Defence Housing Australia

This section provides a detailed report on our performance in 2016–17. It is segmented into three sections:

1. National operational performance

This section details our national performance in delivering:

• housing solutions for ADF members and their families
• property and tenancy services for ADF members and investors.

2. Regional operational performance

This section details our performance by region in delivering:

• housing solutions for ADF members and their families
• property and tenancy services for ADF members and investors.

3. Financial performance

This section details our performance in funding our operations and meeting our commercial return obligations.

National operational performance

Relevant purposes

• Purpose 1: Housing solutions for ADF members and their families
• Purpose 2: Property, tenancy and investor management
• Purpose 3: Property sourcing

Housing solutions for ADF members and families

Part 2 of this report provided information about our Services to Defence and Housing portfolio, including how we provision in accordance with Defence forecasts. This section provides information about our national MWD and MCA provisioning performance in 2016–17.

MWD provisioning

As set out in Table 3.2 and Table 3.8, we substantially met our MWD provisioning targets in 2016–17. The negative variance was not unexpected due to:

• de facto RA distorting Defence’s forecast of ADF member demand for SR
• deferred construction and delivery of properties from our development projects
• difficulty in acquiring and leasing suitable properties that met Defence’s specifications and rent band classifications as well as our own budget parameters.

Table 3.30 details the complexity of our MWD provisioning program and the activities that contributed to our MWD provisioning performance in 2016–17. The results demonstrate the flexibility of our provisioning programs to respond to changes in residential market conditions, housing demand relative to Defence’s forecast and variations in housing delivery timeframes.

Table 3.30: National MWD portfolio performance, 30 June 2017

MCA provisioning

As set out in Table 3.3 and Table 3.9, we substantially met our MCA provisioning targets in 2016–17. The negative variance was not unexpected due to difficulty in acquiring suitable properties that met Defence’s specifications and rent band classifications as well as our own budget and risk parameters.

The outcome does not reflect the outstanding results we achieved in relation to the MCA portfolio in 2016–17, including:

• growing the portfolio from 970 properties to 1,217 properties (25.4 per cent growth in 12 months)
• delivering 156 apartments in September to December 2016 to match Defence’s peak relocation period
• delivering 65 MCA properties from three apartment complexes we developed in Brisbane.

Table 3.31 details the complexity of our MCA provisioning program and the activities that contributed to our MCA provisioning performance in 2016–17.

Table 3.31: National MCA portfolio performance, 30 June 2017

Defence upgrades program

We upgrade or modernise Defence-owned properties to provide a better standard of living for ADF members and their families that tenant the properties and extend the lifespan of the properties by 10–15 years. In 2016–17, we upgraded 64 Defence owned properties against a Corporate Plan target of 89 upgrades. This achievement is impressive given the program’s dependency on properties becoming vacant during the period before works can commence. Refer to our website (dha.gov.au/upgrades) for more information about our upgrade projects.

Seaward Village project

In the reporting period, we continued to consult with all stakeholders in relation to our plans to upgrade 153 properties at Seaward Village in Swanbourne (WA). Once we finalised an agreed approach, we made a joint submission with Defence to the Parliamentary Standing Committee on Public Works (PWC) for their consideration and referral to the Parliament (refer Part 4 of this report for more information about the PWC). Parliament approved the submission in June 2017. We will now undertake the work over three phases, with completion expected in April 2018, July 2019 and July 2020. Refer to the project website (seawardvillage.com.au) for more information.

Commonwealth Heritage Listed (CHL) properties

As at 30 June 2017, we owned 16 CHL properties in Fremantle (WA) and two heritage sites in the ACT and NSW which we will develop for future Defence housing. We also managed 61 CHL properties at ADF bases and establishments across Australia on behalf of Defence.

In 2016–17, we sought and received approval from the Department of the Environment and Energy and the Australian Heritage Council for the Heritage Management Plan for our properties at Gunners’ Cottages in Fremantle. As at 30 June 2017, the plan was in the final stages of becoming a legislative instrument.

