Hundertwasser Art Centre Feasibility Study Whangarei District Council. September 2011

Transcription

1 Hundertwasser Art Centre Feasibility Study Whangarei District Council September 2011

2 Contents 1. Executive Summary 1 2. Introduction 5 3. Approach 9 4. Governance and Ownership Visitor Numbers and Pricing Financial Analysis Operating Risks & Opportunities Costs and Benefits to Ratepayers Conclusion 53 Appendix 1 Visitor Numbers and Profiles 56 Appendix 2 Admission Prices 60 Appendix 3 Financial Modelling Assumptions 64 About Deloitte 69

3 1. Executive Summary The arts and broader cultural resources, amenities and facilities are coming to be seen as an urban asset and they have an important and strategic role to play in society. It is important that we continue to make Whangarei an attractive place to live, work and play...we need a diverse range of cultural attractions of high quality for both the local residents and visitors 1 Whangarei District Council (WDC) are considering developing the former Northland Harbour Board building into the Hundertwasser Art Centre, based on the unique building designs that the world renowned artist developed during his time living in Northland. The Hundertwasser Non-Profit Trust have offered the Council the opportunity to house original Hundertwasser artworks in the gallery. There are also opportunities to house other artworks from prominent Maori artists and other artists from Northland. In addition the development would create a unique and iconic building within New Zealand, to be promoted to tourists globally. WDC have commissioned this report to assist in determining the feasibility of the project, and to consider it in the wider context of Council s strategy and vision and of the economic impact that such a development would have on the region. An Economic Impact Assessment has been carried out separately to this feasibility study and should also be read in conjunction with this report to assist Council in its decision making 2. The capital cost of the project is $12.2 million including a contingency allowance ($13.6 million allowing for inflation at 4%). The capital expenditure could be funded through loans and therefore rates or through some other funding mechanism. The funding of the capital for the 1 Sustainable Futures 30/50 Whangarei District, May Hundertwasser Arts Centre, Economic Impact Assessment, Deloitte September 2011 Hundertwasser Art Centre: Feasibility Study 1

4 project will be considered by the WDC and the results and potential impact on rates falls outside the scope of this report, and will be considered as part of the Long Term Plan process Key Findings The key findings resulting from this feasibility study are: The proposed ownership and governance structure of the Hundertwasser Art Centre would appear to be an appropriate one, as there is shared governance between WDC and a Trust in the form of some of the elected council members sitting on the Trust s board. The use of the Trust will allow the Trust to apply for grants that would not otherwise be available to the WDC. Estimated visitor numbers to the Hundertwasser Art Centre have been projected through to 2025, and are relatively conservative, they do not include potential additional visitors that maybe generated by the project. Predicting these numbers relies on too many unknowns and uncertain data sources. The feasibility of the project has been assessed on our more conservative projections and any additional flows of visitors would only improve the projected result. The base financial projections indicate that the Hundertwasser Art Centre would make cash surpluses but small accounting surpluses and deficits after accounting for depreciation. These cash surpluses should give the Trust sufficient funds for capital reinvestment in the future. Additional revenue streams from grants and any sponsorship funding (for the theatre complex) have not been included in the financial projections. Should they be secured, the financial performance of the centre would be improved. The sensitivity analysis shows that the project is relatively sensitive to changes in revenue, admission volumes and expenses. There are a number of expenses that are more sensitive than others, and we have recommended that close financial monitoring to budgets should occur and be reported back on in a timely manner so that any issues can be managed during operation of the Hundertwasser Art Centre, if the project proceeds. The cafe/restaurant, which is to be open in the evenings as well as during the day, should be sub-leased to a third party. This would generate lower returns to the Trust operating the Hundertwasser Art Centre but would result in a lower risk. The operation of a cafe/restaurant is neither the Trust nor Council s core business. There are a number of risks and opportunities for WDC in building the Hundertwasser Art Centre. Many of these risks and opportunities impact on the wider Town Basin and CBD area as well as the Hundertwasser Art Centre itself. Projects have already Hundertwasser Art Centre: Feasibility Study 2

5 been undertaken to revitalise the Town Basin, with the Hundertwasser Art Centre likely to encourage other developments to progress in the near vicinity which fits with WDC s long term strategic vision for the revitalising of the Town Basin and developing a sense of place. WDC are keen to increase spending in the region from visitors, and the Hundertwasser Art Centre provides an example of an attraction where visitors could spend a few hours. However, WDC need to encourage visitors to stay longer, preferably overnight, in order to maximise visitor spend in the district. Therefore additional attractions are required to encourage visitors to do this. Attractions such as the Artisans market and the Art Trail are examples of these. WDC should also consider encouraging river/harbour charter tours, developing a Hundertwasser Art Trail incorporating the Kawakawa amenities block etc and other attractions to change Whangarei from being just a stepping stone to the Bay of Islands and the Far North, and become a destination in its own right. The potential development of a 4 star hotel could also assist in attracting overnight stays, and could also attract a core of business travellers to the region. WDC need to consider the wider impacts that the Hundertwasser Art Centre and other developments may have. They are likely to provide jobs locally in the construction industry in the short term, and/or attract out of town workers to spend their wages in the district on food and accommodation. New jobs would be created within the Hundertwasser Art Centre and the cafe/restaurant. Our estimates indicate that 11 staff would be required for the Hundertwasser Art Centre and up to 21 staff to work in the cafe/restaurant (to cover its proposed opening hours), in addition to security personnel for monitoring the centre and patrolling the Town Basin. The separate economic impact analysis carried out shows that there is an estimated annual benefit of $3.5m to the region from developing the Hundertwasser Art Centre. This excludes any Hotel or other developments that may occur. The revitalised waterfront area will not only attract tourists and visitors but will also become a place for locals to enjoy the waterfront and attractions in the way that many waterfront developments have both in New Zealand and overseas. The developments could increase property values in the area that may result in an uplift of rental streams for owners of the properties in the Town Basin and CBD. WDC also need to consider car parking for a variety of vehicles from coaches, camper vans, cars, etc and the traffic flows into the Town Basin during peak times of the day and during the year to and from the state highway. We understand that WDC is considering a new parking strategy and further development at the Town Basin to address parking. Hundertwasser Art Centre: Feasibility Study 3

6 Overall, the Hundertwasser Art Centre presents a unique opportunity to develop one of New Zealand s truly iconic buildings that also fits within the WDC s vision to revitalize the Town Basin as a cultural/arts precinct, with economic benefits of $3.5m per annum, which would start to deliver a positive return on investment in the District within a period of 4 years on the construction cost of $13.7m. The development may also put Whangarei on the international map for visitors interested in such a unique structure or Hundertwasser s other art works. Hundertwasser Art Centre: Feasibility Study 4

7 2. Introduction A critical part of the Whangarei district having a sustainable community going forward is its ability to attract highly skilled professionals to live here. Whangarei needs to shape cultured, vibrant and stimulating Centres... museums, galleries, markets and public art all help create a sense of place for residents and prospective residents, and Hundertwasser could have a significant impact in this" Background The Whangarei District s 30/50 Sustainable Futures Growth Strategy completed by Council in its previous term projected Whangarei District s population to increase by a minimum of 50,000 in the next 50 years. These new residents will choose to live, work and play in Whangarei for a variety of reasons connected to the sense of place they feel about Whangarei District, in other words what they find attractive about the area and how it meets their needs. Over time the District has developed a variety of community assets across various sectors, all of which have been built around catering for the present and future needs of the people of the Whangarei District. Whangarei is the largest urban population north of Auckland, and WDC continues to follow a strategy of developing the District to be among the country s most desirable and affordable places to live, work and play. WDC has already initiated a significant redevelopment of the town basin, and when combined with the continued development of arts, cultural, heritage and civic amenities, it could act as a catalyst to further enhance the district s economic prosperity. Not only could this influence economic development directly in the creative industries, it could attract new residents and businesses to the area and boost tourism by increasing the flow of domestic and international visitors. Friedensreich Hundertwasser is a celebrated 20 th century Austrian artist, who for much of the last 30 years of his life lived at Kaurinui not far from Kawakawa. His works are celebrated across the globe from Europe, through Japan and the Pacific. In 1993 Hundertwasser was 3 Whangarei 20/20 plus (CBD Guideline Development Plan) 2006 Hundertwasser Art Centre: Feasibility Study 5

8 invited to select a building in Whangarei that would be suitable for one of his world famous architectural transformations. He selected the Northland Harbour Board building as his chosen subject. Hundertwasser made a number of sketches of the building along the lines of previous projects that have been made works of art in Europe and Japan. These sketches were retrieved from the Hundertwasser Non- Profit Foundation s archives to create the architectural drawings for the proposed development. The Hundertwasser Non-Profit Foundation support the proposal to develop and convert the Northland Harbour Board building, as this is the building Hundertwasser himself selected for transformation. It is unlikely that the foundation would support an alternative building, as this is the only building with a direct link to the artist. The foundation has indicated it will support the Hundertwasser Art Centre through the provision of original Hundertwasser pieces of work free of charge, with WDC bearing only the freight, shipping and insurance costs. The support of the Hundertwasser Non-Profit foundation for the project was clearly outlined in a presentation by Richard Smart (Representative for the Hundertwasser Non-Profit Foundation, New Zealand) to a Whangarei District Council meeting on 27 th April The Hundertwasser Art Centre provides Whangarei with a unique opportunity to establish a nationally and internationally recognised cultural facility and tourist attraction. Not only is its proposed location in the former Northland Harbour Board building at the town basin linked directly to the artist, it is strategically located to incentivise investment in the local economy. The conversion of the building to a Friedensreich Hundertwasser-designed art gallery housing high end Maori art and Hundertwasser originals could make Whangarei a sought after tourist destination and transform the very perception of the city. The building itself will be a stunning artwork on a grand scale and will immediately become one of New Zealand s few iconic buildings. It could have an impact on Whangarei which parallels the impact of the Guggenheim building in Bilbao, Spain and could put Whangarei on the international stage. Hundertwasser Art Centre: Feasibility Study 6

9 2.2. Purpose WDC requested that a feasibility study be carried out for the Hundertwasser Art Centre. A financial model was developed to determine the cash flows that the Centre itself (excluding the impact on the district as this was covered under a separate economic impact assessment) could generate and to determine the likelihood of the Centre requiring ongoing financial support from WDC. The underlying methodology behind the model was tested for sensitivity to determine what financial risks there are and how these may impact on the Council. In addition to the above, this report will also discuss the following: A strategic analysis and background, detailing the problem to be solved and what the outcome would be from the planned investment, and it s fit with the proposed redevelopment of the town s basin. A review of the capital cost of developing the Centre highlighting potential risks associated with the cost of the capital build and how these could be mitigated. Review and documentation of the proposed ownership and governance model, highlighting risks and/or issues to the WDC. High level benefits and costs of the proposal to Whangarei ratepayers. The report also incorporates the key findings from the Economic Impact Assessment, carried out separately to this study Report Use The findings from this feasibility study that we have conducted on behalf of WDC have been reported to you solely for the purpose of establishing the feasibility of the project and highlighting any potential issues that may be of relevance to you in connection with your decision making processes under the Long Term Plan process. Deloitte accept no responsibility for any reliance that may be placed on this report should it be used by any party or for any purpose that has not been expressly agreed to in writing by Deloitte. Hundertwasser Art Centre: Feasibility Study 7

10 2.4. Reliance on Information In preparing our report, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information as furnished to us by WDC staff. We have evaluated that information through analysis, enquiry and examination for the purposes of performing our financial analysis. However, we have not verified the accuracy or completeness of any such information nor conducted an appraisal of any assets. We have not carried out any form of due diligence or audit on the accounting or other records of WDC. We do not warrant that our enquiries will identify or reveal any matter which an audit, due diligence review or extensive examination might disclose Disclaimer Our report has been prepared with care and diligence and the statements and conclusions in our report have been given in good faith and in the belief, on reasonable grounds, that such statements and conclusions are not false or misleading. However, in no way will we guarantee or otherwise warrant that any forecasts of future surpluses, cash flows or financial position of WDC s Hundertwasser Art Centre will be achieved. Forecasts are inherently uncertain. They are predictions of future events which cannot be assured. They are based upon assumptions, many of which are beyond the control of WDC and its management team. Actual results will vary from the forecasts and these variations may be significantly more or less favourable. We will assume no responsibility arising in any way whatsoever for errors or omissions (including responsibility to any person for negligence) for the preparation of our report to the extent that such errors or omissions result from our reasonable reliance on information provided by others or assumptions disclosed in our report or assumptions reasonably taken as implicit. Hundertwasser Art Centre: Feasibility Study 8

