3 .0 Cl.) LL 00 lwi Investment Report 2019 Jam-v TDB Advisory Limited L5, Wakefield House 90 The Terrace P.O. Box 93 Wellington New Zealand Tel (+644) 934 8740 Email: info@tdb.co.n Principal contacts for this report: Phil Barry Lachlan Graham Matthew Barry phil.barry@tdb.co.nz lachlan.graham@tdb.co.nz matthew.barry@tdb.co.nz 021 478 426 027 940 6194 021 339 363 Disclosure and disclaimer TDB Advisory (TDB) has provided independent financial and investment advice to many iwi, including Ngāi Tahu, Waikato-Tainui, Tūhoe and Contents Rangitāne o Wairau. This report, however, is based solely on publicly available information. This report has been prepared by TDB with care and diligence. The analysis has been done at a high level based on public information. All Overview the iwi reviewed in this report were given the opportunity to comment on a draft of the report, although they bear no responsibility for the Introduction final product. We would like to acknowledge the valuable contributions of all the iwi who provided comments on the draft report. Neither Ngāi Tahu 10 TDB nor the iwi that have been reviewed in this report warrant or guarantee the accuracy of the information in this document. This report Ngāpuhi 12 has been produced on a pro bono basis. The research is objective and TDB does not seek to make or infer any normative judgements on Ngāti Awa 14 the governance or investment strategy of any iwi. Not every iwi in NZ is reviewed in this report and the conclusions derived in this report Ngāti Porou 16 are not to be taken as representative of any other iwi. Ngāti Whātua Ōrākei 18 Raukawa 20 Caution should be taken about making inferences regarding the relative performance of iwi. The financial information in this report does Tūhoe 22 not take into account investment risk. Furthermore, the dates of the settlements differ and some are quite recent so different time periods Waikato-Tainui 24 and time horizons will impact on the short-term financial results. In addition, the published financial information of the iwi does not take Conclusions 26 into account option values (e.g., rights of first refusal and deferred selection options), strategic priorities and non-financial objectives Appendices 28 4 8 unique to each iwi. TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT 3 Overview This report reviews the corporate structures, investment strategies and investment performance of eight iwi in New Zealand. With combined assets equating to around $5.5 billion, these eight iwi are: Ngāi Tahu, Ngāpuhi, Ngāti Awa, Ngāti Figure 1: Largest asset classes of each iwi Porou, Ngāti Whātua Ōrākei, Raukawa, Tūhoe and WaikatoTainui. The combined assets of these eight iwi equates to an estimated 60 percent of all post-settlement iwi assets, which we estimate to be worth around $9.2b. These iwi were chosen on the basis of availability of public information, asset size, length of operations and population size. This year’s report covers the same iwi as the 2018 report Overall, 2019 was not a strong year for the eight iwi covered in this report, with none of the iwi achieving our benchmark 10% return for the year. Four of the iwi (Ngāti Whātua Ōrākei, Raukawa, Tūhoe and Waikato-Tainui) reported returns of 5% or higher, while two iwi, Ngāi Tahu and Ngāti Awa, only just achieved a positive return for the year. The iwi we have reviewed generally have similar cooperate structures. While these structures are often complex, typically there is an overarching Trust that makes decisions about distributions to beneficiaries and non-financial objectives of the group, while a separate commercial entity manages the group’s commercial assets and makes investment decisions under a commercial mandate. A variety of investment approaches have been adopted by the eight iwi, as summarised in Table 1 below. Several of the iwi have relatively undiversified investment portfolios. Many iwi hold a large portion of their assets in property within Table 1: Summary of investment strategies, 2019 their rohe. These iwi are heavily exposed to risk in a narrowly defined geographic area. While there are often strong cultural and historical reasons for such concentration in their portfolios, it is risky from a financial perspective. Other iwi have a significant portion of their investment portfolio in financial assets, exposing them to the volatility of the financial markets. Ngāpuhi, Ngāti Awa, Ngāti Total assets No of asset classes Capital allocated to largest asset class Management approach Debt-to-capital $1,930m 7 31% Largely active 13% Ngāpuhi $62m 7 35% Largely passive 0% Ngāti Awa $150m 7 31% Mixed 12% All of the iwi except Ngāti Whātua Ōrākei hold assets in the primary industries like fishing, forestry and farming. Many iwi have Ngāti Porou $254m 6 60% Largely passive 6% significant interests in the domestic fishing industry, with holdings of settlement fisheries quota and shares of Moana New Zealand $1,254m 2 94% Active 18% Raukawa $174m 7 32% Mixed 0% Tūhoe $386m 7 45% Largely passive 0% $1,446m 6 54% Largely active 10% Ngāi Tahu Ngāti Whātua Ōrākei Waikato-Tainui Porou, Raukawa, Tūhoe and Waikato-Tainui have the majority of their equity investments in managed funds, with different funds holding a range of assets, including New Zealand, Australian and global equities and bonds. Ngāi Tahu holds mainly private equities rather than managed funds. leaving them exposed to the volatility of this sector. However, other than Ngāpuhi, fisheries related assets are generally less then 10% of the asset portfolio of those iwi with interest in the fishing industry. Recently several iwi have looked to diversify their investments by investing in the tourism sector, a sector that can be quite risky. A common feature of all the iwi is having low debt. As Table 1 shows, three of the iwi have zero debt and the remaining five iwi have a debt to capital ratio that is no higher than 18 percent. Ngāti Whātua Ōrākei and Waikato-Tainui have a strong bias towards property investment, holding the majority of their assets in Investment Environment property. This reflects their initial settlements, which were dominated by properties in their rohe (traditional tribal areas). For the same reason, Ngāi Tahu also has a large amount of property assets, however, Ngāi Tahu has taken steps to diversify its assets, In 2019 several notable financial and economic developments impacted on the returns of iwi portfolios and that of our benchmark now holding a larger portion of its assets in primary industries. Ngāti Awa also has a large portion of its assets in property but has portfolio. During the year NZX50 equities generated strong returns, of 19.6% on average, following the previous year’s return of diversified by investing in primary industries, equity investments and direct investments. Raukawa, Ngāti Porou and Tūhoe all have 15.8%. There was also increased volatility in the global markets, resulting from global trade tensions. In 2019 interest rates fell further the majority of their assets in managed funds and financial assets, however, they have all made significant investments in primary with yields on 10-year government bonds reaching a record low of 1.63%. 2019 also saw a slowdown of the New Zealand property industries. Northland based iwi Ngāpuhi is yet to settle with the Crown, asides from the Treaty of Waitangi fisheries settlement, and market. therefore holds mainly fishery assets TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT 5 Overview cont. Investment Performance Net assets per member The investment performances of the iwi have differed considerably over recent years. Figure 2 below gives the average return of each Figure 4 illustrates the average change in net assets per iwi member (% p.a.) between 2013 and 2019. Raukawa has shown the greatest iwi over the period 2013 – 2019. These are compared against a benchmark of 8.7%, based on the estimated returns of our benchmark increase in net assets per member over the period. Tūhoe, Waikato-Tainui and Ngāi Tahu have experienced average increases in portfolio (a weighted average of returns on NZ equities and debt over the year) over the same period. The returns presented are for the 4% to 9% p.a. range, while Ngāti Whātua Ōrākei, Ngāpuhi, Ngāti Awa and Ngāti Porou experienced increases of less than 4% p.a. each iwi group as a whole and have been calculated after deducting the respective Trust’s operating expenditures. The returns for Iwi membership data is estimated based on the 2013 census and subsequent projected Maori population growth rate for all the iwi the commercial entities of the iwi will be somewhat higher than those presented below, as they will include the distributions to the except Waikato-Tainui, Ngāi Tahu and Ngāti Whātua Ōrākei who have directly report their registered membership numbers. Waikato- parent entity (the Trust). However, most iwi do not publish separate financial statements for their commercial arms. The returns may Tainui’s and Ngāti Whātua Ōrākei membership growth rate is much higher than the estimated growth rate, partially explaining its also be understated for some iwi who do not revalue upwards some assets – for example, Ngāi Tahu holds significant amounts of slower increase in net assets per member relative to Raukawa and Tūhoe. seafood quota but does not include upward revaluations of the quota in its reported returns. Figure 2: Average annual return on assets (RoA), 2013-2019 Figure 3: Return on assets (RoA), 2019 Figure 4: Average change in net assets per member Figure 5: Change in net assets per member (%p.a.), 2019 (%p.a.) 2013-2019 As Figure 2 illustrates, Ngāi Tahu and Ngāti Whātua Ōrākei have outperformed other iwi (as well as our benchmark return of 8.7% p.a.) with reported average returns of 10% p.a. and 13% p.a. respectively over the last seven years. Raukawa has generated returns approximately in line with the benchmark portfolio (ie, within 1%) and the other five iwi have generated lower, yet still positive returns on average over the period. Ngāi Tahu has performed well over a long period, with its relatively diverse asset base delivering strong returns . Ngāti Whātua Ōrākei’s high returns can be attributed to its concentration of assets in the Auckland property market, which Figure 5 above shows the average change in net assets per member in 2019. Net asset per member for Ngāti Whātua Ōrākei fell by has generated high returns in recent years. 