Kiwi Property Group Limited (KPG) Earnings Call Transcript & Summary

Good morning, and thanks for joining us at the Kiwi Property Annual General Meeting for 2022. We have a combination meeting today, so we have people in the room, obviously, and we also have people online via the Link virtual meeting room. My understanding is currently there's probably 70, 75, around that number, online. My name is Mark Ford. I'm an Independent Director and Chair of the Board. I'm pleased to advise that we have a quorum, and I declare this annual meeting open. Before we get proceedings started, there's just a few housekeeping matters. Firstly, can you please all put your mobiles on silent or turn them off? Secondly, toilet facilities are in the landing area just behind the rear entrance to this room. If you're online, I'm sorry, I can't help you with directions, but I assume that you might know where they are, so that will be fine. If a fire alarm goes off, please allow us -- follow the staff in orderly fashion, down the stairs and congregate at the car park. And if that were to happen and anybody needs assistance down the stairs, there's some strapping young people around the place from Kiwi Property Group, who I'm sure would be happy to help you. If you're participating online and encounter any issues, please refer to the virtual meeting online portal guide, which should be on your screen or you can phone the Link help line 0800-200-220. With that, let's get things underway. I have to say, firstly, it's really good to be back in Auckland for this. Last year, those of you who attended got to see me on a little screen, which is not a really great way to do things, and we had some people in the room. And the year before that, the whole thing was virtual. So to be here today, in person, have all our Board here, is actually pretty exciting. I'm chuffed. And I've just ad-libbed on the next couple of paragraphs of the speech notes that people have given me, so there you go. What I'd like to do now is to introduce my colleagues on the Board. Mary-Jane Daly. MJ was appointed to our Board in September 2014. She is an Auckland-based professional director with a strong background in banking and finance. Mary-Jane also chairs our Audit and Risk Committee and is standing for reelection today. Chris Aiken. Chris is an Auckland-based professional director, joined our Board in June last year. He's the newbie. Chris has significant property experience spanning both the public and private sectors. Chris is a member of our Remuneration and Nomination Committee. We have Jane Freeman. Jane was appointed to our Board in August 2014. Jane is an Auckland-based professional director with extensive retail experience in the field of customer-driven technology. And Jane is Chair of our Remuneration and Nomination Committee. We have Mark Powell. Mark's over there. Mark is a -- he calls himself a trans-Tasman professional director. I expect that means he spends a lot of time on an airplane. But -- so Mark has been on our Board since October 2017, following a successful career as an executive in retail, wholesale and logistics. And Mark chairs our environmental, social and governance or ESG Committee. Last but not least, we have Simon Shakesheff. Simon is an Australian-based professional director, joined our Board in November 2019. Despite having joined the Board then, I think, Simon, it's your first in-person AGM, having been online for the last couple of years. Simon brings a wealth of property and finance expertise to the role and is a member of both the Audit and Risk and the ESG committees. And in my role as Chair, I also sit on each of those committees. In accordance with the NZX listing rules, the Board has determined that all of our directors are independent and in the Notice of Meeting that you received that contains further information on Director independence. Also joining us today are Clive Mackenzie, our Chief Executive Officer; and Gavin Parker, our Chief Financial Officer. And they'll be the guys who we shoot questions to later in the day. I also extend a warm welcome to the team from our registry, Link Market Services. They are here to help conduct the voting and formal part of the business later in the meeting and will also act as scrutineer. And finally, I'd like to welcome Jonathan Skilton, and Karen Shires from PwC, our group's auditor. So that's the formalities. Let's get on with the show. I'm going to start by giving a brief address, and then Clive will give an update on the company's financial results for the year ended 31 March '22, which you'll hear during presentations often, I think, referred to as FY '22 or '22, and some of the key initiatives that we have underway. At the conclusions of these presentations, we'll take questions and then conduct the formal business of the day, which is -- comes down to 3 resolutions: to reelect Mary-Jane to the Board, to increase the fee pool and to authorize the Board to fix the auditor's remuneration. Shareholders present at today's meeting will be able to ask questions, as with those participating -- sorry, as will those participating through the virtual meeting website. If you're online, you can submit a question about anything relevant at any time by clicking on the Ask a Question box either at the top or the bottom of your online portal. I think we've shown that -- we got that up on the screen. We'll be answering general questions at the conclusion of myself and Clive's addresses and then specific questions relating to each of the resolutions before we vote on them. I encourage shareholders, who are attending online, to send their questions through as soon as possible, so that we can make sure that they are allocated to the appropriate time in the meeting and that we get to answer everybody's questions. This is a shareholders' meeting. So strangely, only shareholders or appointed proxies can ask a question. So you'll be prompted to input your shareholder or proxy number before completing the process. And if you're asking a question from the room, please stand and state your status, that is, shareholder or proxy, and also state your name. So now to my reasonably short address. Obviously, COVID has domino -- COVID-19, I think there's so many variants now, I'll just call it COVID, has dominated the news headlines over the past 12 months. In fact, over the past 2.5 years. Kiwi Property has come through this most recent year in pretty good shape, making significant process on the delivery of our mixed-use strategy, which both Clive and I will comment on a little later. We produced a strong operating performance, delivering increases in all of the key metrics, including our sales, rent, our profit, asset values and AFFO, which is adjusted funds from operations, and this is the metric on which our dividends are based. And as I said, Clive will talk in quite a bit more detail about the operational performance in his presentation. It's a pleasing outcome given the impact of lockdowns in Omicron and demonstrates the resilience and diversification of our asset base and also the quality of our assets. Although COVID had an inevitable impact on our business, we focused on our customers and maintaining strict, strategic and financial discipline. We've not only mitigated the impact of the pandemic in 