Precinct Properties NZ Ltd & Precinct Properties Investments Ltd (PCT) Earnings Call Transcript & Summary

[Foreign Language] Welcome everyone to this Precinct Properties 2022 Annual General Meeting of Shareholders. I'm Craig Stobo, your Independent Director and Chair. It is a real pleasure to be back here in Generator Commercial Bay Meeting & Event Suites for today's venue. Just a few housekeeping issues, for the health and safety for the use of the venue before we get started. The bathrooms are located out the black panel doors to the right as you move towards the retail center. In the unlikely event of an emergency, the fire evacuation steel well is underneath the escalators, Generator staff will guide you out and the emergency meeting point is the downtown car park. We also have several Precinct and Generator event staff present here today should you need any assistance. Today's meeting is in a hybrid format. So in addition to the in-person meeting being held, shareholders, proxies and guests can attend the meeting online via the Computershare online meeting platform. Shareholders and proxies attending virtually also have the ability to ask questions and submit their votes online. [Operator Instructions] Please note that while you can submit questions from now on, I will not address them until a relevant time in the meeting at the end of the presentations. Please also note that your questions may be moderated or if we receive multiple questions on one topic, they will be amalgamated together. Similar to previous years, we will try to get through as many questions as possible. However, we do apologize in advance for any questions submitted online that we are unable to answer due to time constraints, in this case, we will follow those up by email. Before I continue any further, can everyone hear me clearly? At the back, you're fine? Excellent. Okay. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, I will shortly open the voting for all resolutions. For those attending virtually, if you are eligible to vote at this meeting, you will be able to cast your vote online under the vote tab. Once the voting is opened, the resolutions will allow votes to be submitted. To vote, simply select your voting direction from the options shown on the screen. You can vote for all resolutions at once or by each resolution. Your vote has been cast when the tick appears. To change your vote, simply select change your vote. You have the ability to change this up until the time I declare voting is closed. I now declare voting open on all items of business. [Voting]