During the reporting period, we also continued a major program of works to conserve or upgrade Defence-owned CHL properties, including:

• conservation/reinstatement works at a property at HMAS Creswell (NSW)
• external path, garden and driveway upgrades at two properties at Duntroon (ACT)
• heating and air conditioning installation to properties with insufficient services nationwide
• remediation of lead dust and lead paint issues of properties nationwide.

Living-in Accommodation (LIA)

We manage the online booking and allocation system for approximately 41,200 Defence-owned and maintained LIA beds across 54 Defence bases and establishments. In 2016–17, we continued to expand our LIA service delivery model to perform tasks previously performed by Defence personnel. We also worked to transfer the management of LIA rooms for recruit schools into our online system to ensure Defence’s asset usage is maximised and that recruits are paying for meals and utilities appropriately. As at 30 June 2017, the process was still being transitioned from Defence to DHA. We expect the process to be completed early in 2017–18.

In the reporting period, we continued to see self-service rates for LIA bookings increase. Over 70 per cent of all LIA bookings in 2016–17 were made by ADF members or Defence personnel using the self-service system. Additionally, Toll Transitions directly entered 16.8 per cent into the system during Defence’s peak relocation period. We also achieved a 3 per cent increase in the number of LIA bulk bookings and a 4 per cent increase in individual transit LIA bookings in 2016–17 compared with 2015–16.

Case study: LIA Base Liaison Officer

To improve our Living-in Accommodation (LIA) service delivery model, DHA created a Base Liaison Officer role to be the main point of contact for LIA stakeholders at 54 ADF bases across Australia. Mr Thomas Martin (pictured) commenced in the role in July 2016.

Thomas cites trying to learn each base’s intricacies and priorities, as well as the complex allocation rules that dictate where members can be allocated, as the biggest challenges of the new role.

‘Being a new role, I have had to build a relationship of trust remotely by providing accurate and detailed advice that is supported by data. It has been very rewarding, particularly when I have been able to visit the bases and meet stakeholders face-to-face to discuss their requirements in more detail.’

Thomas’s hard work, professionalism and forecasting of Defence relocations is very impressive. He continues to be praised internally and by Defence stakeholders for his excellent customer service.

Property and tenancy for ADF members and investors

We complement the housing solutions we provide ADF members and their families by providing a suite of property and tenancy related services in accordance with Defence policy and service agreements with Defence. We also provide a number of property and tenancy related services to investors in accordance with lease agreements.

Part 2 of this report detailed information about our Services to Defence, Services to investors and Housing portfolio). This section provides more detail about our national property and tenancy management performance in 2016–17.

Overview

DHA is one of the biggest property managers in Australia, with 18,841 properties under management as at 30 June 2017. Not surprisingly, as set out in Table 3.32, this resulted in a high number of property and tenancy related services being performed in 2016–17.

Table 3.32: National property and tenancy services performance, 30 June 2017

DHA-managed properties

While many of the services we deliver to ADF members and investors are similar to those provided by traditional real estate property managers, there are distinct differences. Of note, we do not manage bonds or hold keys for each property. We also perform a higher number of and different types of property inspections. Refer to the Property inspections section over the page for more information.

Housing allocations

We aim to maximise the number of properties available to ADF members and their families at all times, but particularly during the peak Defence relocation period. One of the ways we measure success is the rate at which members reserve a SR in the location that they are being posted to before arriving in their new location.

In 2016–17, we facilitated 7,743 housing allocations and 95.9 per cent of ADF members had a home allocated to them prior to arriving in their new location. As set out in Table 3.4, 87.3 per cent of the 2,481 MWD who participated in our survey were satisfied with their SR. Results for the past five years have been above the target rate of 80 per cent set out in our Corporate Plan.