11 3. Approach The approach we followed in performing this analysis was to: Discuss with the Hundertwasser Project Team at WDC to understand the project s vision, and where the project had got to and the requirements for the feasibility study thereby assisting us in our understanding of further research required and for developing financial projections to understand the financial feasibility of the project. Review the ownership and governance aspects of the Hundertwasser Art Centre. Develop assumptions on visitor numbers and pricing based on information currently available and that we would be able to take and develop future projections of possible visitor numbers, and to determine a suitable price for entry into the Hundertwasser Art Centre. Review key assumptions with the WDC Hundertwasser Project Team before incorporating them further into our work. Discuss the project and its impact on development in the Whangarei Town Basin with members of the development community. Develop a Financial Model to determine the feasibility of the project and carry out sensitivity analysis. Identify and assess other potential risks and opportunities associated with the project. Assess the project in the wider context of WDC s long term vision (waterfront development) and of other complimentary or competitive projects in the region. Consider the impact on the project from the findings of the separate Economic Impact Assessment being carried out. Discuss the findings resulting from the above work with the Hundertwasser Project Team. Hundertwasser Art Centre: Feasibility Study 9

12 4. Governance and Ownership The proposed Hundertwasser Art Centre incorporates involvement from a number of entities. WDC, who own the land and existing building where the proposed centre would be situated, will sell the site to a Trust and will fund the building of the Hundertwasser Art Centre, shown as grant income to the Trust. This means that a Trust will own the land and existing building and then build the proposed Hundertwasser Art Centre. WDC will be required to strengthen the existing building to meet current standards at a cost of $1.2m. This will be treated as a separate project, and the cost of doing so is excluded from the overall cost of building the Hundertwasser Art Centre. WDC is considering how the capital cost of the Hundertwasser project should be funded, via drawing down loans, to be funded via rates or through some other funding mechanism. This analysis of funding mechanisms is being carried out separately to this feasibility study, but readers should consider the impacts of funding in making their decision on whether to progress with carrying out this project. In addition WDC will fund the property maintenance of the centre, and are looking at options of how this maybe secured through sponsorship options. As at the time of writing this report, no legal agreements had been drafted to further determine the nature of the sale of the site and the building s ongoing maintenance. A Trust will be incorporated as a board under the Charitable Trusts Act The Trust will contract WDC to provide management services It is proposed that it will be an exempt organisation under section 7 of the Local Government Act 2002 (LGA). The Trust would be a related party to WDC for accounting purposes and that some of the councillors elected to the Trust s board, would exercise governance over the Trust. Any decisions made by the board of the Trust are likely to be in line with WDC s vision. The Hundertwasser Art Centre has provision for a cafe/restaurant on site. It is proposed that the cafe/restaurant is sub-leased out to a third party (restaurateur). While the restaurant is likely to generate positive returns above the lease income that the Trust would enjoy, it is not the Trust s or WDC s core business. So although the potential rewards maybe significantly higher so too are the risks associated with the hospitality trade. Securing a lease on the cafe is of a much lower risk, with more certain returns being generated for the benefit of the Trust. Hundertwasser Art Centre: Feasibility Study 10

13 Proposed Ownership and Governance Diagram Hundertwasser Art Centre: Feasibility Study 11

14 5. Visitor Numbers and Pricing 5.1. Overview and Assumptions There are a number of general assumptions that have been applied to all options. These assumptions are: 1. It is assumed for the purposes of this analysis that the Hundertwasser Arts Centre construction is completed by June Visitor numbers are based on projections developed by the Ministry of Economic Development (MED) to 2016 and are then projected out through to These were for the Northland Region but have been adjusted to produce numbers for Whangarei District only. 3. Projections for initial local visitors from Visitor Solutions 4, who carried out an earlier Economic Impact Analysis, are used and referenced in our analysis. 4. In determining the number of family pass tickets sold for the Hundertwasser Art Centre we have assumed two adults and one child. Additional children up to a certain amount (3 or 4) would be free Rational for Determining Visitor Numbers Visitor Origins The determination of potential visitor numbers to a new attraction is an extremely difficult exercise, and one which should be approached with the utmost caution. The forecast visitor numbers used as a basis in this report have been obtained with reference to the most up to date and relevant industry data and market information available. For the purposes of determining the number of potential visitor numbers to this new attraction we have categorised the visitor flows into three main groups, these are: 4 Visitor Solutions Hundertwasser Art Centre Initial Appraisal and Preliminary Economic Impact Assessment, April 2011 Hundertwasser Art Centre: Feasibility Study 12

15 Domestic visitors (outside Whangarei District) International visitors Local visitors (from Whangarei District) Visitor Groups We have obtained our base information for domestic and international visitors from the Ministry of Economic Development s (MED) New Zealand regional tourism forecast for the Northland Regional Tourism Organisations (RTO), published in August This report provides historical statistics for travel periods as far back as We have used these figures to calculate the average visitor growth between 2004 and 2016 per visitor category. The figures provided between are based on the actual data recorded for visitor numbers to the Northland RTO while the periods between are forecasted visitor numbers. We have calculated the average movement over the period and applied this to our forecasts out to The MED report categorises visitors into five separate groups: 1. Holiday 2. Visits for family reasons (VFR) 3. Business 4. Education 5. Other For the purposes of determining potential visitors to the Hundertwasser Art Centre we have excluded all of those visitors who fall into the business and other visitor categories for Domestic visitors and other visitor categories for International visitors. Given the nature of this attraction it is reasonable to assume that visitors from these two categories are significantly less likely to visit an attraction such as the Hundertwasser Art Centre. Should we have included them, there is a risk that we would be overstating visitor numbers to the Hundertwasser Art Centre Visitors who Visit Museums/Art Galleries In order to determine the proportion of visitors that are likely to visit the Hundertwasser Art Centre while visiting Northland we have taken historical data derived from the International Visitor Survey (IVS) and Domestic Travel Survey (DTS) published by the MED. This has allowed us to determine the number of international and domestic visitors who visit museums/art galleries while in the Northland region. We Hundertwasser Art Centre: Feasibility Study 13

16 have taken the MED s 2011 projected rate for domestic visitors, and an average of the previous 10 years international visitor rates to apply to our forecasts going forward Capture Rate We have used a capture rate to project the total number of visitors to the Whangarei district from the Northland region. In order to refine this number to reflect what we think is a likely projection of visitors to the Hundertwasser Art Centre we have applied a 75 percent capture rate. This capture rate reflects our assumptions around the Hundertwasser Art Centre s ability to attract 75 percent of those visitors who visit museums/art galleries, whilst visiting Northland. These are visitors that are projected to visit the Northland region whether the centre is built or not. The centre may generate new visitors to the region, but it is difficult to determine what these numbers may be for such a unique and iconic structure so we have ignored them. Therefore our projections are based on more known numbers and projected out into the future, and are therefore likely to be conservative. We have compared all information obtained in the above reports against information obtained from tourism and business statistical data sources, Northland service providers, the Statistics New Zealand website and the Visitor Solutions April 2011 report (Initial Market Appraisal and Preliminary Economic Impact Assessment). See Appendix 1 for full breakdown of projected visitors through to Examples of the calculation of visitor numbers are on the following pages. Hundertwasser Art Centre: Feasibility Study 14

17 5.3. Domestic Visitors It has been estimated that in its first year of operation (2015) the Hundertwasser Art Centre will attract 53,806 domestic visitors. There are a number of specific assumptions relating to the determination of domestic visitors. The total number of domestic visitors to the Northland region for 2015 (4,616,859) has been obtained from the MED s New Zealand regional tourism forecast. This number has been adjusted to take into account a number of considerations. Firstly the total visitor numbers have been adjusted to exclude all domestic visitors to the Northland region who are visiting for business or other purposes. The rational for this adjustment is that these categories of visitor are less likely to visit an attraction such as a museum/art centre while in the district. Secondly, we have applied our projected percentage of domestic visitors who visit museums/art galleries whilst visiting the Northland region. In 2011 the MED projected that this figure was 2.0%, we have applied this percentage out to our projections. We believe that this provides a conservative estimate of the likely domestic visitor numbers to visit the Hundertwasser Art Centre. Lastly, we have applied a capture rate of 75 percent to represent our projection of visitors to the Northland region that visit museums/art galleries who will visit the Hundertwasser Art Centre. Our assumptions for domestic visitors are illustrated in the figure below: 2015 Domestic Visitors to Northland Purpose Visitor Numbers Holiday 2,158,494 VFR 1,389,825 Business 871,805 Education 38,750 Other 157,984 Total 4,616,859 Adjusted Total Northland Visitors to Museums & Galleries Total based on Capture Rate 3,587,070 Adjusted for Business & Other 71, % of total visitors 53,806 75% Capture Rate Hundertwasser Art Centre: Feasibility Study 15

18 5.4. International Visitors It has been estimated that in its first year of operation (2015) the Hundertwasser Art Centre will attract 76,709 international visitors. There are a number of specific assumptions relating to the determination of international visitors. The total number of international visitors to the Northland region (972,124) has been obtained from the MED s New Zealand regional tourism forecast. This number has been adjusted to take into account a number of considerations. Firstly the total visitor numbers have been adjusted to exclude all international visitors to the Northland region who are visiting for other purposes. Similar to the rational we have applied to the domestic visitor numbers, we believe that this category of visitor is less likely to visit an attraction such as a museum/art centre while visiting. However, we believe that international business travellers are more likely to include a number of site seeing activities to their visit. This is very conservative. Secondly, we have applied our projected percentage of international visitors who visit museums/art galleries whilst visiting the Northland region. In 2011 the MED projected that this figure was 11.1%, we have applied this percentage out to our 2025 projections. Lastly, we have applied a capture rate of 75 percent to represent our projection of visitors to the Northland region that visit museums/art galleries who will visit the Hundertwasser Art Centre. Our assumptions for international visitors are illustrated in the figure below: 2015 International Visitors to Northland Purpose Visitor Numbers Holiday 682,166 VFR 213,036 Business 23,639 Education 24,155 Other 29,127 Total 972,124 Adjusted Total Northland Visitors to Museums & Galleries Total based on Capture Rate 942,997 Adjusted for Other 104, % of total visitors 78,681 75% Capture Rate Hundertwasser Art Centre: Feasibility Study 16

19 5.5. Total Local Visitor Numbers In our estimation of local visitor numbers to visit the Hundertwasser Art Centre we have taken Visitor Solutions conservative forecast of 29,500 that was published in their April 2011 Initial Market Appraisal and Preliminary Economic Impact Assessment. The total local visitor numbers they estimate from the Whangarei district have been based on population data supplied from Statistics New Zealand, with the estimated level of visitors based on a comprehensive national survey. The figures obtained suggest that of the 2010 Whangarei City adult population over the age of 15 (40,067), approximately 20,000 are likely to visit a museum or art gallery at least once a year. This equates to roughly 50% of those in the Whangarei City adult population. If the remaining adult population of those aged over 15 in the wider Whangarei District outside of the city (21,700) are included, Visitor Solutions have estimated that it is likely that a further 9,500 would visit a museum or art gallery at least once per year, this being around 43% of those in the Whangarei District adult population outside of the city. When these two populations are combined, it adds up to a estimated local market of visitors totalling 29,500. Other Northland visitors would be included in the Domestic visitor numbers. Hundertwasser Art Centre: Feasibility Study 17

20 5.6. Admissions Price Assumptions Fundamental Pricing Considerations In determining the pricing structure for the forecast we have considered the following: A. What is a competitive pricing structure that takes into account the prices of similar attractions across district, region and national landscapes. B. At what level should the age thresholds be set for child and senior citizen admission prices. C. What is a realistic expectation around the mixture of admissions numbers (i.e. number of family passes sold verses the number of adult passes sold). D. Should discounts be offered to local residents to incentivise them to not only visit the Hundertwasser Art Centre once, but also repeat visits in following years. Comparison against Similar Attractions We reviewed over 60 local, regional and national attractions to provide the most relevant indication of how much the Hundertwasser Art Centre could charge for admission. We recommend further market research to optimise the price and volume mix to enhance revenue. In order to identify the most relevant attractions to Hundertwasser we categorised each of the attractions we reviewed as either: A (highly relevant to Hundertwasser) B (moderately relevant to Hundertwasser) C (not relevant to Hundertwasser) This categorisation allowed us to map out all competing and complementary attractions to estimate an accurate admissions price. Refer to Appendix 2 for a detailed breakdown of all attractions reviewed. Our review of current pricing would suggest that a standard adult entry fee would be $10 as at September As the entry fee is not modelled to increase in the short to medium term, and will need to absorb Hundertwasser Art Centre: Feasibility Study 18

21 increasing costs through inflation, that a standard adult entry fee commencing mid 2014 would be $12. However, we believe that further market research around entry fees and their effect on the number of admissions should be carried out closer to the time of opening the Hundertwasser Art Centre to the public. The figure below represents the admissions prices to be charged for entry into the Hundertwasser Arts Centre. Hundertwasser Art Centre Admissions Price Pricing Structure Hundertwasser Art Centre Adult Child Family Pass Senior Citizen Student 1 Standard Pricing Policy $ $ 6.00 $ $ 8.00 $ Resident/Ratepayer Discount (50%) $ 6.00 $ 3.00 $ $ 4.00 $ 4.00 Although local residents are projected at 50% of the standard pricing policy, the overall policy for pricing to local residents has not been determined. Ticket pricing for locals may be dependent on locals bringing out of the region visitors to the centre or through purchasing an annual admission ticket etc. For ease of financial projections, and without carrying out market research of Whangarei district the assumption used was 50% of the standard pricing policy. Hundertwasser Art Centre: Feasibility Study 19