2022 but continued to drive an improved result. Maintaining this operational performance, growing profits, enhancing our property portfolio and creating connected communities will continue to be a focus for years to come and certainly in 2023. It hasn't all been plain sailing, though, of course. And over recent months, New Zealand has been hit by a wave of economic disruption. Factors such as the war in Ukraine, tensions with China, the post-pandemic supply chain backlog, although I think there's probably some pace about it, whether it is actually post-pandemic, but it's nice to think that way, and obviously, the large physical stimulus that was injected into the market during COVID. This disruption has triggered a sharp rise in inflation, causing the cost of items like petrol, groceries, building supplies, and others to increase, resulting in a corresponding increase in interest rate. It won't be any news to anybody in this room that the NZX, like most other bourses around the world, has been adversely impacted by these macroeconomic factors over the last couple of months, and property has clearly not been spared from that. So the NZX, S&P, NZX 50 is the -- index is down more than 20% since the start of the year. And as I say, property entities are part of that. We have not been immune. And these market forces have seen our share price lower than where any of us would like to see it. We believe that ours is a robust business and that our underlying performance still justifies and our underlying asset values lead to our belief that the true value of the company is not recognized in that share price. Some of this mispricing is due to macroeconomic factors. And of course, we have limited impact and control over those. But there are some things that we can have influence on. And in 2023, we'll continue to focus on those factors that we can have an element of control over, with the aim of increasing that share price and creating value for you as shareholders. Obviously, if you bought up a guarantee and asked if I can sign it, I can't. But what I can say is that the Board and management are very cognizant, and we will be doing our best to address that share price this year. Kiwi Property is well placed to navigate the disruption currently facing the market, supported by what we believe is a disciplined approach to capital management. At the end of March, our gearing was a bit over 31%, pretty much the same as the year before and within our self-imposed gearing range. We currently have $264 million of undrawn bank facilities, what we call headroom, and approximately 70% of our debt is currently hedged. And that helps us to safeguard against future interest rates, at least for the period of time that those hedges are in place. Finally, we're proud to have a BBB corporate credit rating from Standard & Poor's, demonstrating their belief in the resilience of our company. While each of these factors has the potential to play an important role in helping to ensure that Kiwi Property continues to deliver operationally through a volatile economic period, there's another that stands out as the foundation of the company's success in the years to come. And that is our unparalleled mixed-use landholding and our high-quality property portfolio. And I think you'll see on the screen there, we're very, very lucky. Well, I'd like to think good balance of skill and luck but over the years to diversify our asset base and to increase our exposure to these mixed-use centers. We knew that bringing the best together of retail, office, residential assets and potentially other asset classes such as health, industrial and perhaps student housing and the others, a whole range of things that we are potentially capable of doing and delivering on our mixed-use sites. We have the land and we have the opportunity, and we have the opportunity to deliver on the timing, which means that we can effectively be the master of our own and hopefully, your, destiny. So we want to create centers that people thrive in and where Kiwis want to live, work, shop and play. When you put all those things into 1 asset or town center, they feed off each other. So having people live and work improves the value of the shopping centers, improves the returns to our tenants. So it can be very -- when done properly, it's a real win-win. So our strategic land holdings at Sylvia Park, LynnMall and The Base in Drury, we believe, gives us a competitive advantage in future years. Having said that, buildings don't pop up overnight. So there is -- these things take time to deliver, but we are well advanced, as Clive will talk about. So we don't need to compete necessarily in paying current high prices for land, because we do have that stock of land. 125 hectares around our major town center sites, which does provide for many, many years to come of future development. So again, I've ad-libbed and I know I get into trouble for doing that, but again, I've probably mucked up the guys changing the slides. But I've covered the points for the next couple. So I did mention that we can choose our timing, so we can be as quick or as slow as it takes to deliver these assets in the right economic time. And to put this all in context, those 3 centers in particular, so Sylvia Park, LynnMall and Drury, they are 3 of the primary town centers that are nominated for development in Auckland over the next 10 to 20 years. So we really are well placed to deliver for the future. And Drury is obviously a reasonable way up. So we believe we have -- well, in fact, we don't believe, we know we have the best and most exciting development pipeline in New Zealand. Ensuring that we fund that ultimately -- optimally is obviously a key consideration and something we're highly attuned to. Following detailed analysis to identify our preferred initial funds management -- sorry, our funds management initiatives, we've begun the process of establishing a stand-alone CBD office co-investment platform with a number of our office assets. And what that will enable to do -- us to do, is to maintain control of those assets, maintain our management of them, generate some fees from that management and redeploy the capital that we are able to raise into the developments that I've just probably repeated half a dozen times. We believe it is an important initiative to deliver on these funds -- on the office fund for 2 reasons. Firstly, it does create a separate vehicle with a specific office asset class that will hopefully have its own source of capital through a range of partners, and that will enable us to pursue the opportunities that help grow our portfolio. Secondly, it will enable us to recycle the capital into the mixed-use developments, as I've just said. In parallel, we are continuing to pursue some asset sales of some of our noncore assets. They have taken some time, as you will know. And we've had to deal with seismic issues that take time to remedy. But those asset sale processes are underway. And I'm going to be optimistic and say that within the next 2 months or so, we should be able to make an announcement. I've just put some massive pressure on our management team. Is that right, Steve? So that concludes my opening remarks, and I'll hand over to Clive to discuss our operational and strategic progress. Thanks a lot.