Property inspections

In 2016–17, we completed 69,059 property inspections. Over 13,000 were periodic inspections where we reviewed the condition of the property and, where applicable, provided an inspection report to the owner (investor). We also completed more than 7,400 welcome visits, where we met with the ADF member (or their partner) tenanting the SR or MCA property for the first time, went through the condition report, demonstrated how appliances work, gave practical information (e.g. when bins go out) and provided a choice of two welcome gifts.

For the first time, we also completed 2,293 property completion certificate inspections that were a requirement of our service agreement with Defence. In 2006–07, Defence implemented minimum specifications for property inclusions and we were given 10 years to ensure properties complied. In accordance with the agreement, in 2016–17 we had to review and renew the standard on an individual property basis and complete any upgrades required. Considerable system enhancements, policies and staff training were needed to meet the new requirement. Pleasingly, at the end of the financial year, all properties met the minimum specification requirements, which was an excellent outcome for DHA and ADF members and their families.

Following feedback from ADF members and Defence Families of Australia, we also delivered a significant system enhancement to make the inspection process easier for ADF members and their families. In August 2016, we introduced an electronic ‘Appointment of an agent’ form in Online Services, where ADF members could delegate authority to someone to represent them at inspections. This function is critical as inspections often need to be completed when a member is not available (e.g. when they are sea-going, in training or on deployment). More than 3,000 members appointed an agent using this functionality since its launch.

Rent Allowance (RA)

When a MWD service residence or MCA property is not available at the member’s rent band classification, or if the home and grounds are not suitable for pets, an ADF member (and their family if applicable) may choose to rent through the private market. ADF members are responsible for finding the accommodation but must engage with us (on behalf of Defence) to seek approval. We are then responsible for administering the payment of their Defence-funded RA.

In 2016–17, we administered payments for 4,511 ADF members who received RA nationally. Sydney (1,243), Canberra (548) and Brisbane (526) were the three locations with the highest number of members on RA. This is indicative of the provisioning challenges in these areas, where demand for properties exceeds the number of properties in our portfolio, or the types of properties available do not suit the member’s family composition or their pets.

Leased property management

We recognise that investors are an important part of our business. In 2016–17, we managed 13,149 properties on behalf of investors and established a new dedicated team that will work across the business to deliver positive outcomes for investors. We also continued to improve our mid lease sales program, where investors who need to sell their property throughout the lease term can access a panel of real estate agents with experience in selling DHA investment properties. In 2016–17, 74 per cent of all mid lease sales were facilitated through this program.

Repairs and maintenance

Under our service agreement with Defence, we must maintain our properties to minimum standards. For this reason, our current lease agreement includes property care, which is a series of property related services we undertake on behalf of the investor in return for a fixed service fee.

In 2016–17, we raised 247,575 work orders for maintenance on properties we own or managed. This included maintenance requests from customers, proactive maintenance we elected to undertake in between tenancies and rectification of property related damage and defects. A panel of approximately 730 qualified businesses across Australia assisted us to ensure maintenance works were completed in a timely manner and to a high standard. As set out in Table 3.6, 95.9 per cent of the 8,079 MWD tenants surveyed in the reporting period were satisfied with completed maintenance. This is similar to results achieved over the past five years.

Online Services and information technology

Our web-based platform, Online Services, complements our traditional service delivery and provides ADF members (or their delegate) and investors the ability to view various property related information and complete a range of tasks on their own.

In 2016–17, we continued to enhance Online Services to improve communication with ADF members, their families and investors, and increase their self-service capability. As shown in Figures 3.4 and 3.5, this has contributed to the increased use of Online Services in 2016–17 compared with 2015–16, particularly in peak periods when ADF members relocate and when investors receive details of their property’s annual rental valuation.

Defence One

In early 2000, Defence announced plans to implement a new payroll system for ADF members. As DHA is the primary administrator for housing policy, we have been a ‘Defence One’ project partner since 2013. In November 2016, Defence announced plans to launch the system in early 2017–18. We subsequently developed a project plan for delivery of our contribution, which was agreed to and funded by Defence.