For those physically attending today, we hope you'll stay and join us for some light refreshments after the meeting is concluded this morning. I'd now very much like to introduce you to the members of our Board and Executive team joining us today. We have, respectively, Anne Urlwin, Graeme Wong, Nicola Greer, Mark Tume, Chris Judd, and from our management team, Scott Pritchard, George Crawford and Richard Hilder. We also have present with us today representatives from our auditors, Ernst & Young; tax advisers, KPMG; legal advisers Chapman Tripp and our registrar Computershare. Now to move to the agenda. We will begin with reviewing the performance and activity of Precinct over the last financial year. Following the conclusion of the presentation, we'll then take any options or questions that you may have. We will start with any in-person questions before moving to any online questions received. We welcome any feedback, and we'll consider any other matters that may properly be brought before the meeting today. The meeting will then proceed to the formal business. There are 2 ordinary resolutions put forward for your shareholder approval today. Resolution 1 considers the reelection of Independent Director, Anne Urlwin, and Resolution 2 considers that be authorized to fix the remuneration of Ernst & Young as auditor for the ensuing year. Turning to governance, fostering and maintaining good governance and ethical business practices at Precinct is something that this Board takes very seriously. We want to ensure Precinct will continue to benefit from a strong and stable governance regime into the future. We continue to focus on the Board's succession planning and are continually reviewing this. Reflecting this, I would like to announce today that I will be stepping down as Chair and Independent Director of the Board at the conclusion of my current term in November 2023. We expect to begin another process to identify a potential Director appointment in the coming months. The People and Performance Committee will also commence the process from my replacement as Chair, ensuring a seamless transition and handover. We look forward to announcing these appointments in due course. As you will also be aware, Mohammad Alnawami has been appointed to the Board as a representative of Home company under a provision and the Constitution, which allows a shareholder holding more than 15% of the company's shares to appoint one Director. We have announced to the market this morning that he will be resigning from the Board as of today. Home have advised Precinct that they no longer wish to appoint a Director to the Precinct Board. We understand that ADIA does not have directorships with any of the other listed shareholdings. We have therefore been the exception to that rule. On behalf of my Board colleagues and management, I would like to thank Mohammad for his contribution to Precinct since 2013. It's been a very long and valued tenure. I'd also like to thank and acknowledge Declan Walsh, who has attended Precinct Board meetings on behalf of Home Company Limited. We are fortunate to have Abu Dhabi Investment Authority, ADIA, as our long-term investor in Precinct who have supported our business strategy. We look forward to ADIA's ongoing support, and we will continue to benefit from their global outlook and expertise. Key governance items during the year also included the establishment of a Board ESG committee and Board succession planning. The board is very pleased with the progress we are seeing in relation to the implementation and monitoring of Precinct strategic ESG objectives. I'll share more on this shortly. Precinct has continued to be supported by the quality and resilience of its portfolio and its people during 2022. Our strategy is evolving, but we'll continue to focus on our 3 key pillars, which are our people and partners, our operational excellence and developing the future. During the year, Precinct announced the establishment of a new strategic investment partnership with Singapore Sovereign Wealth Fund GIC. The transaction settled last month in October following approval by the Overseas Investment Office and Precinct obtaining certain consents in the initial portfolio of properties in September. The partnership provides access to capital with an aligned partner and fully supports Precinct's future growth. This strategic decision to establish this platform also enables Precinct to participate in market opportunities and in some instances, to do so on a co-investment basis. Scott, your CEO, will provide more details on this transaction later in the presentation. Turning to highlights. The 2022 financial year has presented many challenges. Auckland, in particular, has spent considerable amounts of time in lockdowns and had various levels of restrictions imposed both on people and our assets. Despite these challenges, Precinct has delivered another pleasing result, the performance of Precinct's core office portfolio has been very robust. This has been supported by our high-quality occupiers and a resilient office market. Adjusted funds from operations or FO was $101.5 million in the June 2022 year compared to the previous year of $85.3 million or $0.651 per share. Full year dividends paid to you, our shareholders, and attributed to the '22 financial year totaled $6.7 per share, representing a 3.1% increase. The quality of our real estate is enabling our business to grow and create further value for our shareholders and for our capital partners. I would also like to acknowledge the extent of COVID-related rental support provided to our retailers and hospitality venues during the '22 financial year. This totaled around $8.3 million and included only a small amount of office-related contractual abatements. Adopting a long-term view and being able to support not only those in our portfolio who are entitled to rent relief, but also to those occupiers who we believe need financial assistance, has been the right thing to do for Precinct. The Board and management team are extremely proud of the performance of the Precinct business and the performance of our people and decisions made to support our occupiers not only over the last year, but since the pandemic started nearly 3 years ago. We believe this has positioned us well to benefit from an improving city center retail environment. With New Zealand's COVID-19 protection framework, the traffic light system having recently ended over a month ago, we are encouraged about the future as we look ahead. While the recovery phase will no doubt continue to have its challenges, there is a real sense of excitement in Commercial Bay with the return of overseas visitors. Wasn't it great to see the arrival of the first cruise ship in August this year? Before I hand over to Scott, as mentioned earlier, I'd like to share with you some of our latest ESG responses before declaring the first quarter dividend for FY '23. As I mentioned earlier, Precinct continues to advance its ESG initiatives across the business. The Board ESG Committee is delighted with the progress the team are achieving in relation to Precinct's objectives. Over the last year, we undertook a comprehensive ESG review. This includes a review of Precinct's material sustainability topics and performance targets. Precinct has listed its targets around climate-related disclosures with a focus on energy efficiency and meeting or exceeding New Zealand's excellence levels under NABERSNZ and Green Star ratings. Precinct has also become a signatory to the World Green Building Council Net Zero Carbon Buildings commitment. This commitment is to minimize total emissions, both operational and embodied over an asset life cycle. As you would be aware, Precinct has offset emissions related to construction for several years now. However, this commitment does go further, and we'll see the business focus on more sustainable design and products to minimize upfront emissions by 2030. A recent example of this is the design of the Flowers building in Wynyard Quarter in Auckland. This building will utilize cross laminated timber for structure, resulting in whole life cycle emissions being around 35% lower than a traditional development. The project is targeting a 6-star Green Star and 5-star NABERSNZ ratings on completion. Reflecting the good progress we're achieving, Precinct continues to perform well across its key ESG performance benchmarks. During the year, we achieved a global real estate sustainability benchmark, GRESB score of 82. This is well above the global average of 73. Today, we are also able to share with you our most recent 22 GRESB results, which were published globally last month. We achieved a score of 82, again placing us above the current global average of 74, and we also maintained a public disclosure level of A. Precinct has also validated its Toitu carbonzero certification for the year and participated in the Carbon Disclosure Project with results due in the coming months. Turning to dividends. The Board expects Precinct's dividend for the '23 financial year to be no less than $6.7 per share and total cash dividends to be paid to you, our shareholders. Payment of the 2023 first quarter dividend will be made on the 16th of December this year. On behalf of my Board colleagues, management and the wider Precinct team, some of whom of course are in the room today, I would like to thank you all for joining us. Precinct is in a strong position, and our business is well placed to outperform and create more value for our shareholders and capital partners. Thank you all again for your continued support. I'd like to head across to Scott. Scott, over to you.