Thanks, Mark, and kia ora, everyone. It's great to be connecting with you face-to-face once again, as Mark pointed out, and thank you for joining us today. And also, everyone viewing us online today, I appreciate you taking the time to log on as well. So as Mike mentioned, Kiwi Property delivered a strong operating result in FY '22. We are pleased to have delivered broad-based growth as well as unlocking a range of new, exciting opportunities for us. Our aim is to maintain that trajectory throughout FY '23 with a focus on sustained delivery for our customers, our tenants and for you, our shareholders. Now let's take a closer look at some of those key operating performances. So as you can see here, net rental income increased 7.8% to $187.1 million in FY '22. And this growth was primarily led by Sylvia Park's 20,000 square meter level 1 expansion, reflecting the long-term strategic value that we saw in that project. And the growth over the past year drove a corresponding uplift in operating profit before tax, which rose 7.3% to $124.8 million. And this is an extremely pleasing outcome given the challenging macroeconomic climate that we had and the presence of COVID during the latter half of last year or Omicron, in particular. Net profit after tax was also up, growing 14.1% to $224.3 million, following $120.5 million fair value gain on our high-quality investment property portfolio. This valuation uplift was broad-based with The Base, Vero Centre, Westgate Lifestyle, Sylvia Park and Drury, all doing very well. Adjusted funds from operations, the key metric used to determine Kiwi Property's dividend, increased 12.3% on the prior year to $100.4 million, supported by a reduced COVID-19 impact and maintenance capital costs compared to the prior year. One of the most significant aspects of our FY '22 results was the robust performance of our assets over the past 12 months. The company achieved continued rental growth in FY '22, including a 4.2% increase in new leases and rent reviews across our office and mixed-use portfolio. This has been an amazing achievement considering that we had a significant lockdown during the latter half of last year, especially in Auckland and our Hamilton assets. Our ability to drive rental growth through the pandemic is really a testament to the strong tenant demand for our space and our assets and the great team that we have driving those -- that performance. The photo on this slide was taken at the opening of the new Culture Kings store at Sylvia Park, one of the many leading international retailers that are keen for presence at our assets, and we've seen that continue. Since we've come through lockdown and into this year, we're seeing a growing demand for international retailers to look for a home in our assets in New Zealand. Sales were also up in FY '22, increasing 6.7% compared to the prior year. And this uplift comes despite the fact that our Auckland shopping centers were closed due to COVID, restrictions were around 15% longer in the financial year than the last one. In parallel, occupancy across our office and mixed-use portfolios was 99.8% at year-end. And these trends highlight the resilience of our assets and the flight to quality in the property sector, which Kiwi Property is ideally placed to capitalize on. The last number on this slide shows the gross occupancy cost ratio for the specialty stores at our centers and shows how affordable our rents are. What this figure highlights is that the stores at our centers are highly productive from a sales perspective, making them attractive to retailers, especially if the economy starts to slow. As at the 31st of March 2022, Kiwi Property diversified portfolio -- property portfolio was valued at $3.6 billion, placing it amongst the largest in the country. As a result of this valuation uplift, net asset backing per share increased to $1.45, which is a $0.09 per share increase on the year before. Furthermore, the company undertook several capital management activities in FY '22 with a view to enhancing our overall debt profile. We issued a new 7-year bond at a coupon of 2.85%, which sounds incredible if we look at what the interest rates are at the moment, and increased our bank facilities with MUFG being added to our banking pool post balance date. And these steps have enabled us to take advantage of favorable lending terms, reducing our weighted average cost of debt by 34 basis points versus the prior comparable period and also increasing our weighted average term-to-debt maturity from 2.9 years to 3.4 years. In addition to our strong operational performance, we also moved ahead with several exciting strategic and development initiatives, and let me take you through a few of them now. At Sylvia Park, around half of our 35-hectare land holding has capacity for further intensification, which Mark took you through. Not only does that scale of our landholding give us the scope to undertake this exciting potential future development, it also provides the flexibility which allowed us to conditionally sell to IKEA 3.2 hectares of land immediately adjacent to the east of Sylvia Park shopping Center in late November '21. This agreement marks a major step forward towards our goal of becoming -- towards our goal of welcoming IKEA to Sylvia Park and our aspiration for them to build their first New Zealand flagship store at the center. Construction of a new IKEA store would be a game changer for Sylvia Park and likely driving site-wide valuation uplift and attracting visitors from around the country. And anybody who's traveled internationally and seen an IKEA and the pulling power of an IKEA will understand exactly what I'm talking about. The move will also likely be a catalyst for us to go ahead with plans for an exciting new 6,400 square meter, large-format retail center directly adjacent to IKEA to take advantage of its remarkable pulling power. Also at Sylvia Park, construction of a second office building began in November 2021, furthering our diversification of our asset portfolio. This development, known as 3 Te Kehu Way, signals the next step towards the creation of a thriving commercial hub and the continued evolution of Sylvia Park into world-class mixed-use asset. 3 Te Kehu Way aims to capitalize on the high levels of interest in office space at Sylvia Park. Interest has been strong in the wake of COVID-19 with many tenants now looking for satellite offices to complement their CBD locations. The development has been designed with a flexible working and specialist requirements of medical practitioners in mind, enabling us to effectively cater to this important market sector. And despite the challenging leasing environment that we're in at the moment, 30% of the office space in the building is now committed with a significant amount of medical practitioners taking up that space, with good interest in the remaining area as well. Around half of Aucklanders over the age of 15 currently live in rental accommodation, with this number expected to grow to around 60% by 2043. This growth in demand, coupled with a lack of quality rental stock and strong demand, have pushed up house prices and created fierce competition for housing. Build-to-rent has the potential to play an important role in helping address this imbalance, offering residents the flexibility of renting coupled with the secure lease terms, professional on-site management and transparent costs. The asset class is incredibly attractive to Kiwi Property and it helps us to broaden our existing asset base and provide a stable, low-risk revenue stream and robust capital growth. Our ambition is to become the leader in this sector in the years ahead, with our mixed use assets likely to include a significant residential presence going forward. We've already begun construction of New Zealand's first major build-to-rent development at Sylvia Park with the 295-apartment complex likely to begin renting in early 2024. And it's interesting, we are really starting to get inquiries from prospective tenants 2 years out before we even start leasing. So let's take a short -- let's take a look at a short video providing an overview of the project and our vision for this really exciting new asset class. [Presentation]