The project required complex changes to our housing related systems and processes. As at 30 June 2017, delivery of the project was still underway, however, our contribution had been very successful and was appreciated by Defence. Some of the benefits of the project that will improve ADF members’ experience with DHA are:

• the ability to apply and receive RA and bond advances before securing a property
• a simpler process to change housing contributions or allowances when changing categorisation (e.g. from MWOD to MWD)
• a streamlined process for ceasing applicable contributions when ADF members are sea-going, on training or on deployment.

Defence Community Hub

In April 2017, we launched a new Defence Community Hub website for ADF members and their families posting to a new location. The Community Hub was a collaborative project with Defence Community Organisation and Defence Families of Australia. It is designed to connect ADF families to Defence and public community groups and centres, as well as provide local information about childcare, schools, healthcare services and public transport options. Refer to the website for more information.

Customer satisfaction and surveys

We are committed to providing ADF members, investors and all stakeholders with high quality customer service. Our commitment to customer service is set out in our service charter. The charter is available on our website and hard copies are available in our regional offices.

As set out in Table 3.5 and Table 3.7, we exceeded both ADF member and investor customer service satisfaction targets in 2016–17 (93.3 per cent of 3,304 participants and 94.6 per cent of 926 respondents respectively). The results were statistically similar to those achieved in 2015–16.

In addition to seeking feedback via surveys, we invite general feedback, compliments and complaints from our customers, stakeholders and the public. In 2016–17, we received 846 formal complaints nationally. This was a 15 per cent decrease compared with complaints received in 2015–16 (1,015).

We manage all complaints in accordance with the resolution process set out in our service charter which has been developed in accordance with international standards (ISO 9001). Wherever possible, complaints are resolved at a local level, with assistance from our national team as needed. We use the information from compliments and complaints to inform business change and develop future initiatives to increase customer satisfaction.

Customer Service Institute of Australia (CSIA)

For the twelfth consecutive year, we achieved independent certification from the CSIA against 25 international customer service standards. Pleasingly, we achieved a score of 8.15 out of 10; an improvement from the 8.08 score we achieved in 2015–16. While this seems like a minimal improvement, a score over eight is considered extremely high and positions DHA for ‘international recognition’ in terms of customer service.

DHA was named as a finalist in three categories of the CSIA 2016 Australian Excellence Awards:

• Customer Service Organisation of the Year—Government
• Service Excellence in a Medium Contact Centre
• Customer Service Executive of the Year.

Our General Manager, Property and Tenancy Services, Mr Brett Jorgensen, won the Customer Service Executive of the Year award. As a former ADF member, Mr Jorgensen really understands the needs of ADF members and families. He has been a driving force behind changing and improving DHA’s customer service delivery model since being appointed General Manager five years ago.

Case study: Increasing our use of social media

We understand our customers like to receive information and communicate in different ways and that more people are choosing to use social media over other traditional media. For this reason, we continued to increase our use of social media in 2016–17.

Our Defence Housing Australia Facebook page was launched in November 2014. The page is our primary social media channel to communicate with ADF members and their families. In 2016–17, we provided information about housing solutions, Defence community events, sponsorship, development updates and general information about DHA. As at 30 June 2017, the page had been liked 6,970 times.

We launched our DHA Invest Facebook page in September 2016. The page is specially designed for people interested in Australian residential property investment. Since its launch, we have provided information about our property investment program, events, investor testimonials and properties listed for sale. As at 30 June 2017, the page had been liked 6,502 times.

@defencehousingaustralia

@dhainvest

Regional operational performance

Northern Territory region

We managed 1,946 properties in the Northern Territory (NT) region as at 30 June 2017. The majority were located in Darwin, Tindal and Alice Springs and were freestanding three and four-bedroom houses. We also managed a number of townhouses and high rise apartments located within close proximity to the Darwin CBD. Properties in the region accommodated members working at a number of ADF bases and establishments, including RAAF Base Darwin, Larrakeyah Barracks and RAAF Base Tindal.

