Annual Report 2016 Trustees/Directors
Malcolm Short Alec Wilson Tina Ngatai David Tapsell (Chairman)
Non-Trustee Directors Ana Morrison (To October 2016)
Rawiri Waru
Monty Morrison Jackie Aratema
Secretary Accountant General Manager Property Manager
Murray Patchell Alexander Wilson Peter Faulkner John Powell
Office: Level 1, Pukeroa Oruawhata House 1/1176 Amohau Street, PO Box 12003 ROTORUA Phone (07) 348-8887 Fax (07) 343-1051 Website: rotorua.deloitte.co.nz Accountants: Deloitte (Rotorua) Auditors: BDO (Rotorua) Solicitors: Holland Beckett and Graeme Dennett Bankers: Bank of New Zealand and ANZ
1 Pukeroa Oruawhata Group ~ Annual Report 2016 CONTENTS
Directory ...... 1
Contents ...... 2
Agenda ...... 3
Minutes – AGM – 7th November 2015 ...... 4
Chairman’s Report ...... 7
Property and Development Sub-Committee Chairman’s Report ...... 11
Property Report ...... 12
Finance & Expenditure Sub-Committee Chairman’s Report ...... 15
Financial Highlights ...... 17
Governance Structure ...... 23
Owners Grant Policy ...... 24
Pukeroa Oruawhata Charitable Trust ...... 27
Ngati Whakaue Education Endowment Trust Board Chairman’s Report ...... 28
Consolidated Financial Statements ...... 34
ENTITIES:
POT - Pukeroa Oruawhata Trust POHL - Pukeroa Oruawhata Holdings Ltd PLHL - Pukeroa Lakefront Holdings Ltd PPL - Pukeroa Properties Ltd PPL2 - Pukeroa Properties (No.2) Ltd WHL - Waihunuhunukuri Holdings Ltd LHRDL - - Lake House Resort Developments Ltd LRTL - - Lake Road Tavern Ltd POTSL - - Pukeroa Oruawhata Trustee Services Ltd (as trustee of Pukeroa Oruawhata Charitable Trust) LTL - Lake Tavern Limited RCL - Rotorua Casino Limited CRL - Casino Rotorua Limited
Pukeroa Oruawhata Group ~ Annual Report 2016 2 TRUST
ANNUAL GENERAL MEETING
Held at Tamatekapua Meeting House, Ohinemutu, Rotorua on Saturday 19th November 2016 at 10.00am.
AGENDA
1. Minutes.
2. Annual Reports.
3. Appointment of Auditor.
4. Distribution.
5. Election Results.
6. Lunch.
PLEASE NOTE THAT VOTING RIGHTS AT THE MEETING ARE RESTRICTED TO REGISTERED OWNERS OF THE TRUST.
3 Pukeroa Oruawhata Group ~ Annual Report 2016 PUKEROA ORUAWHATA TRUST
MINUTES OF THE ANNUAL GENERAL MEETING OF OWNERS HELD AT TAMATEKAPUA ON SATURDAY 7TH NOVEMBER 2015 AT 10.00AM.
Chairman: Malcolm Short.
Secretary: Murray Patchell.
Mihi & Karakia: Pihopa Kingi.
Attendance: 133.
Apologies: 36.
(David Tapsell/Wiki Flavell) Carried
MINUTES:
Of the previous AGM held on 15 November 2014 were taken as read and confirmed.
(Tony Wihapi/Alec Wilson) Carried
MATTERS ARISING:
Waaka Vercoe referred to a section in Rotorua that was given by Ngati Whakaue generously to Ngati Awa. He is on the Ngati Awa Board and has proposed that this be returned, and he sought clarification on whether this should be returned to Pukeroa Oruawhata Trust. Chairman confirmed that Pukeroa Oruawhata Trust would be happy to have this returned. In the meantime, the Trust has cleared the section. It will be used as a recreation reserve along the river.
CHAIRMAN’S REPORT:
Malcolm Short tabled and read his report.
RESOLVED: “That the Chairman’s report be adopted.”
(Malcolm Short/Stuart Harris) Carried
MATTERS ARISING:
1. Tony Wihapi queried the price of the RSA building. Chairman confirmed this was $980,000 and was significantly less than the Trust expected to pay.
Tony Wihapi noted the comments regarding Whakarewarewa gave a different perspective from what was stated at Te Komiti Nui meeting. He said if the arbitration gave POT lands to Wahiao then surely it was important to challenge that. Chairman advised the parties disagreeing had accepted to be bound by the arbitrator’s decision. The prize is the Te Puia business worth $30 million, not the land rental. POT has had to bite the bullet and go for the main prize.
Tony also sought clarification between the legal advisers. Chairman explained the need to separate lawyers so that the land lawyers did not get involved in the business negotiations. Tony said the report made the risks clear. What was not clear was how unity will be achieved between the parties.
2. Waaka Vercoe said this was the finest report he has read and he commends the Committee. He acknowledged with appreciation the hard work over the years of Pihopa Kingi and Stuart Harris.
Pukeroa Oruawhata Group ~ Annual Report 2016 4 The trustees can be very proud of their achievements. He suggested looking at a motto that gave the background story. Chairman suggested Waaka write to the Trust with his thoughts.
3. Runa Morrison-Huitema enquired if the Trust would consider renting a building to the 12 community house non-profit organisations that have been evicted from Council buildings due to the buildings being unsafe. They have 3 years guaranteed funding from Council. Chairman advised that the Trust does provide some assistance to community groups but there was no suitable building available at present. He suggested she write to the Trust and the Trust will monitor if anything becomes available. Tony Wihapi queried if the Endowment should be approached to buy a building. Chairman advised that the Endowment have no power to purchase buildings.
FINANCIAL REPORT:
Murray Patchell took the meeting through a summary of the financial highlights and the consolidated financial statements. A number of questions were answered. Tony Wihapi suggested the trustees look at vesting ownership directly into shareholders now that the financials were aligning with publicly accountable businesses. He also suggested the Trust look at equity sharing with investors to reduce their liability to debt. Geoff Rice expressed some concern about transferring ownership to shareholders that would have the ability to sell shares and potentially lose everything. He was also concerned at JV partners coming in and taking control. The Secretary responded that with potential changes to Te Ture Whenua Act, it was a good time to consider the wider issues of structure and the Trust will be looking at that in the next couple of years.
RESOLVED: “That the financial reports for the year ended 31 March 2015 be received.”
(Alec Wilson/Maureen Jehly) Carried
PROPERTY REPORT:
Peter Faulkner presented the property report. Miriama Searancke expressed concern at the lack of consultation with residents at Ohinemutu over the Lake House developments. Peter acknowledged that consultation was still to occur with neighbours. She was also concerned at the lack of kaumatua flats being developed on Tunohopu Street and felt the Trust weren’t looking after the kaumatua. She felt there should be a survey of Ohinemutu residents and is quite upset at this. Other speakers expressed their concerns at the lack of progress with kaumatua flats. Tony Wihapi noted the issue was lack of consultation and he felt the Trust should meet with residents. Chairman confirmed that consultation will follow with residents and the Trust will be complying with all Council processes.
RESOLVED: “That the property report be received.”
(Alec Wilson/Sonja Cooper) Carried
PUKEROA ORUAWHATA CHARITABLE TRUST:
Chairman referred to the tabled report. Matthew Heke expressed concern at the exclusion of Owhata and Te Roro o Te Rangi Marae from the Marae grants policy. Chairman invited Matthew to write to the Trust and the issues will be considered by the trustees. Arama Pirika said that some of the lands in POT are Te Roro o Te Rangi. He was concerned that decisions had been made without consultation and this should be addressed so that people do not come to the meeting in anger and can compliment the excellent reports.
Tony Wihapi felt Te Roro o Te Rangi were mana whenua and should be put back into the list of Marae. He asked if the hui would pass a motion. Chairman advised that the trustees will consider once the letter had been received. Anaru Te Amo noted that the Ngati Whakaue Assets Trust supported Marae in settlement negotiations.
NGATI WHAKAUE EDUCATION ENDOWMENT TRUST BOARD:
5 Pukeroa Oruawhata Group ~ Annual Report 2016 Chairman referred to the tabled report and outlined the new Beverley Anaru scholarship established by Pita Anaru.
RESOLVED: “That the Pukeroa Oruawhata Charitable Trust report and the Ngati Whakaue Education Endowment reports be received.
(Alex Wilson/Iris Thomas) Carried
AUDITOR:
RESOLVED: “That BDO Rotorua be reappointed auditors for the next financial year.”
(David Tapsell/Maureen Jehly) Carried
DISTRIBUTION:
RESOLVED: “That $700,000 be made available for owners grants as per the policy tabled.”
(Maureen Jehly/Haihaiti Barrett) Carried
ELECTION RESULTS:
Murray Patchell as scrutineer advised the outcome of the postal vote and that Tina Ngatai was the highest polling candidate. Application will be made to the Maori Land Court for her appointment in due course.
GENERAL BUSINESS:
1. Tony Wihapi suggested that appropriate recognition be made by the Board to Pihopa Kingi and Stuart Harris for their long service on the Trust. Chairman advised that an appropriate taonga will be given at this year’s annual trustees’ dinner.
Meeting closed at 12.40pm with karakia from Pihopa Kingi.
Signed as a correct record
Chairman
Pukeroa Oruawhata Group ~ Annual Report 2016 6 CHAIRMAN’S REPORT
Kia ora tatou Ngati Whakaue, In September this year, in recognition of the growth that we have achieved and the growth that It is my pleasure and privilege to present my 31st we are projecting, the Trust resolved to commit to Annual Report to Pukeroa Oruawhata Trust owners. the engagement of a full time General Manager and appointed Peter Faulkner to this role. Peter Once again this year the results tabled to you has been fulfilling the general management role during this meeting show that the Group’s for the last 6 years through his role of our Client financial position has grown stronger. Our balance Manager at Deloitte. Peter has been an integral sheet this year has grown to $204m, which is a far part of our team for 20 years now (14 years as our cry from the $2.3m that we reported on in 1982. banker) we look forward to having him on board as a dedicated resource. It is this financial strength that has allowed us to deliver increased returns to you through This year we say farewell to Jackie Aratema who distributions and hauora grants. It has put us in has decided not to stand for re-election as Trustee. the position to step in and preserve Whare Aroha Jackie has been a valuable member of our team and its development at Ngongotaha. A more for the last 5 years and his contributions at the detailed outline of our involvement with Whare Board table will be missed. On behalf of my fellow Aroha will be covered in our property report but Trustees and our owners, thank you Jackie. I will say now that our involvement has avoided what would have been a very untidy position for Whare Aroha, its residents and staff, and for the FINANCIAL wider community as a whole. I am pleased once again to advise that the Pukeroa Oruawhata Group has done extremely Group is reporting another solid year’s financial well over the last 35 years, however our work performance: has only just begun as we strive to continue the development of our assets for the benefit of you, • total assets have increased by 15% to $204 our owners, and for the City of Rotorua as a whole. million • underlying cash surplus of $3.1m up $.6m Taking on a slightly different format this year, later in this report you will hear from the Chair of the • equity up $16.1m Property and Development Committee and also the Chair of our Finance and Expenditure Sub Alexander Wilson from Deloitte will speak to the Committee. It is important that you hear of the financial results in more detail shortly. work being undertaken by these committees on your behalf. With the Rotorua Central site effectively 100% occupied and development commencing on the 3rd stage of the Trade Central site, we fully expect GOVERNANCE our operating surpluses to continue to strengthen over the next few years. Over the last two years we have been working on reviewing the structure of the organisation and our This year I am pleased to advise that we have: governance. • Increased the owner’s distributions from Twelve months ago we informally grouped our $700,000 to $735,000 (+5%). As we have used subsidiary companies along the common business all of our Tax Free Earnings, distributions lines of: have to be made from Tax paid earnings with Maori Authority Credits attached. • Large Format Retail (Pukeroa Oruawhata • Increased the Charitable Trust funding from Holdings / Pukeroa Properties No2) $125,000 to $175,000. • Tourism Orientated (Pukeroa Lakefront Holdings / Waihunuhunukuri Holdings).
Whilst both groups are development focused, the grouping will allow for industry specific skills, particularly those in the tourism space, to be introduced to the governance team as and when required. This is an ongoing exercise.
7 Pukeroa Oruawhata Group ~ Annual Report 2016 PROPERTY AND DEVELOPMENT
The last year has been an exceptionally busy year for the Group on the property & development front as planning for several exciting new projects is progressed.