22 6. Financial Analysis 6.1. Overview and Assumptions In preparing the Report, we have relied upon and assume without independent verification, the accuracy and completeness of all information that is available from public sources and all information that has been furnished to us by WDC. Our work would not constitute a review or an audit of any kind. The sections below show the forecast financial analysis for WDC, the Hundertwasser Art Centre and for the Cafe/Restaurant and the assumptions that have been used in developing these forecasts. Forecasts are inherently uncertain. They are predictions of future events which cannot be assured. They are based upon assumptions, many of which are beyond the control of WDC, the Trust and their management teams. Actual results will vary from the forecasts and these variations may be significantly more or less favourable. There are a number of general assumptions that have been applied to all options. These assumptions are: 1. It is assumed for the purposes of this analysis that the Hundertwasser Arts Centre construction is completed by June Visitor numbers are based on projections developed by the MED through to 2016 and are then projected out through to 2025.These were for Northland but have been adjusted to account for Whangarei District only by applying a capture rate of 75%, as visitor numbers and statistics for Whangarei on its own are not available. NZIER who have the only economic model in the country that is able to look at impacts on districts and regions is unable to break-down Whangarei from the Northland region. 3. Figures and projections for initial local visitors from Visitor Solutions who carried out an earlier Economic Impact Analysis are used and referenced in our analysis. 4. In determining the number of family pass tickets sold for the Hundertwasser Art Centre we have assumed two adults and one child. Additional children up to a certain amount (3 or 4) would be free. Hundertwasser Art Centre: Feasibility Study 20

23 5. Back-office functions such as accounting and IT would be carried out in a shared services type of arrangement with the Whangarei Art Museum Management Group. The cost of these services is undetermined, and have therefore been ignored in the financial modelling. 6. Other costs and revenues were developed recognising required staffing, and other overhead costs. Full details of these assumptions can be found in Appendix In determining the operation of the cafe/restaurant on-site, we used the number of FTEs (excluding the owner) to determine the revenues and costs of the cafe/restaurant using revenue and expenditure benchmark percentages. These benchmark percentages were obtained from the 75 th percentile results of the 2010 Waikato University Management School s New Zealand Business Benchmarking Survey. 161 cafes/restaurants were used to determine the margins to generate revenues and costs for the cafe/restaurant. The exception applied to this was rental costs as these were known from the additional modelling work carried out, and market rental prices supplied for the Town Basin Costs to Whangarei District Council An independent Trust will own and operate the Hundertwasser Art Centre. WDC will contribute to the construction costs of the project through providing grants to the Trust. The capital cost of the project is $12.2 million including a contingency allowance ($13.6 million allowing for inflation at 4%). Of this total $1.2m is required for strengthening the existing building, and will need to be incurred by WDC as a separate project, therefore $12.4m of the $13.6m is for the Hundertwasser project. The capital expenditure could be funded through loans and therefore rates or some other funding mechanism. The funding of the capital for the project will be considered by the WDC and the results and potential impact on rates falls outside the scope of this report, and will be considered as part of the Long Term Plan process. The design and construction work has already commenced with initial costings prepared by Griffiths and Associates Ltd, based on the initial information that they have received. The method of procurement could also affect the cost, as it can transfer the risks from overruns etc. However, further site work would be required and the full final cost of the project would not be known until tenders for the project have been received, and would be subject to geotechnical reports. Since the Christchurch Earthquakes, a number of construction projects have required further foundation work than originally planned for. Until geotechnical investigations are carried out, the impact of any adjustments Hundertwasser Art Centre: Feasibility Study 21

24 is unknown at this stage. The key risk for construction is that the cost does increase, beyond the $1m contingency budget allowed for; however, reasonable allowances have been made in the existing budget. The opportunities to value engineer the project may be limited due to the uniqueness of the project. While there are opportunities to do so on structural elements, value engineering on the exterior plastering and tiling aspects of the project will be limited. However, this should be discussed with Griffiths and Associates and the Quantity Surveyor to understand the opportunities and limitations in more detail. Allowing for the design, consultation, and construction timeframes, the project would be due for completion in June The following charts show both the monthly spend and the cumulative spend on the project. Monthly Capital Expenditure Cumulative Capital Expenditure 1,200, ,000,000 1,000, ,000,000 12,000, , ,000,000 $ 600, $ 8,000, , ,000,000 4,000, , ,000, Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Hundertwasser Art Centre: Feasibility Study 22

25 Sensitivity Analysis We carried out sensitivity analysis on the capital cost of the project, increasing and decreasing capital expenditure by +/-10% with the following results: Year Ending 30 June $ $ $ Construction Costs - Base 755,000 3,944,000 8,918,000 Cummulative Construction Costs - Base 755,000 4,699,000 13,617,000 Construction Costs - 10% increase 830,500 4,338,400 9,809,800 Cummulative Construction Costs - 10% increase 830,500 5,168,900 14,978,700 Construction Costs - 10% decrease 679,500 3,549,600 8,026,200 Cummulative Construction Costs - 10% Decrease 679,500 4,229,100 12,255,300 Hundertwasser Art Centre: Feasibility Study 23

26 The results are also shown on the following charts: Annual Capital Expenditure Cumulative Capital Expenditure 16,000,000 16,000,000 14,000,000 14,000,000 12,000,000 12,000,000 10,000,000 Construction Costs - Base 10,000,000 Construction Costs - Base $ 8,000,000 6,000,000 4,000,000 Construction Costs - 10% increase Construction Costs - 10% decrease $ 8,000,000 6,000,000 4,000,000 Construction Costs - 10% increase Construction Costs - 10% decrease 2,000,000 2,000, Hundertwasser Art Centre: Feasibility Study 24

27 6.3. Operation of the Hundertwasser Art Centre The Hundertwasser Art Centre will be operated by the Trust. For developing financial projections, it was agreed with the WDC Hundertwasser Project Team that we would exclude the financial position and performance of the Trust (if already existing), and start with a clean sheet, so that the performance of the Hundertwasser Art Centre was more transparent. The administration and back-office staff of the Whangarei Art Museum Management Group could be utilised in a shared services type of arrangement, which is currently undetermined and is shown in the modelling at no additional cost, so that only the operational staff required for the centre were considered. A number of potential revenue streams from grants or the sponsorship or naming rights to the theatre complex inside the centre have been excluded from this analysis, with the exception of the capital funding of the project and ongoing grant funding equal to the rates expense, i.e. grants would offset rates expense. This analysis uses visitor numbers projected from existing historical data projected forward i.e. the visitor numbers who would be projected coming to Whangarei whether the Hundertwasser Art Centre was built or not. Any additional visitors, visiting the centre after it has been built are hard to quantify and to justify, as there are too many unknown elements (internationally this could include how famed the project becomes, exchange rates, visitor numbers to New Zealand etc). Comparisons could be drawn to the success of the Guggenheim building in Bilbao, Spain, but that is easier for international visitors to get to, compared to the remoteness of Whangarei and New Zealand to the rest of the world. Therefore a more conservative approach to visitor numbers has been taken and it should be expected that the centre be financially feasible for these visitors, then any additional visitors from new visitors could be considered windfall gains and show improved returns to the Trust. Through taking this approach, WDC is able to determine what funding shortfalls there may be, and where additional revenue streams need to be sought to ensure that the centre is financially feasible. We have treated the cafe/restaurant as being sub-leased by the Trust to an independent commercial operator, which provides a stable low risk return compared to operating a cafe/restaurant. Although the cafe is projected as being profitable based on the margins enjoyed by the 75 th percentile cafe/restaurant of a benchmark study carried out by Waikato University 5, it is neither the Trust s or WDC s core business, and would therefore result in a higher levels of risk, albeit with higher surpluses or losses. We believe that the cafe/restaurant would generate significant business, not only to Hundertwasser paying visitors, but those visitors who have not paid an admissions fee and for locals to frequent as well. Its location overlooking the water should make it a desirable place for dining. 5 The University of Waikato, New Zealand Benchmarking Survey, Financial Statistics 2010, H4511, p266 Hundertwasser Art Centre: Feasibility Study 25

28 The split of income currently forecast can be seen as percentages of total income below. The grant income is shown during the construction phase, and then shown as less than 1% of income for grants offsetting rates: 100% 90% 80% 70% Revenue Split as a Percentage 60% 50% 40% 30% Cafe/Restaurant Lease Income Souvenir Shop Income Admissions Revenue Grant Income 20% 10% 0% Hundertwasser Art Centre: Feasibility Study 26

29 Although we determined and agreed with WDC what could be a suitable entry fee into the Hundertwasser Art Centre (M or medium in the table below), we analysed the effect of lower and higher pricing on revenue. The price is kept consistent during the period modelled, and is not inflated in the later years. GST Inclusive Admission Prices L M H Adult $ $ $ Children $ 3.00 $ 4.00 $ 5.00 Family Pass $ $ $ Student $ 4.00 $ 6.00 $ 8.00 Senior $ 4.00 $ 6.00 $ 8.00 Adult - Local $ 3.00 $ 6.00 $ 6.00 Children - Local $ 1.00 $ 2.00 $ 3.00 Family Pass - Local $ 7.00 $ $ Student - Local $ 2.00 $ 3.00 $ 4.00 Senior - Local $ 2.00 $ 3.00 $ 4.00 Using the same visitor numbers (without further market research we are unable to determine the effect of price sensitivity on admission numbers) the effect on admissions revenue is as follows: Year Ending 30 June $ $ $ $ $ $ $ $ $ $ $ $ $ $ Admissions Revenue - High Prices 1,473,329 1,352,606 1,315,116 1,319,291 1,323,903 1,343,070 1,362,696 1,382,795 1,403,377 1,424,454 1,446,040 Admissions Revenue - Medium Prices 1,220,189 1,124,107 1,094,732 1,098,751 1,103,139 1,119,215 1,135,678 1,152,537 1,169,802 1,187,482 1,205,589 Admissions Revenue - Low Prices 933, , , , , , , , , , ,416 Hundertwasser Art Centre: Feasibility Study 27

30 The Effect on Admissions Revenue from Pricing Decisions 1,600,000 1,400,000 1,200,000 1,000, , ,000 Admissions Revenue - High Prices Admissions Revenue - Medium Prices Admissions Revenue - Low Prices 400, ,000 - Although the project should be finished in June 2014, we have shown visitors arriving from 1 July 2014, with staff and other costs being incurred during June as the art works are installed and staff are trained, etc. As the centre is not complete to some years within the Long Term Plan (LTP) cycle we have extended our analysis beyond this time-frame. Hundertwasser Art Centre: Feasibility Study 28

31 The key assumptions used in developing the financial projections can be found in Appendix 3. The results of the financial projections can be seen in the following pages: STATEMENT OF FINANCIAL PERFORMANCE Period End 30 Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun 25 E1.00 Profit & Loss Statement REVENUE Admissions Revenue ,220,189 1,124,107 1,094,732 1,098,751 1,103,139 1,119,215 1,135,678 1,152,537 1,169,802 1,187,482 1,205,589 Grant Income 2,755,000 5,699,000 8,918,000 15,132 15,541 15,961 16,392 16,834 17,289 17,755 18,235 18,727 19,233 19,752 Souvenir Shop Income , , , , , , , , , , ,939 Cafe/Restaurant Lease Income , , , , , , , , , , ,177 TOTAL REVENUE 2,755,000 5,699,000 8,918,000 1,933,140 1,748,108 1,692,473 1,703,341 1,714,741 1,767,831 1,804,675 1,842,809 1,882,284 1,923,156 1,985,457 DIRECT COSTS Souvenir Shop Cost of Goods Sold , , , , , , , , , , ,976 TOTAL DIRECT COSTS , , , , , , , , , , ,976 GROSS MARGIN 2,755,000 5,699,000 8,918,000 1,703,099 1,553,810 1,508,847 1,517,148 1,525,919 1,571,380 1,600,258 1,630,074 1,660,862 1,692,659 1,745,481 GROSS MARGIN % % % % 88.10% 88.89% 89.15% 89.07% 88.99% 88.89% 88.67% 88.46% 88.24% 88.01% 87.91% OVERHEADS In-House Cafe/Restaurant Other Expenses Overhead Expenses , , , , , , , , , , , ,094 Insurance - - 1,830 22,555 23,164 23,789 24,431 25,091 25,768 26,464 27,179 27,912 28,666 29,440 Exhibitions & Freight ,284 54,160 55,623 57,124 58,667 60,251 61,878 63,548 65,264 67,026 68,836 70,695 Security - - 6,966 85,855 88,173 90,554 92,999 95,510 98, , , , , ,065 Property Maintenance Expenses - - 7,799 96,109 98, , , , , , , , , ,450 Salary & Wage Expenses , , , , , , , , , , , ,524 Other Personnel Expenses ,227 26,064 26,742 27,437 28,151 28,883 29,634 30,404 31,194 32,006 32,838 33,691 TOTAL OVERHEADS , , , , ,692 1,021,766 1,048,769 1,076,491 1,104,951 1,134,169 1,164,164 1,194,959 EBITDA 2,755,000 5,699,000 8,717, , , , , , , , , , , ,522 Depreciation , , , , , , , , , , , ,978 EBIT 2,755,000 5,699,000 8,697, ,365 97,310 23,131 3,513 (3,401) 9,317 7,374 19,538 4,382 (8,219) 58,544 Interest (Overdraft) NET PROFIT BEFORE TAX 2,755,000 5,699,000 8,697, ,365 97,310 23,131 3,513 (3,401) 9,317 7,374 19,538 4,382 (8,219) 58,544 Taxation NET PROFIT AFTER TAX 2,755,000 5,699,000 8,697, ,365 97,310 23,131 3,513 (3,401) 9,317 7,374 19,538 4,382 (8,219) 58,544 Hundertwasser Art Centre: Feasibility Study 29