Thank you. I'm sure you all agree a fantastic opportunity for the company going forward and really an opportunity for us to change the shape of the New Zealand renting market, really putting the renter at the front of it and really providing customer service where they've never had any customer service before in their renting experiences. If I move on to another great opportunity we have at Drury. Our 53-hectare site has been designated as a site for the new Drury Town Center. And we intend to create a sustainable mixed-use community that will become the hub for the 60,000 people who are expected to move into the area over the next 25 years. Unfortunately, despite our private plan change application being approved by Auckland Council's independent commissioners in May, the Council has advised us it now intends to take the unprecedented step of appealing its own decision to the environment court. While this is incredibly disappointing and earthworks consent has already been issuing -- issued, enabling us to proceed with the enabling activity. In addition, the fast track process being run by central government is still ongoing, and we remain optimistic that a favorable outcome will be announced over the coming weeks. During the year, we also made considerable progress on our ambition to transform LynnMall into a thriving mixed-use community, and we've obtained resource consent for an exciting 25-story tower that is set to change the new Lynn landscape. Integrating ground floor retail, 3 commercial office levels and 245 build-to-rent apartments, the development will connect directly to the existing shopping center, offering residents unparalleled convenience and a range of retail, entertainment and transport options on their doorstep. The positioning of this tower is directly opposite the train station and the bus interchange for any of those of you who know the area well. So incredibly well located for people to be able to connect into the public transport network. We're focused on proceeding with the LynnMall development at the optimum time and will ensure input costs, market conditions and the macroeconomic climate are conductive before moving forward with construction. Furthermore, Kiwi Property has also been committed to sustainability for the last 20 years, and we've continued to make significant progress towards the delivery of our environmental and social targets in FY '22, including a 60% carbon emissions reductions compared to our 2012 baseline, which is an amazing achievement, but though we got a lot of hard work ahead of us to achieve that last 40%. In May, we also announced that we're working with Meridian on an exciting initiative to create the country's largest rooftop solar array at Sylvia Park. The installation will feature around 1 hectare of photovoltaic panels and produce enough energy annually to power the average household for 200 years or 200 households for 1 year. The array is expected to reduce Kiwi Property's operational emissions by around 7%, a significant milestone on our sustainability journey. So that concludes my review of FY '22. As we look ahead to FY '23, the management team and I are squarely focused on both maintaining Kiwi Property's strong operational performance, but also on delivering on our key strategic initiatives. That includes launching our CBD office co-investment platform, keeping up the development momentum we have at 3 Te Kehu Way and Sylvia Park build-to-rent, and also in particular, progressing the sale of Northlands and subsequently, The Plaza. By doing these things, we will help unlock additional shareholder value, encouraging a lift in the Kiwi Property share price and supporting a sustainable dividend growth. We made significant progress on our mixed-use strategy this year and are set to do the same next year, moving us even closer to our goal of creating connected communities for the people of New Zealand. Thank you, and -- thank you for your continued support, and I'll hand back to Mark. Thank you.