Table 3.33: NT region property provisioning and related services, 2016–17

Project spotlight: Breezes Muirhead

Breezes Muirhead is community focused with approximately 30 hectares of open space and four community parks, including this 4,900m² water play park.

Our award winning Breezes Muirhead development is located in the highly sought-after Darwin suburb of Muirhead and covers almost 170 hectares (which equates to approximately 240 football fields). Upon completion, Breezes will comprise 1,150 lots— accommodating 1,272 potential dwellings for around 2,200 people—and DHA will have built over 300 properties for ADF members and their families.

Breezes has been specifically designed for Darwin’s tropical climate. Strategically planned street layouts and sweeping spaces capture the prevailing cross-flow breezes and inspired the development’s name. Breezes also achieved UDIA’s EnviroDevelopment certification (six leafs) in 2013 and is home to the largest installation of solar panels in a single suburb thanks to a partnership between DHA and Country Solar NT. These attributes and activities have contributed to Breezes winning multiple industry awards for urban design, planning and environmental sustainability.

Breezes is also community focused with approximately 30 hectares of open space, four community parks and an on-site Community Facilitator who organises regular events, activities and newsletters. In July 2016, we officially opened a 4,900m2 water play park that engages children in active play, with water wheels, dams, switches and pumps demonstrating water management. Construction of Darwin’s first dedicated dog park was also well underway and will be officially opened at Breezes in 2017–18.

Visit breezesmuirhead.com.au for more information.

Queensland regions

North Queensland (NQLD) region

We managed 1,849 properties in the NQLD region as at 30 June 2017. The majority were located in Townsville and Cairns and were three and four-bedroom freestanding houses. We also managed a number of townhouses and high rise apartments located within close proximity to the city centres. Properties in the region accommodated members working at a number of ADF bases and establishments, including Lavarack Barracks and HMAS Cairns.

Table 3.34: NQLD region property provisioning and related services, 2016–17

South Queensland (SQLD) region

We managed 3,462 properties in the SQLD region as at 30 June 2017. The majority were located in Brisbane and Ipswich and a smaller number were located in Toowoomba, Canungra and the Gold Coast. ¹⁴The majority of properties were three and four-bedroom freestanding houses. We also managed an increasing number of townhouses and high rise apartments. Properties in the region accommodated members working at a number of ADF bases and establishments, including Gallipoli Barracks and RAAF Base Amberley.

Table 3.35: SQLD region property provisioning and related services, 2016–17

New South Wales region

We managed 4,613 properties in the New South Wales (NSW) region as at 30 June 2017. ¹⁵The majority were located in Sydney and a smaller number were located in Newcastle, Singleton and Nowra. The majority of properties were three and four-bedroom freestanding houses. Our Sydney property portfolio comprises a mix of freestanding houses, townhouses and high rise apartments, reflective of the region’s higher population and housing density. Our properties accommodated members working at a number of ADF bases and establishments, including Holsworthy Barracks, RAAF Base Williamtown and HMAS Creswell.

Table 3.36: NSW region property provisioning and related services, 2016–17

Project spotlight: Crimson Hill

Crimson Hill was the first apartments in Australia to achieve a 6 Star Green Star design rating from the Green Building Council of Australia.

Our award winning Crimson Hill development adjoins Lane Cove National Park on Sydney’s North Shore. The name Crimson Hill was selected in recognition of the rich, vibrant colour of the Victoria Cross medal ribbon. Crimson Hill continues to honour the Victoria Cross by naming each of its precincts and two community facilities after recipients of the prestigious award.

The Crimson Hill masterplan incorporates five distinct precincts united by communal public spaces, including a community centre and a state-of-the-art futsal synthetic sports field. Upon completion, Crimson Hill will feature a mix of 345 architecturally designed apartments, townhouses and homes that blend sympathetically into the surrounds. DHA will retain approximately 40 per cent of the apartments for ADF members and their families.