9% in 2019. This was driven largely by the significant growth in Ngāti Whātua Ōrākei’s number of registered members. Ngāi Tahu decreased its net assets per member by 8% in 2019. The reason for this was the significant write down in the value of its investment Figure 3 shows the RoA for the eight iwis in 2019, against the 2019 benchmark of 10%. In 2019 all eight iwi had an RoA lower than in Oha Honey. Ngāti Awa also saw its net assets per member decline in 2019. Ngāpuhi and Ngāti Porou had increases in net assets their 7-year average and all reported returns well below the benchmark of 10%. Raukawa had the highest RoA of 7.5% in 2019. Ngāi per member in 2019 between 0% and 2%. Raukawa, Waikato-Tainui and Tūhoe had increases in net assets per member in 2019 of Tahu and Ngāti Awa had 2019 RoA’s that were the furthest from the benchmark, with RoAs of less than 1%. The following sections of between 4% and 6%. Waikato-Tainui’s relatively large increase in net assets per member in 2019, of 6%, was driven largely by the this report profile each iwi, providing detail on their 2019 RoA and what lead to the weaker than average returns. gains in the value of its investment properties. Return on assets (RoA) provides a basis for comparing the financial performance of iwi. However, it is important to note that our RoA Iwi as investors calculations are not adjusted for riskiness of the different investment classes. Furthermore, the location of each iwi has played a role in the relative performances, with the returns of many iwi being closely linked to the performance of their local property market (e.g. When comparing the returns of iwi with non-iwi investors, the relative advantages and disadvantages should be noted. On the Ngāti Whātua Ōrākei). It is also important to note that the iwi that received earlier settlements have had a longer period to become one hand, iwi typically have limited access to new capital and have constraints on their ability to sell certain assets. On the other experienced investors and develop well-structured organisations and investment policies, potentially leading to better returns today. hand, many iwi have negotiated first rights of refusal on certain Crown assets as part of their Treaty Settlements and face the Māori In recent years several iwi, such as Ngāti Awa, Ngāti Porou, Raukawa, Tūhoe and Waikato-Tainui have been seeking to diversify their authority tax rate of 17.5%. Iwi also tend to have long time horizons, are reluctant to report negative returns (and therefore can have portfolios. a lower tolerance for risk) and as noted above, tend to have a strong home bias in their investment strategies. Finally it should be noted that iwi Trusts (as opposed to their commercial arms) have objectives that go beyond maximising financial returns. In order to achieve these wider social and cultural objectives, it is important that the investments held by their commercial arms perform to their maximum potential. TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT 7 Introduction Since 1990, around 80 iwi in New Zealand have finalised Treaty settlements with the Crown (refer to Appendix One). A Treaty Investment performance settlement is an agreement between the Crown and a Māori claimant group, usually an iwi, to settle all that claimant group’s historical Return on assets = (RoA) claims against the Crown. The Treaty settlement is typically composed of historical accounts, an acknowledgment and apology, This section of the report discusses the financial performance cultural redress and financial and commercial redress. of each iwi. To measure the investment performance of (Total pretax comprehensive income + Distributions + Interest expense - Relativity payments) Average assets each iwi, we have used the standard accounting metrics of This report is based on the financial and commercial redress aspects of the Treaty settlement. In this report, we have reviewed eight return on assets (RoA) and return on equity (RoE), with minor iwi. Iwi have been selected based on the year of Treaty settlement, the size of Treaty settlement, the number of iwi members and adjustments that reflect the differing structures of each Return on equity the availability and transparency of financial reports and information disclosures. Although it is yet to settle with the Crown, we have iwi. RoA is an indicator of how efficiently the iwi has used (RoE) included Ngāpuhi because of the size of its member base. Table 2 below lists the iwi reviewed in this report. These eight iwi account its assets to generate earnings. RoE takes into account the for approximately 57% of the total Māori population in New Zealand (Census 2013) and manage approximately 60% of total assets capital structures of each iwi. = Total pretax comprehensive income + Distributions - Relativity payments Average equity in the sector. Some iwi have received additional cash settlements from the Crown, typically in the form of relativity payments, which also affect Table 2: The eight iwi Ngāi Tahu Ngāpuhi Ngāti Awa Ngāti Porou Ngāti Whātua Ōrākei Raukawa Tūhoe Waikato-Tainui the performance metrics. To permit more meaningful comparisons across the iwi, we have excluded additional settlements in the Location Year of Deed Redress amount Population South Island 1997 $170m 65,000 Northland Still under negotiation - 141,621 Bay of Plenty 2005 $42m 14,708 East Cape 2011 $90m 80,111 Ōrākei 2011 $18m 5,062 South Waikato 2012 $50m 11,335 Te Urewera 2012 $169m 39,340 Waikato 1995 $170m 76,102 Scope and approach This section gives the structure of review for each iwi and discusses our use of different performance measures in the report. Organisational structure Investment strategy The mechanisms and processes by which an iwi is directed This section of the report discusses the investment strategies and controlled have significant implications for its investment of the eight iwi. We discuss each iwi’s asset allocations and strategies and performance. This section of the report comment on the degree of diversification of its portfolio, its summarises the organisational structure of the eight iwi management approach and its investment financing practices. examined in this report and the functions and responsibilities Diversification among asset classes works by spreading of the key entities within each iwi group. investments among various assets (e.g. New Zealand equities, international equities, bonds, cash, property, etc.) with Capital structure returns that are not based on the same market movements. Diversification allows an investor to reduce risk in a portfolio The capital structure section looks at the debt financing of the because the values of different assets move at different times iwi. The degree to which the iwi investments are financed by and at different rates. Having a diversified portfolio creates equity and debt can affect the riskiness of the strategy and greater stability in overall returns and can improve overall the returns. A highly leveraged (high debt) portfolio increases portfolio performance. flows. We measure financial leverage by using the debt to capital ratio. Interest-bearing debt includes both short-term Debt to capital that particular period. In addition, we have added back any distributions made by an iwi’s Trust to reflect the total return on capital of that iwi’s investments. This is because distributions are included in the calculation of total comprehensive income. The returns presented are for each iwi group as a whole and are calculated after deducting the respective Trust’s operating expenditures. The returns for the commercial entities of the iwi will be somewhat higher as they will include the distributions to the parent entity (the Trust). However, most iwi do not publish separate financial statements for their commercial arms. The returns of the iwi will also be understated to the extent that they do not always revalue upwards some assets (e.g., fisheries quotas or other assets that they intend to hold in perpetuity, which may appreciate in value over time). Average returns Net asset value Where average returns are calculated for an iwi over a Where average returns are calculated for an iwi over a period of several years, the average return is calculated as period of several years, the average return is calculated as the geometric mean. The geometric mean provides a more the geometric mean. The geometric mean