Thanks, Clive. Let's now talk about dividends for a minute. We've paid a final cash dividend of $0.0285 -- or we will be paying, of $0.0285 per share for the 6 months ended 31st of March 2022, bringing the total cash dividend for FY '22 to $0.056 per share, up 8.7% on the prior year. Looking ahead, we are targeting an FY '23 cash dividend of no less than $0.057 per share. That obviously will be contingent on the financial performance of the company and barring material adverse effects or unforeseen circumstances, such as future potential related -- sorry, COVID-related lockdowns. Ladies and gentlemen, that concludes our overview of our activities for '22. Before we move to the formal business, as I said earlier, we have an opportunity for questions. We do ask at this time that you limit your questions to those relating to the company's activity. Any questions relating to the formal resolutions, you'll have a chance to ask later. I've said before, but only shareholders can ask questions. And when I call, can you please stand? And somebody will bring you a microphone. State your name and status before asking your question. I'll take questions from those present in the meeting first, and then we'll turn to questions that have been logged online, and they will be read to me by one of our colleagues over there. So questions from the floor, please.

[ Paul Ford ], a shareholder. I just wanted to ask about the CBD office co-investment platform. Do you envisage that to be partnership with other property companies or any other fund management companies or the like?

Our expectation is -- I mean we've -- we'll be talking to a fairly wide audience. Our expectation is that it's likely to be global offshore investors who invest in these types of funds around the world. So the likes of offshore pension funds, sovereign funds, those types of entities. And it could be a single investor or it may be a club of a small number of investors. Does that answer your question? We have one up the back, Steph.

[ Peter Musberger ], shareholder. You may have answered my question, co-investment platform. Can you just explain that a little more?

Yes, sure. It sort of is what it sounds like. So it will be holding these office assets not solely by Kiwi, but with some co-investment partners. And I think I've touched on it before, but the benefits of that are that it brings us a new source of capital to put into our developments rather than we obviously can't keep borrowing and we can't keep coming to the market asking you folks. So it's a new source of capital. It enables us to retain management control of the assets. And it also introduces a new income stream being management fees, leasing fees and the like. All the services that it takes to run those assets, a co-investor will pay a fee for which will help to recoup their costs. Is that okay? Yes.

My name is [ Rachel ], I'm a shareholder. And thank you all for the very detailed update. I've got 2 questions. First of which is...

Probably just give me one at a time.

Okay. Yes. No worries. They'll be short. They'll be short. So the first one is just in regards to, I guess, the Drury plan change. What is the reason the Council was appealing, I guess, the initial decision?

Well, I certainly can't read the Council's mind. Clive might have a little bit more insight but...

Yes. It's primarily around the timing of our development. They would like it to be later rather than sooner. It's not just our plan change that's been appealed. There's a number of developers that have put in plan change applications at the same time that were all approved at the same time, and they're appealing all of them. And it's really around timing. I can't talk full counsel on what other motivations they may have had there.

I mean, like a lot of these government decisions, if you look through, there's probably one word that comes to play, and it's politics. But who knows?

Yes.

Second question.

Second question just in regards to the IKEA. I guess, IKEA comes, which sounds awesome. Was, I guess, the consideration instead of selling the land to IKEA possibly leasing it to them? Or was that just...

IKEA globally like to own and be in control of that land. So I don't believe it was possibility at all, Clive?

No. They wouldn't be a transaction unless they own the land. That's their global platform. And we weighed up on balance. We worked hard to obtain that land. But we believe that the pulling power and strength of IKEA would outweigh the negative benefit or the negative side of selling the land. And we believe we'll get far more value from having them associated with the Sylvia Park than them being at another location.

Our friend, [ Peter ], up the back again.

Further question related to IKEA. Has Costco been approached for Sylvia Park?

Costco is obviously a fantastic retailer, and we'd love to have an association with them. And there may be opportunities in the future at some of our sites, maybe not at Sylvia Park. They're very hungry in terms of also their land requirement. They also like to own as well and the site of Westgate, they actually bought that site as well. But we believed that IKEA has probably got more significant pulling power than a Costco has. And so we went with the Costco option -- sorry, the IKEA option. Sorry.

