already in commercialising the
  portfolio eg outsourced facilities management
• Further improvement available from an alliance
• - commercial portfolio planning and strategy
• - global property market intelligence
• - integrated property management and financial
  information systems
• - reduced portfolio management costs through
  global economies of scale
• - effective portfolio risk management

6
ALLIANCE REQUIREMENTS

• To maximise portfolio performance through
  sharing risk and reward
• A single entity for contractual purposes
• An entity with a strong cultural fit with Finance
• An entity prepared to operate within a joint
  management framework with Finance

7
THE ALLIANCE SCOPE

• Global strategic portfolio management
• Asset management
• Property management
• Facilities management
• Acquisition and divestment programs
• Capital works program

8
THE ALLIANCE

• Between Finance and PricewaterhouseCoopers
  Process Solutions Pty Ltd (PwC) - a consortium
  headed by PwC
• Underpinned by a service delivery contract
• Finance retains ownership of the Portfolio
• 5 year contract term with options
• Contract value A88 million (est)
• Management fee savings A74 million (est)

9
ALLIANCE PARTNER REMUNERATION

• All fees are at risk
• Core fees based on portfolio net income and
  portfolio value
• Incentive fees and penalties are based on KPIs
• - financial
• - business processes
• - portfolio strategy
• - tenant satisfaction
• - capital works program
• - divestment program

10
MANAGEMENT OF THE ALLIANCE

• Joint Alliance Board
• - chaired by Finance
• - 3 representatives each from Finance and PwC
• - provides strategic oversight
• - endorses contract variations
• - mediates unresolved operational issues
• - operates on a consensus basis
• - unresolved issues at the JAB level go to the
  CEOs of Finance and PwC for resolution

11
IN HOUSE ALLIANCE MANAGEMENT TEAM

• Small high capability unit
• Professional skill base
• - strategic portfolio management
• - development management
• - contract management
• - financial management
• - stakeholder relations
• Core members of ongoing team were key members of
  the strategic alliance project team

12
SUCCESS FACTORS

• Clear objectives
• Up-front market analysis, portfolio documentation
• Ongoing stakeholder and staff communications
• Expert project resources
• Transition management to mitigate the effect of
  staff losses during transition
• Strong ongoing alliance and contract management
• - Joint Alliance Board
• - professional management team