provides a more accurate measure of returns over a longer period, as it takes accurate measure of returns over a longer period, as it takes into account the effect that compounding may have on returns. into account the effect that compounding may have on In contrast, an arithmetic average is useful in the short term returns. In contrast, a simple, or arithmetic average is more where compounding of returns need not be considered. useful in the short term where compounding of returns need not be considered. Comparing against a benchmark return We have constructed a simple reference portfolio to provide a benchmark for comparison of the iwis’ investment Net assets per member = Net worth Iwi population performance. Our benchmark portfolio is made up of low-risk bonds (50%) and a diversified stake in New Zealand equities (50%). The benchmark portfolio is constructed using NZX50 Figure 6: Security market line (for 7 year benchmark) monthly yields and 10 year government bond yields between June 2013 and June 2019. The benchmark provides a simple standardised estimate. While it would be ideal to have a customised benchmark for each iwi, that would require a detailed analysis of its circumstances, taking into account such factors as its risk appetite, time horizon, liquidity the riskiness of the investment and restricts the ability of the investor to invest in assets that do not yield regular cash numerator for the calculations of RoA and RoE. This allows us to measure only the returns generated by the use of the iwi’s capital in = Interest bearing debt Total assets requirements and tax position. Much of this information is not publicly available. Appendix 3 illustrates the calculations behind this benchmark return. and long-term interest-bearing debt. TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT 9 Ngāi Tahu Te Rūnanga o Ngāi Tahu is the largest iwi in New Zealand in terms of assets ($), with the rohe of Te Rūnanga o Ngāi Tahu spanning the majority of the South Island. We refer to Te Rūnanga o Ngāi Tahu as Ngāi Tahu throughout this report. Capital structure Debt to capital ratio Ngāi Tahu increased its borrowings by $48.5m in 2019 and its debt-to- Organisational structure capital ratio increased to 13% in 2019. Ngāi Tahu’s debt-to-capital ratio is higher than many iwi, which traditionally hold little debt, reflecting Te Rūnanga o Ngāi Tahu is the sole trustee of the Ngāi Ngāi Tahu’s active investment approach and portfolio composition. Te Rūnanga o Ngāi Tahu Tahu Charitable Trust which owns and operates the Ngāi Ngāi Tahu Charitable Trust Tahu Holdings Corporation (NTHC). NTHC is an investment Investment performance company which is responsible for wealth creation. It aims to provide for future generations and support tribal aspirations including social, cultural and environmental initiatives through distributions. The executive functions are carried out by the Office of Te Rūnanga o Ngāi Tahu which monitors and supports NTHC, manages the representational activities, Ngāi Tahu Holdings Corporation Office of Te Rūnanga o Ngāi Tahu - Investment and financial strategy - Representation and advocacy - Capital allocation - Governance - Investment performance - Distribution Asset base and net worth Asset base Over the last nine years, Ngāi Tahu has significantly grown its asset base, from $715m in 2010 to $1,930m in 2019. Asset growth slowed in 2019 to 0.32%, down from 15% in 2018. 2018’s asset growth was driven protects the rights of Ngāi Tahu Whānui and delivers social by the large ($199m) relativity settlement received that year. and cultural programmes. Over the previous ten years average asset growth was 11.6% p.a, Investment strategy Asset allocation in 2019 which is significantly higher than the asset growth in 2019 of 0.32%. This is largely due to the goodwill write-off in the underperforming As a part of its settlement package, Ngāi Tahu received investment in Oha honey. While equity investments increased in value $170m in cash in 1997. Ngāi Tahu was also given the option by $17.4m in 2019, this was an increase of $44.4m less than in 2018. of purchasing a range of Crown assets to generate income Contributions from Ryman Healthcare were $45.8m in 2018, compared for social development and asset-preservation purposes. to the significantly smaller value of $0.3m in 2019. Return on assets Ngāi Tahu received an additional $199m in cash as a relativity Management approach: settlement in 2018 and $2.4m in 2019. As at June 30, 2019, Ngāi Tahu’s total assets were valued at $1,930m. Return on assets Largely active Ngāi Tahu’s RoA was 0% in 2019, well below 2018’s RoA of 8% and the average RoA of 10% p.a. over the last ten years. The low returns in 2019 reflected increased operating expenditure, losses on non-current assets (notably Oha honey) and a large loss on the revaluation of property, plant and equipment. Return on equity Ngāi Tahu’s RoE was 0% in 2019, well below 2018’s RoE of 9% and Return on equity the average of 11% p.a. over the last ten years. Distributions to its members decreased to $36m in 2019, down from $55m in 2018. This is still high compared to the average distribution of $21m over the last ten years. Net assets per member visible below) decreased to $24,792 in 2019, the first decline in the last seven years. The decline reflected Source: Ngai Tahu 2019 Annual Report the combination of zero asset growth and Ngai Tahu’s 6.5% population growth. Ngai Tahu has shifted, in recent years, from a strategy pursuing high-growth but risky investments to pursuing more secure investments. Ngai Tahu’s investment in Oha honey, formerly Watson & Son, has struggled in recent years, with a total deficit of $62.4m in 2019. Ngai Tahu has cited Oha honey’s choice of an aggressive hive growth strategy compounded by three years of unfavourable weather conditions Net assets per member ($) as the reason for this poor performance. Ngāi Tahu Capital has admitted to underestimating the risks and overestimating its ability to handle them. The value of its good-will investment in Oha Honey has subsequently been written down by $57.1m, impacting the group’s comprehensive income, equity and asset growth in 2019. Investment property and seafood subsidiaries have performed well. Ngai Tahu Capital’s net operating surplus increased in 2019 to $21.5m from an operating deficit of $18.6m in 2018. TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT Year 2013 2014 2015 2016 2017 2018 2019 $ 16,838 20,207 21,143 22,947 23,440 27,091 24,792 11 Ngāpuhi Te Rūnanga Ā Iwi o Ngāpuhi is based in Northland and is the largest iwi in New Zealand in terms of population (Census 2013). Te Rūnanga Ā Iwi o Ngāpuhi is referred to as Ngāpuhi throughout this report. Capital structure Debt to capital ratio Ngāpuhi has very little debt on its balance sheet. Its debt-to-capital Organisational structure ratio declined from 2% in 2011 to 0.01% in 2019. 2013 was the last year Te Rūnanga Ā Iwi o Ngāpuhi is the governing body of the iwi, with the following subsidiaries: Te Hau Ora o Ngāpuhi (THOON), Ngāpuhi Iwi Social Services (NISS), Te Rūnanga-Ā-Iwi o Ngāpuhi Operations, and Ngāpuhi Asset Holding Company Ltd (NAHC). THOON was established in 2015 following the merger of Te Hau Ora o Kaikohe with the Rūnanga and leads the health strategy for Ngāpuhi, serving whānau, hapū and hapori living within te whare tapu o Ngāpuhi. NISS delivers a range of support for the iwi through whanau services and youth services, social work through schools and re-engaging students within education. NAHC oversees the commercial investments and strategy for the iwi, while also operating retail investments in Mobil Kaikohe and Paper Plus Kaikohe. in which bank loans were held. Investment performance Asset base and net worth Asset base Ngāpuhi’s asset base grew by 4.1% in 2019, continuing the trend of slow growth in the past six years. Most productive assets increased slightly, Te Rūnanga-Ā-Iwi O Ngāpuhi Board of Trustees with the best performer being the Mint Asset Fund, which increased in total value by 22%, representing the additional investment made in Te Hau Ora O Ngāpuhi (THOON) Ngāpuhi Iwi Social Services (NISS) - Health strategy - Whanau services Te Rūnanga-Ā-Iwi O Ngāpuhi Operations - Operations Ngāpuhi Asset Holdings Company Ltd (NAHC) - Investment and financial strategy 2019 and the gain on the 2018 value of 7.7%. As noted above, Ngāpuhi’s fisheries quota and its shares in unlisted companies, such as Moana New Zealand, are recorded at cost and not subject to revaluation increases. Investment strategy Ngāpuhi’s treaty settlement with the Crown is still under negotiation. Ngāpuhi currently has 67% of its assets in a combination of cash and term deposits, fisheries settlement quota and Moana NZ income shares. with large increases in 2012 and 2013 driven by large net operating profits and a revaluation in 2012 that saw an additional $7.3m of Ngāpuhi has taken steps in recent years to reduce risk through value-added. Since then, return on assets has fallen and remained increasing investment in long-term financial assets. In 2019, relatively low over the past six years. While the majority of Ngāpuhi’s Ngāpuhi increased investment in the Mint Asset Fund, a assets are passive and have continued to deliver relatively low returns, portfolio of fixed-income, property and equity securities. The 17% in 2019, up from 14% in 2018 and 3% in 2016. Return on assets