A more detailed outline of our activity over the last 12 months is contained within the Property & Development sub-committee report however the projects of note this year are:
• Commencement of construction of the 8,800 sqm 3rd stage our Pukeroa Properties No 2 development. We are pleased to confirm that Kmart will be the anchor tenant for this stage of the development. Demolition and site works have commenced and we are working to a March 2018 opening date. • As already mentioned, the Group mounted a rescue mission to save Rotorua Continuing Care Trust’s Ngongotaha development. As a result, the Group has assumed ownership of the Ngongotaha property and on completion in March 2017 will lease this to Whare Aroha. • The planning for redevelopment of the Lakefront site continues with the initial site clearance well in hand. Our planning for the health & wellness continues with concept plans that reflect the uniqueness of the site and our culture well advanced. Discussions with QE Health in relation to new facilities for them continue.
The local economy continues to perform well and we see the on-going development of our land holdings as a key contributor to the overall prosperity of the City.
I am pleased once again to advise that the Group is reporting another solid year’s financial performance.
8 WHAKAREWAREWA LANDS As soon as Ngati Wahiao/Tuhourangi are able to confirm their position we will come out and As advised three years ago, the decision of discuss in detail the proposed arrangements the independent arbitration panel on the through a formal endorsement process. We are determination of final ownership of the not able to do that until Ngati Wahiao/Tuhourangi Whakarewarewa lands was challenged legally confirm they want to proceed. by one of the parties. The result of this challenge has gone against the challenger however we TE KOMITI NUI understand that further legal action is once again being proposed by the unsuccessful party. We understand that at the last TKNONW AGM that Te Komiti Nui were directed to talk These ongoing legal challenges are extremely to both Pukeroa Trust and the Ngati Whakaue frustrating and are ultimately costing us as owners. Incorporation about a way forward with the extant As previously stated, these lands are effectively Ngati Whakaue claims. already owned by us so in a sense we are just spending significant amounts on legal fees to The Pukeroa Trust and Incorporation have yet to challenge ourselves. meet to discuss this but will do that soon and then communicate with TKNONW. The legal challenge is ongoing and there is no immediate end in sight. Our best guess is that the STRATEGIC ALLIANCES AND legal challenge will add years to a process most of SPONSORSHIPS us had thought and agreed was finished. We recognise that living and working in a TE PUIA BUSINESS community is a two-way street – we have been pleased to continue our support for: Last year we talked about the negotiations the Whakarewarewa Joint Trust (WJT) was • Ngati Whakaue Whakanuia undertaking with the Crown to return the Te Puia business. We as Pukeroa owners will share in that • Rotorua Chamber of Commerce as a 25% owner. • Rotorua Community Hospice
Since we last reported on this at the 2015 AGM • Bay of Plenty Steamers excellent progress has been made and most key • Lakeside Rotorua Concert matters required to make the return of the Te Puia business possible have been negotiated and agreed As Trustees and Directors, we actively promote with the Crown. This work was led by one of our the Groups interests through our membership own trustees David Tapsell (for the WJT) who of FOMA, the NZ Property Council, The as a commercial lawyer with good connections NZ Institute of Directors, The New Zealand in Wellington was able to advance matters very Geothermal Association, the Australasian Spa & quickly. That included working closely with the Wellness Association, and the Rotorua Chamber WJT trustees for Ngati Taeotu, Ngati Kahu and of Commerce. These memberships are a valuable Ngati Hurungaterangi on their new entity to receive source of professional contacts and development their 25% of the Te Puia business. As a result, activities for the Trustees / Directors ensuring that Pukeroa look forward to a collaborative and close we keep abreast of best industry practice. relationship with those three Ngati Whakaue hapu. Seven Ngati Whakaue entities have begun The substantive negotiations including due governance-level discussions with the intent of diligence review on the business was completed working collaboratively for the benefit of Ngati to our (Ngati Whakaue) satisfaction earlier this Whakaue. These discussions will not impinge year. We were looking forward to coming out on the purpose and legal obligations of any of to the people to discuss and endorse all of the the individual entities, but provides us with the arrangements well before now. opportunity to determine areas of shared interest that might be better achieved by working in Unfortunately, some Ngati Wahiao/Tuhourangi tandem. We are guided by the whakatauaki left were not happy with the due diligence process us by our tupuna “Ruia taitea, ruia taitea, kia tu nor some of the outcomes of that process and have ko kaka, ko ahau anake”. Iwi development is not sought further information. This has delayed the a linear process. When all the distractions and vesting process which has been frustrating as we barriers are put aside, at the heart of the matter (Ngati Whakaue) have been ready to proceed for is the future of Ngati Whakaue that we together some time. We are also concerned that any further choose to construct. delay might put the vesting process at risk.
9 Pukeroa Oruawhata Group ~ Annual Report 2016 TRUSTEES
The nature and scale of our projects is such that months, if not years of planning goes into a project before the first spade is put into the ground.
Many hours have been put in by your Trustees and I would like to acknowledge and thank them for their The seven Ngati Whakaue efforts over the last year. entities are Pukeroa It is also appropriate to acknowledge the contributions from our financial, management and Oruawhata Trust, property team of Murray Patchell, Alexander Wilson, Peter Faulkner, John Powell and Gary Herbert. Ngati Whakaue Tribal
We are fortunate to have the skills and experience that Lands, Ngati Whakaue this team brings to the table and I thank them for their efforts on our behalf. Education Endowment
CONCLUSION Trust Board, Te Komitinui
Like any good team, managing success requires o Ngati Whakaue, Ngati constant effort and concentration. We have done extremely well over the last 35 years however we Whakaue Assets Trust, need to be continually vigilant to ensure that the next 35 years and beyond maintains the original Te Runganui o Ngati vision of our tupuna of our lands serving as key driver of prosperity for you as underlying owners. Whakaue ki Maketu, Once again, I thank all of those who have been Te Taumata o Ngati involved in supporting us in our endeavours and we look forward to another good year in 2017. Whakaue Iho Ake Trust. Nga mihi, nui
Malcolm Short ONZM Chairman
Pukeroa Oruawhata Group ~ Annual Report 2016 10 PROPERTY AND DEVELOPMENT
Kia ora tātau,
The Property & Development sub-committee comprises of Alec Wilson (Chair), Malcolm Short, and ex- officio members Peter Faulkner, John Powell, Gary Herbert and Murray Patchell.
The sub-committee meets monthly to review and progress property management, lease administration, repairs and maintenance and development matters. The sub-committee has been provided with a delegated authority approved annually as part of the budgeting process to administer the Group’s $1.750m Operating Expense budget.
The Property & Development Sub-committee will evaluate investment opportunities and proposed capital works outside of that identified with the budget and make its recommendation to the full board accordingly. The management and administration of approved projects is then delegated to the sub-committee.
The Trustee Sub-Committee Members & General Manager work closely with the property managers to ensure that projects and processes flow smoothly and efficiently.
The Property Managers oversee all Repair & Maintenance projects, minor capital works including residential housing, administer leases and manage debtors under delegations and directions provided by the Sub- Committee.
Major capital projects are undertaken with engagement of specialised project and development managers on a Project Control Group (PCG) basis. All PCG meetings are attended by at least one member of the P&D Sub-Committee.
Overall, the sub-committee approach adopted allows the Trustees and Directors to maintain close involvement and oversight of our activities whilst ensuring that effective delegation is achieved.
Prior to handing over to Peter Faulkner to update you in more detail of our projects, I would like to acknowledge and thank our Property Managers John Powell and Gary Herbert for their efforts this year. John and Gary do the majority of the on-going property management work and lease administration for the Group and their efforts and contributions to the success of our organisation are appreciated.
Ngā mihi, Alec Wilson Chairman, Property & Development
11 Pukeroa Oruawhata Group ~ Annual Report 2016 PUKEROA ORUAWHATA GROUP 2016 PROPERTY REPORT
PROPERTY REPORT Pukeroa Properties No.2 Limited Trade Central: The Rotorua Retail property market continues The announcement of Kmart’s commitment to enjoy strong demand for good quality, well to an Agreement to Lease last month was the presented premises with steady interest from new culmination of over 12 months of planning & to town retailers. As a result, Rotorua Central Mall consenting work for group. is essentially full and the proposed development on Trade central is filling fast. Kmart will form the anchor tenant for the 8,800 sqm 3rd stage of the development of the Trade In terms of asset values, the combination of low Central site. Marketing of the remaining space interest rates and a surplus of cash available within this development has been held pending for investment is creating a strong demand for the confirmation of Kmart, however strong interest quality property investments. The competition for is expected from a range of convenience and retail quality assets and low rates on deposits is driving tenants. commercial property prices up as investors chase better returns. Site works commenced in September and the building is set for completion late 2017 with Kmart Whilst the low interest rate environment is scheduled to open early 2018. impacting positively on prices and cash flows as the cost of existing debt reduces, it is also serving Pererika Street Education Precinct: to suppress upward movements in rentals. Discussions with the Rotorua Lakes Council have A buoyant property market is placing pressure on been concluded for the exchange of the portion of the construction industry with signs of capacity the former rail corridor between the PPNo2 site constraints starting to be visible impacting pricing and Ranolf Street for an equivalent portion of the and timing of projects. Town Belt Reserve.
Pukeroa Oruawhata Holdings Limited The portion of the town belt reserve transferred will be developed as an education precinct. Rotorua Central Mall: The initial stage of this precinct will involve the The Mall is now fully developed within the terms relocation and refurbishment of the existing of its resource consent with a gross lettable area of Mokopuna Building and ex-Trade Training Unit 48,202 sqm of which all bar 119 sqm is leased or building. subject to agreements to lease. Pukeroa Lakefront Holdings Limited During the year we saw Dick Smith go into Lakefront: liquidation leaving 399 sqm of space vacant. These premises and the adjoining ex-Cheesecake Shop Works have commenced on clearance of the site. are now subject to an agreement to lease. Plans for the proposed Lakefront Spa are The commitment to providing a good quality, progressing with the original concept revised to well maintained asset has supported the site in deliver a greater infusion of our culture into the achieving a 99.75% occupancy rate. facilities design and operation.
Ex-RSA: Concept designs are being drawn up now and detailed designs are expected to be completed Plans for the refurbishment of the former RSA early in 2017. Construction is expected to building have been completed and pricing of the commence April / May 2017 with a view to proposed works under negotiation. completion and opening mid-2018. Heads of Agreement are held from 3 tenants with Discussions are in process with Waiariki Institute the remaining space subject to enquiry. on training programmes to support career development in the health & wellness space. Preliminary internal demolition works have commenced with refurbishment work scheduled to commence prior to Christmas.
Pukeroa Oruawhata Group ~ Annual Report 2016 12 Waihunuhunukuri Holdings Limited Pukeroa Lakeside LP Lakehouse Late in July we were alerted to problems with As mentioned in the Chairman’s report, plans Rotorua Continuing Care Trust’s development at for conversion of the Lakehouse into a high end Ngongotaha when it was identified that the Trust backpackers fell through with the withdrawal was unable to secure the funding necessary to of Mr Lazarovits from the proposed JV. complete its development. Unfortunately, the uncertainty associated with the refurbishment on a highly geothermal site pushed We were initially approached to provide “top up this into the too hard / too expensive basket and funding” however the risks associated with that we are now back to square one. and concerns about the overall management of the development were too great for us to accept. Expressions of interest have been fielded from various parties, however the fundamental concern Faced with the catastrophic failure of the project the remains the uncertainty around the cost of decision was made to step into the role of developer refurbishing the existing building. and take over the development.
Pukeroa Oruawhata Trust As a result, the Group now owns the Ngongotaha development which is well on the way to Commercial Properties: completion. When completed, the facility will be The Trust’s commercial property holdings leased by Rotorua Continuing Care Trust which will are concentrated in Ti Street which is original allow it to continue with its objective of delivering township lands set aside under the Fenton market leading aged care services from the purpose Agreement. The Trust’s long term strategy has built facility. been to purchase the lessee’s interests (i.e. the buildings) as appropriate and we now own over This has been an extremely challenging “rescue half of the land & buildings. mission” that has required the Group to accept financial returns less than its targeted threshold During the year the lessee’s interest in 12 Ti levels, however the overall benefit to the community Street (Flipout) was acquired and the adjoining warrants our involvement. 10 Ti Street fully refurbished. Waikuta Industrial Park Discussions are in progress with the owner We are in discussions with Waikuta Number 2 of two lessees interest which, on completion, Trust on the establishment of a Joint Venture for the will allow for additional development works to development of a 31 lot Industrial Park on the Trusts be commenced. land at Ngongotaha. It is proposed that Waikuta establishes a ground lease in favour of a 50:50 Residential Properties: Joint Venture partnership between the Trust and The Trust’s residential property holdings ourselves, with any capital gains and profits from the are located in Sala / Froude Street area which development shared equally between the partners. is also land originally set aside under the Fenton Agreement. We see this as an exciting opportunity for the Group to support smaller trusts in the development of their Over the last 18 months the Trust has increased lands through sharing our experience and expertise the number of residential dwellings in its portfolio in property development. with 4 new rentals added last year and plans for a further 4 this year. SUMMARY The Trust is also commencing a review of its existing stock to ensure that it meets the The coming 12 months are expected to be as busy, requirements of the Residential Tenancies Act. We if not busier than the last 12 months as we bring a have completed an initial assessment of what is number of our developments to completion. The required and works are in process to ensure that work being done now will add to the quality of we meet our obligations under this new legislation. earnings going forward and support the on-going prosperity of the City as a whole.