Crimson Hill incorporates a number of intelligent, sustainable design features. These contributed to Crimson Hill achieving UDIA EnviroDevelopment certification (six leafs) in 2014. More recently, Shout Ridge, the final release of apartments, was the first apartments in Australia and the second project in Australia to achieve a 6 Star Green Star Multi Unit Residential Design V1 rating from the Green Building Council of Australia. This rating represents world leadership in environmental sustainability and positions DHA as one of the most progressive residential developers in Australia.

Visit crimsonhill.com.au for more information.

Australian Capital Territory and Riverina region

We managed 2,862 properties in the Australian Capital Territory (ACT) and Riverina region as at 30 June 2017. The majority were located in the Canberra region, which includes properties in adjacent NSW cities. ¹⁶A smaller number were located in Wagga Wagga (NSW), Albury (NSW) and Wodonga (VIC). ¹⁷The majority of properties were three and four-bedroom freestanding houses, however, we also managed a number of townhouses and high rise apartments located close to the Canberra CBD. Properties in the region accommodated members working at a number of ADF bases and establishments, including Headquarters Joint Operation Command, Kapooka and Latchford Barracks.

Table 3.37: ACT and Riverina region property provisioning and related services, 2016–17

Victoria and Tasmania region

We managed 1,248 properties in the Victoria (VIC) and Tasmania (TAS) region as at 30 June 2017. ¹⁸The majority were located in Victoria, including Melbourne, Puckapunyal and Sale. We also managed 48 properties in Hobart. The majority of properties were three and four-bedroom freestanding houses, however, we also managed a number of townhouses and high rise apartments located close to the Melbourne CBD. Properties in the region accommodated members working at a number of ADF bases and establishments, including HMAS Cerberus, Puckapunyal Military Area and RAAF Base East Sale.

Table 3.38: VIC and TAS region Property provisioning and related services, 2016–17

South Australia region

We managed 967 properties in the South Australia (SA) region as at 30 June 2017. The majority were located in and around Adelaide and were three and four-bedroom freestanding houses. We also managed a number of townhouses and high rise apartments located close to the Adelaide CBD. Properties in the region accommodated members working at a number of ADF bases and establishments including RAAF Base Edinburgh, Keswick Barracks and Woodside Barracks.

Table 3.39: SA region property provisioning and related services, 2016–17

Project spotlight: The Prince’s Terrace Adelaide

The Prince’s Feathers, carved by a local stone mason in locally sourced stone, will adorn the front of the Terrace.

Located in the revitalised urban precinct of Bowden in Adelaide, The Prince’s Terrace Adelaide is a ground breaking collaboration between DHA, the Prince’s Foundation and the South Australian Government’s renewal authority (Renewal SA). When completed, the project will provide eight terraces and four flats built as mews behind the terraces. DHA will retain all 12 dwellings for ADF members and their families.

The Prince’s Terrace Adelaide encapsulates innovation and world leadership in sustainable design. It was the first residential project in Australia to receive a 6 Star Green Star design rating from the Green Building Council of Australia. The homes are predicted to use 50 per cent less energy and potable water than a typical urban townhouse, with a carbon footprint of less than 40 per cent compared to a standard house.

The project is committed to sustainable choices and has a strong focus on local, low carbon materials, including local concrete made with ash and local granite and bricks re-used from 100-year-old former Bowden industrial buildings. Wherever possible, local builders and tradespeople have been employed to stimulate local economic growth and employment.

The project was officially opened by His Royal Highness, the Prince of Wales, in November 2015. In honour of His Royal Highness, local firm Historic Stone Restorations has carved The Prince’s Feathers from stone sourced from local company Tillet Natural Stone Industries to adorn the front of the Terrace. The project is due for completion in November 2017.

Western Australia region

We managed 1,170 properties in the Western Australia (WA) region as at 30 June 2017. The majority were located in Perth and Rockingham, but we also managed a small number of properties in Broome, Exmouth, Geraldton and Karratha. The majority of properties were three and four-bedroom freestanding houses, however, we also managed a number of townhouses and high rise apartments. Properties in the region accommodated members working at a number of ADF bases and establishments including Garden Island, RAAF Base Pearce and Irwin Barracks.