Good morning, everyone, and welcome to our AGM Conference. I am Scott Pritchard, your Chief Executive. I'm really pleased that you can all join us here today. The 2022 financial year has seen our business continue to perform well despite the many challenges of lockdowns and uncertainty with regards to city centers, office workers and the lack of international visitors. As Craig mentioned at the beginning of the presentation, Precinct has continued to be supported by the quality and the resilience of its portfolio, of its occupiers and its people during 2022. Please let me share some of the highlights of the last 12 months. Pleasingly, our operating income has grown significantly in the period. We have also recorded a total comprehensive profit of $108.8 million, following a modest revaluation gain of $19.4 million for the year. Our portfolio continues to perform well with occupancy across all of our assets at 99% and a long weighted average lease term of over 7 years. New leases secured during the year recorded rental growth of 13.5%, demonstrating the strength of the office market and the benefits of owning premium office assets. We remain focused on delivering exceptional customer service and having long-lasting relationships with all of our occupiers. It is remarkable to think that from January 2021 to December 2021, that Precinct recorded its highest ever amount of leasing, right in the middle of a pandemic. In total, we recorded over 34,000 square meters of space, which demonstrates the strong demand from businesses who want to occupy high-quality office premises. We're observing this in both Auckland and in Wellington, where office leasing demand for high-quality buildings in strategic locations continues to be at elevated levels, especially as we see working from home declining as more and more occupiers return to the physical office environment. For example, our current assessment is that between 80% and 85% of all of our occupiers are now back in the office. Moving to our strategy. Since the decision to internalize our management function in March 2021, our strategy has been refined to now include the ability to partner with direct investors offering the opportunity for joint investment into our high-quality assets and large-scale development opportunities. Following on from what Craig mentioned earlier, this has been advanced during the year with the formation of a strategic investment partnership. The establishment of the partnership represents an important milestone in delivering on our strategy. Building on Precinct's high-quality portfolio created from our development pipeline, we are committed to creating further value for both our capital partners and you, our shareholders. We anticipate growing this partnership to around $1 billion in total value over the next 12 months. Looking ahead and building on our success, I would like to acknowledge the huge contribution from our people who have made the continued execution of our strategy. Precinct's success is truly underpinned by the quality of the people who are part of our organization. With this constrained labor market, we have taken a proactive approach to ensure our Precinct and our generator teams are engaged and retained within the business. As a business, we will leverage Precinct's capabilities and apply our learnings of the past 6 years to take advantage of market opportunities. In addition, we are continuing to advance our thinking about entering the multiunit residential market. We see significant opportunity over time for institutional participation in this market and believe that the current market dynamics will support our entry. Before I give you an update on our development projects, I am delighted to share with you this morning that Eke Panuku has selected Precinct as the preferred development partner for the Downtown Car park. This was announced to the market last month, and we are incredibly excited to continue work on this opportunity. Precinct has partnered with Ngati Whatua Orakei as part of the proposal for the site, with the relationship encompassing cultural, design and some commercial elements. Precinct and Eke Panuku have now entered a period of commercial negotiations with the intent to agree and document final terms, which will remain subject to Precinct and Eke Panuku Board approval. Now focusing on our projects in Auckland. Just over a month ago, we are pleased to have announced that New Zealand's biggest engineering and consulting firm, Beca, will be relocating to the Wynyard Quarter Innovation Precinct. This is on a 12-year lease term over 14,000 square meters of space. The leasing to Beca has required Precinct to now also commit to an additional development at 117 Pakenham Street, which is the final building of the innovation Precinct. 117 Pakenham Street comprises 7 floors of commercial office space and continues to follow the Wynyard Quarter innovation Precinct market-leading sustainability outcomes. Designed in accordance with the Wynyard Quarter sustainability standards, the building will target a 6-star Green Star and 5-star NABERS rating. Securing an occupier like Beca so early in the development is a great result, which reinforces the value that businesses are placing on being located in really high-quality centrally located office buildings. We continue to observe this as we see more and more employees returning to the office. Precinct is also underway with construction of 124 Halsey Street and the flowers building within Wynyard Quarter Stage 3. The addition of this new development increases the total leasable area to around 21,000 square meters, and precommitment leasing now sits at 65%. 1 Quinn Street, now to be known as the Deloitte Center, also continues to progress well with construction continuing to advance. The project remains on track to complete in late 2023 and is currently 86% pre-leased with the high-rise office floors fully leased. Leasing of the additional retail and food and beverage tenancies is advancing well with good interest in this truly world-class development. Facade installation to the hotel levels is now complete, giving a sense of the impact that this building will have on the Auckland Waterfront. The reopening of the international hotel markets is also encouraging and something that we are very excited about on completion. Now moving to Wellington. I'd like to first show you all some of the pictures of the successful opening of our Generator building in Wellington. The redevelopment was completed during the last period and the site is performing incredibly well. As you can see from the images, 30 Waring Taylor Street has set the standard for flexible office space in Wellington. Earlier this year, Generator Waring Taylor won the Heritage and Adaptive Reuse award, it won the Commercial Office Award and it also received an excellence reward as a green building property award. The Precinct and Generator team are incredibly proud of these achievements in the recognition received. Now turning to Bowen campus. Once again, very excited to have officially opened 40 Bowen Street last month. This new seismically resilient building provides generous office floor plates across 6 levels and incorporates Viscous Damper technology to provide business continuity in the case of a seismic event. It will be the new home to EY, Fujitsu, Simpson Grierson, Dentons, Aspect Furniture, Little Astoria restaurant, Nam Nam and of course, our own Generator business. The next stages of Bowen campus include the leasing of the food and beverage operators and them opening in January next year and the completion of 44 Bowen Street, the sister building, in mid-2023. Once complete, Bowen campus will be home to over 5,000 workers immediately adjacent to the government. To conclude, I'm personally very proud of the performance of the business and the people during another year which has presented many challenges. As Craig said at the beginning of his address, being able to support those occupiers within the Precinct portfolio, who we believe needed support in order to continue operating over the last couple of years is something that we believe was the right decision for our business. Precinct is well placed with strong demand for high-quality space, solid rental growth and an increasing set of transaction and development opportunities to add value during this cycle, we remain optimistic about the position of our business and the opportunities that this market will present us. Notwithstanding this optimism, we are very aware of the current economic situation. Interest rates are now at the highest level and over the last 7 years, and we expect that this will have an impact on valuations. Therefore, our view remains that it is critical we continue to actively manage the portfolio and the business to ensure that we manage this risk. I'd like to thank everyone once again for joining us today.