32 STATEMENT OF FINANCIAL POSITION Period End 30 Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun 25 F1.00 Balance Sheet Current assets Cash 2,313 2,126,770 1,812,872 2,182,368 2,788,751 3,272,961 3,792,517 4,297,451 4,761,284 5,283,209 5,809,488 6,145,758 6,639,660 6,687,487 Debtors ,800 5,792 5,792 5,800 5,800 6,617 6,617 6,626 6,626 6,617 7,560 Total Current assets 2,313 2,126,770 1,812,872 2,188,167 2,794,542 3,278,752 3,798,317 4,303,251 4,767,901 5,289,826 5,816,114 6,152,384 6,646,277 6,695,047 Non-Current assets Fixed assets (WDV) 2,755,000 6,699,000 15,776,264 15,256,594 14,746,308 14,288,012 13,770,069 13,262,513 12,811,097 12,294,704 11,789,119 11,467,887 10,958,708 10,993,263 Deferred Tax Asset Total Non-Current Assets 2,755,000 6,699,000 15,776,264 15,256,594 14,746,308 14,288,012 13,770,069 13,262,513 12,811,097 12,294,704 11,789,119 11,467,887 10,958,708 10,993,263 Total Assets 2,757,313 8,825,770 17,589,136 17,444,761 17,540,851 17,566,764 17,568,385 17,565,764 17,578,998 17,584,530 17,605,233 17,620,271 17,604,985 17,688,309 Current Liabilities Bank Overdraft Creditors 2, , ,753 34,013 32,792 35,574 33,683 34,463 38,380 36,538 37,703 48,359 41,291 66,071 GST Tax Payable Total Current Liabilities 2, , ,753 34,013 32,792 35,574 33,683 34,463 38,380 36,538 37,703 48,359 41,291 66,071 Non-Current Liabilities Loans Total Non-Current Liabilities Total Liabilities 2, , ,753 34,013 32,792 35,574 33,683 34,463 38,380 36,538 37,703 48,359 41,291 66,071 Net Assets 2,755,000 8,454,000 17,151,384 17,410,748 17,508,059 17,531,190 17,534,703 17,531,301 17,540,618 17,547,992 17,567,530 17,571,912 17,563,694 17,622,238 Equity Retained Profits 2,755,000 8,454,000 17,151,384 17,410,748 17,508,059 17,531,190 17,534,703 17,531,301 17,540,618 17,547,992 17,567,530 17,571,912 17,563,694 17,622,238 Total Equity 2,755,000 8,454,000 17,151,384 17,410,748 17,508,059 17,531,190 17,534,703 17,531,301 17,540,618 17,547,992 17,567,530 17,571,912 17,563,694 17,622,238 Hundertwasser Art Centre: Feasibility Study 30

33 STATEMENT OF CASHFLOWS Period End 30 Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun 25 G1.00 Cash Flow Statement Operating Cash Flow Operating Cash Inflow 3,168,250 6,553,850 10,255,700 2,217,312 2,010,333 1,946,344 1,958,835 1,971,952 2,032,188 2,075,376 2,119,221 2,164,627 2,211,638 2,282,333 Operating Cash Outflow - (263,250) (165,869) (1,417,875) (1,403,950) (1,399,137) (1,436,582) (1,467,019) (1,500,116) (1,550,531) (1,592,942) (1,606,620) (1,677,868) (1,652,544) Net Operating Cash Flows 3,168,250 6,290,600 10,089, , , , , , , , , , , ,789 Interest Paid Tax Paid Total Operating Cash Flow 3,168,250 6,290,600 10,089, , , , , , , , , , , ,789 Investing Cash Flow Capital Expenditure (3,165,937) (4,166,143) (10,403,729) (429,941) - (62,997) (2,696) - (68,239) (2,920) - (221,738) (39,868) (581,962) Total Investing Cash flow (3,165,937) (4,166,143) (10,403,729) (429,941) - (62,997) (2,696) - (68,239) (2,920) - (221,738) (39,868) (581,962) Financing Cash Flow Loan Drawdown Principal Repayment Equity Contribution Total Financing Cash Flow Net Cash Inflow/(Outflow) 2,313 2,124,457 (313,898) 369, , , , , , , , , ,902 47,827 Opening Balance - 2,313 2,126,770 1,812,872 2,182,368 2,788,751 3,272,961 3,792,517 4,297,451 4,761,284 5,283,209 5,809,488 6,145,758 6,639,660 Closing Balance 2,313 2,126,770 1,812,872 2,182,368 2,788,751 3,272,961 3,792,517 4,297,451 4,761,284 5,283,209 5,809,488 6,145,758 6,639,660 6,687,487 Hundertwasser Art Centre: Feasibility Study 31

34 The projected financial results from above can also be seen in the following charts, showing the level of retained earnings and cash reserves available for reinvestment: 2,500,000 Financial Performance of the Hundertwasser Art Centre 2,000,000 1,500,000 1,000,000 Total Revenue EBITDA Net Surplus/(Deficit) 500, (500,000) Hundertwasser Art Centre: Feasibility Study 32

35 Financial Performance of the Hundertwasser Art Centre 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 Total Revenue EBITDA Net Surplus/(Deficit) Retained Earnings Cash Surplus 2,000,000 - (2,000,000) The financial projections show the initial grant income which is used to fund construction of the centre. During construction there are no operating expenses only capital expenditure, so the revenue becomes the retained earnings of the Trust. The Trust is projected to produce a cash surplus of just over $0.5m per annum (Earnings before depreciation, interest, and taxation EBITDA). After the depreciation charge is applied *there is no tax or interest cost projected, the Trust would be breaking even (some years small surpluses, other years, small losses. The small losses are caused by the last year of the sub-lease of the cafe/restaurant, after which the lease cost is increased by the rate of inflation and is fixed for another 5 years. The effect of making cash surpluses can be seen over time in the second chart. The breakeven nature of net profit is reflected in the fairly static retained earnings line in the second chart. Admissions revenue is conservatively based on the 75% capture rate of existing projected tourists to the Northland region who visit museums and art galleries. Therefore opportunities to secure additional grants or sponsorship funding, should improve the profitability of the centre. Although the current level of net surpluses forecast are almost at a break-even point, the Trust is likely to generate future cash reserves to cover major capital reinvestment in the future or to sustain itself in later yearsto allow for any significant downturn in visitor Hundertwasser Art Centre: Feasibility Study 33

36 numbers. The effect on various sensitivities can be seen in the sensitivities sub-section below. Therefore the Trust may need to seek future additional funding to cover any significant shortfall in visitor numbers in the short term only until sufficient reserves to cover expenditure are generated. Additional funding could be in the forms of grants, sponsorship or funding from WDC or others. However, the results above demonstrate that on a year by year operational basis, the Trust would not require additional funding for operational funding Sensitivity Analysis We carried out sensitivity analysis on the profitability of the Hundertwasser Art Centre. We examined the results of the following sensitivities: Increasing / decreasing revenue (Admissions, souvenir shop spend, sub-lease of cafe/restaurant) by 10% Increasing / decreasing the volume of admissions by 10% Increasing / decreasing expenditure by 10% Increasing / decreasing inflation by 10% Increasing / decreasing capital expenditure by 10% (Effect on Net Surplus/(Deficit) only) The charts below show the effect of this sensitivity analysis. The charts show the effect of sensitivities after depreciation is charged (Net Surplus/Deficit) and before Depreciation is charged (EBITDA). The charts clearly demonstrate that the project is sensitive to revenue, volumes and expenditure but far less sensitive to movements in inflation. As the financial projections above show only very small surpluses being made, the effect on the profitability of the centre is significant should expenses increase by 10% or revenues or volumes fall by 10%. The fall in net surpluses would quickly turn into losses (which are then compounded due to interest charges, due to running an overdraft, as additional loan facilities have not been modelled). What this means is that, should expenses by higher than planned, or revenues are lower or the number of visitors to the centre are lower than projected, then the Hundertwasser Art Centre could require additional funding support. Grants or sponsorship may cover these shortfalls, but if these are not secured, WDC may be called upon to support the centre through additional funding. This would not be uncommon for community infrastructure. Hundertwasser Art Centre: Feasibility Study 34

37 Conversely should revenues be higher than forecast, visitor numbers greater or expenses lower, then the centre is likely to enjoy higher profit margins and build up cash reserves so that it less reliant on additional funding from other parties. 500,000 Sensitivity Analysis on Net Surplus/(Deficit) Results 400, , , ,000 - (100,000) Net Surplus/(Deficit) - Base Net Surplus/(Deficit) - Revenue +10% Net Surplus/(Deficit) - Revenue -10% Net Surplus/(Deficit) - Volume +10% Net Surplus/(Deficit) - Volume -10% Net Surplus/(Deficit) - Expenditure +10% Net Surplus/(Deficit) - Expenditure -10% Net Surplus/(Deficit) - Inflation +10% Net Surplus/(Deficit) - Inflation -10% Net Surplus/(Deficit) - Capex +10% Net Surplus/(Deficit) - Capex -10% (200,000) (300,000) Hundertwasser Art Centre: Feasibility Study 35

38 1,000,000 Sensitivity Analysis on EBITDA Results 900, , , , , , , ,000 EBITDA - Base EBITDA - Revenue +10% EBITDA - Revenue -10% EBITDA - Volume +10% EBITDA - Volume -10% EBITDA - Expenditure +10% EBITDA - Expenditure -10% EBITDA - Inflation +10% EBITDA - Inflation -10% 100, In addition to the sensitivity analysis above which demonstrates the effect on one area of sensitivity, we examined a worse case should several of these elements be incurred at the same time. For this worse case scenario we assumed: Ticket pricing is at the low option Admissions are 10% lower than projected Souvenir shop revenue is 10% lower than projected (also affected by visitor numbers) Cafe/Restaurant lease income is 10% lower than projected Expenses are 10% higher than projected Hundertwasser Art Centre: Feasibility Study 36

39 The results of this worse case scenario can be seen below: 2,000,000 Worse Case Scenario - Financial Performance of the Hundertwasser Art Centre under an operating Trust 1,500,000 1,000,000 Total Revenue Gross Margin 500, Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) Net Surplus/(Deficit) (500,000) (1,000,000) Hundertwasser Art Centre: Feasibility Study 37

40 The effect on retained earnings and cash are also demonstrated below and show the retained earnings being eroded over time, as cash balances are very low: 20,000,000 18,000,000 Worse Case Scenario - Financial Performance of the Hundertwasser Art Centre under an operating Trust 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 Total Revenue Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) Net Surplus/(Deficit) Retained Earnings Cash Surplus - (2,000,000) The effects of the worse case scenario demonstrates that the Hundertwasser still maintains a positive cashflow over 10 years, although suffering accounting losses. In this circumstance should there be a sudden drop in visitor numbers then the Trust could need additional financial assistance. The Trust could still require assistance with any major capital reinvestment as well. Any financial assistance would most likely reside with WDC even if some sponsorship or grant income could be obtained. The operations of the Hundertwasser should be closely monitored against budgets set, including admission volumes, so that if further funds are required, these can be actioned within a timely manner. Hundertwasser Art Centre: Feasibility Study 38

41 We carried out a net present value (NPV) sensitivity on the base case financial projections using an 8% discount rate (The Treasury, public sector discount rate). We then reviewed the impact of the high-low NPV values of the top 10 variables to determine which are the most sensitive, so that they can be carefully managed. The results of this analysis can be seen in the Tornado chart below: Sensitivity Tornado - Top 10 Variables Ticket Pricing No. Of Tickets Salaries & Wages Souvenir Shop Income Overheads (Excluding Insurance) Wage Inflation Cafe/Restaurant Lease Income Property Maintenance Security Capex Sensitivity 5,000,000 5,500,000 6,000,000 6,500,000 7,000,000 7,500,000 8,000,000 8,500,000 9,000,000 9,500,000 10,000,000 Enterprise Value Hundertwasser Art Centre: Feasibility Study 39