Table 3.40: WA region property provisioning and related services, 2016–17

Project spotlight: Liv Apartments

The Queen Street façade features a mix of materials influenced by the character of the neighbouring warehouses and the port.

Our Liv Apartments is a contemporary new development located in East Fremantle. Upon completion, Liv will comprise 166 one, two and three-bedroom apartments across three uniquely designed buildings. DHA will retain 65 apartments for ADF members and their families.

Liv has been designed to complement its surrounds. The Queen Street façade is urban and industrial, echoing the vibrant surroundings, and features a mix of materials influenced by the character of neighbouring warehouses and the port. In contrast, the Quarry Street façade has a more relaxed and residential community feel. The façade is designed to complement the neighbouring limestone and brick buildings.

Liv is committed to environmental sustainability and will include energy saving fittings and fixtures, water reduction strategies, bike facilities and an edible courtyard garden. These and other design features have contributed to Liv achieving a 4 Star Green Star equivalent rating, a One Planet Community rating and a very impressive 7.5 star average energy efficiency rating (NatHERS) for the development and minimum 6 star rating for individual apartments.

Another unique feature of Liv is that cats and small dogs are welcome. Liv is situated near designated dog exercise areas in Fremantle Park and Stevens Street Reserve, the pet friendly Bathers Beach and pet friendly cafes.

Visit livapartments.com.au for more information.

Financial performance

Relevant purposes:

• Purpose 4: Portfolio management
• Purpose 5: Generate shareholder value

Overview

As DHA does not receive funding directly from the Federal Budget, we seek to generate sufficient revenue to enable us to achieve our role on a commercially sustainable basis. As a GBE, we are required to maintain a strong financial position and to meet commercial return obligations, including the payment of dividends to the Australian Government.

Relative to 2015–16, our Corporate Plan 2016–17 reflected a substantial reduction in our business risk profile and associated profits as a result of:

• contracted growth of our MCA program
• reduced exposure to large scale apartment developments
• revised property investment program targets relative to levels achieved in previous years ¹⁹
• implementation of improved internal processes and governance arrangements.

This section provides an overview of our financial performance and management arrangements in 2016–17.

Refer to Part 5 of this report for our consolidated financial statements for 2016–17 (DHA and DHA IML).

Refer to Part 6 (Appendix C) for a summary of our five year financial performance.

Financial results

DHA’s financial performance in 2016–17 was sound. For the year ended 30 June 2017:

• Earnings before interest and tax (EBIT) was $103.6 million or $5.2 million lower than the Corporate Plan target due to higher levels of property impairment than budgeted.
• Net profit after tax (NPAT) was $65.7 million or $0.9 million above the Corporate Plan target due to lower than budgeted operating costs, higher than anticipated property sales and land sales margins and lower than budgeted income tax expenses arising from the disposal of investment stock acquired prior to 1 July 2007.
• Operating expenditure was $7.5 million below the Corporate Plan target due to lower than anticipated expenditure on direct personnel, travel, consultancy, legal and marketing costs.
• Our cash balance was $230.6 million or $98.6 million above budget due to lower than anticipated spend on investment activities ($213.4 million).

Refer to our Annual Performance Statement for full details of how we performed against the financial related KPIs in our Corporate Plan.

Revenue generation

Apart from payments we receive for the housing services we deliver to Defence, our property investment program continued to be our major source of revenue in 2016–17. The program has historically performed well and proven to be a reliable funding source in varying market conditions. It has generated over $2 billion in revenue in the past five years (refer Figure 3.6).

Our property investment and disposals programs achieved $13.9 million and $4.5 million above the Corporate Plan targets respectively. This was a particularly good outcome given property market conditions in Darwin, Perth and Sydney negatively impacted sales, particularly where the price exceeded $1 million. However, Sydney properties sold at good margins, contributing to overall margins being better than budgeted for the property investment program.