Living in Sydney and having in -- where both Costco and IKEA present, and having a wifey who loves to shop, I can tell you that IKEA is a bigger draw card. Any other questions? If not, we might turn -- Trevor, do we have some questions from the online attendees today?

Yes, we do, Mark. The first question online is, the directors have failed to maintain capital value for shareholders. At this time, the share price is some 45% below the net asset value. This is well below the discount of other property companies. What are the directors doing to communicate the true value to investors and brokers, both local and overseas?

Yes. I guess I touched on that a little bit previously but we do have a program. In fact, Clive and I met over the last -- yesterday and today, meeting with some of our major institutional shareholders. The management team have a program where they are meeting with the brokers, who represent retail shareholders. I think you've met 2 or 3 now, and some more to come over the next few weeks. We are very conscious of the issue, and we lose sleep over it at night. I think in terms of the relativity of us versus other property companies, that relativity has closed pretty much over last couple of weeks. And we're now not the outlier, where I think everybody else is, I was going to say, caught up and probably caught down in terms of discount to underlying asset value. Just as an observation. If you look at history, the share market generally does the downturn of property companies generally is ahead of the asset valuations. And in the next 2 or 3 years, there's a reasonable chance that asset values will fall a bit, but our view is strongly that the stock market has overshot any underlying value decrease. I'm not -- I can't ask that person whether I've answered the question, but it is forefront of our mind.

If I could just add one comment. Just to clarify that the discount is 30%, not 45%, as the shareholder suggested.

Yes. Yes. Thank you, Clive -- thank you, Gav. Trevor?

The next question is, have the directors explored the prospect and benefits of paying dividends each quarter in line with peers?

Interestingly, that very question is being addressed at our August Board meeting. We have some work being undertaken to look at the benefits or otherwise of moving that way. So after our August meeting, I can't remember the date off hand, but I think it's late-ish August, we will have considered and have an answer for that question. So the answer to that question is yes. What the answer will be to the next question, we'll announce it as appropriate.

One final question, Mark. The question is, the market is anticipating a major increase in capitalization rates given the increase in market interest rates seen to date and predictions of further increases. Does the company have a sense of what level of capitalization rates are reflected in the market, placing a current value of $0.99 on the company's shares?

Yes. We're a little bit better than that $0.99. But look, we obviously are trading at a discount, and valuations do tend to lag. I think if you look -- again, I'm going to sort of look a little bit of history. Every downturn is different, and there are different factors going into every downturn. There's going to be a long-winded answer, by the way, but I think it's worthwhile. And the themes this time are quite different. We have -- we're coming off the lowest ever interest rate base. We are in a position where certainly in the New Zealand and the Asia Pac market and pretty much most markets around the world, the underlying fundamentals of the property markets are quite strong. As Clive mentioned in his speech, we're still getting rental growth. There's not massive oversupply of any of the asset classes. So -- but the wild card, I guess, is the geopolitical issues in the current global scene that we can't have any influence over. But put those geopolitical issues aside and our view is that, yes, there will be some softening of cap rates. They will vary across different asset classes, and they will vary according to the quality of the assets. And traditionally, the best assets suffer the less or the lower valuation decrement. So our view is that in the next 12 to 18 months, we might see 25 maybe to 50 basis point, which would result -- softening in the cap rate it is, which would result in a 5% to 10% change in the valuations. So we don't see that we're sitting on the edge of a cliff, ready to fall off. Now famous last words and, obviously, everybody has different views, but we debate this often. We get advice from a wide range of resources, economists, property agents, et cetera. And that is where we have landed. So that's the last question. Okay. Sorry, we have one here. The microphone is on its way, sir.

[ Richard Jenkins ], shareholder. If the Board thinks that the share price is undervalued, would they consider a share buyback?

Look, a buyback is an option. It's one of a number of options that we have. I mean the short answer is yes, we'll consider it. The issue is whether that is a temporary solution to improve the price and you can't be in the market buying back, not buy backing, forever. And we've got to prioritize the use of our available capital across a range of opportunities. Share buyback is one, the developments that we have is another and maintaining a reasonable level of gearing in what is going to become a tighter interest rate environment is another. It is -- so yes, it's an option. We haven't landed on a firm decision around that at this point. Does that answer your question? Okay. All righty. We've got one more. I should have the hammer.

[ Peter Musberger ] again, third time lucky. Can you make a comment on the DRP, please?

Yes. Look, we've not turned the DRP on because of the dilution that, that would have due to we'd be issuing shares at significantly less than underlying asset value. So it's something we consider at every dividend, but that has been our position so far. Gav, do you want to add anything to that?

No, I think that was well said.