42 The analysis demonstrates that the NPV of the Hundertwasser Art Centre is most sensitive to ticket pricing followed by the number of tickets sold. For other income items, the level of expenditure in the Souvenir Shop will have an impact, with the least impact through the sub-lease of the cafe/restaurant. Of these four revenue variables, the Trust can control the ticket pricing and the lease rental for the cafe/restaurant. The volume of tickets and discretionary spend on souvenirs are ultimately beyond the control of the Trust. However, the Trust needs to keep a close track on what sells in the shop to ensure that it maximises souvenir revenue generated from visitors. While there could be opportunities to raise ticket prices to enjoy a greater level of revenue, the impact on admissions is unknown and would need to be supported by further market research. The price indicated in this report is based on a comparison to 60 other attractions, and is reflective of what we believe is a fair entry into an attraction such as the Hundertwasser Art Centre once it opens to the public in mid The most sensitive expense in our analysis was salaries and wages. These will need to be carefully managed, and considered especially as wage inflation is also sensitive. Overheads in general are the second most sensitive expense. Many of these costs will be outside the Trust s control, but where costs are in their control, these should be carefully managed, and likewise property maintenance. The Trust may be able to secure sponsorship or align itself with a DIY or Paint supply company to cover or reduce the costs of property maintenance. Security was also relatively sensitive, and as outsourced, volatility could be reduced and managed through long term contracts. The value of the project is only relatively sensitive to movements in capital expenditure. What this analysis demonstrates is that the Trust should look to control costs and use long term contracts where possible to avoid price volatility, and carefully monitor visitor numbers to maintain the project s value. Hundertwasser Art Centre: Feasibility Study 40

43 Operation of the Cafe/Restaurant It is recommended that the Trust sub-lease the restaurant to a restaurateur, who has experience in the hospitality industry and understands the key risks and rewards of operating such a business. It is not the core business of the Trust or WDC, and were the cafe/restaurant to be run in-house we believe that additional costs may need to be incurred in appointing a manger to run the cafe/restaurant, although there would be savings made in not paying the rent. The rewards are potentially greater, but so too are the risks if not run well. Therefore we believe it should be sub-leased to an external party. We believe that the location of the restaurant would not only attract customers from visitors but also from locals. The location overlooking the water should enhance the number of patrons, and so in developing potential projections for the cafe/restaurant we have used the 75 th percentile results of the 2010 Waikato University Management School s New Zealand Business Benchmarking Survey. 161 cafes/restaurants were used to determine the margins to generate revenues and costs for the cafe/restaurant. The exception applied to this was rental costs as these were known from the additional modelling work carried out, and from the market rental prices supplied for the Town Basin. We have looked at the number of potential staff (21 Full Time Equivalents (FTEs)) required to be involved in the operation of the cafe/restaurant for opening during the day and in the evenings 7 days a week, and then used the number of staff required to generate revenues and other expenses. There could also be opportunities for catering events that may be hosted within the Hundertwasser Art Centre itself that could provide additional revenue streams for the cafe/restaurant. In addition, we have reviewed what is included in the preliminary costings for the centre and believe that additional capital expenditure of between $80,000 - $100,000 will be required to fit out the cafe/restaurant with the appropriate equipment by the commercial operator. We have projected the likely results of the cafe/restaurant prior to an owner taking a salary or dividend, and the results can be seen below: Hundertwasser Art Centre: Feasibility Study 41

44 E2.00 Profit & Loss Statement - Cafe/Restaurant Outside of the Trust Period End 30 Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun 25 REVENUE In-House Cafe/Restaurant Income ,187,703 2,246,771 2,307,433 2,369,734 2,433,717 2,499,427 2,566,912 2,636,219 2,707,396 2,780,496 2,855,570 TOTAL REVENUE ,187,703 2,246,771 2,307,433 2,369,734 2,433,717 2,499,427 2,566,912 2,636,219 2,707,396 2,780,496 2,855,570 DIRECT COSTS In-House Cafe/Restaurant Cost of Goods Sold , , , , , , , , , , ,329 TOTAL DIRECT COSTS , , , , , , , , , , ,329 GROSS MARGIN ,453,510 1,492,754 1,533,059 1,574,451 1,616,962 1,660,620 1,705,456 1,751,504 1,798,794 1,847,362 1,897,240 GROSS MARGIN % 0.00% 0.00% 0.00% 66.44% 66.44% 66.44% 66.44% 66.44% 66.44% 66.44% 66.44% 66.44% 66.44% 66.44% OVERHEADS Administration ,752 23,366 23,997 24,645 25,311 25,994 26,696 27,417 28,157 28,917 29,698 Advertsiing & Promotion ,375 4,494 4,615 4,739 4,867 4,999 5,134 5,272 5,415 5,561 5,711 Occupancy expenses excl rent , , , , , , , , , , ,563 Rent , , , , , , , , , , ,985 Plant & Equipment ,410 45,609 46,841 48,106 49,404 50,738 52,108 53,515 54,960 56,444 57,968 Phone, fax, communication ,657 7,864 8,076 8,294 8,518 8,748 8,984 9,227 9,476 9,732 9,994 Vehicle expenses ,157 4,269 4,384 4,502 4,624 4,749 4,877 5,009 5,144 5,283 5,426 Wages - employees & labour only contract , , , , , , , , , , ,129 Other expenses , , , , , , , , , , ,436 TOTAL OVERHEADS , , ,533 1,018,475 1,042,023 1,066,193 1,108,958 1,134,420 1,160,554 1,187,378 1,214,910 EBITDA , , , , , , , , , , ,330 Assumed other costs (Depn, Amort, etc) , , , , , , , , , , ,843 EBIT , , , , , , , , , , ,488 Interest ,094 1,123 1,154 1,185 1,217 1,250 1,283 1,318 1,354 1,390 1,428 NET PROFIT BEFORE TAX , , , , , , , , , , ,060 Taxation ,894 82,194 85,511 88,923 92,430 96,036 94,715 98, , , ,617 NET PROFIT AFTER TAX , , , , , , , , , , ,443 Hundertwasser Art Centre: Feasibility Study 42

45 Financial Analysis Conclusion The financial analysis has shown that based on the current conservative visitor numbers forecast, that the Hundertwasser Art Centre would make cash surpluses and small accounting surpluses and deficit, but could need additional funding, should there be a downturn in admissions or for capital reinvestment in the short term. The centre is vulnerable to movements in increases or decreases in revenues, the number of visitor admissions, and expenses, either enjoying higher returns or needing financial assistance. We recommend that WDC investigate the possibility of either securing naming rights or sponsorship from a commercial company. It was suggested that a technology based company be involved in providing revenues to develop and maintain the theatre or interactive section of the centre. In addition a Paint Supply company may wish to be associated with the building and sponsorship could be sought in maintaining the look of the building. Both of these would provide additional revenue or reduced costs to the centre, which would strengthen its financial viability, from the base financial projections prepared. The analysis has also shown that if a number of negative variables impact the centre at the same time, then the centre could require significant financial assistance. Conversely, if a number of positive variables impacted the centre at the same time, significant reserves could be built up. The NPV analysis shows which revenues and expenses are most sensitive and could affect the value of the centre. Many of these items can to a certain degree be carefully managed by the Trust in its operation of the Hundertwasser Art Centre. The capital cost exceeding budgeted cost is the key risk to the Trust as they will only have finite funds with which to build the centre. WDC also need to investigate how it will fund the grants towards the capital cost of the project. WDC do not currently earn income from the existing building. Through transferring it to the Trust they are foregoing the opportunity to potentially earn rental income by using the building for some other purpose, or through selling the site to a developer which needs to be understood by ratepayers, and in the context that the success of the Hundertwasser Art Centre has wider impacts on the district. The financial projections for the cafe/restaurant show surpluses, but are before considering shareholder salaries or dividends in order to recompense the owner. The rewards are potentially greater than the Trust earning lease income from the cafe/restaurant but so too are the risks, especially as it is not the Trust s or WDC s core business. We therefore would recommend that the cafe/restaurant is sub-leased generating a smaller but lower risk return to the Trust. Hundertwasser Art Centre: Feasibility Study 43

46 7. Operating Risks & Opportunities There are a number of risks and opportunities that exist around the operation of the Hundertwasser Arts Centre. It is critical that the governing body of this iconic attraction consider the wider strategic risks and opportunities that relate to the operation of this attraction. A number of risks and opportunities have been outlined below: 7.1. Hundertwasser Art Centre and Whangarei District Operating Risks Attracting Repeat Visitors There is the need to operate the Hundertwasser Art Centre in a manner that will generate repeat visitors to not only the centre itself, but the Town Basin and the Whangarei district in general. While a number of visitors will come to the Hundertwasser Art Centre and the wider Town Basin to visit the building itself, the regular rotation of paintings and other cultural artefacts is a key aspect to generate repeat admissions to the Hundertwasser Art Centre. There is a need to devise initiatives that encourage repeat visitors to the building, bearing in mind that a lot of visitors will come to view the building itself, instead of the artwork Complementary and Competitive Attractions Given that the Whangarei Art Museum will be relocated in close proximity to the Hundertwasser Art Centre there is a relatively low risk that this could impact on the visitor numbers to the centre. We would recommend that WDC consider possible joint pricing, or a discounted price to visit both art galleries, so that it is a complimentary attraction rather than competition to the Hundertwasser Art Centre. The opening of the Heritage Trail, with sculptures and an art trail only 250 metres from the proposed Hundertwasser Art Centre could also be a complimentary attraction to visitors. The updated bridge, (only metres from the proposed Hundertwasser Art Centre) with the week-end artisans market could also be a complimentary attraction for visitors. This bridge will eventually be part of a 3.6km loop walkway/cycleway at the Town Basin. In order to generate the greatest benefit to the Whangarei District, WDC need to consider whether there are enough attractions to keep visitors in the region busy for a whole day or longer. Currently many visitors may use Whangarei as a short stopping point on the way further north to the Bay of Islands and beyond. The Hundertwasser Art Centre on its own may become an activity to do once stopped on the journey north. Therefore, it needs to be considered how attractions can leverage off of visitors in order to encourage them to stay longer Hundertwasser Art Centre: Feasibility Study 44

47 in the district, and stay overnight. This needs to be part of a larger strategy for the district and will need to consider accommodation requirements etc General Town Basin Infrastructure The Hundertwasser Art Centre is expected to attract a considerably higher level of vehicle and traveller thoroughfare to the Town Basin. With this in mind, and the prospect of other attractions such as the Information Centre and Whangarei Arts Museum relocating to the Town Basin along with other new attractions such as the new Art Park, there is a risk that the current roading and general infrastructure is not adequate to handle an increased level of visitor thoroughfare. The major risks can be categorised into the following areas: Lack of Suitable Parking and Accessibility There are currently only a limited number of parks in the Town Basin which achieve high occupancy rates. There is a risk the number of parks available may not accommodate the visitor numbers this report is forecasting to visit the Hundertwasser Art Centre, besides any additional demand for car parking that could be generated from other attractions relocating to the Town Centre during peak seasonal demand. We understand that WDC have considered the availability and occupancy of car parking as part of their Parking Management Strategy New parking facilities close to the Hundertwasser Art Centre will be available, with a strategy in place to provide for visitors to the area rather than to commuters. Further the wider parking strategy will look to better manage parking in Whangarei without necessarily providing additional car parking spaces, so that parking is available for visitors, commuters, and residents. In terms of accessibility, and in considering any future waterfront development, there needs to be consideration around the types of transport arriving and departing, or for hire in the Town Basin. These could include; buses, cars, people movers, camper vans, taxis, shuttle vans, bicycles, motorbikes and scooters. We understand that WDC is is confident worker and visitor parking needs will be met within the new strategy. Infrastructural Risks within Town Basin and CBD As outlined in Whangarei s 20/20 Plus strategy document, there is currently poor street hierarchy and connection in between the general CBD and Town Basin. The current design of the towns inner precincts have been labelled as creating a number of issues, including but not limited to the following: Poor pedestrian connections and increasing traffic conflict Increasing traffic congestions in times of normal and heavy demand Hundertwasser Art Centre: Feasibility Study 45

48 Limited community facilities and amenities Little after-hours activity and some anti-social behaviour (calling into question the security of the area). We understand that this will be addressed through new security measures to be implemented in the Town Basin and the Hundertwasser Art Centre. Realising spatial and pedestrian links to the hills and along the water front WDC is already addressing the issues raised through its CBD upgrade and concentration on linkage of Town basin and the CBD. A second harbour crossing is due to be opened in 2013, which will remove an expected 10,000 vehicle movements daily from the Town Basin area. Lack of Quality Accommodation in CBD/Town Basin There is a risk that the Hundertwasser Art Centre and coincidentally the Whangarei District may never realistically be considered as a suitable conference/convention centre or overnight destination until more attractive accommodation exists in the form of improved accommodation (i.e. a 4 star Hotel). The risk around the current lack of suitable accommodation may not only be limiting the potential of attractions and events such as those of the Hundertwasser Art Centre, but also other attractions throughout the Whangarei District as well. Hundertwasser Art Centre: Feasibility Study 46