Nga mihi, Peter Faulkner General Manager
13 Pukeroa Oruawhata Group ~ Annual Report 2016 The Rotorua retail property market continues to enjoy strong demand for good quality, well presented premises with steady interest from new to town retailers.
Pukeroa Oruawhata Group ~ Annual Report 2016 14 FINANCE & EXPENDITURE SUB-COMMITEE CHAIRMAN’S REPORT
The Pukeroa Oruawhata Group Finance and DEBT RATIOS AND FUTURE Expenditure sub-committee was established COVER several years ago. This comprises David Tapsell as Chair, Jackie Aratema and Tina Ngatai. The The Group objective is to maintain a ratio of 60% sub-committee meets as required during the year Equity : 40% Debt (maximum debt). In commercial to set, review and if necessary reforecast budgets. terms, this ratio is conservative however it is It makes recommendations to the full board and critical that we always have a safe buffer that is the first line of assurance on all finance matters allows us to comfortably meet our including finance related policies. bank repayments.
At a practical level the Chair, Chair Finance and Whilst lending rates are now at historic lows we Expenditure and General Manager work closely cannot speculate that rates will remain at these together during the year to ensure that budgets levels indefinitely. We currently have 45% of are adhered to, finances are tidy and that future our debt subject to fixed rates and are looking to investment opportunities are sound. increase the portion subject to fixed rates to 66% over the coming months. We are also looking Over the years the sound results of the Group have to ensure that we do not create a concentration allowed us to provide distributions and hauora risk associated with having too much of our debt grants to you the owners as well as fund and coming off its fixed rate in any 12-month period. promote a wide range of Ngati Whakaue initiatives including: Interest is the groups single largest expense and an effective interest rate risk management • Ohinemutu Womens Health League strategy is in place to assist in reducing the uncertainty and risk associated from adverse • Whakaue Whakanuia movements in rates. Our view is that the risk • Ngati Whakaue Kapa Haka of losing out on the chance that rates may fall further is preferable to that of facing the prospect • Little Waihi Kaumatua Komiti of an increased rate environment. • Whakanuia nga Koeke o Te Arawa • Sir Howard Morrison Super 4 DISTRIBUTIONS • Ngati Whakaue Mokoia Island As the Chairman has already mentioned, we • Ohinemutu Historical Trust have increased the amount set aside for owner’s • Te Matarae I Orehu distributions this year to $735,000 which will have to be paid from Tax Paid earnings with • Waikuta Marae Maori Authority Credits attached. Payment of our • Waikite Rugby Club distributions this way is necessary because we have now used up our supply of tax free earnings • Opera in the Pa that had been used for previous distributions. • Muririka Ahuwhenua Trust We are currently investigating an alternative • Te Arawa Maori Rugby League mechanism to allow for owner’s distributions It is the job of the sub-committee to ensure the to be made to you on a tax free basis once again. Pukeroa Group can continue to funds these This requires us to seek a binding ruling on this initiatives in a sustainable way while continuing to from the Inland Revenue Department. While this grow the business. is a costly exercise if we are successful the long term benefits to you the owners will significantly outweigh cost. We will know the outcome of this next year.
15 Pukeroa Oruawhata Group ~ Annual Report 2016 EQUITY AND JOINT passive investment company, Pukeroa is an active VENTURES Group that develops the land assets in our rohe that we have fought so hard for. As we pass the To date the Groups main funding partners have $200 million mark, the wisdom of our strategy is been banks. However, notwithstanding the low coming to the fore and we wish to continue down interest rates, we have recently been considering this path for the benefit of you the owners, with options to enter into Joint Ventures and other the new exciting and innovative projects referred equity arrangements with other parties. This to by our Chair. thinking is partly to do with freeing up cash for further investment (or distributions), sharing We have recently completed a budgeting exercise investment risk and opportunity with other out to 2020. Among other things this shows that parties, and more generally forging closer working we have exciting times ahead that will result in a relationships with others. significant increase in the value of the Group.
As explained in the Chairs report the nature of our Pukeroa is now the second largest business in portfolio is now such that it is timely we should Rotorua. Leveraging off the good results to date consider actively looking for outside investment our new projects and others that will arise over partners. All things being equal our immediate the next 10 years’ we believe we will pass the preference is to partner with other Ngati Whakaue next $200 million mark in a relatively shorter and Te Arawa organisations that may be interested timeframe and see the Pukeroa Group become the in working with us. one of the biggest privately owned organisation’s in the region if not the Country. This will not only Our plans in this regard are evolving with the further promote the interests of you the owners support of a grant under the MBIE Business through distributions and profile but it will create Advisers scheme and we aim to meet with other further jobs and enable us to continue to support potential partners soon. We will update you with and fund Ngati Whakaue initiatives mentioned progress in our next Annual Report. earlier.
I would like to thank the team at Deloitte and our FUTURE GROWTH AND new General Manager Peter Faulkner for their DIRECTION valuable ongoing assistance over the last 12 months.
It is often said in business that the first million Nga mihi, is the most difficult to make. That is true with David Tapsell Pukeroa also which is down to the hard work and Chair – Finance & Expenditure resilience of the initial trustees. As opposed to a
Pukeroa Oruawhata Group ~ Annual Report 2016 16 PUKEROA ORUaWHATA GROUP 2016 FINANCIAL HIGHLIGHTS
This year the Pukeroa Oruawhata Group has reported under New Zealand Equivalents to International Financial Reporting Standards applying Reduced Disclosure Requirements (NZIFRS – RDR). The reason for the shift is to give one of the highest levels of reporting accountability to owners and stakeholders.
As a result of the adoption of these new standards there are a number of changes that need to be highlighted:
• Transition to NZIFRS RDR – The reporting standards instructs us to amend comparative information so that information can be directly compared to previous periods. Details of this restatement are contained in Note 24 of the financial statements.
• Pukeroa Oruawhata Charitable Trust – The Pukeroa Oruawhata Charitable Trust is now required to be consolidated as part of the Group. Comparative information has been amended to reflect this.
• Investment Properties – Changes in the value of the Groups Investment Properties are now required to be recognised in the Statement of Comprehensive Income (also known as the profit and loss). It is very important to note that this is not a cash inflow to the Group.
• Deferred Tax – The accounting standards require the Group to now recognise the future tax obligations of the Group. The main component of this item is the requirement to recognise the tax obligations if the Group were to sell its investment properties. As the Group has no intention to sell its investment property this is unlikely to crystallise, but we are still required to recognise this.
• Derivative Financial Instruments – The Group holds a number of interest rate swaps used to manage its interest rate expose which in the past were not required to be recognised on the balance sheet. Under the new standards we are now required to recognise this.
Full details of the Groups audited financial statements are contained in this AGM report with the key points highlighted as follows.
OPERATING PERFORMANCE
THIS YEAR LAST YEAR % CHANGE (2016) (2015) OPERATING REVENUE $15,454,818 $14,526,879 6.4% OPERATING EXPENSES $8,132,150 $7,735,689 5.1% CHARITABLE GRANTS PAID $134,258 $99,133 35.4% OPERATING PROFIT $7,188,410 $6,692,057 7.4% INTEREST $4,074,571 $4,155,725 -2.0% NET PROFIT BEFORE NON $3,113,839 $2,536,332 22.8% OPERATING ITEMS PROFIT AFTER TAX $16,940,803 $6,086,780 178.3%
Operating Revenue has increased from $14.527m to $15.455m reflecting a 6.4% increase. The key reasons for the increase are due to new tenancies being added to the portfolio, rental reviews being undertaken and distributions being received from the Whakarewarewa Joint Trust.
17 Pukeroa Oruawhata Group ~ Annual Report 2016 OPERATING REVENUE $16,000,000 $15,000,000$16,000,000 $14,000,000$15,000,000 $13,000,000$14,000,000 $12,000,000$13,000,000 $11,000,000$12,000,000 $10,000,000$11,000,000 $10,000,000$9,000,000 $9,000,000 2012 2013 2014 2015 2016 Rental Income2012 2013 Foo2014dcourt and Operating2015 Expenses 2016 Interest,Rental Income Dividends & Other Income OutgoingFoodcourt Recoveries and Operating Expenses Interest, Dividends & Other Income Outgoing Recoveries
OPERATING EXPENSES
Operating Expenses have increased 5.1% from $7.736m to $8.132m. This year the Group has incurred a number of one off transactions amounting close to $1m which include:
• Replacement of the Van Dykes/Carpet Court/Smith City Canopy - $.250m • Internal demolition works for the ASB and Uncle Bills fit out - $.344m • Demolition works to part of the Lakefront and PP2 sites - $.107m • Processing of demolition material on Waikuta - $.250m Interest expense has decreased from $4.156m to $4.075m. This reflects the more favourable interest rates currently being received.
A breakdown of the 2016 Expenses is depicted in the graphs below. 2016 - OPERATING EXPENDITURE
Interest $4,074,572 $1,950,414 FInooterestdcourt and other $4,074,57233% $1,950,41416% 33% NonFoodcourt Recoverable and other OPEX 16% TrustNon Recoverableees/Directors OPEX Remuneration
$1,353,433 SecretarialTrustees/Directors and Acc o Remuntinguneration 11% $1,353,433 Secretarial and Accounting 11% Depreciation/Amortisation Repairs,Depreciation/Amortisation Maintenance & Demolition RatesRepairs, & InMaintenancesurance & Demolition Rates & Insurance $2,007,714 Other Administration $2,007,71417% $1,324,323 Other Administration 17% $1,324,32311% $130,997 11% $395,785 $625,214 $344,268 $130,9971% $395,7853% $625,2145% $344,2683% 1% 3% 5% 3%
NET OPERATING PROFIT AFTER FINANCE COSTS
The Net Operating Profit after Finance Costs has increased from $2.536m to $3.114m. This figure is more reflective of the true cash profit for the Group and is what is available for repayment of debt and owners grants.
Pukeroa Oruawhata Group ~ Annual Report 2016 18 OTHER GAINS AND LOSSES (NON-CASH)
Investment Property Impairments – This year the Group has undertaken a stocktake of its fixed asset schedule. As part of that review several obsolete items have been identified.
It is key to note that these investment impairments are offset against investment revaluations and have no cash implications.
Changes in Derivative Financial Instruments – This is an accounting transaction which recognises the change in value of interest rate swaps.
Changes in Fair Value of Investment Properties – Details of these changes for each entity in the Group are contained in note 8 of the financial statements with commentary of the material changes as follows:
• Pukeroa Oruawhata Trust – This includes the new residential properties built, renovations and fit out of 10 Ti St and general increases in the underlying value of the portfolio. • Pukeroa Oruawhata Holdings Limited – This includes the purchase of the Astral Building (includes tenancies for World Travellers, Graham Geater Hairdressing, Bake house Café and the PC Hutt), the RSA Building, fit out of the ASB, Uncle Bills, Lance Lawson, Deloitte and Tank along with the general uplift$204.2 in property values. $86.8 $117.4 • Pukeroa Lakefront Holdings Limited – The 2016 valuation has been completed on the basis that the lakefrontMil sitelion is now included in the Rotoruamilli Lakeson Council operative districtMilli planon as an identified development zone. This together with the imminent development of the site has resulted in a significant uplift in value of the underlying land. After allowing for these non-cash items the total Comprehensive income for the year is $16.941m. This comprehensive income reflects the efforts of the trustees and directors in managing the assets for the benefit or current and future owners.
BALANCE SHEET PERFORMANCE
The Groups total asset value has increased by $21.2m during 2016 as a result of new projects undertaken and the increase in value of existing properties. Total liabilities have increased by $4.84m this year. $3.89m of this is due to increases in the debt facilities.
The two new liabilities that have been recognised on the balance sheet this year are the Deferred tax liability and Derivative Financial Instruments. As noted these are now required to be formally recognised on the balance sheet amount to $3.626m and $1.359m respectively this year.
Overall the equity position of the group is strong at 57.5% of assets Vs 55.2% last year.