Ngāpuhi’s return on assets has fluctuated over the past seven years, Asset allocation in 2019 Ngāpuhi has historically taken a passive investment strategy. proportion of assets in long-term investments increased to Return on assets active assets like the Mint Asset Fund are generating higher returns. Management approach: These type of investments in market securities increase the diversity Largely passive of Ngāpuhi’s returns and reduces the group’s dependence on fisheries assets. Return on equity Return on equity As Ngāpuhi holds minimal debt, its RoE mirrors its RoA. RoE has averaged 5.34% p.a. between 2011 and 2019. This reflects the strong returns in 2012 and 2013 and the low, but growing returns in recent years. Ngāpuhi has recognised that in a low interest-rate environment, a direct, passive investment portfolio will not generate high returns. It has therefore taken steps towards having a more active, diversified investment strategy. Source: Ngāpuhi Fisheries assets remain the core of Ngāpuhi’s portfolio, representing 55% of its asset base. Fisheries quota are recorded at their fair Net assets per member ($) value on initial recognition (at cost), less costs-to-sell, and are tested annually for impairment. Shares in Moana New Zealand are recorded at cost; as the company is unlisted, the fair value of the shares are difficult to calculate reliably. The combined reported value of its shares in Moana New Zealand and fishing quota assets is $33.6m. Ngāpuhi’s investment strategy and performance is reflective of its circumstances (pre-settlement) and being heavily reliant upon passive and non-transactable investments and assets. TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT Year 2013 2014 2015 2016 2017 2018 2019 $ 398 392 394 399 410 416 423 13 Ngāti Awa Te Rūnanga o Ngāti Awa is located in the eastern Bay of Plenty. Te Rūnanga o Ngāti Awa will be referred to as Ngāti Awa throughout this report. It is important to note that the tragic event of 9 December 2019 was subsequent to this investment reporting period. Capital structure Debt to capital ratio Ngāti Awa’s debt-to-capital ratio stayed moderately stable between Organisational structure 13% and 12% from 2017 to 2019, after increasing from 6% to 13% in Te Rūnanga o Ngāti Awa is the governing body of the Ngāti Awa iwi and has four direct subsidiaries. Ngāti Awa Group Holdings Limited (NAGHL) and Ngāti Awa Asset Holdings Limited (NAAHL) are the commercial arms of the group and are mandated with managing the commercial assets of Ngāti Awa and integrating its activities with the social aspirations of the group where possible. NAAHL holds the group’s commercial financial assets, Moana New Zealand shares and its fisheries quota. NAGHL runs the commercial operations. Ngāti Awa Community Development Trust (NACDT) is responsible for supporting and furthering the social, cultural and economic development of the iwi. Ngāti Awa Research and Archives Trust preserves the history of the tribe through research and storage of historical documents. 2017 with the purchase of White Island Tours. Ngāti Awa’s debt-tocapital ratio of 12% indicates a high portion of debt relative to other iwi. Investment performance Asset base and net worth Asset base Te Rūnanga o Ngāti Awa Ngāti Awa’s asset base has grown slowly over the last 7 years and The Office of Te Rūnanga o Ngāti Awa decreased for the first time in 2019, by $1m to $150m. Net assets also decreased from $124m to $123m. The fall in assets was driven by a Ngāti Awa Group Holdings Limited (NAGHL) Ngāti Awa Asset Holdings Limited (NAAHL) - Commercial and - Moana NZ shares investment strategy - Equity portfolio management Ngāti Awa Community Development Trust (NACDT) - Social, cultural and Ngāti Awa Research and Archives Trust (NARA) - Manage tribal archives economic support total assets and net assets has increased over the years, due to increases in debt. Return on assets - Fisheries quota - Wealth generation decrease in investments and short-term deposits. The gap between Ngāti Awa’s RoA fell sharply to 1% in 2019, from 7% in 2018. This is its Investment strategy year at around $13m. Expenses also stayed consistent from 2018 to Ngāti Awa’s settlement with the Crown was finalised in 2005 for 2019. The key reason for the decrease in the RoA was a much smaller a total of $42m. The settlement was a combination of Crown- gain in the revaluation of assets. The gain was $1.7m in 2019 compared owned land selected by Ngāti Awa, fisheries quota, cash, to $8.8m in 2018 when there were large increases in the values of and other assets. Land included portions of the Kaingaroa forestry land and listed shares. and Rotoehu forests. Ngāti Awa holds shares in Moana New Zealand as part of the settlement proceeds in accordance with the Maori Fisheries Act, 2004. Forestry assets include land and carbon credits. Return on assets lowest point since 2012. Operating revenue was consistent with last Asset allocation in 2019 Management approach: Mixed Return on equity Ngāti Awa’s RoE also reached its lowest point since 2012 at 0%, down from 8% in 2018. Like most other iwi, Ngāti Awa’s RoE follows its RoA, Return on equity although not as closely as iwi which are entirely equity funded. Like RoA, the decline in RoE reflected the decrease of capital gains in 2019 and highlights the weak operating performance of the business. In 2019 Ngāti Awa paid grants and sponsorships of $0.3m. These distributions consisted of hapū distributions, education grants and cultural and environmental projects and initiatives. Net assets per member in 2019 decreased 2% to $8,376. Source: Ngāti Awa Ngāti Awa holds 22% of its assets in financial investments, including listed shares, unlisted shares in Direct Capital IV, Pencarrow Net assets per member ($) Bridge Fund and an investment in Iwi Collective Orchards. Ngāti Awa have been decreasing its stake in Unit Trusts with the goal of realising all investments in Unit Trusts as soon as practical. Ngāti Awa’s investments in the primary industries consist of forestryrelated assets (23% of total assets), dairy and dry stock land, livestock, Moana shares and fisheries quota. The group continues working to improve returns from farming operations, decreasing costs and inefficiencies. Ngāti Awa has diversified in recent years Year 2013 2014 2015 2016 2017 2018 2019 $ 7,747 8,046 8,132 8,217 8,140 8,585 8,376 with the addition of White Island Tours. The eruption that took place on 9 December 2019 has significantly impacted this business and will continue to do so for a number of years. TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT 15 Ngāti Porou Te Rūnanganui o Ngāti Porou is the mandated authority for Ngāti Porou mai i Potikirua ki te Toka a Taiau. Te Rūnanganui o Ngāti Porou is referred to as Ngāti Porou throughout this report. Ngāti Porou is located on the East Cape of the North Island. Capital structure Debt to capital ratio Ngāti Porou increased its debt by $4.4m in 2019, reaching $16m, increasing its debt-to-capital ratio to 6%. Ngāti Porou is the only iwi Organisational structure in our report to have a largely passive management strategy while Ngāti Porou Holding Company (NPHC) is the commercial subsidiary of Ngāti Porou. NPHC is responsible for the management of the Trust’s assets and the creation of financial returns, some of which fund its Parent’s operations. NPHC also manages Ngāti Porou Seafoods Group and Pakihiroa Farms. Toitu Ngāti Porou is Ngati Porou’s charitable trust subsidiary and is responsible for cultural development and charitable distributions to the iwi. Ngāti Porou Hauora, another subsidiary, provides health promotion and primary care services to the iwi. Te Rūnanganui o Ngāti Porou Group Corporate Services provides operational support to Te Rūnanganui o Ngāti Porou and its subsidiaries. holding interest-bearing debt. Investment performance Asset base and net worth Asset base In 2019, total assets grew by 4%, from $243m to $254m. Net worth Te Rūnanganui o Ngāti Porou grew by 2%, from $223m to $229m. The gap between total asset and Asset allocation in 2019 net worth has increased because of increased debt. The value of Ngāti Porou’s financial portfolio increased by $4m over the year. Ngāti Ngāti Porou Holding Company (NPHC) - Wealth generation - Property investment Toitu Ngāti Porou - Cultural and wealth distribution Porou’s assets in the fishing industry increased by $5.3m. The value Ngāti Porou Hauora of biological assets also increased during the year. Since its treaty Management approach: - Health services to whanau and hapu Largely passive Management approach: settlement in 2012, total assets have grown on average by 4% p.a. Return on assets Largely passive Investment strategy Ngāti Porou’s RoA was 3% in 2019 and has averaged 4.2% p.a. since 2013. RoA has fluctuated over the last eight years between 1 and 7%. In 2012, Ngāti Porou received a financial settlement of $110m, which included $90m in financial and commercial redress and $20m This volatility reflects, in part, Ngāti Porou having a large portion of in cash as cultural redress. Prior to its settlement, Ngāti Porou was primarily invested in fisheries. In 2012, Ngāti Porou established assets invested in equities. Compared to 2018 both revenue and NPHC as its commercial arm. NPHC has since developed and is implementing its investment strategy. expenses fell. While revenue remained unchanged in most areas, it fell Return on assets in unrealised gains on assets and forestry income. Ngāti Porou also experienced an increased taxation expense. Return on equity Ngāti Porou’s RoE has experienced similar volatility as its RoA over the past eight years and decreased to 3% in 2019. 