49 7.2. Hundertwasser Art Centre and Whangarei District Opportunities In order to attract a skilled workforce, cities must be attractive places to live and work in their own right. They must promote a range of social, cultural and environmental features to create a real sense of place Targeting of Education Platforms An opportunity exists around the targeting of primary, secondary and tertiary (e.g. Elam School of Fine Arts) education platforms. If the Hundertwasser Art Centre can entice these institutions from within its own region and neighbouring regions to commit to annual visits, then this will increase awareness for the centre as well as visitor numbers. A carefully constructed pricing structure would need to be developed around this opportunity Targeting of Tourism Charters There is an opportunity to develop competitive pricing structures targeted at local, national and international tourism providers. If the Hundertwasser Art Centre is able to attract coach/bus services to the region then this would have a positive impact on other operators in the Town Basin and throughout the Whangarei District Continued Waterfront Development The re-development of the Town Basin and particularly its interaction with the waterfront at this location is part of WDC s vision. Similar to many other councils and regions around New Zealand there is a desire to utilise water where available. Experience both in New Zealand and overseas, shows that people are attracted to waterfront locations. The waterfront developments in Whangarei could provide an ideal opportunity for locals and visitors to develop a sense of place. The Paihia waterfront in the Bay of Islands is an extremely valuable intermediary between people and water and is the access point for a host of water based activities. It s also a hub combining travel, tourism and transport. While it is well documented that there are some infrastructure hurdles surrounding the development of the Town Basin, there are a number of opportunities that exist around its waterfront development. The Hundertwasser Art Centre has the potential to act as a catalyst for further waterfront development, which could bring a number of direct benefits to the community. These include, but are not limited to the following: Hundertwasser Art Centre: Feasibility Study 47

50 Revitalisation of the tourism industry. Encouraging the schooling, development and retention of skills within the district. Increasing cultural diversity. Stimulation of property values around the waterfront and increased returns on WDC s investments. An increased opportunity to host varying sized events that would otherwise go to other districts or regions. Like the lessons taken from other significant water developments such as St Katherine s Dock in London and that of the Auckland waterfront development, the continued re-development of the Town Basin waterfront could enhance the liveability and attractiveness of the district by not only rejuvenating the urban landscape, but further improving quality of lifestyle choices available for those in the area, or considering moving to the area Additional Complementary Developments to Consider While the development of the Hundertwasser Art Centre may be seen as the beginning of a much larger strategic initiative around increasing the District s economic and cultural prosperity, there are a number of opportunities that feed off of its development. Development of a Hundertwasser Trail WDC should consider the development of a Hundertwasser trail connecting Kawakawa amenities block to the Hundertwasser Art Centre. The Kawakawa amenities block has an estimated 10,000 visits per month. A trail such as this could capitalise on bringing tourists through Whangarei s Town Basin and also include visits along the way to other prominent attractions in the Whangarei District. Veranda Development A veranda development at the Hundertwasser Art Centre cafe/restaurant, utilising its waterfront location could create an extremely tempting option for passing tourists. Numerous other councils around New Zealand and overseas have identified waterfront hospitality as a key part of their longer term development plans. WDC can consider this alongside other future developments, taking advantage of the Hundertwasser Art Centre s prime waterfront location. Hundertwasser Art Centre: Feasibility Study 48

51 Complementary Attractions Packages With the Whangarei Art Museum having opened in close proximity to the Hundertwasser Art Centre there is an opportunity to offer a complementary package to visit both attractions. There are a number of similar attractions both within and outside the Town Basin that could fall within this category, however there would need to be an appropriate level of market research conducted around the fit of any such attractions and split of ticketing revenue within such a package. Relocation of the Information Centre and the Development of other Attractions in the Town Basin The majority of visitors who currently visit the Information Centre are international travellers, so it is a real draw card for those international travellers who come to Whangarei. If the Information Centre is relocated to the Town Basin then this will encourage more traffic thoroughfare to the Town Basin and will have a positive impact on all other attractions operating in the Town Basin area. The Heritage Trail and Art Park opened this month adjacent to the Town Basin and the Bascula Bridge due to open in 2013, are examples of other attractions in this area. Continuing Development of the Town Basin An opportunity exists to leverage off of the development of the Town Basin and converge this upgrade with that of the CBD and the other urban precincts within the city. This idea is outlined in the Whangarei 20/20 plus strategy. The redevelopment of the Town Basin can also act as a catalyst for the Whangarei District s other natural attractions, with the development of stronger connections around the District. Associations/Affiliations with Professional Bodies There is an opportunity for the Hundertwasser Art Centre to associate/affiliate itself with the The Arts Promotion Trust which is the creative/arts sector development body for the Northland region, if the Trust is not already a member. The Arts Promotion Trust are responsible for a number of notable arts events including the Northland Arts Trail and Art Beat. Targeting Art Conventions and Conferences Given the relatively close proximity to Auckland, where a large number of arts conventions and exhibitions are held, the Hundertwasser Art Centre can compete with these to bring conventions/conferences into the Whangarei s local economy. There does however remain a fundamental issue that there is no accommodation recognised at a 4 star rating or higher. Hundertwasser Art Centre: Feasibility Study 49

52 7.3. Other Developments As part of our review we have investigated other potential developments in or adjacent to the Town Basin area. Developers in the region view the building of the Hundertwasser Art Centre as favourable and some have seen it as a catalyst affecting both the timing and nature of their own developments. Others see it is an opportunity to work with WDC in developing Public Private Partnerships (PPPs) or providing additional infrastructure to the town, such as a potential public transport hub/car park. Other developers are considering commercial developments of 3,500 to 4,000 square metres that includes potential retail and some additional parking. They view the Hundertwasser Art Centre as generating demand (through foot traffic and the desire to work in an enhanced environment) for their own development, as it will become the part of town to be in, i.e. a catalyst. Should the Hundertwasser Art Centre not proceed, then the timing for such a development may also be delayed. The value of such a commercial development could vary from its intensity ranging from a $16m to $40m development, which could provide additional economic growth into the District. WDC is considering options for the development of a 4 star hotel in the Town Basin area. The developers are currently independent but would be keen to see any hotel development branded with an internationally recognised name e.g. Novotel. The developers see a need for such a hotel in the region, and believe that it would have a corporate base of visitors travelling to the region on business. The development of the Hundertwasser is seen as complimentary to the development and if branded could attract visitors to Whangarei for a night before proceeding further north on their visit and likewise on their return. It could also encourage week-end visits from Auckland. Other developers in the Town Basin and CBD are keen for the revitalisation of the area, as it is likely to lift the property values of the area, and could result in increased rents, as well as strengthening the balance sheets of organisations including WDC s. Hundertwasser Art Centre: Feasibility Study 50

53 8. Costs and Benefits to Ratepayers WDC is considering funding the construction of the Hundertwasser Art Centre through the provisions of grants to the Trust in order to build the Hundertwasser Art Centre. Although WDC are considering various funding mechanisms there are likely to be some costs for ratepayers. There will be reasons for the Whangarei community to support or not support the proposed Hundertwasser Art Centre. There will be social and economic benefits and there will be financial costs Benefits There are a number of social and economic benefits, some are short term and some are longer term. The benefits include: Public access to Hundertwasser and other significant artworks in the region. Construction opportunities locally, the Economic Impact Assessment prepared by Deloitte estimates that 68 FTEs would be required. In addition should the Hundertwasser Art Centre progress, it would bring forward other developments within the Town Basin, CBD area of town. The Deloitte and Visitor Solutions Economic Impact Assessments have estimated an on-going economic benefit of between $3.5m - $3.7m per annum from 2015 onwards from the development. This does not include the impact from other complimentary developments that are likely to occur as a result. New jobs would be created, with an estimated 11 additional jobs required for front-line work in the Art Centre, and potentially 21 jobs in the cafe/restaurant. Security personnel would also be required for monitoring the CCTV within the centre and for patrols to be in the Town Basin. Hundertwasser Art Centre: Feasibility Study 51

54 Potential increased spending in the region. Monies spent at the Hundertwasser may not result in diminished spend at other attractions in the region, but in additional spending due to the number of few attractions that the Hundertwasser Art Centre would be competing for. The project fits into the strategy of the revitalisation of the Town Basin, improving the look and feel of the heart of the city, and should help to engender a sense of place for ratepayers, and a place to spend time in, which would not only benefit existing ratepayers but could attract professionals and their families to the Whangarei District, growing its cultural base and aiding its future sustainability. Compliments and enhances other developments such as the Art Park, the new location of the Whangarei Art Museum, and the Hatea Hub Bridge development. The revitalisation of the Town Basin is likely to result in an increase in property values in and around the Town Basin and the CBD Costs In addition to the benefits above, the proposed Hundertwasser Art Centre would also bring with it costs. The costs include: The grants provided towards the construction costs of $13.6m will need to be paid for, either through rates paying for a loan over a set period of time or through some other funding mechanism. $1.2m of these costs will need to be incurred in strengthening the building, whatever its future use, as it is a public building subject to the provisions of WDC s earthquake code and is being addressed independently of the proposed Hundertwasser Art Centre. Therefore $12.4m is the additional cost to be funded by WDC less any additional grants that can be secured by the Trust towards the construction of the centre. There is an opportunity cost of what the funding from a full commercial lease would provide Council compared with transferring the Hundertwasser Art Centre to the Trust. The costs to ratepayers and the funding mechanisms to support building the Hundertwasser Art Centre are being considered by WDC and are outside the scope of this report. It should be noted that significant spending of $1.2m is required to make the building usable for any other development there. Hundertwasser Art Centre: Feasibility Study 52

55 9. Conclusion From our analysis of the proposed Hundertwasser Art Centre, the ownership and governance structure would appear to be an appropriate one, as there is shared governance between WDC and the Trust in the form of the elected council members sitting on the Trust s board. The operation of the Trust will allow the Trust to apply for grants that would not otherwise be available to WDC. Care should be taken by the Trust and WDC as they will be related parties for accounting purposes, and appropriate controls and policies should be put in place if they are not already there. Visitor numbers projected are relatively conservative and are based on historical and projected information from the MED and are then projected further out through to The visitor numbers as discussed are those projected to visit Whangarei and Northland whether the Hundertwasser Art Centre is developed or not. The development of the Hundertwasser Art Centre may encourage new additional visitors to the region and could result in a similar success story as the Guggenheim building in Bilbao, Spain. Although this would be hard to gauge as the Hundertwasser Art Centre and New Zealand are far more remote to international visitors than mainland Europe, and there are other unknowns that would make any influx of additional visitors hard to gauge. Therefore our projections are based on the more conservative visitor patterns that are known and measured. The price for entry admissions is based on our research of other entry fees for numerous attractions, and what would appear to be a fair price for the public with allowance made for the opening of the centre in mid For local ratepayers, we have shown in our analysis that they would pay 50% of entry fees to the centre. There have been suggestions that local residents could purchase an annual pass to the centre or enter free with a full paying guest from outside the region. WDC will need to give further consideration as to how local ratepayers would be charged. This could be carried out through consultation with the public and/or through market research. The financial analysis shows that the Hundertwasser Art Centre could operate without additional WDC support, unless there was a significant shortfall in visitor numbers in the short term. Should grant or sponsorship (for theatre complex) funding be sought, it will serve to strengthen the financial performance of the Trust. Budgets and operating costs will however need to be closely monitored, as the project is sensitive to movements in visitor numbers and increases and decreases in revenues and expenditure. Therefore it remains a risk to WDC, that the Hundertwasser Art Centre could need additional funding to support it. The centre should generate sufficient cash reserves for capital reinvestment at some stage in the future, although small accounting net surpluses and deficits are forecast. The sensitivity analysis Hundertwasser Art Centre: Feasibility Study 53

56 shows that there are a number of expenses that are more sensitive than others and these should be monitored more closely to keep control of costs. We would recommend that if the project progresses, that budgets are set with monthly reporting back on actual results, including variance analysis, so if any problems emerge that they can be identified and mitigated in a timely manner. We have shown the cafe/restaurant being run by an external third party, as this is neither the Trust s or WDC s core business. The financial projections developed for the cafe/restaurant which will be open in the evenings as well during the day, show reasonable returns prior to an owner taking out a salary or dividend (excluded from analysis). However, although the returns projected are higher than the sub-lease rental income to be earned, the risks would be significantly higher, and we would therefore recommend that the Trust sub-lease the cafe/restaurant to a third party, and accept the lower returns of lease income but also the lower risks associated with sub-leasing. There are a number of risks and opportunities for WDC in building the Hundertwasser Art Centre. Many of these impact on the wider Town Basin and CBD area as well as the Hundertwasser Art Centre itself. There are opportunities to revitalise the Town Basin, and the Hundertwasser Art Centre is likely to encourage other developments to progress in the near vicinity which fits with WDC s long term strategic vision for the city s heart and developing a sense of place. WDC are keen to increase outside spending in the District, and the Hundertwasser Art Centre provides an example of an attraction where visitors could spend a few hours. However, WDC need to encourage visitors to stay longer, preferably overnight, in order to maximise visitor spend in the district. Therefore additional attractions are required. Attractions such as the Artisans market and the Art Trail are examples of this. WDC should also consider river/harbour charter tours etc and other attractions to stop Whangarei being just a stepping stone to the Bay of Islands and the Far North, and become a destination in its own right. The potential development of a 4 star hotel is likely to assist in attracting overnight stays, or week-end visits from Auckland in addition to attracting a core of business travellers to the District. The Hundertwasser Art Centre and other developments may provide jobs locally in the construction industry in the short term, and/or attract out of town workers to spend their wages in the District. New jobs would be created within the Hundertwasser Art Centre and the cafe/restaurant. The separate economic impact analysis carried out shows that there is an annual benefit of $3.5m per annum to the region from developing the Hundertwasser Art Centre. This is prior to the hotel or other developments that may occur. The revitalised waterfront area will not only attract tourists and visitors but will also become a place for locals to enjoy the waterfront and attractions in the way that many waterfront developments have both in New Zealand and overseas. The developments are likely to increase property values in the area, which may result in an uplift of rental value for owners of the properties. Hundertwasser Art Centre: Feasibility Study 54