PUKEROA ORUAWHATA GROUP - 5 YEAR ASSET & EQUITY GROWTH
$190,000,000
$140,000,000
$90,000,000
$40,000,000 2012 2013 2014 2015 2016
Total Assets Net Equity Total Liabilities
19 Pukeroa Oruawhata Group ~ Annual Report 2016 NET ASSET TOTAL VS GROWTH IN NET ASSETS
The average growth on equity on the original capital over the last 31 years is 16.74% as reflected in this chart:
TOTAL ASSETS PERCENTAGE $millions NET ASSETS GROWTH IN NET ASSETS GROWTH
$140 135% $120 115% $100 95% $80 75% $60 55% $40 35% $20 15% $- -5% 198 5 198 6 198 7 198 8 198 9 199 0 199 1 199 2 199 3 199 4 199 5 199 6 199 7 199 8 199 9 200 0 200 1 200 2 200 3 200 4 200 5 200 6 200 7 200 8 200 9 201 0 201 1 201 2 201 3 201 4 201 5 201 6
BANKING RELATIONSHIPS AND COVENANT COMPLIANCE
Our Bankers play a major part in the on-going success of operations. The banking relationships contain certain performance covenants (rules) that the Group must achieve. The performance against these covenants is measured quarterly and Group’s performance as at 31 March 2016 is summarised as follows:
Bank Financial Ratios: Required Actual Equity/Assets: 40% 57.5% ✔ Interest Cover: 1.75 times 2.03 times ✔
Bank loans as at 31 March 2016 totalled $80.4m shared between BNZ and ANZ. POHL loans are secured by first mortgage over Rotorua Central Land. PPNo2 & PLHL loans are secured over Trade Central and Lakefront properties.
As interest on our borrowing represents our single largest cost, the Group has an interest rate risk management strategy in place that uses a mix of fixed and floating interest rates. The current interest rates paid range from 4.17%pa to 5.62% pa.
DISTRIBUTIONS
Last year, distributions to owners were made by way of “Owners Grants” at a rate equivalent to $702 per share with a minimum Grant of $100. By adopting a minimum grant approach, the Trustees have ensured that all identified shareholders receive a payment of some significance.
This year the Trustees have increased the amount allocated for owner’s distribution from $700,000 to $735,000. As the tax free sources have expired, this will be taxable to owners but with tax credits attached at 17.5%.
Pukeroa Oruawhata Group ~ Annual Report 2016 20 PUKEROA ORUAWHATA GROUP - DISTRIBUTIONS TO OWNERS 2011-16
$700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 2011 2012 2013 2014 2015 2016
TRUSTEES/DIRECTORS REMUNERATION
Trustees/Directors remuneration before taxation for the 12 months to 31 March 2016 was:
POT POHL PPno.2 PLHL Total
Malcolm Short (Chair) $23,360 $61,240 $19,250 $38,413 $142,263 Alec Wilson (Deputy Chair) $ 19,622 $ 42,840 $ 14,000 $ 28,280 $ 104,742 Stuart Harris (*1) - $ 45,500 $ 10,000 $ 11,250 $ 66,750 Pihopa Kingi (*2) $ 10,901 $ 40,400 $ 10,000 $ 10,000 $ 71,301 Jackie Aratema $ 16,352 $ 30,600 $ 10,000 $ 10,000 $ 66,952 David Tapsell $ 16,352 $ 30,600 $ 10,000 $ 20,200 $ 77,152 Monty Morrison $ 16,352 $ 15,300 $ 10,000 $ 20,200 $ 61,852 Rawiri Waru (*3) - $ 15,300 - - $ 15,300 Ana Morrison (*4) - - - $ 15,300 $ 15,300 Total $ 102,940 $ 281,780 $ 83,250 $ 153,643 $ 621,613
*1 - Ceased as a trustee on November 2014, Directorships Ceased November 2015 *2 - Ceased as a trustee and director November 2015 *3 - Appointed as non-trustee Director - October 2015 *4 - Appointed as non trustee Director - October 2015 to October 2016
Trustee / Director Remuneration is reviewed on a regular basis using independent external consultants. A review has not been undertaken this year.
The governance and structure review completed this year is anticipated to save up to $50,000 annually.
21 Pukeroa Oruawhata Group ~ Annual Report 2016 TRUST OWNERS
The Trust share register comprises 997.3874 shares held by 5311 owners. The net equity backing of one share is $117,706.
POT OWNERS
1,907 Address and Bank A/c 36%
No Address and Bank A/c
2,442 46% Address and No Bank A/C
No Details
476 9% 486 9%
Locating owners is an ongoing issue and continue to encourage owners to complete their successions and provide address, bank and IRD numbers with the Trust. The more information we have will enable the Trust to further develop its owner’s policies. The Trust still has an historical unclaimed dividend balance totalling $210,491 available for owners that complete their successions and register with the Trust.
ACCOUNTING TEAM
My appreciation to our dedicated accounting support Katie O’Neil, Dayna Clement, Paul McDowell and Lee Emery all of who have worked so diligently and frequently above and beyond to meet deadlines on Pukeroa Oruawhata Group’s monthly, annual accounting and tax work.
Ngā Mihi Alex Wilson Accountant
Pukeroa Oruawhata Group ~ Annual Report 2016 22 Pukeroa Oruawhata Group - Governance Structure
PUKEROA ORUAWHATA TRUST
Trustees: • Malcolm Short (Chairman) • Alec Wilson • David Tapsell • Monty Morrison • Tina Ngatai • Jackie Aratema
PROPERTY & FINANCE & EXPENDITURE DEVELOPMENT SUBCOMMITEE SUBCOMMITEE • David Tapsell (Chair) • Alec Wilson (Chairman) • Jackie Aratema • Malcolm Short • Tina Ngatai
RETAIL/ TOURISM CHARITABLE COMMERCIAL • Pukeroa Lakefront • Pukeroa Oruawhata • Pukeroa Oruawhata Holdings Trustee Services Holdings • Waihunuhunukuri • Pukeroa Oruawhata • Pukeroa Properties No.2 Holdings Charitable Trust • Pukeroa Properties Limited • Pukeroa Lakeside LP Trustees: • Lake Road Tavern Directors: • Malcolm Short (Chairman) • Malcolm Short (Chairman) Directors: • Alec Wilson • Alec Wilson • Malcolm Short • David Tapsell (Chairman) • David Tapsell • Tina Ngatai • Alec Wilson • Monty Morrison • Jackie Aratema • David Tapsell • Tina Ngatai • Rawiri Waru (Non-trustee • Monty Morrison • Jackie Aratema director)
23 Pukeroa Oruawhata Group ~ Annual Report 2016 PUKEROA ORUAWHATA TRUST
2016 OWNERS GRANT POLICY
An Owners grant in lieu of a dividend is recommended to the AGM on 19th November 2016. This grant is payable to the Owners registered at that date who have supplied their bank account numbers and addresses. The grant is also available to Owners, subject to the terms of the grants policy, up to the next AGM. The policy in respect of the 2016 Owners Grant is as follows:-
For identification purposes the grant will be called the “2016 Owners Grant”.
The sum of $735,000 has been set aside for 2016 Owners Grants.
Payments will only be made to bank accounts and Owners addresses must be held.
Payments will be calculated according to shareholding bands as per the attached schedule.
This Grant will be paid from retained earnings with Maori Authority Tax Credits (MACA) credits attached.
All Owners with addresses are to be advised of the Owners Grant and those who have not provided bank account details will be asked to do so.
Sufficient funds will be retained to cover any Owners who are located after the payment date up until the 2017 AGM.
The Trustees reserve the right to make only one payment to a shareholder whose name may appear more than once on the share register where it is evident that those multiple names refer to one person.
Any Owners who are located after the payment date and up until the 2017 AGM will be entitled to the payment they would have received had their address and bank account details been known at the distribution date.
Any owners who succeed to shares after the payment date will be entitled to payment up until the 2017 AGM of the current Owner’s grant based on their shareholding where it has not been paid to the deceased shareholder provided that where the Trust is notified of a shareholder’s death the Trustees may at their discretion release up to 3 years unpaid grants to the successors.
Entitlement to the payment will expire at the 2017 AGM.
Payments to overseas Owners will be subject to deduction of bank charges.
The Trustees reserve the right to amend this policy or draft new policy to cover any circumstance not covered or anticipated by this policy, in respect of payments to all owners or to any one or more owners and the Trustees decision in these matters will be final.
Approved
Chairman
Pukeroa Oruawhata Group ~ Annual Report 2016 24 25 Pukeroa Oruawhata Group ~ Annual Report 2016 PUKEROA ORUAWHATA CHARITABLE TRUST
The Pukeroa Oruawhata Charitable Trust was established in December 2013 for the benefit of Pukeroa Oruawhata lands beneficiaries, former beneficiaries and their descendants of the hapu associated with the lands within New Zealand.
The Trust was established with Pukeroa Oruawhata Trustee Services Limited (a wholly owned subsidiary with the Directors same as the trustees of Pukeroa Oruawhata Trust) as its Trustee.
The Trust meets monthly with grants considered in line with the Grants Policy, a copy of which is attached.
Over the 12 months from 1 April 2015 to 31 March 2016, the Trust has made 207 Grants broken down as follows:
24 Tangi Grants totalling $6,300 3 Cultural Grants totalling $4,200 27 Discretionary Grants totalling $70,990 152 Health Grants totalling $52,519 1 Education Grant totalling $250
Grants totalling $134,259
Cultural & Discretionary Grants vary in line with the nature of the requests made with the top 10 grants paid as follows:
Whakaue Whakanuia $10,000 Muruika Trust $9,100 Waikite Club Koeke Cabaret $8,000 Rotary Charity Lunch $7,500 Ohinemutu Fireworks $6,500 Little Waihi Kaumatua Komiti $6,000 Te Arawa Lake Trust Whakanuia $5,000 Waikite Club Uniforms $4,313 Waikite Club Discretionary Grant $4,025 Whakaue Kapahaka $2,500
As a guide, the Trustees apply the following maximums for grants are as follows:
Glasses $400 Dental / Hearing / Medical $500 Education (special purposes) $250 Tangi $300
The Charitable Trust is funded by donations made by Pukeroa Oruawhata Group entities.
Applications for Grants may be made by completion of the application form and supplying the necessary documentation. Application forms are available from Deloitte, 2/1176 Amohau Street, Rotorua or accessed via the website http://rotorua.deloitte.co.nz
Pukeroa Oruawhata Group ~ Annual Report 2016 26 27 Pukeroa Oruawhata Group ~ Annual Report 2016 2016 CHAIRMAN’S REPORT
The Minister of Education NZ Government Wellington
Tena koe Minister
Operations Report
It is with great pride that I present my 20th Annual Report on the operations of the Ngati Whakaue Education Endowment Trust Board.
However I note with concern that new legislative amendments have been imposed on the Board under the Financial Reporting Act without consultation or notification. Ironically we have been endeavouring to make legislative changes for many years without success. Although recently some progress has been made and we are hopeful that the Office of Treaty Settlements will now be able to expedite the changes that will meet the expectations of Ngati Whakaue Iwi.
As a consequence of compliance with the new reporting standards our financial report takes on a new format as a Tier 2 reporting entity under the Public Benefit Entity International Public Sector Accounting Standards. The new obligation to prepare financial statements within 5 months of balance was not met because the deadline was not known and in any event this change creates an unrealistic expectation on Accountants and Auditors. The obligation to provide the annual report to the Minister within 1 month is a tight timeframe and difficult to comply with around the Board processes. We will be seeking a review of these issues in our discussions on legislative amendments.
Revenue from all sources including the fair value changes in investments totalled $3,696,588 for the year ended 31 December 2015 ($2,621,833 in 2014). After allowance for operational expenses of $473,000 the net surplus before grants was $3,222,987 ($2,187,042 in 2014).
REVENUE $3.7million
EXPENSES $473,000
NET SURPLUS $3.2million
Pukeroa Oruawhata Group ~ Annual Report 2016 28 The value of investment reserves grew by 7.69% as at 31 December 2015 (6.7% in 2014) through a combination of income retention and investment growth and is now worth $22,003,633. It is necessary to continue to grow reserves to generate additional income to meet growth in demand for grants that cannot be met from land rental alone under 21 year rent reviews. The next major rent review period comes up in December 2017 and that will be the key determiner of the Board’s grant making capacity for the next 21 year period.
Full audited financial statements are included in this report. The audit qualification remains due to the Board policy of not undertaking market valuation of the land due to the nature of the perpetually renewable leases.
The Board distributed 51.6% of its Net Surplus by way of grants or the equivalent of $78.13% of its cash income with investment growth excluded. The board has 18 grant policy areas with larger areas being Tertiary support, numeracy and literacy projects in schools and Ngati Whakaue Taumata education initiatives.
