Tainui Group Holdings
Annual Report
2013
19
allow for the review of the sectors for
which it has significant investment
in. These are investment properties,
(commercial, retail, government and
rural), development properties, hotels,
agriculture and fishing.
For each sector, TGH has developed
risk adjusted hurdle rates using public
information to assess its balance
sheet profile. These rates are used as
a basis to evaluate potential future
investment in these sectors, as well as
benchmarks for reviewing current or
historic performance. The nature of
sector reporting allows TGH to ‘drill
down’ into individual assets if required
to assess performance and therefore
make decisions to either dispose of or
improve the asset.
Treasury Management
TGH has a similar challenge to
companies operating a co-operative
structure, in that it is dependent on
debt to fuel growth. TGH has not
issued capital to anyone other than its
Shareholder. This dependence on debt,
by necessity, requires TGH to take
a pragmatic approach inmanaging
liquidity and risk exposure by
:
Utilising relationships with banks,
business partners and advisors;
Building sound internal treasury
competencies;
Employing technology to provide
current market information; and
Developing and adhering to
practical liquidity, debt, and
hedging policies.
Management reports eachmonth to
the Board on TGH’s compliance with
policies governing hedging profiles,
debt durations, and overall risk
exposure. Any compliance deviation
is reported, explained fully, and
corrective action taken as necessary.
Debt Duration
TGH forecasts its debt monthly, on a
12 month rolling basis for operational
purposes, but a longer termview of
capital expenditure is also taken to
provide future funding requirements.
In December 2012 TGH renewed $50
million of its core debt, maintaining
total debt facilities (excluding debt
associated with the Novotel Auckland
Airport) at $250 million. The company
has a clear focus on tenor (debt
duration) and balancing the associated
pricing. This focus provides greater
security around future liquidity
requirements andmeans that TGH
does not need to constantly refinance
its debt every year, which usually
comes at considerable cost and
management time.
As the company embarks on the new
higher yielding investment strategy,
there will be robust consideration of all
investement options before the balance
of the debt facilities are drawn.
Interest Rate Risk
Utilising both banking relationships
and technology, TGHmonitors the
interest rate market on a daily basis.
This is particularly important in times
of global economic uncertainty, as this
impacts on the swap rates that TGH
is able to achieve. Swaps are financial
instruments which are entered into
with banks to hedge interest rate risks.
Further detail on TGH’s interest rate
risk is provided in note 25.1 (b)(ii) of the
notes to the financial statements on
With little growth anticipated in
TGH’s forecast debt, and with hedging
policy limits at adequate levels,
the company did not take out any
additional interest rate swaps in the
current financial year.
Cost Effectiveness
TGH constantlymonitors overheads
to ensure that profitabilitymargins
are not compromised. TGH provides
corporate services to the Shareholder
which avoids duplication of resources
within the widerWaikato-Tainui
group and enhances the depth of
specialist functions.
The level of overheads recognises
TGH’s need to attract talented staff
and to engage specialist external
consultants and legal advisors as
needed. The long ‘gestation period’
between concept and completion of a
project means that overheads are often
incurred ahead of resultant steady-
state revenue streams.
Margin Management
As TGH is predominately in the
property investment and development
business it places significant emphasis
on achieving commercially acceptable
returns on property leases, and adopts
a selective approach to property
investment and development projects
to ensure the risks TGH takes are
appropriately compensated for.
Rent reviews are another opportunity
to review and negotiate terms with
existing tenants. Depending on the
lease agreement, rent reviews are based
on a number of standardmechanisms,
such as current market rental as
assessed by an independent valuer,
inflation, and an increase in tenant’s
revenues. Themajority of TGH’s leases
have clauses which stop the rental
fromdecreasing. Further detail on rent
reviews is provided on
.
A feasibility study is undertaken
where a property development or
investment opportunity is presented
to the company. The study assesses
what resources are required for the
development and calculates the
development margins and rental
returns. Property development
projects are assessed based on the
calculated returns and are dependent
on compensation for the resources
utilised and risk involved. As a project
is progressed, constant monitoring of
its feasibility is conducted, ensuring
that there are no cost over-runs. In
2013, all projects were maintained
within budget.