57 One of the key risks for WDC will be considering the availability of car parking close-by to these attractions and also managing traffic flows from the state highway down to the Town Basin especially during peak traffic times and the summer season. We understand that WDC is in the process of undertaking a Car Parking Strategy, but we would recommend that should the project progress, that Traffic consultants review the new strategy and potential traffic flows into the Town Basin. WDC will need to consider the other benefits and of course the cost to its ratepayers in making a decision to progress with the Hundertwasser Art Centre, as well as considering their views during the Long Term Plan consultation process. Overall, the Hundertwasser Art Centre presents a unique opportunity to develop one of New Zealand s truly iconic buildings that also fits within the WDC s Town Basin revitalisation vision, with economic benefits of $3.5m per annum, which would deliver a return on investment in the District over a pay-back period of 4 years on the construction cost of $13.7m. The development may also put Whangarei on the international map for visitors interested in such a unique structure or Hundertwasser s other art works. Hundertwasser Art Centre: Feasibility Study 55

58 Appendix 1 Visitor Numbers and Profiles Age Profile of Domestic Tourists to Northland Age (Grouped) YE Mar 10 YE Mar 11 Two Year Average 15 to 24 20% 18% 19% 25 to 34 15% 18% 17% 35 to 44 19% 20% 20% 45 to 54 18% 17% 18% 55 to 64 14% 17% 16% % 10% 12% Age Profile of Local Whangarei Population Deloitte has used Visitor Solutions projection of 29,500 visitors from the wider Whangarei District. We have compared this projection alongside data collated from the 2006 Census to obtain a break-out of visitors under each age category. We feel that this provides a reasonable projection of local visitor numbers Age Profile of International Tourists to Northland Age (Grouped) YE Jun 10 YE Jun 11 Two Year Average 15 to 24 17% 17% 17% 25 to 34 23% 21% 22% 35 to 44 11% 13% 12% 45 to 54 17% 18% 18% 55 to 64 18% 18% 18% % 13% 13% Age (Grouped) per 2006 Census Percentage per Visitor Solutions 0 to 14 16,953 23% 6, to 24 9,096 12% 3, to 34 7,605 10% 3, to 44 10,845 15% 4, to 54 10,395 14% 4, to 64 8,511 11% 3, ,058 15% 4,381 Total 74,463 29,500 Note: per Visitor Solutions column is calculated as (29,500 * 2006 Census %) Hundertwasser Art Centre: Feasibility Study 56

59 Total International Visitors % capture 101, , , , , , , , , , , ,877 Total Visitors 75% capture 76,499 78,681 80,722 82,703 84,734 86,814 88,944 91,128 93,364 95,655 98, , to % 13,005 13,376 13,723 14,060 14,405 14,758 15,121 15,492 15,872 16,261 16,660 17, to % 16,830 17,310 17,759 18,195 18,641 19,099 19,568 20,048 20,540 21,044 21,561 22, to % 9,180 9,442 9,687 9,924 10,168 10,418 10,673 10,935 11,204 11,479 11,760 12, to % 13,770 14,163 14,530 14,887 15,252 15,626 16,010 16,403 16,806 17,218 17,640 18, to % 13,770 14,163 14,530 14,887 15,252 15,626 16,010 16,403 16,806 17,218 17,640 18, % 9,945 10,229 10,494 10,751 11,015 11,286 11,563 11,847 12,137 12,435 12,740 13,053 Assumtions of international travelers: Senior Citizens are regarded as those over 65 years of age - They will all purchase senior citizen passes We estimate (30%) of those in the age category are students 70% of international visitors fall within the age group, we estimate the split of that group as follows: Adult 60% Child 16% Family Pass 24% We estimate the proportion of admission tickets to be purchased will be done so as follows: Tickets/Passes Adult 49% 37,485 38,554 39,554 40,525 41,519 42,539 43,583 44,652 45,748 46,871 48,021 49,200 Child 13% 9,945 10,229 10,494 10,751 11,015 11,286 11,563 11,847 12,137 12,435 12,740 13,053 Family Pass 20% 5,100 5,245 5,381 5,514 5,649 5,788 5,930 6,075 6,224 6,377 6,534 6,694 Senior Citizen 13% 9,945 10,229 10,494 10,751 11,015 11,286 11,563 11,847 12,137 12,435 12,740 13,053 Student 5% 3,825 3,934 4,036 4,135 4,237 4,341 4,447 4,556 4,668 4,783 4,900 5,020 Total Tickets 66,299 68,190 69,959 71,676 73,436 75,238 77,085 78,977 80,916 82,901 84,936 87,020 Total Numbers 76,499 78,681 80,722 82,703 84,734 86,814 88,944 91,128 93,364 95,655 98, ,408 Hundertwasser Art Centre: Feasibility Study 57

60 Total Domestic Visitors ,014 2,015 2,016 2,017 2,018 2,019 2,020 2,021 2,022 2,023 2,024 2, % capture 71,875 71,741 71,605 71,455 71,300 71,141 70,975 70,805 70,628 70,446 70,259 70,065 Total Visitors 75% capture 53,906 53,806 53,703 53,591 53,475 53,355 53,231 53,103 52,971 52,835 52,694 52, to % 10,512 10,492 10,472 10,450 10,428 10,404 10,380 10,355 10,329 10,303 10,275 10, to % 8,895 8,878 8,861 8,843 8,823 8,804 8,783 8,762 8,740 8,718 8,694 8, to % 10,512 10,492 10,472 10,450 10,428 10,404 10,380 10,355 10,329 10,303 10,275 10, to % 9,434 9,416 9,398 9,378 9,358 9,337 9,316 9,293 9,270 9,246 9,221 9, to % 8,355 8,340 8,324 8,307 8,289 8,270 8,251 8,231 8,211 8,189 8,168 8, % 6,199 6,188 6,176 6,163 6,150 6,136 6,122 6,107 6,092 6,076 6,060 6,043 Assumtions of Domestic travelers: Senior Citizens are regarded as those over 65 years of age - They will all purchase senior citizen passes We estimate (50%) of those in the age category are students 70% of international visitors fall within the age group, we estimate the split of that group as follows: Adult 33% Child 33% Family Pass 34% We estimate the proportion of admission tickets to be purchased will be done so as follows: Tickets/Passes Adult 26% 14,016 13,990 13,963 13,934 13,904 13,872 13,840 13,807 13,773 13,737 13,700 13,663 Child 26% 14,016 13,990 13,963 13,934 13,904 13,872 13,840 13,807 13,773 13,737 13,700 13,663 Family Pass 27% 4,852 4,843 4,833 4,823 4,813 4,802 4,791 4,779 4,767 4,755 4,742 4,729 Senior Citizen 12% 5,930 5,919 5,907 5,895 5,882 5,869 5,855 5,841 5,827 5,812 5,796 5,780 Student 10% 5,391 5,381 5,370 5,359 5,348 5,336 5,323 5,310 5,297 5,283 5,269 5,255 Total Tickets 44,203 44,121 44,037 43,945 43,850 43,751 43,650 43,545 43,436 43,324 43,209 43,090 Total Numbers 53,906 53,806 53,703 53,591 53,475 53,355 53,231 53,103 52,971 52,835 52,694 52,549 Hundertwasser Art Centre: Feasibility Study 58

61 Total Local Visitors Local Capture 100% 50% 30% 25% 20% 20% 20% 20% 20% 20% 20% 20% Total Visitors 29,500 29,500 14,750 8,850 7,375 5,900 5,900 5,900 5,900 5,900 5,900 5,900 5, % 6,716 3,358 2,015 1,679 1,343 1,343 1,343 1,343 1,343 1,343 1,343 1, to % 3,604 1,802 1, to % 3,013 1, to % 4,296 2,148 1,289 1, to % 4,118 2,059 1,235 1, to % 3,372 1,686 1, % 4,381 2,190 1,314 1, Assumtions of Local visitors: Senior Citizens are regarded as those over 65 years of age - They will all purchase senior citizen passes We estimate (50%) of those in the age category 0-24 are students 50% of domestic visitors fall within the age group, we estimate the split of that group as follows: Adult 33% Child 33% Family Pass 34% We estimate the proportion of admission tickets to be purchased will be done so as follows: Tickets/Passes Adult 22% 6,490 3,245 1,947 1,623 1,298 1,298 1,298 1,298 1,298 1,298 1,298 1,298 Child 22% 6,490 3,245 1,947 1,623 1,298 1,298 1,298 1,298 1,298 1,298 1,298 1,298 Family Pass 23% 2,262 1, Senior Citizen 15% 4,425 2,213 1,328 1, Student 17% 5,310 2,655 1,593 1,328 1,062 1,062 1,062 1,062 1,062 1,062 1,062 1,062 Total Tickets 24,977 12,488 7,493 6,244 4,995 4,995 4,995 4,995 4,995 4,995 4,995 4,995 Total Numbers 29,500 14,750 8,850 7,375 5,900 5,900 5,900 5,900 5,900 5,900 5,900 5,900 Total Visitors (By Visitor Age) Split on total Travelers for Total Visitors Region 159, , , , , , , , , , , , ,716 3,358 2,015 1,679 1,343 1,343 1,343 1,343 1,343 1,343 1,343 1, to 24 27,120 25,670 25,276 25,411 25,553 25,883 26,221 26,568 26,922 27,285 27,656 28, to 34 28,737 27,694 27,524 27,791 28,067 28,505 28,954 29,413 29,883 30,364 30,858 31, to 44 23,988 22,082 21,448 21,449 21,455 21,681 21,913 22,150 22,392 22,641 22,895 23, to 54 27,322 25,638 25,163 25,295 25,434 25,787 26,149 26,520 26,899 27,288 27,686 28, to 64 25,497 24,188 23,865 24,036 24,215 24,571 24,935 25,308 25,690 26,082 26,482 26, ,525 18,607 17,984 18,010 18,041 18,298 18,561 18,830 19,105 19,387 19,676 19,972 Total Visitors (By Visitor Category) Adult 57,990 55,788 55,464 56,081 56,721 57,709 58,721 59,757 60,819 61,906 63,020 64,160 Child 30,451 27,463 26,404 26,308 26,217 26,456 26,701 26,951 27,208 27,470 27,739 28,014 Family Pass 12,213 11,219 10,893 10,902 10,914 11,042 11,173 11,307 11,444 11,584 11,728 11,876 Senior Citizen 20,300 18,360 17,729 17,753 17,783 18,040 18,303 18,573 18,849 19,132 19,422 19,718 Student 14,526 11,970 10,999 10,822 10,646 10,738 10,832 10,929 11,027 11,128 11,232 11,337 Total Tickets 135, , , , , , , , , , , ,105 Total Numbers 159, , , , , , , , , , , ,856 Hundertwasser Art Centre: Feasibility Study 59

62 Appendix 2 Admission Prices Admissions Price Comparison Data Whangarei District Attractions Pricing Structure Category Attraction Name Location Adult Child Family Pass Senior Student Additional Details Noted B Tuatara Whangarei Admission free B Burning Issues Gallery Whangarei Admission free B Appin Gallery Whangarei Admission free B The Gallery, Helena Bay Hill Whangarei Admission free B The Papermill Whangarei No pricing structure, all receipts by donation B Whangarei Art Museum Whangarei Admission free B Quarry Arts Centre Whangarei No pricing structure, all receipts by donation B Natural Wood Creations Whangarei Admission free B Parua Bay Gallery Whangarei No pricing information available - assuming free entry B The BACH (Basin Arts & Crafts House) Whangarei No pricing information available B Reyburn House Gallery Whangarei No pricing structure, all receipts by donation B Glenbervie Pottery Gallery Whangarei No pricing information available - assuming free entry C Pacific Carvers Whangarei $140 (per person including lunch) C Steve Haywood Master Jeweler Whangarei No pricing information available A Kiwi North - Museum. Kiwi House. Heritage Park Whangarei $ 10 $ 5 $ 25 B Hikurangi Historical Museum Whangarei No pricing structure, all receipts by donation B Terenga Paraoa Tours Whangarei $ 50 $ 30 B Waipu Museum Whangarei No pricing information available B Forum North Whangarei Dependent on event C Miniature Train Rides Whangarei $ 2.50 $ 2.50 A Claphams Clocks- The National Clock Museum Whangarei $ 8 $ 4 $ 20 $ 6 $ 6 C Pupurangi Hire & Tour Whangarei $10 per person for kayak/waka Ama hirage alone C Whangarei Central Library Whangarei Free Hundertwasser Art Centre: Feasibility Study 60