2019 saw a $1m Return on equity distribution to Ngāti Porou members. These distributions include: funding of marae developments, iwi and community events, language revitalisation programs and local sport and recreation. Net assets per member in 2019 increased slightly to $2,856. Source: Ngāti Porou 2019 Annual Report Net assets per member ($) Investments in financial assets, nearly 100% of which are in equities including shares in listed and non-listed companies, dominate Ngāti Porou’s portfolio. Management of equities is outsourced to a variety of fund managers with an overall 60:40 balance between growth assets and income assets. The largest proportions are managed by AMP Capital, BlackRock Investment Managements and Devon Funds Management. Growth assets include investments in Trans-Tasman, developed and emerging market equities. Aotearoa Year 2013 2014 2015 2016 2017 2018 2019 $ 2,615 2,600 2,715 2,663 2,741 2,842 2,856 Fisheries Limited shares and fishery quotas make up 16% of Ngāti Porou’s assets, while 3% of capital is held in cash. Ngāti Porou’s has made a number of direct investments in honey, blueberries and tourism. 2018/19 saw a harvest of 12 tonnes of Manuka Honey and the first harvest of blueberries which in 3 years is expected to produce 100 tonnes p.a. Ngāti Porou has continued the development of its tourism operation “Mt Hikurangi – Journey to The First Light”, which has now begun operation. TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT 17 Ngāti Whātua Ōrākei The Ngāti Whātua Ōrākei Trust (the Trust) was established in 2012, following the Treaty settlement with the Ngāti Whātua Ōrākei Māori Trust Board. Ngāti Whātua Ōrākei is the governing body of the Ngāti Whātua Ōrākei hapu, located in Ōrākei, Auckland. Capital structure Debt to capital ratio In 2019, Ngāti Whātua Ōrākei took on a further $25m of debt, increasing Organisational structure its total debt to $225m. Ngāti Whātua Ōrākei’s debt-to-capital ratio The Trust operates at a strategic level with Whai Rawa Ltd (WRL) and Whai Maia Ltd (WML) as its subsidiaries. WRL is a property development and investment company, which manages Ngāti Whātua Ōrākei’s commercial assets to generate financial returns for the iwi and to support the tribal development goals of WML. WRL also manages Ngāti Whātua Ōrākei’s Tourism projects. WML is a charitable trust that is focused on tribal development in the areas of employment and education, health and wellbeing, arts and culture. increased 1%, to 18%. Interest rate risk is managed by using a floatingfixed interest rate-swap over a notional amount of $100m. ANZ, BNZ, Westpac and ASB provide debt facilities, with $92.5m due to expire within the next year. Investment performance Ngāti Whātua Ōrākei Trust Asset base and net worth Asset allocation in 2019 Whai Rawa Limited (WRL) - Property investment and Whai Maia Limited (WML) The value of Ngāti Whātua Ōrākei’s assets has grown substantially since settlement in 2012. However, growth has slowed in the recent - Tribal development development Management approach: Active Investment strategy years, with 2019 returning a 5% increase in asset value on the previous year, the smallest growth rate in the last 6 years. The slower growth corresponds to the slowdown of the Auckland property market. Total assets now total $1,254m and net worth is $975m. Ngāti Whātua Ōrākei’s net assets per member is the highest of the iwi covered in this All of Ngāti Whātua Ōrākei’s investment properties are in the Auckland region. Its properties include: report, at an estimated $192,540 per member. - Quay Park, which has 29 ground leases including the Spark Arena, Countdown supermarket, apartment blocks, other apartments and commercial buildings; and - Asset base North Shore Development Lands. Ngāti Whātua Ōrākei purchased 28ha of North Shore land from the Crown as part of the WAI388 Claim. Return on assets Return on assets Ngāti Whātua Ōrākei’s 2019 RoA was 5%, well below the 7-year average of 13% p.a. The Quay Park rental review process saw a significant increase in the group’s property rental revenue. Ngāti Whātua Ōrākei’s RoA is strongly influenced by the revaluations of its investment properties. Revaluations accounted for $32m of its $45m pre-tax profits for 2019, significantly down from $80m in 2018 and $141m in 2017. Return on equity Ngāti Whātua Ōrākei’s RoE in 2019 was 5%, well below its average RoE of 16% p.a. over the last 7 years. This higher RoE (relative to the RoA) reflects its capital structure. Ngāti Whātua Ōrākei makes distributions Return on equity to its beneficiaries in the form of education grants, scholarships and programs. These distributions totalled $7m in 2019. Source: Ngāti Whātua Ōrākei Ngāti Whātua Ōrākei continues to focus on property development, with construction in progress at the Hillary site. The joint venture with Fletchers at Moire Road is also under construction. Ngāti Whātua Ōrākei also plans to complete a nursery development in Pourewa. With 94% of its assets in Auckland property Ngāti Whātua Ōrākei has an undiversified portfolio. While Ngāti Whātua Net assets per member ($) Ōrākei’s investment approach has yielded strong returns in recent years, Ngāti Whātua Ōrākei is highly exposed to risk associated with the Auckland property market, as is apparent in this year’s relatively weak financial performance. Ngāti Whātua Ōrākei has taken steps to diversify its portfolio by investing in aged care through the Eastcliffe Retirement Village. In 2020 Ngāti Whātua Ōrākei plans to further diversify its portfolio by exploring opportunities in tourism. TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT Year 2013 2014 2015 2016 2017 2018 2019 $ 186,786 204,133 219,165 281,423 332,379 210,429 192,540 19 Raukawa Capital structure Raukawa Raukawa is a Tainui iwi based in South Waikato. The Raukawa Group is headed by the Raukawa Settlement Trust, which was established in 2009 following the group’s Treaty Settlement. The Trust Raukawa Charitable Trust (RCT) Raukawa Asset Holding Company (RAHC) Raukawa Iwi Development Ltd (RIDL) is the mandated Iwi Authority and governance entity of the Raukawa group. The Raukawa Settlement Trust is referred to as Raukawa in this report. - Social, environmental and cultural development - Oversees settlement - All iwi commercial and fisheries assets investment activities - Community and charitable Raukawa has no debt on its balance sheet, as has been the case since its settlement in 2012. It has low levels of trade-related and income-inadvance liabilities. Investment performance Asset base activities Asset base and net worth Organisational structure The Raukawa Group consists of Raukawa Iwi Development Ltd (RIDL), Raukawa Asset Holding Company (RAHC) and the Raukawa Charitable Trust (RCT). RIDL is the investment management arm. RAHC holds Raukawa’s settlement fisheries assets, managed under contract by RIDL. RCT is mandated to represent and advocate for the social, environmental and cultural aspirations of the iwi. Following its settlement in 2012, Raukawa’s total assets have grown from $86m to $174m in 2019, an average growth of 11% p.a. Net worth has increased from $84m to $168m in 2019. This asset growth has been largely driven by the growth in Raukawa’s portfolio of managed funds and the Ka ̅kano forestry investment. Raukawa’s 2019 asset growth was Investment strategy largely driven by growth in its investment properties, increasing $11m due Asset allocation in 2019 to the purchase of commercial property in the Hawkes Bay. Raukawa signed its Treaty settlement in 2012 Return on assets for a total of $50m in financial and commercial Return on assets redress. Raukawa has also received a share of the Central North Island Forestry Settlement (CNI) Raukawa’s RoA for 2019 was 8%, slightly below its 7-year average of 8.3%. worth $28m. Raukawa’s interest in CNI Iwi Holdings The group’s Kākano forestry investment has provided strong capital growth, with the original $19m investment now valued at $36m. Operating Trust is recognised as a contingent asset until the termination of the CNI Trust (scheduled for 2044) Management approach: revenue has increased slightly, however fluctuations in the group’s and is not included in the recorded value of total Mixed returns can be mainly attributed to revaluations of Ka ̅kano, other direct assets and dividends. The reason for the decrease in the 2019 RoA was a assets. restructure of the Kākano forestry investment resulting in a write down in the value of the entity, coupled with much lower revaluations in managed funds and property compared to 2018 and a small loss in Raukawa’s dairy operation. Return on equity Return on equity Due to Raukawa’s low level of debt, RoE closely follows RoA. Raukawa’s 2019 RoE was 7%, below its 7-year average of 8%. Raukawa uses its distributions to fund education grants and the Raukawa Charitable trust, which is spilt into five groups: the Executive office, the Environment Source: Raukawa group, the Cultural group, the Health & Social development group and the Corporate Services group. Net assets per member in 2019 increased to $14,832, an increase of $693 per member on 2018. Raukawa