Thank you. There you go. Got one right. Okay. One last chance before I put down the gavel. Okay. So that concludes our more informal part of the business. So now we'll move on to the formal resolutions of the meeting. Voting on each resolution will be by poll. Each person voting at the Annual Meeting and each shareholder who has cast a vote by proxy has 1 vote for each share held. I will put the resolution to the meeting and provide an opportunity for you to ask questions in relation to that resolution. And as I've said before, we will ask that you keep any questions specific to that resolution. In respect of proxies received, as Chair of the meeting, I've been appointed to act as proxy. And where I'm not directed on how to vote, I will vote in favor of each of the resolutions -- 1 and 3, sorry, and I'll abstain from resolution 2, as it relates to director remuneration. For shareholders joining us here today, you should have a voting card that's been given to you when you've registered. Please put your hand up if you don't have a voting card, and somebody will come to assist. And please mark your voting intention for each resolution. And the cards will be collected at the conclusion of the meeting. And we have some pens on standby. So for anybody who needs a pen, please put your hand up, and our ever-reliable assistants here will have a pen for you. And then [indiscernible] boomerangs. So shareholders joining online, you can cast your vote using the electronic voting card received. Once you've registered online, has been validated. To vote, you'll need to click the Get Voting Card within the online meeting platform, and you'll be asked to enter your shareholder or proxy number to get validation. Please then mark your voting card in the way you wish to vote by clicking for, against or abstain on the voting card. Once you have made your selection, click on the Submit Vote and your vote will be lodged. Please refer to the virtual meeting online portal guide or use the help line if you require any specific assistance. The voting will remain open 5 minutes after the conclusion of the meeting. Results of the votes will then be scrutinized by Link and declared and announced to the NZX later this afternoon. Moving to resolution 1, which is an ordinary resolution. In accordance with the company's constitution and the NZX Listing Rules, Mary-Jane Daly will retire at this meeting and offer herself for reelection. The Board has determined that if MJ is reelected, she will be an independent director for the purposes of the NZX Listing Rules. I'll now ask MJ to provide a brief bio and comments to support her reelection.

Thank you, Mark. I'm pleased to offer myself for reelection to the Kiwi Property Board today. As Mark said earlier, I first joined the Board in 2014, and I've been Chair of the Audit and Risk Committee since 2017. I've also chaired numerous due diligence committees for debt and equity issues over my time on the Board. I'm a professional director and currently serve on the Boards of Kiwibank, AIG Insurance and the Fonterra Shareholders Fund. And I've also recently retired as Chair of EQC and had a number of other Board roles earlier in my career. My executive background is in banking and insurance, and my key areas of focus on the Board are contributing to the development and execution of our strategy. And through my executive career and my other governance roles, I think I bring a strong tenet and customer perspective to the development and execution of that strategy. I also have a strong focus on financial and operational risk. And so that's an area where I'm contributing at the Board level. And I also have a strong ESG lens and from various roles, such as Chair of the Green Building Council at an earlier part of my career. Thank you.

Thanks, MJ. I've brought your little notes, too. I won't read this. So as a Board, we're obviously committed to ensuring that as a group, we possess the appropriate mix of skills, knowledge, experience and diversity to discharge the role and responsibility of the Board's. The Board unanimously supports the reelection of MJ as it considers, she has the expertise to contribute to the overall skill set required by the Board. And I would say MJ has probably unsold -- sorry, undersold herself in that concentrating on contributing to a limited number of areas because MJ, as does all our Board, contribute to every discussion that we have. So the Board does recommend, the Board other than MJ, although you probably would, too, but you're not allowed, so -- does recommend that you vote in favor of Jane -- Mary-Jane. I'll now read resolution 1, that Mary-Jane Daly be reelected as a director of the company. So I open for questions. We'll start with questions from the room. No? Questions from online, Trevor?

[ None online ].

No questions online. So I will now get to the formal part. So this resolution -- for this resolution to be passed, it must be approved by simple majority of those shareholders or appointed proxies entitled to and voting on the resolution. Are we putting the proxy numbers up? No? Okay. Sorry, we're doing that at the end. Okay. So please now -- I'll put the motion. Please vote on your voting cards, and we'll give a couple of minutes for you to do that and then move on to the next resolution. [Voting]