63 Admissions Price Comparison Data Wider Northland Region Attractions Pricing Structure Category Attraction Name Location Adult Child Family Pass Senior Student Additional Details Noted C World of Wheels Northland $ 4 $ 2 C Zion Wildlife Gardens Northland $ 60 $ 30 n/a n/a n/a C Botanica Whangarei - Fernery, Conservatory & Cacti House Northland Admission free A The Kauri Museum Northland $ 17 $ 4 $ 35 $ 15 $ 15 A Far North regional Museum Northland $ 4 $ 1 $ 8 B Hokianga Museum Northland Koha/Donation B Kaikohe Pioneer Village Northland $ 5 $ 1 B Kelly Tarltons Museum of Shipwrecks Northland $ 6 $ 3 A Russell Museum Northland $ 8 $ 2 $ 15 A Waipu Museum Northland $ 8 $ 3 $ 20 $ 6 $ 6 Concessions available for large groups C Waitangi National Trust Museum (Treaty House) Northland $ 25 $ 12 NZ residents admission is free Hundertwasser Art Centre: Feasibility Study 61

64 Admissions Price Comparison Data National Attractions Pricing Structure Category Attraction Name Location Adult Child Family Pass Senior Student Additional Details Noted B Christchurch Arts Centre Christchurch Admission prices for individual exhibitions B Mairange Arts Centre Auckland Admission free B Corbans Estate Arts Centre (Waitakere) Auckland Admission free B TSB Bank Wallace arts centre (Auckland) Auckland Admission free B Mangere Arts Centre Auckland Admission free B Auckland Art Gallery Auckland Admission free B City Gallery Wellington Admission free (charges apply for some exhibitions) B Stardom Auckland $ 16 $ 8 $ 35 $ 8 $ 8 Education programmed students - $8, Weekend kids shows - $10 per adult, $8 per child C Sky Tower Auckland $ 25 $ 8 $ 49 $ 15 $ 13 Primary - $6, Secondary - $8 C Te Puia Auckland $ 43 $ 22 $ 116 C Waitomo Caves Waitomo $ 46 $ 21 Based on single cave admission prices B MOTAT Auckland $ 14 $ 8 $ 35 $ 7 $ 8 $65 Annual Family Pass B Auckland War Memorial Museum Auckland $ 10 This is a suggested donation Cultural & Heritage shows $ 25 $ 8 $ 8 Child/student range is $4 - $8 B Polish Heritage Trust Museum Auckland $ 5 This is a suggested donation A Howick Historical Village Auckland $ 14 $ 7 $ 36 $ 11 $ 11 A Auckland Museum Auckland $ 10 $10 donation is for visitors from outside Auckland B Cantebury Museum Christchurch Admission Free (Donations welcomed) B Te Papa Wellington Admission free (charges apply for some exhibitions) B Voyager New Zealand Maratime Museum Auckland $ 16 $ 8 $ 32 $ 12 $ 12 B Arataki Visitor centre Auckland Admission free C Kelly Tarltons Underwater World Auckland $ 34 $ 10 $ 26 $ 26 Education programme students - $10 C Auckland Botanical Gardens Auckland Admission free C Auckland Zoo Auckland $ 20 $ 10 $ 16 $ 16 Education programme students - free B Butterfly Creek Auckland $ 20 $ 11 $ 57 $ 16 $ 16 (Based on Combo Ticket) Education programme students and Teachers - $10 C Rainbow's End theme Park Auckland $ 47 $ 37 $ 156 $ 24 C Zealandia/Karori Wild Life Sanctury Wellington $ 29 $ 15 $ 71.5 $ 17 $ 19 (Based on Combo Ticket) C Single ticket admissions $ 19 $ 9 $ 46 $ 12 $ 17 Hundertwasser Art Centre: Feasibility Study 62

65 Admissions Pricing Calculation Pricing Structure Senior Citizen Rating Relevance Category Adult Child Family Pass Student A 1 Claphams Clocks- The National Clock Museum $ 8.00 $ 4.00 $ $ 6.00 $ Kiwi North - Museum. Kiwi House. Heritage Park $ $ 5.00 $ $ - $ - 3 Waipu Museum $ 8.00 $ 3.00 $ $ 6.00 $ Russell Museum $ 7.50 $ 2.00 $ $ - $ - 5 Far North regional Museum $ 4.00 $ 1.00 $ 8.00 $ - $ - 6 The Kauri Museum $ $ 4.00 $ $ $ Howick Historical Village $ $ 7.00 $ $ $ Auckland Museum $ $ - $ - $ - $ - Average Price $ 9.81 $ 3.71 $ $ 9.50 $ 9.50 Average price over all other Categories B $ 4.46 $ 1.76 $ 2.00 $ 0.98 $ 1.16 C $ $ 7.29 $ 7.21 $ 2.79 $ 2.70 Total Average Price $ 9.80 $ 4.25 $ $ 4.42 $ 4.45 We have categorised a variety of attractions from the Whangarei District, Northland Region We have classified these attractions as either A, B or C: A Relevant to Hundertwasser (either B Semi-relevant to Hundertwasser C Not overly relevant to Hundertwasser In arriving at our recommended Admission Price we have focused on the information obtained from our Category A attractions. These have been ranked in descending order in relation to relevance to Hundertwasser and provide a strong indication of how admission into Hundertwasser's Art Centre should be priced. Hundertwasser Art Centre: Feasibility Study 63

66 Appendix 3 Financial Modelling Assumptions The following are some of the key assumptions used in developing the financial model and projections. Visitor numbers and pricing are as in the main document and Appendices 1 and 2. Revenue Assumptions Souvenir Shop Income Spend per each ticket sold $ 3.00 [Adjusted per CPI per annum] Gross Margin to be at: 60% [Margin achieved by Whangarei I-site] Cafe Lease Income Cafe & Terrace Floor space m2 Rental per Square Metre $ [Assumed unadjusted for 5 years, then adjusted per CPI 5 yearly] Hundertwasser Art Centre: Feasibility Study 64

67 Expenditure Assumptions Overhead Expenses [CPI to be applied each year] Accountancy fees $ 18, [Nominal] Advertising $ 100, [Nominal] Audit fee $ 5, [Marginal cost on top of Whangarei Art Museum] Bank fees & charges $ [Nominal] Computer expenses $ 3, [Nominal] Consultancy Fees $ 5, [Nominal] General $ 5, [Nominal] Legal Fees - Year 1 $ 20, [Nominal] Legal Fees - Year 2 onwards $ 10, [Nominal] Postage & Courier $ 1, [Nominal] Printing and Stationery $ 3, [Nominal] Seminars & Conferences $ 2, [Nominal] Telephone & Tolls & WiFi $ 8, [Nominal] Transport $ 5, [Nominal] Travelling & Accomodation $ 4, [Nominal] Uniforms $ [Cost per Employee] Credit Card Commisions 1.00% [Percentage of sales] Insurance [CPI to be applied each year] Capital Value $ 12,200, Insurance - General Percenatge of Capex 0.10% Insurance - General $ 12, [Based on value of capex] Art Works - Hundertwasser $ 10,000, Art Works - Maori $ 2,000, Insurance - Art Works of Value 0.07% Insurance - Art Works $ 8, [Based on % of artworks value - Percenatge based on what other public art galleries are paying for insurance premiums] Hundertwasser Art Centre: Feasibility Study 65

68 Exhibitions & Freight [CPI to be applied each year] Exhibitions $ 40, [Advised by WDC] Freight - Set up $ 60, [Advised by WDC] Freight -Year 2 of operation onwards $ 10, [Advised by WDC] Security [CPI to be applied each year] Security $ 79, [CCTV operation during opening hoursonly, after hour patrols and alarm monitoring] [Security to be tied into new security measures for the Whanagrei Basin afterhours service. Patrols in Basin at no charge to Hundertwasser. Security monitoring based on opening times of aprox 60 hours a $23.50 per hour (52 weeks a year) ($73,320 per annum), plus patrols at $450 per month ($5,400 per annum) and alarm monitoring at $45 per month ($540 per annum). [Advised by Security company & WDC] Property Maintenance Expenses [CPI to be applied each year] Rates & Taxes 1, m2 - $ 13, [Advised by WDC] Additional Insurances 1, m $ 8, [cost per sqm] Air Conditioning 1, m $ 7, [cost per sqm] Fire Protection 1, m $ 1, [cost per sqm] Lifts & Energy 1, m $ 13, [cost per sqm] Cleaning 1, m $ 13, [cost per sqm] Repairs & Maintenance 1, m $ 3, [cost per sqm] Management 1, m $ 13, [cost per sqm] Miscellaneous 1, m $ 12, [cost per sqm] Hundertwasser Art Centre: Feasibility Study 66

69 Personnel Costs [Wage inflation to be applied each year] FTE Value Full Cost Salary Costs Salary - Curator/Director , , [Half cost - Shared with WAM. No additional salary cost to region] Receptionist/Ticket Counter , , [New cost - estimated] Receptionist/Ticket Counter , , [New cost - estimated] Receptionist/Ticket Counter , , [New cost - estimated] Guide , , [New cost - estimated] Guide , , [New cost - estimated] Guide , , [New cost - estimated] Shop Manager , , [New cost - estimated] Shop Assistant , , [New cost - estimated] Shop Assistant , , [New cost - estimated] Backroom Assistant , , [New cost - estimated] Security Guard [New cost - estimated] Security Guard [New cost - estimated] , Insurance - ACC Kiwisaver Subscriptions & Levies Recruitment Expenses - Set up 1.00% [% of salary costs] 4.00% [% of salary costs] 1.00% [% of salary costs] 5.00% [% of salary costs] Security personnel were initially considered to be employed by the Trust, but in respect of rostering staff, covering sickness etc, and hand over between day and afterhours staff, it would be more practical for the Trust to outsource security. Working Capital Assumptions Debtor Days Debtor Days 0 Debtor Days - Lease Income 30 Creditor Days Expenses (Excluding Wages) 30 Salaries & Wages 0 Capital Expenditure 30 GST Creditor/Debtor Days 0 Hundertwasser Art Centre: Feasibility Study 67

70 Capital Expenditure Assumptions Costs are based on those provided by Griffiths & Associates Limited. Splitting of Capital Costs Summary of Costs Construction Costs (pre inflation) 7,636,124 7,636,124 Professional Fees (pre inflation) 2,563,876 Contingency (pre inflation) 1,000,000 Inflation 2,417,000 13,617,000 Building Direct Costs Professional Fees Contingency Consent & Escalation Total Shell (Including site preparation) 4,291,951 3,794,974 1,274, ,977 1,201,192 6,767,330 Hard Fitout 2,123,633 1,877, , , ,343 3,348,436 Mechanical Services 991, , , , ,534 1,563,583 Electrical Services 275, ,688 81,820 31,912 77, ,552 Lifts 190, ,999 56,407 22,001 53, ,582 Fire Services 105,000 92,842 31,172 12,158 29, ,559 Siteworks 285, ,786 84,874 33,104 80, ,777 Fixtures & Fittings 372, , ,557 43, , ,181 8,636,124 7,636,124 2,563,876 1,000,000 2,417,000 13,617,000 Depreciation Rates Shell (Including site preparation) 50 years 2.00% [Straight Line Depreciation Rate] Hard Fitout 25 years 4.00% [Straight Line Depreciation Rate] Mechanical Services 15 years 6.67% [Straight Line Depreciation Rate] Electrical Services 25 years 4.00% [Straight Line Depreciation Rate] Lifts 15 years 6.67% [Straight Line Depreciation Rate] Fire Services 25 years 4.00% [Straight Line Depreciation Rate] Siteworks 50 years 2.00% [Straight Line Depreciation Rate] Fixtures & Fittings 10 years 10.00% [Straight Line Depreciation Rate] Allowances have been made for some capital expenditure by the Trust for IT equipment and some fit-out costs such as cash registers, Point of sale terminals, shelving, etc which are separate from the main construction costs and fit-out. The Trust is also purchasing the land from WDC for $2m and will be via a grant to allow the purchase to proceed. Hundertwasser Art Centre: Feasibility Study 68

71 About Deloitte Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in over 140 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's 168,000 professionals are committed to becoming the standard of excellence. Deloitte's professionals are unified by a collaborative culture that fosters integrity, outstanding value to markets and clients, commitment to each other, and strength from cultural diversity. They enjoy an environment of continuous learning, challenging experiences, and enriching career opportunities. Deloitte's professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in their communities. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see or a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte brings together more than 900 specialists providing New Zealand's widest range of high quality professional services. We focus on audit, tax, technology and systems, risk management, corporate finance and business advice for growing organisations. Our people are based in Auckland, Hamilton, Wellington, Christchurch and Dunedin, serving clients that range from New Zealand's largest companies to smaller businesses with ambition to grow. Deloitte's local experts draw on best practice and innovative methodologies from around the world as part of Deloitte Touche Tohmatsu, whose 168,000 people globally serve over 80 percent of the world's largest companies. A long track record and a wealth of international research into the needs of growing organisations has made Deloitte the world's leading advisor to emerging businesses. For more information about Deloitte in New Zealand, look to our website Deloitte. A member of Deloitte Touche Tohmatsu Limited. Hundertwasser Art Centre: Feasibility Study 69