Well, thank you, Scott. Thank you very much. Before we open the floor to any in-person questions, we do have 2 questions sent through to us via e-mail that I'd like to read out to you and respond. The first one was from [ Mike Tunny ], I hope I pronounced your name correctly, Mike. Thank you much for the question. This question is, why has the share price dropped so significantly? So as shares in Precinct are listed on the NZX, that share price is subject to general market movements and share market volatility. Notwithstanding this, Precinct's share performance has been in line with the NZ listed property sector. While we are observing greater confidence in the office market, rising interest rates, as Scott has just mentioned, are likely to have an impact on market capitalization rates and the market is likely pricing this in and straight volatility continues to be a key driver of listed property sector share price performance. The second question was from Joey Wang of the New Zealand Super Fund. ISS governance has flagged a concern on the 20-year tenure of the current auditor. How has the Board gotten comfort over this issue? At each May Audit and Risk meeting, committee meeting, the committee formally reviews and confirms the independence of EY as our external auditor. This is reviewed against listing and legal independence requirements. The committee also rely on the FMA audit oversight regime, which reviews systems, policies and procedures of the audit firm. Notwithstanding that, I would like to actually acknowledge that we also rotate partners every 5 years. I'm very pleased to welcome Susan Jones as our new lead partner this year. I also want to acknowledge Emma Winslow, who is also here today, for her contribution over the last 5 years. Thank you very much, Emma. We will now start with any in-person questions and then move to any online questions received later if possible if they come through. I'd like to give any shareholder present in person today the opportunity to ask questions of the Board, management, our auditors also solicitors from Chapman Tripp. Directors and management, of course, are happy to answer questions from shareholders here more informally during the refreshments to be held at the end of the meeting. When you do ask a question, please state your name and advise whether you are a shareholder. Now, over to the floor, who would like to ask a question of us? Just move the microphone around. Thank you. Mr. Parks, how can I help?

