Te Kūmete o Paerangi

Kei ngā kānohi ora o hō tātau mātua i te pō, tēnā rā kautau. Nei rā te mihi ha Te Kūmete o Paerangi ki kautau, otīia ki tātau.

The annual report for financial year FY2021/22 is our second full year of operations. This year we have:

• Established our management resourcing

• Refined our investment strategy

• Started executing on our plan to build a balanced portfolio of diversified assets

Our bottom-line accounting return for the year was gigantic, at close to 60%. But this is misleading. It is largely due to the impact of carbon credits.

The operating financial result for the year was more modest. This is because we started the year mostly invested in cash. This is usual for recently settled iwi however we have started to undertake investments and iwi members will see the results of this over the coming few years.

Management resourcing

For our first year of operations, the directors in effect took on an operational role for Te Kumete, overseeing formation, bank accounts and reporting back to our shareholder.

This was done to keep costs low while we established ourselves; and knowing that we had some way to go to be fully formed and ready to invest.

By the start of calendar 2021 we were in a better position and retained Koau Capital Partners as our commercial manager. Koau specialises in providing contract management services to iwi commercial entities and bring expertise and a track record in building financial sustainable portfolios. The contract terms suit us too, giving us flexibility to change as we might see fit.

Refining our investment strategy

Investment is our core job.

We have to provide the financial resources to allow Ngāti Rangi, led by Te Tōtarahoe o Paerangi, to thrive and exist vibrantly in 1,000 years.

To do this we have to invest wisely and sustainably.

As mentioned, we started with cash as this is how settlements are made. But we do not want to just hold cash. We have a longer time horizon than that, and we want better returns to fund our growth as an iwi.

The arrival of new management was a good chance to check in on our investment strategy.

We tested our values and goals, our advantages and our challenges.

The overall direction remains the same, in short we want to build a portfolio that:

• Is balanced and is diversified across a number of asset classes and sectors.

• Delivers sustainable distributions to Te Tōtarahoe as well as capital growth

• Is resilient in downturns so that we’re never in a position that we let down Te Tōtarahoe.

What we have now added is a detailed implementation pathway. It is one thing to talk about having a balanced portfolio, it is another to find the appropriate investments and assets to fill this.

Scale, time horizon and relationships mean we are well placed to pursue a strategy of investing directly into larger assets, rather than investing via say the stock market.

We want to work with other aligned iwi to find good quality, well managed assets and use these to build a portfolio in line with our goals. This involves looking around the country for good quality assets at good prices and with good management.

We will move prudently. We don’t want to outrun our experience as an investor. We will report on our progress year by year.

New investments

We made three new investments during the year:

• Pūainuku Vines

• Pūai Tangaroa and

• Some small positions in managed funds

Pūainuku is an iwi owned and controlled collective investment vehicle for the diversified agriculture sector Ngāti Rangi has taken up the opportunity to invest alongside 11 other iwi from throughout the country in viticulture and kōura quota.

It would be very difficult to access these investments on our own. By investing collectively we enjoy benefits of origination cost and expertise, and efficiencies in scale and hence operating returns. We can spread our risk further with no loss, and indeed some gain, of reward.

Pūainuku Vines currently owns 66ha of vineyards in the prime lower Wairau area of Marlborough, largely regarded as the blue-chip location in the region. The vineyards are leased to the Giesen Group with strong returns and extremely positive terms.

Pūai Tangaroa purchased 2.14 tonne of kōura quota (CRA4) and become a limited partner in Port Nicholson Fisheries LP, another Māori owned company that allows iwi to participate in the full kōura value chain to derive greater returns.

The bulk of our assets remains in cash, however steps have been taken to make some small commitments to managed funds. This will only form a small part of the portfolio however it provides access to risks that we want exposure to (e.g. global markets) but which are expensive to undertake on our own. The recent global markets’ corrections are providing a window to invest

Our existing assets

In addition to cash the major assets we got through settlement are Karioi Forest and NZUs.

• Karioi Forest is Ngāti Rangi’s biggest asset at a value of $10.4m covering c9,000 hectares of forest land. Rental negotiations commenced in FY22 and are continuing with the incumbent forester. There are challenges that are faced by the forest such as pinus contorta and therefore the commercial yield is at the lower end of the forestry return spectrum, and has made this process challenging, but management will continue to work to ensure the best outcome for Ngāti Rangi.

• With the transfer of the forest as part of settlement, c160,000 NZUs were also transferred from the Crown to Te Tōtarahoe o Paerangi. These NZU’s are now sitting with Te Kūmete o Paerangi with the key objective being to generate an income from the asset.

Other activity

Originating asset opportunities takes some time and while we did not complete transactions in FY22, significant resource went into assessing the commercial property pipeline available under the Treaty settlement.

The Treaty settlement included the right to purchase up to 60 properties. Some of these have only tangential economic potential. It is our task to sift through these looking for the best commercial properties. Our focus is on properties that can be leased back to the Crown or lots that we can develop for housing, in conjunction with charitable funding and funding partners. You should expect to start seeing acquisitions in this space from FY23 and on. We aim to acquire Ruapehu College (land only) by the time of the AGM.

The other major opportunity we have before us is the New Zealand Defence Force Housing development at Waiouru. As iwi members will remember, this was a key part of our Treaty Settlement redress provided through Rukutia te Mana. We have been negotiating with the Crown and financiers over the past 9 months and expect to agree high-level terms in the coming months.

Financial results

Total operating income for Te Kūmete of c$200k generated an operating return of c0.8%. This is below the long-term target of 4.0% - 4.5% but FY22 was first year of direct investing and direct investment preparation, and this will gradually improve as we execute on the agreed plan.

Total comprehensive income of $14.9m equivalent to a total return on assets of 58.5% however this is misleading as includes full NZU uplift ($12m) and forest uplift ($2m).

The results further show that our focus on investing in income generating assets is critical to ensure that we are able to continue to pay a distribution, while continuing to build the pūtea.

As part of the FY23 Annual Planning process the Te Kūmete Board approved the distribution of $312,000 to be made to Te Tōtarahoe o Paerangi Trust.

Year ahead

The year ahead is proving to be another exciting one, with the focus of continuing to execute on our direct investment strategy.

Key things that you will see in the coming 12 months are:

• Purchase of the land-only interest of Ruapehu College from the Ministry of Education

• Finalisation of the Karioi Forest rent review and the Forestry Right Agreement which will solidify the longterm future of the forest

• Development of affordable housing in Ohakune to support uri into homes

• Investment into iwi collective investment vehicles with a focus on commercial property, property development and diversified agribusiness

• Agreeing partnership and development model with NZDF to meet their housing needs

Thanks

Finally, I would like to thank my fellow directors for their contribution and guidance throughout the year and I also acknowledge the management team at Te Tōtarahoe and Ngā Waihua o Paerangi for their support for our mahi.

Hei kōrero whakamutunga māku, kua tikina atu tētehi whakataukitanga kōrero hei whakaaroarotanga mā tātau “ka mate kai horo, ka ora kai whakatonu.” Nō reira e te iwi, kia whiti rere te māramatanga ki te ngākau me te hinengaro o tātau katoa.

Tomairangi Mareikura, Chair, Te Kūmete o Paerangi