Grants to 31St December 2015
OTHER TERTIARY $429,656 $494,226
NGATI WHAKAUE TAUMATA $240,000 PROJECTS $500,000
A significant change in Tertiary policy occurred this year with the removal of support for first year tertiary students. That funding has been redirected towards Te Reo revitalisation which research shows needs more support. Only 27% of Ngati Whakaue can converse in Te Reo. A major review project is underway to scope how best to deliver support for Te Reo as part of the Identity Development of Ngati Whakaue Iwi members. A strategic review of funding policy during the year identified 4 key themes where grant policies can be clustered for more effective delivery and development of iwi members. The 4 themes are Identity, Contribution, Success and Influence. IDENTITY
Matauranga Whakaue a iwi Ora
CONTRIBUTION SUCCESS Outcomes Future Framework Makers (incl. Values)
Strategic Partnerships
INFLUENCE
29 Pukeroa Oruawhata Group ~ Annual Report 2016 Going forward funding policies will be aligned against the new clusters and outcomes frameworks developed.
Property leases remain fully leased with no significant collection issues with lessees. Some challenges exist for lessees to secure subtenants and this is largely due to a reluctance of lessees to invest money to upgrade their buildings to attract quality tenants. An issue arose in 2015 with rating valuations whereby the Rotorua Lakes Council withdrew the discount on rating valuation due to the alienation restriction on the land. This was in place for some 15 years as a result of the widely reported Mangatu decision. A Land Valuation Tribunal hearing supported the Council position but the Board’s legal advice is that the LVT decision is not based on the law and as consequence this has been appealed.
There have been no changes with the 11 Board members who work well together. I thank my fellow Board members for their support and also take this opportunity to convey the Boards appreciation to our team of property management, grant processors and accountants for carrying out the work of the endowment in such a professional and efficient manner.
Nga Mihi
Malcom Tukino Short, ONZM Chairman
DISTRIBUTIONS YEAR TERTIARY PROJECTS NGATI OTHER WHAKAUE EDUCATION 31.12.98 254,000 424,653 5,136 8,230 31.12.99 332,680 215,294 7,988 7,944 31.12.00 373,100 142,194 31,096 20,914 31.12.01 379,980 288,759 19,075 18,562 31.12.02 349,280 246,555 38,450 70,201 31.12.03 340,400 294,000 51,658 92,597 31.12.04 335,210 328,435 48,099 50,780 31.12.05 365,095 338,500 104,056 59,201 31.12.06 382,345 369,000 60,000 57,438 31.12.07 376,484 355,200 110,000 201,346 31.12.08 389,685 380,000 180,000 144,916 31.12.09 390,836 400,000 120,000 191,381 31.12.10 417,737 424,000 160,000 144,643 31.12.11 443,476 453,580 160,000 173,399 31.12.12 479,867 461,000 160,000 210,672 31.12.13 488,465 495,000 220,000 273,820 31.12.14 496,726 509,850 240,000 324,242 31.12.15 494,226 500,000 240,000 429,656 TOTALS 7,089,592 6,626,020 1,955,558 2,479,942
Pukeroa Oruawhata Group ~ Annual Report 2016 30 Total Distributions to 31 December 2015 = $18,151,112
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Other 20914 18562 70201 92597 50780 59201 57438 201346 144916 191381 144643 173399 210672 273820 324242 429656
Ngati 31096 19075 38450 51658 48099 104056 60000 110000 180000 120000 160000 160000 160000 220000 240000 240000 Whakaue
Projects 142194 288759 246555 294000 328435 338500 369000 355200 380000 400000 424000 453580 461000 495000 509850 500000
Tertiary 373100 379980 349280 340400 335210 365095 382345 376484 389685 390836 417737 443476 479867 488465 496726 494226
31 Pukeroa Oruawhata Group ~ Annual Report 2016 Tertiary Students - First Year And Total Students Trend
1st Year
500 nd 2 Year 450 Total Students
400
350
300
250
200
150
100
50
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Value of Investments (excluding land) millions
25
20
15
10
5
199519961997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20102009 2011 2012 2013 2014 2015
Pukeroa Oruawhata Group ~ Annual Report 2016 32 33 Pukeroa Oruawhata Group ~ Annual Report 2016
Pukeroa Oruawhata | Bulk & Location | Artist Impression Option 02 1:1 @ A3 Date: 01/03/16 L05 Haupapa Street Office Development | Rotorua Z:\DCA\Design Files\T\T1201 - Pukeroa Oruawhata RSA\Concept Design\T0201 - Pukeroa Oruawhata RSA.pln PUKEROA ORUAWHATA TRUST and subsidiaries
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH 2016
Pukeroa Oruawhata Group ~ Annual Report 2016 34 BDO ROTORUA INDEPENDENT AUDITOR’S REPORT TO THE TRUSTEES OF PUKEROA ORUAWHATA TRUST
Report on the Financial Statements We have audited the accompanying consolidated financial statements of Pukeroa Oruawhata Trust and its subsidiaries (“the Group”) on pages 36 to 62, which comprise the consolidated statement of financial position as at 31 March 2016, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
This report is made solely to the Trust’s shareholders, as a body, in accordance with the Trust Deed. Our audit has been undertaken so that we might state to the Trust’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group and the Group’s shareholders as a body, for our audit work, for this report, or for the opinion we have formed.
Trustees’ Responsibility for the Financial Statements The Trustees are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with New Zealand Equivalents to International Financial Reporting Standards Reduced Disclosure Regime and for such internal control as the Trustees determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Other than in our capacity as auditor we have no relationship with, or interests in, Pukeroa Oruawhata Trust or any of its subsidiaries.
Opinion In our opinion, the consolidated financial statements on pages 36 to 62 present fairly, in all material respects the financial position of the Group as at 31 March 2016, and its financial performance and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards Reduced Disclosure Regime.
BDO Rotorua
8th November 2016 Rotorua New Zealand
35 Pukeroa Oruawhata Group ~ Annual Report 2016 PUKEROA ORUAWHATA TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31ST MARCH 2016
NOTE GROUP 2016 ($) GROUP 2015 ($)
Operating Revenue 2 15,454,818 14,526,879
Operating Expenses 3 (8,132,150) (7,735,689)
Charitable Trust Grants Paid (134,258) (99,133)
Net Operating Profit for the Year 7,188,410 6,692,057
Finance Costs
Interest paid (4,074,572) (4,155,725)
Net Operating Profit after finance costs 3,113,838 2,536,332
Other Gains/(Losses)
Investment Property Impairments (1,689,682) (100,000)
Changes in Derivative Financial Instruments 22 (1,332,656) (26,414)
Changes in Fair Value of Investment 8 16,948,510 4,123,217 Properties
Profit before income tax 17,040,010 6,533,135
Income Tax Expense 4 (99,207) (446,354)
Total comprehensive income for the year $16,940,803 $6,086,781 attributable to owners
The attached notes form part of these consolidated financial statements
Pukeroa Oruawhata Group ~ Annual Report 2016 36 BDO ROTORUA PUKEROA ORUAWHATA TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST MARCH 2016
Retained Original Capital earnings Group Note Capital Reserve (Note 11) Total Equity
Balance at 1 April 2014 (as 2,098,500 5,864,711 91,070,972 99,034,183 previously reported)
Adjustments on transition to 24 - - 3,600,311 3,600,311 RDR
Balance at 1 April 2014 2,098,500 5,864,711 87,470,661 95,433,872 (restated)
Total comprehensive income - - 6,086,781 6,086,781 for the year
Distributions 14 - (85,052) (438,911) (523,963)
Balance at 31 March 2015 2,098,500 5,779,659 93,118,531 100,996,690 (restated)
Balance at 1 April 2015 2,098,500 5,779,659 93,118,531 100,996,690
Total comprehensive income - - 16,940,803 16,940,803 for the year
Distributions 14 - - (538,628) (538,628)
Balance at 31 March 2016 2,098,500 5,779,659 109,520,706 117,398,865
The attached notes form part of these consolidated financial statements
37 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA PUKEROA ORUAWHATA TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31ST MARCH 2016 Note Group 2016 ($) Group 2015 ($)
Current Assets Cash & Cash Equivalents 6 428,522 288,298 Trade Receivables 375,701 303,665 Prepayments 18,042 6,156 Inventories 5,228 5,228 Taxation Refund Due 415,489 165,821 1,242,982 769,168 Non Current Assets Project Development Costs 7 1,072,745 900,547 Investment Properties 8 201,803,178 181,218,104 Property, Plant and Equipment 9 85,973 75,364 202,961,896 182,194,015 Total Assets $ 204,204,878 $ 182,963,183 Current Liabilities Trade and other payables 989,997 1,252,410 GST Payable 107,945 31,075 Rents in Advance 116,595 212,159 Bonds 3,000 3,000 Secured Bank Loans 10 4,427,187 5,196,995 Derivative Financial Instruments 22 1,359,070 26,414 Unclaimed Dividends 210,491 212,588 7,214,285 6,934,641 Non Current Liabilities Deferred Tax Liability 4 3,625,724 3,724,756 Secured Bank Loans 10 75,966,004 71,307,096 79,591,728 75,031,852 Total Liabilities 86,806,013 81,966,493 Equity Capital 2,098,500 2,098,500 Retained Earnings 115,300,365 98,898,190 Total Equity 117,398,865 100,996,690
Total Liabilities And Equity $ 204,204,878 $ 182,963,183
Authorised for by Release on 8th of November 2016 by:
...... Chairman ...... Secretary
The attached notes form part of these consolidated financial statements
Pukeroa Oruawhata Group ~ Annual Report 2016 38 BDO ROTORUA PUKEROA ORUAWHATA TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31ST MARCH 2016
Group 2016 ($) Group 2015 ($)
Cash Flows from Operating Activities
Cash received from operations 14,890,903 13,343,558
Cash paid to suppliers and (8,231,744) (6,501,835) employees
Interest and dividends received 396,318 3,628
Interest paid (4,119,351) (4,239,081)
Income tax (paid) / received (447,908) (533,000)
GST (paid) / received 76,870 (7,078)
Charitable Trust grants paid (134,258) (99,133)
Net Cash Provided by 2,430,830 1,967,059 Operating Activities
Cash Flows from Investing Activities
Purchase of Property, Plant and (27,782) (1,051) Equipment
Purchase of Investment (5,611,197) (7,775,922) Properties
Net Cash Used in Investing (5,638,979) (7,776,973) Activities
Cash Flows from Financing Activities
Increase in secured bank loans 3,889,099 6,494,015
Dividends/Distributions paid (540,726) (524,847)
Net Cash Used in Financing 3,348,373 5,969,168 Activities
Net increase decrease in cash 140,224 159,254
Opening balance cash 288,298 129,044
Closing balance cash 428,522 288,298
The attached notes form part of these consolidated financial statements
39 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA PUKEROA ORUAWHATA TRUST AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH 2016
NOTE 1. STATEMENT OF ACCOUNTING POLICIES
Reporting Entity These consolidated financial statements presented are those of Pukeroa Oruawhata Trust (the Trust or Parent) and its controlled entities (the Group). The Trust is originally vested in New Zealand under section 438 of the Maori Affairs Act 1955, and continues under section 251 of Te Ture Whenua Maori Act 1993 as an Ahu Whenua Trust. The controlled companies are registered under the Companies Act 1993 and are reporting entities under the Financial Reporting Act 2013. The Pukeroa Oruawhata Charitable Trust is a controlled entity, is established under a Trust Deed dated 17 December 2013.
The Group comprises of Pukeroa Oruawhata Trust, Pukeroa Oruawhata Holdings Limited, Pukeroa Properties Limited, Pukeroa Properties (No.2) Limited, Pukeroa Lakefront Holdings Limited, Waihunuhunukuri Holdings Limited, Lake Road Tavern Limited, Lake House Resort Developments Ltd and Pukeroa Oruawhata Charitable Trust. Dormant entities include, Lake House Resort Developments Ltd, Rotorua Casino Limited, Casino Rotorua Limited, and Lake Tavern Limited.
The principal activity of the Group is property development, property leasing, bar operations and charitable activities as outlined in the Pukeroa Oruawhata Charitable Trust Deed.
These consolidated financial statements of the Group are presented in New Zealand dollars for the year ended 31 March 2016 and are authorised for issue by the Trustees on 8th of November 2016.
Statement of Compliance The Consolidated Financial Statements for the Group have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (“NZ GAAP”). They comply with New Zealand Equivalents to International Financial Reporting Standards – Reduced Disclosure Regime (“NZIFRS RDR”) and other applicable Financial Reporting Standards as appropriate for profit orientated entities.
The Group qualifies for the reduced disclosure regime as it is large but not publicly accountable. All reduced disclosure regime concessions available to the Group have been adopted.