While we did not achieve the Corporate Plan target for development land and property sales ($39.2 million negative variance), we did realise better than budgeted margin for two projects in Sydney and Brisbane. In addition, revenue from this program is not lost, but rather deferred to 2017–18.

Returns to the Australian Government

In accordance with the GBE Guidelines, we will pay an annual dividend to the Government. Based on 60 per cent of our NPAT, we will pay the Government a $39.6 million dividend for 2016–17 (paid in quarterly instalments throughout 2017–18). This equates to $262 million paid in dividends over the past five years (refer Figure 3.7).

We also monitor total shareholder return which measures the total return to our shareholders arising from dividends, as well as the growth in the value of the business. We achieved a return of 7.2 per cent which was 0.5 per cent above the Corporate Plan target. This demonstrates that we continued to add to shareholder value.

Financial management

Capital management

As at 30 June 2017, we had a strong balance sheet. We employed total capital of $2 billion, funded through $1.5 billion in equity and $509.6 million in debt through a loan agreement with the Commonwealth. Our gearing was 24.9 per cent, demonstrating that our activities were well funded compared to borrowings.

The total amount of our Commonwealth loan facility is $635 million, leaving head room of $125 million as at 30 June 2017. Maturities are scheduled on a rolling basis over the next 10 years. Our interest cover was 5.2 per cent, demonstrating that we were well placed to pay interest on outstanding debt. We do not have a commercial overdraft facility or access to re-drawable loan facilities.

Capital structure review

In June 2017, in accordance with one of the recommendations of the Forensic Review into our operations, we engaged Citibank Group to undertake an independent review of our capital management strategies and funding options. A steering committee, chaired by the Managing Director and comprising senior personnel from DHA and the departments of Defence and Finance, is overseeing the project. This work is well underway and the outcome is expected to inform our Corporate Plan 2018–19. Refer to the External scrutiny section in Part 4 of this report for more information about the Forensic Review.

Credit rating

Standard & Poor’s Rating Services conducts an annual credit rating assessment of DHA. Their report issued on 21 December 2016 confirmed a corporate credit issuer rating of AA+. This rating is reflective of their assessment of the effect of government ownership and the level of support implied by that ownership. Standard & Poor’s also provided a standalone credit profile rating of DHA of BBB+. This credit profile is one rating above the target for GBEs specified in the GBE Guidelines.

Taxation

DHA is a full tax paying entity in relation to federal taxes (e.g. corporate income tax, goods and services tax [GST] and fringe benefit tax [FBT]). We also pay state and territory-based taxes (e.g. stamp duty and land tax) or an equivalent to comply with competitive neutrality requirements.

Our current tax expense represents amounts paid and payable to the Australian Taxation Office and is in the order of $20.1 million for financial year 2016–17. We also paid $35.5 million and will pay a further $6.6 million to the Commonwealth (totalling $42.1 million) in state tax equivalent payments in 2016–17.

During the reporting period, we submitted a research and development application to AusIndustry as part of the Australian Government’s ‘R&D Tax Incentive’ program (refer to case study) for the 2015–16 financial year. The claim resulted in a tax offset of $4.8 million. For 2016–17, we anticipate registering further eligible research and development (R&D) activities on selected residential development projects.

Case study: R&D tax incentive

The ‘R&D Tax Incentive’ program was developed by the Australian Government to encourage innovation across all industries by helping companies offset the cost of research and development (R&D) activities. Eligible R&D activities are registered annually through AusIndustry with the claim being administered by the Australian Taxation Office through a company’s annual tax return.

DHA has successfully registered various eligible R&D activities and claimed an R&D tax offset annually since the 2011 financial year. The majority have been linked to our residential development projects, including Breezes Muirhead (Darwin, NT), Bluewattle (Townsville, QLD) and Wirraway (Thornton, NSW). Since 2011, over $7.7 million has been returned to our projects through the incentive program. This demonstrates that problems can be transformed with creative solutions to achieve sound business outcomes.