holds around 32% of its assets in managed funds across six providers. In recent years the proportion of Raukawa’s portfolio held in managed funds has gradually reduced in favour of direct asset ownership, seeking the advantages of greater control, scale, Net assets per member ($) access, partnership and time horizon. Raukawa have also been reducing its cash holdings slowly. In the forestry sector, Raukawa holds together with five other CNI iwi entities a direct investment in Kākano Investments, giving Raukawa a small stake in Kaingaroa Timberlands. Raukawa’s interest in Kākano is worth $36m and provided a dividend of $2.3m in 2019 as well as a one-off special dividend of $4m. Raukawa also has direct investments in the dairy sector, owning 45% of Ranginui Station, a 3,300 cow dairy and Year 2013 2014 2015 2016 2017 2018 2019 $ 8,999 9,600 12,018 12,410 13,135 14,139 14,832 pastoral operation. In 2019 Raukawa increased its investments in property, purchasing an $11m commercial property in the Hawkes Bay, increasing its investment property holdings to $17m. Raukawa seeks to hold a balanced portfolio that can deliver reliable income to the Trust whilst continuing to grow the asset base for future generations. Raukawa aims to move more towards direct assets rather than passive assets, with its main diversification this year being its increased commercial property investment. TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT 21 Tūhoe Tūhoe Te Uru Taumatua is the iwi organisation of the Tūhoe Tribals and is referred to as Tūhoe throughout this report. Tūhoe is located in Te Urewera. Organisational structure Tūhoe manages iwi-level strategy, policy and action. Tūhoe’s Investment Capital structure Tūhoe Te Uru Taumatua Trust Committee is responsible for advising the Tūhoe Trust and managing its investment fund. Tūhoe also has Investment Committee - Tūhoe Trust Fund management Tūhoe Charitable Trust - Cultural and wealth Tūhoe Fisheries Quota Ltd. - Fisheries settlement asset distribution management the Tūhoe Charitable Trust and Tūhoe Fisheries Quota Ltd and four tribal charitable companies Tūhoe is entirely financed by equity capital and has no debt on its books. Investment performance Asset base and net worth Asset allocation in 2019 as subsidiaries. Tūhoe Charitable Trust is the In 2019, Tūhoe’s assets and net worth were valued at $386m and $381m distribution arm of Tūhoe. Its goal is to initiate respectively. Tūhoe’s holdings in the forestry sector provided the main and distribute benefits to Tūhoe. Tūhoe Fisheries asset growth this year through an increase in CNI equity to $80m and an Quota Ltd manages Tūhoe’s fisheries settlement increase in forestry rights to $30m, due to the acquisition of Te Manawa assets, which include quota and income shares in Forest. Work-in progress at Te Tii and the Eco village are Tuhoe’s current Moana NZ. Management approach: Largely passive Investment strategy Asset base Tūhoe signed a Treaty settlement for approximately $170m in 2014. In addition to a cash settlement, the iwi received sale and leaseback options, under which Tūhoe has the opportunity to purchase five Crown-owned properties within a defined selection period. It also received exclusive rights of first refusal over Crown-owned properties located within a specified area for 172 years from the settlement date. Tūhoe is more focused on an 8-year investment strategy and returns goal than its year on year returns. key projects. Net assets per member grew to $9,691. Return on assets Return on assets Tūhoe’s RoA increased to 6% in 2019 after falling to 4% in 2018. The higher RoA in 2019 can be attributed to improved returns from the CNI iwi collective, which returned $11.5m (up from $6m in 2018) due to the increased price of carbon. Tūhoe’s financial portfolio contributed $5.8m in income in 2019, alongside $9.3m in unrealised gains from increases in the value of those portfolios. Operating revenue increased to $4.5m reflecting improved business operations in 2019. Return on equity Tūhoe’s 2019 RoE was 6% in line with the average RoE over the past 7 years. Tūhoe’s RoE has been similar to its RoA because of the absence of Return on equity term debt. Like RoA, the increase in RoE in 2019 can be largely attributed to stronger CNI returns and the gain on the revaluation of its financial portfolio. Tūhoe has made distributions to its iwi beneficiaries in past years largely for Marae funding purposes. Otherwise, profits are retained and have been reinvested in building projects like Te Tii and the Eco village and forestry assets like Te Manawa Forest. Net assets per member ($) Source: Tuhoe 2019 Annual Report Year 2013 2014 2015 2016 2017 2018 2019 $ 3,811 7,068 8,158 8,764 9,108 9,322 9,691 Tūhoe’s managed funds, which account for 45% of its assets, are largely in made up of investments in global shares, term deposits, NZ bonds, global bonds and Australian shares. Tūhoe has a total of $174m invested in these funds across three managers, earning a realised income of $5.8m in 2019. Throughout the year Tūhoe withdrew $18m from its financial portfolio. Forestry accounts for 29% of Tūhoe’s assets. Forestry assets comprise CNI equity, forestry rights and NZU’s. 2019 saw a rise in the value of CNI equity to $80m and the acquisition of Te Manawa Forest for $18m. Tūhoe’s investments in the fishing industry, held in AFL shares and fishing quotas, are valued at $26m. TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT 23 Waikato-Tainui Te Arataura o Waikato-Tainui, located in the Waikato, was the first iwi to reach a comprehensive land settlement with the Crown. Treaty settlement with the Crown. Te Arataura o Waikato-Tainui will be referred to as Waikato-Tainui throughout this report. Capital structure Debt to capital ratio Waikato-Tainui has maintained a debt-to-capital ratio of around 10% in Organisational structure recent years. Its debt-to-capital ratio decreased sharply in 2017 as a result Te Arataura o Waikato-Tainui of $100m of the $195m generated from the sale of 50% of its holdings Waikato-Tainui’s governance structure is led by two representatives of each marae which act as its parliament known as Te Whakakitenga o Waikato. This organisation appoints an executive committee known as Te Arataura which oversees the operational functions of the organisation. Tainui Group Holdings Tūhoe Charitable Trust - Property investment - Development strategy - Property development - Cultural and wealth - Waikato-Tainui distributions Tūhoe Fisheries Quota Ltd. - 2008 Waikato River Settlement - Regulatory review Fisheries Ltd Within the Waikato-Tainui group, Waikato Raupatu Lands Trust manages tribal affairs along with the group’s social and cultural strategic development and distribution strategy. Tainui Group Holdings (TGH) is the organisation’s commercial arm. TGH manages the Trust’s assets by implementing an investment strategy and holding an investment portfolio aligned with the Trust’s requirements and responsibilities. TGH also manages Waikato-Tainui Fisheries Ltd, which owns and leases fishing quotas and holds shares in Moana New Zealand. Waikato Raupatu River Trust was established to oversee and implement the 2008 Waikato River Settlement, related statutory and regulatory reform and has a strategic environmental agenda. in The Base being used to reduce debt. Waikato-Tainui’s debt-to-capital ratio is conservative, though higher than many other iwi groups, and is indicative of its active investment approach. Investment performance Asset base and net worth Asset base Waikato-Tainui’s asset base and net worth continued to grow in 2019, both increasing by 6%. Waikato-Tainui’s asset base increased by $77m in 2019 to a total of $1.446b and its net worth increased by $74m to $1.246b. These increases were driven by gains in the value of investment properties ($40m), equities ($9m) and primary industry assets ($2m). Waikato-Tainui revalued its hotels holdings for the first time in 2019 to their market Investment strategy value, having previously recorded them at-cost, leading to a gain in asset- Asset allocation in 2019 value of $26m. Relativity settlements are incrementally accounted for in Waikato-Tainui’s financial and commercial redress receivables each year, rather than being reported as a lump sum in the in 1995 amounted to $170m, including cash and year they are received ($5m reported as revenue in the 2019 period). land at market value. Since 2012 Waikato-Tainui has received relativity settlements of $290m in total, with two additional payments of $1.3m owing. Waikato-Tainui can make claims for relativity settlements every five years, up to 2045. Return on assets Return on assets Management approach: Largely active Waikato-Tainui’s return on assets increased to 7% in 2019 from 4% in 2018, bringing it slightly above its average return of 6.3% since 2010. Comprehensive income (excluding income from relativity settlements) Waikato-Tainui is primarily invested in property, as has been the case over the last 16 years. The group has made steps in recent years increased by $50m in 2019, driven by improved gains in asset values, with to diversify its portfolio with the sale of a 50% share of its largest property investment, The Base, in 2016. Proceeds from the sale were a slight improvement in net operating surplus. Hotel and rental revenue invested in publicly listed equities and used to reduce debt. The group also has