This is the Group’s first set of financial statements presented in accordance with NZIFRS RDR. Upon transition to NZIFRS RDR the Group has applied a number of transitional provisions afforded in NZIFRS-1. These are detailed in Note 24.
Specific Accounting Policies The significant accounting policies adopted by the Group are set out below and except for the changes noted below have been consistently applied to all periods presented in these consolidated financial statements.
Basis of preparation The consolidated financial statements have been prepared on the historical cost basis except for investment properties and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for leasing transactions that are within the scope of NZ IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in NZ IAS 2 or value in use in NZ IAS 36.
Pukeroa Oruawhata Group ~ Annual Report 2016 40 BDO ROTORUA The functional and reporting currency used in the preparation of the consolidated financial statements is New Zealand dollars. The consolidated financial statements have been oundedr to the nearest dollar.
Basis of Consolidation The consolidated financial statements incorporate the financial statements of therust T and entities controlled by the Trust. Control is achieved when the Trust:
• has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its eturns.r
The Trust reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
• When the Trust has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Trust considers all relevant facts and circumstances in assessing whether or not the Trust’s voting rights in an investee are sufficient to give it power, including: • the size of the Trust’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; • potential voting rights held by the Trust, other vote holders or other parties; • rights arising from other contractual arrangements; and • any additional facts and circumstances that indicate that the Trust has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.
Consolidation of a subsidiary begins when the Trust obtains control over the subsidiary and ceases when the Trust loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date the Trust gains control until the date when the Trust ceases to control the subsidiary.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Trust’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
Cash and cash equivalents Cash and cash equivalents include cash on hand and call deposits, and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Revenue Recognition Sale of Goods Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised.
41 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA Rental Income Rental income from investment properties is recognised in the consolidated statement of comprehensive income on a straight line basis over the term of the lease. Contingent rentals are recognised as income in the reporting period in which they are earned.
Finance income and expenses Finance income comprises interest income on funds invested and dividend income. Interest income is recognised using the effective interest method when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably.
Dividend income is recognised on the date that the right to receive payment is established. (Provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably).
Investment Properties The Group accounts for all investment properties in accordance with NZIAS 40.
Investment properties, principally comprising direct property investments, are held for long term capital appreciation and to earn rentals. Investment properties are initially measured at cost, plus related costs of acquisition. Subsequent expenditure is charged to the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
Properties that are being constructed or developed for future use are classified as investment properties. All costs directly associated with the purchase and construction of a property, and all subsequent capital expenditures for the development qualifying as acquisition costs, are capitalised.
Subsequent to initial recognition, investment properties are measured at fair value. Gains and losses arising from changes in the fair value of investment properties are included in the consolidated statement of comprehensive income in the period in which they arise.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gains or losses of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) are included in the consolidated statement of comprehensive income in the period in which the property is derecognised.
Capitalised Lease Incentives Lease incentives which are offered to tenants as an inducement to enter into non-cancellable operating lease are capitalised and included within investment properties and are subsequently amortised over the term of the lease as a reduction of rental income.
Project Development Costs Development costs are expenses incurred in project investigation. Upon commencement of the project, these expenses will be capitalised to the cost of the project. Alternatively, if the project does not proceed or is impaired, these expenses will be written off.
Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Pukeroa Oruawhata Group ~ Annual Report 2016 42 BDO ROTORUA Property, Plant and Equipment Property, Plant and Equipment (PPE) is recorded at cost less accumulated depreciation and impairment losses.
Depreciation Depreciation has been charged using rates permitted under the Income Tax Act 2007 which are an acceptable assessment by the Group for accounting purposes.
Rates currently allowable are as follows: Office Equipment 11.4% to 67% Diminishing Value Plant & Equipment 10% to 40% Diminishing Value
Accounts Receivable Accounts receivable are recorded at their net realisable value after writing off all amounts considered to be irrecoverable.
Inventories Inventories are valued at the lower of cost and net realisable value. Cost has been assigned to inventory items on hand at balance date using the first-in first-out basis. Netealisable r value represents the estimated selling price for inventories less all estimated costs necessary to make the sale.
Taxation Income tax expense represents the sum of the tax currently payable and deferred tax.
Current Tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before tax’ as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred Tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. For deferred tax liabilities or assets arising on investment properties measured at fair value, it is assumed that the carrying amounts of investment properties will be recovered through sale.
Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences, carrying forward of unused tax losses to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
For the purposes of measuring deferred tax liabilities and deferred tax assets for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. The governing body of the Group have reviewed the Group’s investment property portfolios and concluded that none of the Group’s investment properties are held under a business model whose
43 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA objective is to consume substantially all of the economic benefits embodied in the investment properties over time, rather than through sale. Therefore, the governing body have determined that the ‘sale’ presumption set out in the amendments to NZ IAS 12 is not rebutted. As a result, the Group has not recognised any deferred taxes on changes in fair value of the investment properties as the Group is not subject to any income taxes on the fair value changes of the investment properties on disposal.
Goods and Services Tax Revenue, expenses, assets and liabilities are recognised net of the amount of goods and services tax (GST) except:
• where the amount of GST incurred is not recovered from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or • for receivables and payables which are recognised inclusive of GST (the net amount of GST recoverable from or payable to the taxation authority is included as part of receivables or payables).
Provisions When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the consolidated statement of comprehensive income on a straight-line basis over the period of the lease.
Trade Payables Trade payables are classified as other non-derivative financial instruments and are stated at amortised cost.
Secured Bank Loans Secured bank loans are classified as other non-derivative financial instruments and are stated at amortised cost.
Financial Instruments Financial assets and financial liabilities are recognised when the Group entity becomes a party to the contractual provisions of the instruments.
Non-Derivative Financial Instruments Non-derivative financial instruments comprise cash and cash equivalents, trade and other receivables, trade and other payables, rents in advance, bonds, unclaimed dividends and secured bank loans.
Non-derivative financial assets are classified as loans and receivables.
Non-derivative financial liabilities are classified as other financial liabilities. These financial instruments are initially measured at fair value on transaction date, less directly attributable transaction costs, and subsequently measured at amortised cost using the effective interest rate method. Under this method, fees, costs, discounts and premiums are spread over the expected life of the instrument.
Financial assets are recognised net of impairment losses, which are recognised immediately in profit or loss. The Group assess at each balance date whether there is objective evidence that a financial asset or a group of financial assets are impaired.
Financial assets with object evidence of impairment, such as a deterioration of the credit worthiness of the counterparty, are tested for impairment by comparing the carrying value to the recoverable amount. The recoverable amount is calculated as the present value of the estimated future cash flows, discounted at the original effective interest rate.
Pukeroa Oruawhata Group ~ Annual Report 2016 44 BDO ROTORUA Financial Assets are derecognised when the right to receive cash flows has expired or has been transferred. Financial liabilities are derecognised when the obligation has expired or has been transferred.
Derivative Financial Instruments The Group is exposed to changes in interest rates and uses interest rate derivatives to mitigate these risks.
Interest rate derivative instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re measured to fair value each balance date exclusive of accrued interest. Fair values at balance date are calculated to be the present value of the estimated future cash flows of these instruments. Transaction costs are expensed on initial recognition and recognised in profit or loss. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative.
The Group does not designate any derivatives into hedging relationships. Gains and losses arising from changes in fair value of interest rate derivatives are recognised in profit or loss.
Original Capital The original capital of the Parent was established using the Government Valuation of the Parent’s land and buildings as at the date of vesting.
Unclaimed Dividends and Distributions The Te Ture Whenua Act 1993 states that Unclaimed Dividends are dividends held by the Trust for at least 10 years without payment to the shareholder entitled. The Parent maintains a register that lists to whom dividends are payable and the amount of unclaimed dividends held for each shareholder. Where unclaimed dividends are held by the Parent this list is required to be submitted to the Maori Land Court. As claims in respect of unclaimed dividends are received the amount of the claim is payable by the Parent. Unclaimed dividends are classified as a current liability in the Group’s consolidated statement of financial position. As claims are received and payments made to shareholders the movement is recorded through the Group’s consolidated statement of movements in equity.
Critical Judgments, Estimates and Assumptions The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable in the circumstances, the results of which form the basis of making judgements about varying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgements, estimates and assumptions.
The estimates and assumptions that are critical to the determination of the amounts reports in the financial statements relate to the following:
1. Current and Deferred Tax The critical estimates and assumptions underlying the measurement of current and deferred tax are set out in Note 4.
2. Fair Value of Investment Properties The valuation of investment property is dependent on a range of estimates, depending on the valuation methodology used. The critical estimates and assumptions underlying the measurement of investment property are set out in Note 8.
3. Fair Value of interest rate derivatives The valuation of these instruments is influenced by several factors, including the time of day pricing decisions made, assessment of assumptions and the methodology adopted. A key assumption is the volatility of intra-day interest rates (Refer to note 22 for further details)
45 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA CHANGES IN ACCOUNTING POLICIES This is the Group’s first set of consolidated financial statements presented in accordance with NZIFRS RDR. Upon transition to NZIFRS RDR the Group has applied a number of transitional provisions afforded in NZIFRS-1. These are detailed in Note 24.
On transition to NZIFRS RDR the Group has adopted accounting policies that comply with NZIFRS RDR. Upon transition, the 2015 comparatives have been restated as if the accounting policies were adopted in 2015, therefore it is deemed that no changes in accounting policies have taken place.
There are no further changes in accounting policies with all policies being applied on bases consistent with prior years.
Pukeroa Oruawhata Group ~ Annual Report 2016 46 BDO ROTORUA NOTE 2. OPERATING REVENUE
The following is an analysis of the Group’s revenue for the year.
Group 2016 ($) Group 2016 ($)
Bar Sales 116,302 116,274
Food Court & Operating Expenses Income 1,308,515 1,425,497
Rentals Received 12,614,263 11,975,539
Interest & Dividends Received 396,318 5,256
Outgoings Recovery 984,074 998,648
Other Income 35,346 5,665
15,454,818 14,526,879
NOTE 3. OPERATING EXPENSES
Operating expenses for the Group of $8,132,150 (Last Year $7,735,689) include:
Note Group 2016 ($) Group 2015 ($)
Bad Debts & Doubtful Debts 9,029 79,400
Lease Fees 71,306 21,081
Depreciation 17,173 18,124
Food Court & Operating Expenses 1,324,323 1,425,497
Legal Fees 131,268 95,021
Secretarial & Accounting 395,785 303,941
Audit Fees 26,613 27,500
Directors/Trustees/Committee Fees & 625,214 573,004 Expenses
Amortisation of capital lease incentives 8 113,824 198,294
47 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA NOTE 4. INCOME TAXES
Income recognised in profit or loss
Group 2016 ($) Group 2015 ($)
Current Tax
In respect of the current year 198,239 - Transition from SSAP-12 Accounting for Income tax to NZ IAS 12 - 321,909 Income Taxes as part of the Transition to NZ IFRS RDR – Applied against Retained Earnings
Total Current Tax Expense 198,239 321,909
Deferred Tax
In respect of the current year (99,032) 124,445
Total Deferred Tax Expense/(Benefit) (99,032) 124,445
Total income tax expense recognised in the current year 99,207 446,354
The prior year’s tax charge has been recognised against Retained Earnings. Refer note 24. The income tax expense for the year can be reconciled to the accounting profit as follows: 2016 ($) 2015 ($)
Profit before tax 17,040,011 6,533,135
Income tax expense calculated at 17.5%/28% (2015:17.5%/28%) 2,968,389 1,166,305 Adjusted for: Accounting Capital Gain on Disposal (6,619) - Arikikapakapa Reserve - Exempt Income (488) (2,345) Change in fair value of derivative financial instruments (4,622) 3,733 Changes in Fair Value of Investment Properties (2,969,458) (730,010) Donations - 6,440 Impairment of Investment Properties 79,146 - Non-Deductible Demolition Costs 29,966 - Non-Deductible Entertainment 604 377 Non-Deductible impairment of Investment Properties 141,365 - Non Deductible Legal Costs 548 766 Provision for Investment Write Off - 1,050 Tax Depreciation loss on disposal (139,452) - Other Adjustments (172) 38
Current Tax Expense/(Benefit) 99,207 446,354
Income Tax Expense reported in Profit/(Loss) 99,207 446,354
The tax rate used for the 2016 and 2015 reconciliations above is a combination of the Maori Authority Tax Rate of 17.5% payable by Maori Authority Entities and the Company Tax Rate of 28% as per individual entity requirements.