I think you've probably already all done it. So resolution 2 is -- and I'll talk -- I'll give a little bit of an explanation about this. But the directors' fee pool was last reviewed in 2017, at which time, a fee pool of $737,500 plus GST was approved by shareholders. The Board considers that the alignment of directors' fees to our peers in the market is important for the company to continue to attract and retain high-performing directors, whose skills and experience are suited to Kiwi Property's requirements. We engaged Ernst & Young to benchmark the roles of the chair, committee chairs, committee members and the nonexecutive director base fees versus the property and age care health sectors and also the general market in -- around markets -- similar market caps to us. We reviewed the benchmark data and based on a comparison of the fees paid to our directors in the market, we consider that an increase in directors' fees is required to move more competitive -- or to more competitively align the remuneration closer to the company's comparator group, 75th percentile. The proposed increase will require a 15.8%, or $116,500 increase to the directors' fee pool to $854,000. This is equivalent to a 3% per annum increase since the pool was last reviewed in 2017. If the resolution is passed, the Board intends to allocate the -- sorry, the fee pool initially as set out on the table on the screen. The proposed increase in directors' fee pool will also allow for a discretionary pool of $97,000 that provides flexibility to, amongst other things, remunerate directors, who take on significant additional responsibilities, including, for example, one-off specific projects or transactions. So in schedule -- in resolution 2, sorry, we do seek approval for that increase in the directors' fee pool, and we consider that it is reasonable. I'll now read resolution 2, that the directors' fee pool for the company be increased from $737,500 to $85,000 -- sorry, $854,000 per annum plus GST, if any, for the purpose of NZX Listing Rule 2.11.1. Such sum is to be divided among the directors, as the directors from time to time deem appropriate. I'll now open up for questions. Are there any questions from online, Trevor?

Yes, there is a question online. The question is, with the current poor share price performance, why does the Board think it is appropriate to increase their fees?

That's obviously an appropriate question. The performance -- the share performance is, to a large degree, not totally, of course, but to a degree, I'll say, beyond our ability to -- well, we influence as best we can. We can't make that final decision. The benchmarking showed that we are under the 75th percentile of our peers, which is where we want to be. And as I said earlier, we do want to be able to attain -- attract and retain good people. And therefore, we think that, that modest 3% per annum increase is justified. Unfortunately, that I'm not sure if the person who asked that question, are they able to come back if they're not satisfied with that? Or are we sort of done?

Yes, they are.

Okay. Any other questions?

There are no more questions.

We might -- should we just talk among yourselves for 2 minutes. So I'd just like to give that person an opportunity to come back if they're not satisfied. Question here, sir.

Sorry. [ Tim Taylor ], shareholder [indiscernible]. Does the Board expect this or is there an intention to alter the numbers?

At this stage, there's no intention to alter the numbers. 6 means we all work hard, which is a good thing, and we can obtain the right mix of skills. It's, by some standards, a small-ish Board, but I think it works well for us. So no intention to change at this stage. Our constitution provides for a maximum -- Trevor? Trevor's our General Counsel. Can you remember the maximum number under our constitution?

I think it's 11 from...

11. We are not planning to go to 11. No response from that.

No, no response as yet.

Okay, so we should move on. So having done with the questions, again, that resolution just needs to be approved by a simple majority of votes of the shareholders or appointed proxies entitled to vote and voting on the resolution. So I put the motion and ask that you mark on your cards. [Voting]

That brings us to the final formal resolution. And this resolution is sought to authorize the directors to fix the remuneration of PwC as the group's auditor pursuant to Section 207(S)(a) of the Companies Act 1993. During FY '22, PwC received a fee -- received audit assurance and related services fees of $323,000 and an additional $37,000 was paid for advisory and other services. The Board recommends that you vote in favor of this resolution. I'll read the resolution, that the directors be authorized to fix the auditor's remuneration. Do we have any questions from the floor? No? Any questions from online, Trevor?

There are no questions online.

Okay. In that case, I'll put the motion and ask that you mark...

Excuse me, Mark. There's a question here.

Sorry. Sorry, I missed you there.

I just put my hand up late. Just a quick question. So does that mean fixing the auditor's remuneration, does this get reviewed on, a, I guess, an annual basis of how much it will be fixed? Or is it -- I guess, would you be able to just elaborate on...

Yes, the process is an annual review of the fees and, I guess, a discussion and fixing the fee on an annual basis. Obviously, add -- more ad hoc fees like those for a special advisory role or something are dealt with at the appropriate time.

Okay. And what is it currently, is it more ad hoc, I guess, what's the...

Well, I've only got the -- in front of me, I've only got the historic fees. But as you'll see, $232,000 for the audit services and $37,000 for other. Okay. I'll put that motion and ask that you mark your cards. This resolution, again, must be approved by a simple majority of votes of those shareholders or appointed proxies entitled to vote and voting on the resolution. [Voting]

I'd like to -- I tried to jump the gun before, but I think we're now going to disclose the outcome of proxy votes that have been lodged prior to the meeting on the screen. And as you'll see, pretty much a foregone conclusion that each of those resolutions will be passed but the official count and the official number will be posted to the NZX this afternoon. So our registrar, Link Market Services, will now move through the meeting and collect your voting cards. For those shareholders attending online, please now submit your vote. And as I said, the voting will be open for 5 minutes following close of the meeting. I'll now draw the meeting to a close. And thank you for your attendance and participation, both those in the room and those online. Unfortunately, we haven't been able to mail out sausage rolls and cups of teas for those online. But for the rest of you, please join us in the room behind and take the opportunity to grab hold of a Board member or one of our senior management team, have a chat and get to learn a little bit more about the company and the way we work. So I do thank you for your attendance and look forward to seeing you in person again next year. Thank you.