2 3
Tainui Group Holdings
Annual Report
2012
minor capital expenditure at Ruakura
will see TGH’s core debt grow to around
$200 million by the fnancial year end
2013, and $235 million by 2014, subject
to growth in the value of total assets.
Interest Rate Risk
Utilising both bank relationships and
technology, TGH monitors the interest
rate market on a daily basis. This is
particularly important in times of global
economic uncertainty, as this invariably
impacts on the swap rates that TGH is
able to achieve. Swaps are fnancial
instruments which are entered into
with banks to hedge interest rate risks.
Further detail on TGH’s interest rate risk
is provided in note 23.1 (b)(ii) of the
fnancial statements on
.
During the current fnancial year, TGH
restructured $42 million of its interest
rate swaps with Westpac. The rationale
was two-fold:
To take advantage of pricing and
•
fatness across the yield curve to
achieve lower interest rate swap
levels; and,
To align TGH’s swap portfolio with
•
policy limits to avert a breach of policy
that might otherwise have occurred
in November 2012.
Cost Effectiveness
TGH constantly monitors overheads
to ensure that proftability margins
are not compromised. TGH provides
corporate services to the Shareholder
which avoids duplication of resources
and enhances the depth of specialist
functions.
The level of overheads recognises
TGH’s need to attract talented staff and
to engage specialist external consultants
and legal advisors as needed. The long
‘gestation period’ between concept
and completion of a project means that
overheads are often incurred ahead of
resultant steady-state revenue streams.
The staged opening of tenancies at
as mitigated overhead costs to an
extent, providing revenue streams close
to completion of each tenancy.
Margin Management
As TGH is predominately in the property
investment and development business it
places signifcant emphasis on achieving
commercially acceptable returns on
property leases, and adopts a selective
approach to property investment and
development projects to ensure the
risks TGH undertake are appropriately
compensated for.
Rent reviews are another opportunity
to review and negotiate terms with
existing tenants. Depending on the lease
agreement, rent reviews are based on a
number of standard mechanisms, such
as current market rental as assessed
by an independent valuer, infation, and
an increase in tenant’s revenues. The
majority of TGH’s leases have clauses
INTEREST COVER POSITION (RATIO)
0 0.5 1 1.5 2 2.5
March 2012 Covenant
Minimum Covenant
2.00
2.67
GEARING POSITION
59% 60% 61% 62% 63% 64% 65% 66%
March 2012 Covenant
Minimum Covenant
Quasi Equity as a percentage of Total Tangible Assets
Maximum gearing is 30% of debt to total assets
60
%
66
%
which stop the rental from decreasing.
A feasibility study is undertaken where
a property development or investment
opportunity is presented to the company.
The study assesses what resources
are required for the development and
calculates the development margins and
rental returns. Property development
projects are assessed based on the
calculated returns and are dependent
on compensation for the resources
utilised and risk involved. As a project
is progressed, constant monitoring of
its feasibility is conducted, ensuring that
there are no cost over-runs. In 2012, all
projects were maintained within budget.
Covenant:
Covenants are the fnancial measures which TGH must abide by under the terms of the bank
debt facilities and only apply to the entities within the Group that have provided guarantees.
Interest cover ratio covenant:
Interest cover ratio calculates the number of times the proft (before interest cost) exceeds
interest costs. The ratio must be more than two times.
Gearing percentage covenant:
The gearing percentage covenant is the equity as a percentage of the total tangible assets.
key
INTEREST BEARING LIABILITY
(BANK DEBT TGH)
0
0
50
100
15
150
200
30
2012
180
2011
187
2010
88
2009
75
2008
73
$M
%
25
10
20
5