Pukeroa Oruawhata Group ~ Annual Report 2016 48 BDO ROTORUA PUKEROA ORUAWHATA TRUST AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH 2016
4.2 Income tax recognised directly in equity
2016 ($) 2015 ($)
Current Tax - - Deferred Tax - (3,600,311)
Total income tax recognised directly in equity - (3,600,311)
4.3 Deferred Tax
Opening Recognised Recognition Closing Opening Recognised Closing Balance in Profit on Balance balance 1 in Profit Balance 1 April or Loss transition 31 March April 2015 or Loss 31 March 2014 to NZIFRS 2015 2016 RDR Assets Holiday Pay - - 1,922 1,922 1,922 1,226 3,148 accrual Provision for doubtful - - 6,902 6,902 6,902 6,902 debts Waikuta Development - - 24,411 24,411 Costs Investment - - (4,334,649) (4,334,649) (4,334,649) (174,640) (4,509,289) Properties
- - (4,325,825) (4,325,825) (4,325,825) (149,003) (4,474,828) Other Non- Balance Sheet Items Tax losses - - 601,069 601,069 601,069 248,035 849,104
Total Asset/ - - (3,724,756) (3,724,756) (3,724,756) 99,032 (3,625,724) (Liability)
49 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA PUKEROA ORUAWHATA TRUST AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH 2016
NOTE 5. MAORI AUTHORITY CREDIT ACCOUNT (MACA) Group 2016 ($) Group 2015 ($)
Opening Balance 4,330,714 3,861,007 Provisional Tax Paid 315,958 479,596 RWT on Investments 606 131 Terminal Tax paid 62,557 43,501 Credits attached to Dividends Paid (107,756) (53,522)
4,602,079 4,330,713
The closing balance is available to be attached to taxable distributions paid.
Imputation Credit Account The imputation credits available to shareholders at balance date are $623 (Last Year $623). NOTE 6. CASH AND CASH EQUIVALENTS Group 2016 ($) Group 2015 ($)
Cash on Hand 500 500 BNZ - Current Account 335,593 135,163 ANZ - Current Account 50,886 13,220 ANZ - Call Account 73 73 BNZ - Investment Accounts 35,107 112,238 Deloitte Distribution Account 6,363 27,104
428,522 288,298
NOTE 7. PROJECT DEVELOPMENT COSTS
Project Development Costs comprise of the following Projects: 2016 ($) 2015 ($)
Waihunuhunukuri Holdings Ltd
Lake house development feasibility 333,877 268,247
Pukeroa Lakefront Holdings Ltd
Lakefront development feasibility 545,147 374,029
Pukeroa Properties Limited
Residential development Geotechnical Reports - 7,372
Pukeroa Oruawhata Trust
Residential & commercial development costs 193,721 250,899
1,072,745 900,547
Pukeroa Oruawhata Group ~ Annual Report 2016 50 BDO ROTORUA NOTE 8. INVESTMENT PROPERTIES
Movements in investment Properties are tabled below:
Group 2016 ($) Group 2015 ($)
Balance at the beginning of the 181,218,104 170,159,104 year Purchases 4,928,078 7,205,097 Subsequent capitalised 218,799 28,980 expenditure Disposals (1,396,489) (100,000) Amortisation of capital lease (113,824) (198,294) incentives Fair Value change to investment 16,948,510 4,123,217 properties Balance at the end of the year 201,803,178 181,218,104
Details of the Group’s investment properties are as follows:
2016
Valuer Fair Value Capital Amortisation Fair value Fair Value 31 March Movements of Capital gain/(loss) 31 March 2015 2016 Lease 2016 2016 Incentives
Pukeroa CGJ 19,619,500 633,778 - 3,631,900 23,885,178 Oruawhata Trust Pukeroa CGJ/ 126,303,001 3,067,049 (113,824) 6,779,774 136,036,000 Oruawhata JLL Holdings Ltd Pukeroa Properties CGJ 449,000 13,368 - 632 463,000 Ltd Pukeroa Properties CGJ/ 20,425,000 51,298 - 273,702 20,750,000 No2. Ltd JLL Pukeroa Lakefront CGJ 11,400,000 (11,105) - 6,230,105 17,619,000 Holdings Waihunuhunukuri CGJ 3,021,603 (4,000) - 32,397 3,050,000 Holdings Ltd
181,218,104 3,750,388 (113,824) 16,948,510 201,803,178
51 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA 2015 Valuer Fair Value Capital Amortisation Fair value Fair Value 31 March Movements of Capital gain/(loss) 31 March 2014 2015 Lease 2015 2015 Incentives
Pukeroa CGJ 18,128,500 841,880 - 649,120 19,619,500 Oruawhata Trust Pukeroa CGJ/ 118,414,995 6,183,959 (198,294) 1,902,341 126,303,001 Oruawhata JLL Holdings Ltd Pukeroa CGJ 448,000 - - 1,000 449,000 Properties Ltd Pukeroa CGJ/ 19,765,786 105,133 - 554,081 20,425,000 Properties No2. JLL Ltd Pukeroa Lakefront CGJ 10,459,667 3,105 - 937,228 11,400,000 Holdings Waihunuhunukuri CGJ 2,942,156 - - 79,447 3,021,603 Holdings Ltd
170,159,104 7,134,077 (198,294) 4,123,217 181,218,104
8.1. Independent Valuers
Valuer Abbreviation Cleghorn, Gillespie, Jensen Ltd CGJ Jones, Lang, Lasalle Limited JLL
8.2. Fair value measurement of the Group’s investment properties
The fair value of the Group’s investment property as at 31 March 2016 and 31 March 2015 has been arrived at on the basis of an independent valuation carried out on the respective dates by Jones, Lang, Lasalle Limited and Cleghorn, Gillespie, Jensen Ltd registered valuers. Both valuers have appropriate qualifications and experience in the valuation of properties in the relevant locations. Valuations were carried out for financial reporting purposes. The fair value was determined based on the following techniques and inputs:
Class of property Valuation techniques Inputs used
Investment Properties - Income capitalisation approach - Net market rent (per sqm)1 - Direct Sales Comparison - Core capitalisation rate - Discounted Cash flow approach - Discount rate - Terminal capitalisation rate - Rental growth rate (per annum) - Expense growth rate (per annum) - Vacancy factor
Income capitalisation approach
A Valuation technique that looks at the relationship between the income of a property and its expected returns. Capitalisations rates and yields are assessed by comparing the subject property to similar properties that have recently sold with adjustments for factors taking into consideration matters such as tenure, quality of construction, condition, size, and lease term, quality of tenant, security of income and the highest and best use scenario. The highest and best use scenario attempts to reflect what a prudent investor would pay for an asset given its expected ability to achieve a financial return commensurate with the risks involved in that asset.
Pukeroa Oruawhata Group ~ Annual Report 2016 52 BDO ROTORUA Unobservable inputs within the income capitalisation approach
Gross market rent The annual amount for which a tenancy within a property is expected to achieve under a new arm’s length leasing transaction, including a fair share of property operating expenses. Core capitalisation rate The rate of return, determined through analysis of comparable, market-related sales transactions, which is applied to a property’s sustainable net income to derive value. Other income capitalisation rate The rate of return which is applied to other, typically short-term of uncontracted, sources of property income to derive value and which is assessed with consideration to the risks in achieving each income source.
Discounted cash flow analysis
A valuation technique which requires explicit assumptions to be made regarding the prospective income and expenses of a property over an assumed holding period. The assessed cash flows are discounted to derive a net present value for the investment property.
Unobservable inputs within the discounted cash flow analysis approach
Rental growth rate The annual growth rate applied to market rents over an assumed holding period. The rate of return, determined through analysis of comparable, market- related sales transactions, which is applied to a property’s sustainable net income to derive value. Discount rate The rate which is applied to a property’s future net cash flows to convert those cash flows into a present value determined through analysis of recent comparable sales, current level of the 10 year Government Bond Rate, dialogue with active institutional investors and property trust investors and property’s lease covenants and quality of improvements Terminal capitalisation rate The rate which is applied to the market net income at the end of an assumed holding period to derive and estimated future market value. Determined with regard to perceived market conditions at the end of the period, leasing profile and condition of the property at that time. Expenses growth rate The annual growth rate applied to property operating expenses over an assumed holding period. Vacancy rate Probability based assumptions regarding letting up and fit out incentives for all tenants upon expiry of their leases.
Direct sales comparison approach
A valuation technique that is an estimate of value based on a comparison of the asset to similar assets that have recently sold. Adjustments are made to allow for factors such as the date of sale, size of property, location, quality, condition, marketability, general condition plus access, contour and tenure.
8.3. Leasing arrangements
Investment property comprises a number of commercial and residential properties that are leased to third parties. Each of the leases contains an initial non-cancellable period. Subsequent renewals are negotiated with the lessee. Minimum lease payments receivable on leases of investment properties not recognised in the financial statements are as follows:
53 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA Group 2016 $ Group 2015 $
Within one year 12,616,515 12,982,935
Later than one year but not later than 5 years 34,343,495 40,265,428
Later than 5 years 15,794,226 22,481,177
Total 62,754,236 75,729,540
Future minimum lease payments receivable exclude contingent rents. Contingent rents are receivable from various tenants and are subject to tenants exceeding a base turnover. Turnover that is over and above the base turnover stipulated in the lease agreements are then subject to further payments of between 3% - 8% of the tenants turnover.
NOTE 9. PROPERTY, PLANT & EQUIPMENT Group Office Equipment Plant and equipment Total
(i) Cost As at 1 April 2014 42,134 106,989 149,123 Additions 1,051 - 1,051 As at 31 March 2015 43,185 106,989 150,174
As at 1 April 2015 43,185 106,989 150,174 Additions 13,945 13,839 27,784 As at 31 March 2016 57,130 120,828 177,958
(ii) Accumulated Depreciation As at 1 April 2014 (23,874) (32,812) (56,686) Depreciation (7,538) (10,586) (18,124) As at 31 March 2015 (31,412) (43,398) (74,810)
As at 1 April 2015 (31,412) (43,399) (74,811) Depreciation (6,687) (10,486) (17,174) As at 31 March 2016 (38,099) (53,886) (91,985)
(iii) Net book value At 1 April 2014 18,260 74,177 92,437 At 31 March 2015 11,773 63,590 75,364 At 31 March 2016 19,031 66,942 85,973
Pukeroa Oruawhata Group ~ Annual Report 2016 54 BDO ROTORUA NOTE 10. SECURED LOANS
Secured bank loans are provided by Bank of New Zealand and ANZ bank. At balance date the following facilities were drawn down. There were no unused facilities at balance date.
Group 2016 ($) Group 2015 ($)
BNZ Facilty drawn down - Current 4,427,187 5,196,995
BNZ Facility drawn down 60,087,609 55,908,225
ANZ Facility drawn down 15,878,395 15,398,871
$80,393,191 $76,504,091
The current weighted average effective interest rate on the BNZ bank loans is 4.5% (2015:5.6%) per annum, and 4.7% (2015:5.7%) per annum on the ANZ bank loans.
10.1 Security
BNZ Facilities The Bank of New Zealand (“BNZ”) holds security for loan facilities provided to Pukeroa Oruawhata Trust by first mortgage over properties at 7 Sala Street, Rotorua, properties at 3 Ti Street, Rotorua, 254 Fenton St, Rotorua and 2B Ranolf Street, Rotorua. There is also security by way of a guarantee from Pukeroa Oruawhata Holdings Limited for the amount of $6,450,000 plus interest and costs in terms of the Bank’s standard guarantee form.
The BNZ holds security for loan facilities provided to Pukeroa Oruawhata Holdings Limited by first mortgages over 16.5739 hectares bounded by Fenton, Amohau, Ranolf and Victoria Streets and a debenture over the assets and undertakings of the Company.
The BNZ holds security for loan facilities provided to Pukeroa Properties Limited by first mortgage over properties at, 9 Froude Street, and 10 Meade Street, Rotorua. There is also security by way of a perfected security interest in all present and after acquired property of Pukeroa Properties Limited and an unlimited interlocking company guarantee between Pukeroa Oruawhata Holdings Limited and Pukeroa Properties Limited.
ANZ Facilities The ANZ Bank holds security for loan facilities provided to Pukeroa Properties limited No2 by first mortgage over properties at 1542 Amohau Street, Rotorua and an unlimited cross guarantee between Pukeroa Oruawhata Holdings Ltd, Pukeroa Lakefront Holdings Ltd and Pukeroa Properties No2 Ltd.
The ANZ Bank holds security for the interest only loan facility provided to Pukeroa Lakefront Holdings Limited by first mortgage over the property at 1092 Hinemaru Street, Rotorua.