investments in primary industries (Farms & Forests) continue to be Waikato-Tainui’s main sources of value gains outside of and a pool of direct equity investments, including investments in Waikato Milking System and Go Bus. Waikato-Tainui owns 100% of asset-value appreciations. two hotels in Hamilton (Novotel & IBIS) and has 50% shareholding with Auckland Airport in the Novotel Auckland Airport Hotel and is in the process of constructing a new 300-bedroom 5-star Pullman situated alongside the Novotel. Return on equity Return on equity Waikato-Tainui’s return on assets increased to 7% in 2019 from 4% in 2018, bringing it back in line with the average return of 6.7% since 2010. Waikato-Tainui distributed $20m to its beneficiaries in 2019, a distribution above its average of $12m. Retained earnings will be needed to support capital commitments as the development of the Ruakura Port progresses. Net assets per member increased by 6% to $16,370 in 2019, a larger increase than recent years, due to the increase in net worth and the Source: Unsplash Waikato-Tainui’s term deposits remained consistent with previous years. The group invested a net $10m in investment properties decline in Waikato-Tainui’s population growth rate in 2019. Net assets per member ($) and sold $8m of its shares in listed companies. Waikato-Tainui invested a further $1.4m in the Ruakura Inland Port. The Port is a longterm investment that began in 2017 and is expected to be completed in 2041. The development is being led by Waikato-Tainui, which has entered a 50/50 joint operation with LINX Cargo Care Group. Waikato-Tainui will retain full ownership of the land and expects to earn a steady lease income from it. TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT Year 2013 2014 2015 2016 2017 2018 2019 $ 12,638 13,104 13,492 13,841 14,839 15,422 16,370 25 Conclusions This report has reviewed the corporate structures, investment strategies and investment performance of eight iwi over recent years. Organisational structures The organisational structures of the iwi, while often complex, are broadly similar. Typically, a distinct commercial entity has been Waikato-Tainui had the highest growth rate in net assets per member in 2019 at 6%. This was mainly driven by gains in the value of delegated responsibility for investment strategy and asset management. The returns from the commercial entities have helped investment property. Ngāti Whātua Ōrākei had the largest decrease in net asset per member of 9% (driven by a significant increase finance the Trusts’ administration expenditures and distributions and have been reinvested to grow their asset base. in members) but the value of its assets per members far exceed the other iwi. Ngāi Tahu had the second lowest growth rate in net assets per member, of -8%, due primarily to the write down in the value its investment in Oha Honey. Ngāti Awa also had a decrease Investment strategies in net assets per member in 2019. The remaining four iwi had growth in net assets per member in the range of 0% to 5%. Raukawa has had the highest growth rate in net assets per member over the seven-year period, at 9% p.a. This relatively high growth in net The largest investments of five of the iwi reviewed in this report (Ngāi Tahu, Ngāpuhi, Ngāti Awa, Ngāti Whātua Ōrākei, and Waikato- assets per member was largely driven by the positive performance of managed funds and forestry investments. Tainui) are in the property sector (property development, property investment and ground leases) and/or primary industries (forestry and fisheries). This is largely reflective of the structure of their settlement redress from the Crown. Most of the eight iwi have Many iwi have continued to either diversify their asset base through direct investments in new sectors (such as tourism), further taken steps to diversify their portfolios by investing in listed and private equities as well as direct investments. For three of the iwi investment in equities, or development of new investment opportunities in sectors where they already have a presence. While some (Ngāti Porou, Raukawa and Tūhoe) the largest asset class in 2019 was financial investments, typically managed funds. Excluding the of these recent investments are yet to provide high returns, some appear to offer promising opportunities for iwi to increase their financial investments , the assets of most iwi are predominantly located in the geographical areas where the iwi are based. In recent returns and asset bases in the future. years several iwi have looked to further diversify their portfolios by investing in the relatively risky tourism sector. Overall, the aggregate return on assets for the eight iwi fell from 6.7% in 2018 to 3.8% in 2019. This is after falling from 9.8% in 2017. The different iwi have adopted a range of investment management approaches to their investments, with five of the eight iwi (Ngāi Six of the iwi reported a RoA in 2019 below their 2018 levels. This included the three largest iwi in terms of assets, Ngāi Tahu, Waikato- Tahu, Ngāti Awa, Ngāti Whātua Ōrākei, Raukawa and Waikato-Tainui) taking an active, largely active or mixed approach to their Tainui and Ngāti Whātua Ōrākei . Ngāi Tahu had the largest decrease in the returns on assets, from 8.4% in 2018 to below one percent investments. The other three iwi have taken a more passive approach, albeit often with some small active direct investments. There in 2019. Only Ngāpuhi and Tūhoe had increases in their RoA’s in 2019. These increases were relatively small, being less than 2%. appears to be a correlation between an iwi’s investment approach and how long ago it settled with the crown. Iwi who settled earlier generally have a more active investment approach today; while iwi that settled more recently often have a more hands-off portfolio of assets. Except for Ngāti Porou, the iwi that have taken a more passive approach are entirely funded through equity with only trade-related liabilities and no interest-bearing debt. The more active investors utilise debt alongside equity to fund their investment activities. Ngāti Whātua Ōrākei‘s debt-to-capital ratio is the highest of the iwi, at 18%. Investment performance The investment performance of the iwi entities has varied significantly over the seven years (2013-2019) reviewed in this report. Two iwi, Ngāi Tahu and Ngāti Whātua Ōrākei, have typically exceeded our indicative benchmark return of 8.7% per annum. The other six iwi have reported average returns below our benchmark, in the range of 3% to 8%. The geographical locations of the iwi, their governance structures, the assets they selected at settlement and their subsequent investment decisions have all impacted on their realised rates of return. In addition, the level of diversification and management expertise has played an important role in determining investment performance, especially when the management approach has been relatively active. Net assets per member have increased over the last seven years for all the eight iwi examined in this report, with the exception of 2019 when Ngāi Tahu, and Ngāti Awa experienced a decrease in net assets per member. This generally positive financial performance has allowed the iwi to better pursue economic, social, cultural, and environmental goals for their members. Most iwi provide some distributions to their members, however, in general, the majority of earnings have been retained for equity growth. Ngāi Tahu in Source: Ngāpuhi particular, as well as Waikato-Tainui have made relatively high distributions in dollar terms. Ngāpuhi, Ngāti Awa and Raukawa on the other hand have made relativity small distributions. However, these latter iwi have smaller asset bases. TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT 27 Appendix one Settlements to date Iwi Year of deed Redress amount ($ million) Ngāti Hinerangi 2019 8.1 Ngāti Manuhiri 2011 9 Te Patukirikiri 2018 3 Ngāti Mākino 2011 10 Ngāti Rangi 2018 17 Maraeroa A and B Block Settlement 2011 2 Ngāti Hei 2017 9 Ngāi Tamanuhiri 2011 11 Ngāti Tūwharetoa 2017 78 Ngāti Porou 2010 90 Ngāti Tamaoho 2017 10 Ngāti Pāhauwera 2010 20 Te Wairoa 2016 100 Rangitāne o Wairau (Kurahaupō) 2010 25 Ahuriri Hapū 2016 20 Ngāti Apa ki te Rā Tō (Kurahaupō) 2010 28 Rāngitane o Wairarapa-Tamaki Nui-ā-Rua 2016 33 Ngāti Kuia (Kurahaupo) 2010 24 Ngatikahu ki Whangaroa 2015 6 Ngāti Maniapoto (Waipa River) 2010 n/a Rangitāne o Manawatū 2015 14 Ngāti Tūwharetoa (River interests) 2010 n/a Ngāi Tai ki Tāmaki 2015 13 Upper Waikato River Iwi 2010 n/a Heretaunga Tamatea 2015 105 Ngāti Raukawa (River) 2009 n/a Taranaki Iwi 2015 70 Waikato Tainui (River claim) 2009 n/a Ngāti Hineuru 2015 25 Ngāti Manawa 2009 12 Tauranga Moana Iwi Collective 2015 0.3 Ngāti Whare 2009 10 Whanganui River 2014 81 Whanganui On-Account 2009 n/a Te Ātiawa (Taranaki) 2014 87 Ngāti Apa (North Island) 2008 16 Ngāruahine 2014 68 Waikato Tainui (River claim) 2008 n/a Te Kawerau ā Maki 2014 7 Taranaki Whānui ki te Upoko o te Ika 2008 25 Ngāti Kuri 2014 21 Central North Island Collective 2008 15 Ngāi Te Rangi 2013 30 Affiliate Te Arawa Iwi/Hapū 2008 39 Ngāti Hauā 2013 13 Affiliate Te Arawa Iwi/Hapū 2006 n/a Ngāti Rangiteaorere 2013 1 Te Roroa 2005 10 Ngāi Tūhoe 2013 169 Ngāti Mutunga (Taranaki) 2005 15 Maungaharuru Tangitū Hapū 2013 23 Te Arawa Lakes 2004 3 Ngāti Tama ki Te Tau Ihu 2013 12 Ngaa Rauru Kiitahi 2003 31 Ngāti Rarua 2013 12 Ngāti Tūwharetoa (BOP) 