55 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA NOTE 11. RETAINED EARNINGS
Retained earnings comprise of the following:
Arikikapakapa Retained Retained Retained Total Retained earnings earnings Earnings Retained Earnings tax free taxable - Investment Earnings Operating Property (Note 12) (Note 13) Revaluations
Balance at 1 April - 432,254 6,654,972 80,383,435 87,470,661 2014 (restated)
Total comprehensive - - 1,963,564 4,123,217 6,086,781 income for the year
Transfer from Retained Earnings 13,400 - (13,400) - - Taxable
Distributions 14 - (180,505) (258,406) - (438,911)
Balance at 31 March 13,400 251,749 8,346,730 84,506,652 93,118,531 2015 (restated)
Balance at 1 April 13,400 251,749 8,346,730 84,506,652 93,118,531 2015
Total comprehensive - - (7,707) 16,948,510 16,940,803 income for the year
Transfer from Retained Earnings 2,786 - (2,786) - - Taxable
Distributions 14 - - (538,628) - (538,628)
Balance at 31 March 16,186 251,749 7,797,609 101,455,162 109,520,706 2016
NOTE 12. ARIKIKAPAKAPA RETAINED EARNINGS (TAXABLE)
The Parent obtained the management rights for Arikikapakapa Reserve on 21 November 2014. The Arikikapakapa Reserve is established under the Reserves Act 1977 with rental income to be held by the administering body (Pukeroa Oruawhata Trust) and applied for the purposes of the Act. Surplus funds are retained by the parent in a separate reserves account.
NOTE 13. RETAINED EARNINGS (TAX FREE)
The Parent and Pukeroa Oruawhata Holdings Limited elected to join the Maori Authority regime for tax purposes from 1 April 2004. Pukeroa Lakefront Holdings Limited entered the regime from 1 April 2005. Distributions to members from income retained prior to the 2004-2005 income year will be treated as non- taxable distributions in the hands of the members.
Pukeroa Oruawhata Group ~ Annual Report 2016 56 BDO ROTORUA NOTE 14. DISTRIBUTIONS TO OWNERS
Group 2016 ($) Group 2015 ($)
Owners Grants (non-taxable) - 258,557
Owners Grants (taxable) 538,628 258,406
Other Grants - 7,000
$538,628 $523,963
NOTE 15. RELATED PARTIES
Balances and transactions including inter-group lease arrangements between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of the Group’s subsidiaries are disclosed in note 22. The balances owing at year end between the entities are instead disclosed by way of current and non-current liabilities or non-current assets and are unsecured, interest free and non-repayable in the next 12 months. Details of transactions between the Group and other related parties are disclosed below.
During the year, Group entities entered into the following trading transactions with related parties that are not members of the Group:
• Third Party Transactions occurred between the Parent, subsidiaries Pukeroa Oruawhata Holdings Limited, Pukeroa Properties No.2 Limited, Pukeroa Properties Limited and Shorts Transport Limited, a company in which the Chairman is a shareholder. The value of the services rendered during the year amounted to $107,318 of which $10,626 was payable at balance date (2015: $103,349). The costs charged were on normal terms and conditions with no debts being forgiven or written off. • Pukeroa Oruawhata Holdings hold ground leases held by the Ngati Whakaue Education Endowment Trust Board at 1239-1241 Amohau Street, 1175-1315 Amohau/Tutanekai Street and 1209 -1211 Amohau Street (purchased in 2015 under normal business terms and conditions). Malcolm Short, Alexander Wilson and Montgomery Morrison are Trustees of the Ngati Whakaue Education Endowment Trust and Directors within the Group. The value of ground lease payments made was $64,488 (2015: $60,817). No related party transactions have been forgiven or written off.
Key Management personal
The Trust has a related party relationship with its key management personnel. Key management personnel include the Trust’s Board of Trustees. In total there were 9 key personnel during 2015 including two appointments and two retirements. Compensation totals include Directors, Trustees and committee fees & expenses for the group.
Group 2016 ($) Group 2015 ($)
Key management Personnel compensation 625,214 573,004
57 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA NOTE 16. OPERATING LEASE COMMITMENTS
Operating leases relate to four ground leases of land held by Pukeroa Oruawhata Holdings limited. All operating lease contracts are with Ngati Whakaue Education Endowment Trust Board with lease terms of 21 years from 1 January 2000. The future aggregate minimum lease payments payable under non-cancellable operating leases are as follows:
Group 2016 ($) Group 2015 ($)
Not later than 1 29,649 29,649 year
Later than 1 year 118,596 118,596 and not later than 5 years
Later than 5 years - 29,649
NOTE 17. CAPITAL COMMITMENTS
The Group had the following capital commitments at balance date that are not recognised in the consolidated financial statements as they will be incurred in future reporting periods:
Group 2016 ($) Group 2015 ($)
Van Dyks Canopy Project 57,000 280,000
Lance Lawson/Excel new tenancy premises 543,000 -
Bin Storage project 99,000 -
Uncle Bills new tenancy premises 13,000 -
14 Froude St housing project 34,000 -
NOTE 18. CONTINGENT LIABILITIES
The Parent has committed to giving ongoing financial support to subsidiaries Pukeroa Lakefront Holdings Limited, Pukeroa Properties Limited and Pukeroa Properties No.2 Limited should they require financial support enabling them to pay creditors as they fall due.
The Group has entered into an arrangement with Waikuta No2 Ahu Whenua Trust to dispose of building materials on their land. A contingent liability exists for the ongoing monitoring costs and any potential remediation to the disposal site if required by the local environment council. These costs are unable to be quantified.
Pukeroa Oruawhata Holdings Limited leases property to Countdown (General Distributors Limited). On 30 July 2013 a rent review was completed on behalf of the Company assessing the new market rental to be $855,000 p.a. from $633,000 p.a. Countdown objected to the market valuation with a corresponding assessment. Last year an arbitration process was carried out with both parties agreeing to an interim annual rental of $744,000 p.a. As a result, for the year ended 2015 a contingent liability existed on the basis that the outcome of the arbitration process resulted in market rental being assessed below $744,000. Costs associated with the arbitration process were estimated between $35,000 - $55,000. The arbitration process has been completed and no contingent liability was present at balance date.
Subject to the above there are no other known material contingent liabilities.
Pukeroa Oruawhata Group ~ Annual Report 2016 58 BDO ROTORUA NOTE 19. CONTINGENT ASSET
At balance date there are no known contingent assets.
NOTE 20. JOINT VENTURE
Last year (2015 year end) Pukeroa Lakefront Holdings Limited acquired the 50% shareholding in Lake House Resort Developments Limited held by Rotorua Resorts Development Limited for $1. The directors subsequently considered the investment impaired and within the year end 2015 wrote off the investment in Lake House Resort Developments Limited. As part of this acquisition, in the 2015 year the group recognised the prior year losses amounting to $53,406 and capitalised development costs of $141,318.
NOTE 21. SUBSEQUENT EVENTS
Subsequent to balance date the following events occurred:
• Pukeroa Oruawhata Group entered into an agreement with the Rotorua Continuing Care Trust for the purchase of land and building developments located at 32 Taui Street and 4 -16 Tura Street, Rotorua. The agreement has settled and the group is now committed to completing the development. • The Rotorua Lakes Council approved the transfer of the Pererika St reserve to Pukeroa Properties No.2 Ltd in consideration for the ex-railway land between the skate park on Amohau St to the Trade Central development on Amohau St. • An exchange of buildings was completed between Rotorua Community Hospice and Pukeroa Lakefront Holdings Ltd. This exchange has involved Rotorua Community Hospice uplifting the Te Ngakau building from 5 Priest Road and relocating to 1469-1479 Hinemoa St land owned by Pukeroa Oruawhata Trust. There are no other known material events noted subsequent to balance date.
NOTE 22. FINANCIAL INSTRUMENTS
Group 2016 Group 2015 Fair Fair value value At through At through amortised profit or amortised profit or cost loss Total cost loss Total
$ $ $ $ $ $
Financial assets Cash & cash 428,522 - 428,522 288,298 - 288,298 equivalents Trade & other 375,701 - 375,701 303,665 - 303,665 receivables
804,223 - 804,223 591,963 - 591,963
Financial Liabilities Trade & other 989,997 - 989,997 1,252,410 - 1,252,410 payables Secured Bank Loans 80,393,191 - 80,393,191 76,504,091 - 76,504,091 Interest rate - 1,359,070 1,359,070 - 26,414 26,414 derivatives
81,383,188 1,359,070 82,742,258 77,756,501 26,414 77,782,915
59 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA 21.1 Interest Rate Derivatives
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued fixed rate debt and the cash flow exposures on the issued variable rate debt. The fair value of interest rate swaps at the end of the reporting period is determined by discounting the future cash flows using the curves at the end of the reporting period and the credit risk inherent in the contract, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the reporting period.
The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is the local interbank rate of New Zealand. The Group will settle the difference between the fixed and floating interest rate on a net basis.
Interest rate swap contracts exchanging fixed rate interest for floating rate interest movements are recognised at fair value in the consolidated statement of comprehensive income. Group 2016 ($) Group 2015 ($)
Balance at beginning of reporting period 26,414 -
Change in fair value 1,332,656 26,414
Balance at end of the reporting period $1,359,070 $26,414
NOTE 23. COMPOSITION OF THE GROUP
Details of the Group’s Parent, Pukeroa Oruawhata Trust’s material subsidiaries at the end of the reporting period are as follows: Proportion of ownership interest and voting power held by the Group Name of subsidiary Principal activity 2016 2015
Pukeroa Oruawhata Property Development 100% 100% Holdings and Leasing
Pukeroa Properties Property Development 100% 100% Limited and Leasing
Pukeroa Properties No.2 Property Development 100% 100% Limited and Leasing
Pukeroa lakefront Property Development 100% 100% Holdings Limited and Leasing
Waihunuhunukuri Property Development 100% 100% Holdings Limited and Leasing
Lake Road Tavern Hotel Operation 100% 100% Limited
Pukeroa Oruawhata Charitable entity 100% 100% Charitable Trust
Pukeroa Oruawhata Charitable entity 100% 100% Charitable Trust
Dormant entities include, Lake House Resort Developments Ltd, Rotorua Casino Limited, Casino Rotorua Limited, and Lake Tavern Limited.
Pukeroa Oruawhata Group ~ Annual Report 2016 60 BDO ROTORUA NOTE 24. TRANSITION FROM NZ GAAP TO NZ IFRS RDR
The Group has applied NZIFRS RDR reporting for the first time in the current year. This has resulted in the following changes within the Group. Old GAAP Adj 1 Adj 2 Adj 3 NZ IFRS (RDR) Current Assets Cash & Cash Equivalents 277,886 10,412 288,298 Trade Receivables 303,665 303,665 Prepayments 6,156 6,156 Inventories 5,228 5,228 Taxation Refund Due 165,821 165,821 Total Current Assets 758,756 10,412 769,168
Non Current Assets Project Development Costs 900,547 900,547 Investment Properties 181,218,104 181,218,104 Property, Plant and Equipment 75,364 75,364 Total Non-Current Assets 182,194,015 182,194,015
TOTAL ASSETS 182,952,771 10,412 182,963,183
Current Liabilities Trade and Other Payables 1,252,410 1,252,410 GST Payable 31,075 31,075 Rents in Advance 212,159 212,159 Bonds 3,000 3,000 Secured Bank Loans 5,196,995 5,196,995 Derivative Financial Instruments - 26,414 26,414 Unclaimed Dividends 212,588 212,588 Total Current Liabilities 6,908,227 26,414 6,934,641
Non Current Liabilities Deferred tax Liability - 3,724,756 3,724,756 Secured Bank Loans 71,307,096 71,307,096 Total Non-Current Liabilities 71,307,096 3,724,756 75,031,852
TOTAL LIABILITIES 78,215,323 26,414 3,724,756 81,966,493
EQUITY Capital 2,098,500 2,098,500 Retained Earnings 102,638,948 10,412 26,414 3,724,756 98,898,190 TOTAL EQUITY 104,737,448 100,996,690 TOTAL LIABILITIES AND 182,952,771 182,963,183 EQUITY
61 Pukeroa Oruawhata Group ~ Annual Report 2016 BDO ROTORUA 24.1. Adjustment 1
Pukeroa Oruawhata Charitable Trust (POCT) was not included in the Consolidated Financial Statements in previous years. Under NZ IFRS RDR the movements for 2015 for POCT are now consolidated according to NZ IFRS 10.
24.2. Adjustment 2
Under NZ IAS 39 the Group is to disclose derivative financial instruments and the movements in fair value through profit and loss.
24.3. Adjustment 3
Prior to the current year deferred tax had not been accounted for under old GAAP. The amendments require the Group to account for deferred tax as follows:
1. Recognition of opening deferred tax of 3,600,311 as at 01 April 2014 has resulted in a downward movement of retained earnings by 3,600,311 2. Deferred tax movements for the 2015 year amounting to 124,445 were recognised resulting in a movement in Profit after income tax in the 2015 year.
Pukeroa Oruawhata Group ~ Annual Report 2016 62 BDO ROTORUA