2003 11 Ngāti Pūkenga 2013 7 Ngāti Awa 2003 43 Ngāti Koata 2012 12 Ngāti Tama 2001 15 Te Atiawa o Te Waka-a-Maui 2012 12 Ngāti Ruanui 2001 41 Ngāti Koroki Kahukura 2012 3 Te Uri o Hau 2000 16 Ngāti Rangiwewehi 2012 6 Pouakani 1999 2 Tapuika 2012 6 Turangitukua 1998 5 Ngāti Toa Rangātira 2012 71 Ngāi Tahu 1997 170 Te Rarawa 2012 34 Rotomā 1996 0 Ngāi Takoto 2012 21 Te Maunga 1996 0.1 Tāmaki Makaurau Collective 2012 n/a Waimakuku 1995 0.4 Ngāti Ranginui 2012 38 Waikato Tainui Raupatu 1995 170 Ngāti Raukawa 2012 50 Hauai 1993 1 Te Aupōuri 2012 21 Ngāti Rangiteaorere 1993 1 Ngāti Whātua Ōrākei 2011 18 Ngāti Whakaue 1993 5 Rongowhakaata 2011 22 Fisheries Claim Settlement 1992 170 Waitaha 2011 8 Waitomo 1990 n/a Ngāti Whātua o Kaipara 2011 22 Name Year of deed Redress amount ($ million) Source: Office of Treaty Settlements TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT 29 Appendix two Summary financials Ngāi Tahu (y.e. June 30) Ngāti Awa (y.e. June 30) Balance sheet, $m 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Balance sheet, $m 2012 2013 2014 2015 2016 2017 2018 2019 Assets 715 730 809 1,032 1,219 1,348 1,504 1,676 1,924 1,930 Assets 110 117 125 128 134 142 151 150 Net worth 570 591 658 877 1,075 1,149 1,274 1,371 1,653 1,611 Net worth 99 101 107 110 114 115 124 123 Total interest-bearing debt 114 106 118 115 95 134 127 248 208 257 Total interest-bearing debt 2 8 8 8 9 19 18 18 Current liabilities 25 26 24 38 50 60 75 106 60 64 Current liabilities 5 11 13 5 7 13 11 13 Income statement, $m 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Income statement, $m 2012 2013 2014 2015 2016 2017 2018 2019 Revenue 146 163 209 231 320 346 396 330 312 352 Revenue 6 6 9 5 7 8 13 13 Distributions 12 11 15 17 17 21 25 25 55 36 Distributions 0.2 0.2 0.3 0.2 0.2 0.2 0.2 0.3 Operating exp. Trust 10 9 10 11 12 15 17 20 20 0 0 0 0 0 0 0 0 Finance costs 5 8 8 10 7 8 8 8 12 13 Finance costs 0.1 0.1 0.4 0.4 0.5 0.7 1.0 0.8 Taxation expense 1 1 0.4 0.2 0.4 0.5 1 1 1 1 Taxation expense 0.2 0.0 0.1 0 0.0 0.0 0.1 0 Settlement received 6 1 0 69 13 29 0 0 199 64 Settlement received 0 0 0 0 0 0 0 0 Government grant income 16 0.1 1 5 0 0 0 0 0 2 Government grant income 1 1 0.1 0.1 0.2 0.4 0.3 0.1 Total comprehensive income 44 26 64 226 198 77 124 97 282 (39) -0.3 1 6 4 5 3 9 0 Operating exp. Trust Ngāpuhi (y.e. June 30) Ngāti Porou (y.e. June 30) Balance sheet, $m 2011 2012 2013 2014 2015 2016 2017 2018 2019 Assets 39 45 52 52 53 56 58 59 62 Net worth 37 43 50 50 51 53 56 58 60 Total interest-bearing debt 1 1 1 0 0.1 0.1 0.02 0.02 0.01 Current liabilities 1 1 2 2 2 2 2 1 2 2011 2012 2013 2014 2015 2016 2017 2018 2019 Revenue 13 15 19 16 16 18 18 19 21 Distributions 0 0 0 0 0.3 0.3 0.2 0.2 0.2 Operating exp. Trust 0 0 0 0 0 0 0 0 0 0.1 0.1 0.1 0 0 0 0 0 Taxation expense 0 0 0 0 0 0 0 Settlement received 0 0 0 0 0 0 Government grant income 0.0 0.1 0.0 0.2 0.1 Total comprehensive income 0.4 6 7 0 1 Income statement, $m Finance costs TDB Advisory Ltd. Total comprehensive income tdb.co.nz Iwi Investment Report 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Assets 44 45 191 197 206 224 223 232 243 254 Net worth 40 41 183 186 189 201 201 211 223 229 Total interest-bearing debt 3 3 4 8 12 17 18 16 11 16 Current liabilities 2 1 5 5 8 12 6 15 10 13 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Revenue 11 11 146 31 29 40 31 45 48 38 Distributions 0.2 0.3 0.7 0.3 1 2 1 2 0.7 1 Operating exp. Trust 0 0 0 11.4 4.2 0 0 0 0 0 0 Finance costs 0 0 0.1 0.5 0.7 1 1 0.6 0.4 0.4 0 0 Taxation expense 0 0 0.1 3 0.5 0 -0.1 0.9 0.0 1 0.1 0 0 Settlement received 0 0 116 0.4 0 0 0 0 0 0 0 0 0 0 Government grant income 0 0 0 0 0 0 0 0 0 0 2 3 2 2 Total comprehensive income 0.9 1 5 5 4 12 0.4 10 12 5 CONFIDENTIAL DRAFT Balance sheet, $m Income statement, $m 31 Ngāti Whātua Ōrākei (y.e. June 30) Tūhoe (y.e. March 31) Balance sheet, $m 2012 2013 2014 2015 2016 2017 2018 2019 Balance sheet, $m 2013 2014 2015 2016 2017 2018 2019 Assets 422 593 631 767 939 1,086 1,189 1,254 Assets 134 254 296 328 348 365 386 Net worth 317 424 482 553 717 855 934 975 Net worth 133 252 296 325 345 360 381 Total interest-bearing debt 38 107 86 153 161 171 200 225 Total interest-bearing debt 0 0 0 0 0 0 0 Current liabilities 0 56 60 59 58 61 106 139 Current liabilities 1 2.3 0.3 1 2 3 2 2012 2013 2014 2015 2016 2017 2018 2019 Income statement, $m 2013 2014 2015 2016 2017 2018 2019 Revenue 52 35 41 43 57 51 39 53 Revenue 5 8 9 9 12 11 12 Distributions 0.2 0.2 1 1 1 1 2 7 Distributions 0 0 0 0.3 1.0 0.7 0.1 Operating exp. Trust 0 0 0 0 0 0 0 0 Operating exp. Trust 0 0 0 0 0 0 0 Finance costs 2 4 7 7 7 6 7 9 Finance costs 0 0 0 0 0 0 0 Taxation expense 0 0.7 6 0.4 4 5 1 2 Taxation expense 1 1 -0.2 2 1 0.1 0 Settlement received 19 0.2 0 0 0 0 0 0 Settlement received 0 108 26 0 0 0 0 Government grant income 0 6 5 4 4 4 3 3 Government grant income 0 0 0 0 0 0 0 Total comprehensive income 21 106 58 71 164 138 81 43 Total comprehensive income 6 119 45 25 19 15 21 Income statement, $m Raukawa (y.e. June 30) Waikato-Tainui (y.e. March 31) Balance sheet, $m 2012 2013 2014 2015 2016 2017 2018 2019 Balance sheet, $m 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Assets 86 93 103 129 136 149 164 174 Assets 644 775 802 925 1,040 1,164 1,225 1,244 1,369 1,446 Net worth 84 90 98 126 133 143 157 168 Net worth 538 559 596 705 784 862 940 1,068 1,172 1,246 Total interest-bearing debt 0 0 0 0 0 0 0 0 Total interest-bearing debt 69 218 220 199 211 268 250 123 144 145 Current liabilities 2 2 4 2 2 3 3 2 Current liabilities 34 94 45 50 38 33 241 18 19 41 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Revenue 6 11 10 15 12 12 11 17 Revenue 33 37 57 64 70 83 82 72 52 54 Distributions 0 0 0 1 1 0 1 1 Distributions 4 4 7 7 6 22 9 31 21 20 Operating exp. Trust 0 0 0 0 0 0 0 0 Operating exp. Trust 0 0 0 0 0 0 0 0 0 0 Finance costs 0 0 0 0 0 0 0 0 Finance costs 5 8 13 14 14 17 15 9 7 7 Taxation expense 0 1 0 1 1 0 0 1 Taxation expense 0 0 0.0 0 -2 -3 0 0 1 0 Settlement received 35 0 2 0 0 0 0 0 Settlement cash received 0 0 0 70 0 13 0 0 190 17 Government grant income 0 0 0 0 0 0 0 0 Government grant income 0 0 0 0 0 0 0 0 0 0 Total comprehensive income -1 6 6 16 7 11 14 11 Settlement reported 0 0 0 70 21 70 13 48 80 5 Total comprehensive income 19 16 37 110 74 84 80 140 104 74 Income statement, $m TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT Income statement, $m 33 Appendix three Glossary Iwi benchmark returns Iwi Period Equity market return Bond yield Assumed Benchmark Average RoA management fees return (50:50) of iwi Ngāi Tahu 2006-2019 9% 4% -1% 6% 9% Ngāpuhi 2011-2019 15% 3% -1% 8% 5% Ngāti Porou 2011-2019 15% 3% -1% 8% 3% Ngāti Whātua Ōrākei 2006-2019 16% 3% -1% 9% 3% Rangitāne o Wairau 2012-2019 16% 3% -1% 9% 12% Raukawa 2013-2019 16% 3% -1% 9% 8% Tūhoe 2013-2019 16% 3% -1% 9% 6% Waikato-Tainui 2010-2019 13% 4% -1% 7% 6% Averaged over the minimum comparison period Average 2013-2019 16% 3% -1% 8.7% - Benchmark portfolio: A model portfolio that the performance of actual portfolios is compared against Debt-to-capital ratio: The ratio of an entity’s total debt to its total assets Distributions: Cash payments used to benefit members of the tribe (i.e. the “shareholders” in the iwi) Equities: A class of financial investment including stocks and shares in an entity Equity/ net assets/ net worth: Total assets minus total liabilities Floating-fixed interest rate-swap: A contractual arrangement between two parties in which one party swaps the interest cash flows of a fixed rate loan, with those of a floating rate loan held by another party Hapori: Section of a kinship group, family, society, community Hapū: Kinship group, clan, tribe, subtribe. A number of related hapū usually shared adjacent territories forming a looser tribal federation (iwi) Held/recognised at cost: Where an asset is valued on the balance sheet at the price it was originally purchased for/ valued at and is not revalued at a later date Iwi: An extended kinship group, tribe, nation, people, nationality, race. Often refers to a large group of people descended from a common ancestor and associated with a distinct territory Net assets per member: The ratio of net assets to the number of iwi members Operating surplus/deficit: The surplus/deficit in an entity’s operating cash flows Relativity settlement: A settlement clause that requires the Crown to pay certain iwi additional amounts called relativity payments to maintain the proportion of the original settlement at a certain fixed percentage of all treaty settlements Return on assets (RoA): An indicator of how profitable a company is relative to its total asset Return on equity (RoE): A measure of profitability that calculates the profit a company generates with each dollar of shareholders’ equity Revaluation of assets (upward or downward): Changing the value of an asset on the balance sheet to better reflect the fair or market value of that asset as opposed to holding the asset at cost Rohe: Region, territory, traditional tribal areas Total comprehensive income: All changes in equity during a period except those resulting from investments by owners and distributions to owners. Practically, this is net income plus unrealised gains/losses on assets plus foreign currency transaction gains/losses Whānau: family group *Māori definitions taken from maoridictionary.co.nz TDB Advisory Ltd. tdb.co.nz Iwi Investment Report 2019 CONFIDENTIAL DRAFT 35