Bruce Parks from the Shareholder Association. The last part of the year, your dividend policy has been issuing 101% of FO. Will that continue or will your policy change?

We tend to target around 100%. It does vary a little bit from time to time, 1% here to there, but it generally targets 10%.

Thank you. A great climate reduction journey but in your annual report, on Page 25, your scope to admissions increased the last reported period. Is it a construction problem or have they come down since?

I don't have the answer on the top of my tongue, I'll ask Richard Hilder, who looks after our ESG reporting to respond. Richard?

Hi. Can you hear me okay? Hopefully. So there's 3 types of emissions through our buildings. Scope 1, which are on-site generation, so that's from use of gas and refrigerants. You've got Scope 2, which is electricity and just imported emissions and in Scope 3, which is the last one, which is effectively the indirect emissions travel and waste and water. Those Scope 1 emissions are quite volatile. So it's in relation to use of gas and refrigerants in our air conditioning. So whenever those systems are checked or regassed, you do get a bit of volatility in those years. So you kind of need to look through it a little bit rather than a year-on-year comparison of those, if that helps. In terms of the trend, the best is to look at the base year, which is 2017. So we are trending down and the commitment to the 2030 carbon very much is to reduce and mitigate all of those Scope 1 and 2 emissions in particular. And a good example of that is Bowen House in Wellington. So we've made a decision as a company to remove gas from that building. That was over and above what was required for the government's occupation of that building, but we thought that was the best thing to do for the asset for an investment, but also for environmental reasons.

Do you have the year '22 results in yet?

No, we don't. So those are lagged by a year. So the '22 will be next year.

There were 3 questions in one, very good. If anyone else would like to ask a question of the Board. Yes, sir?

This is [ Adrian Strathallan ]. I'm a shareholder of the company. One question is relating back to the internalization of the management agreement. You might recall that I sent an e-mail into you shortly after that happened last year. I think it was the 27th of April, where you actually phoned me and we had a conversation for about 35 minutes but you refused point blank to answer my question about what was fair and reasonable about paying $215 million for that internalization. Your savings, you said would perhaps be around about $14 million a year.

On a pro forma basis, that's right.

$14 million to recover $215 million is going to take a hell of a long time. I still come back to that one. I want to know, part of the waiver from these NZX was that you provide a certificate that in the opinion of the independent directors of that committee, which certify that the transaction was fair and reasonable , what was fair and reasonable about it? Why are you paying $215 million, basically, to pay someone not to manage your properties anymore? I mean, were they such bad managers?

Okay, several layers to the question. So on a pro forma basis, the savings were $14 million, that's estimated, that's correct. The contract cessation or termination meant the staff moved into work for us, you and your asset business, not sitting outside. As the company grows, those costs would have grown in line with the assets of the company. Those are future savings that aren't captured in the pro forma. But most importantly for me and for the Board was the opportunities that create to provide a different type of business than one that was constrained by the external management room, and that is the introduction of third-party capital, which means we have far more choices around how to develop and grow the business for you than we had before. We're also conscious that management contract could have been sold to another party as there was interest from other parties at the time.

Would that have been so bad?

Well, we would have missed the opportunity to buy it at that price as the company grew.

So why did you need it?

Well, we could see the benefits. And the independent directors made the decision after extensive review with the assistance of our advisers that, that was in the best interest of all shareholders. I believe that is still the case today. We would not be sitting here today talking about introduction of third-party capital such as GIC, if we hadn't done this.

Was that part of what you foresaw when you said that it was fair and reasonable as far as both the company and the shareholders' were concerned?

I didn't foresee GIC in particular, but what the Board was pretty keen on was giving us more flexibility to own our own future by having those start working inside our business without having to pay fees every year to an external party.

More recently, the thing has left me wondering, are you actually perhaps going to divest properties? It's just recently been announced the sale of 3 properties to a partnership arrangement. Thing that had me quite puzzled there. Originally, I understand that there were actually 4 properties involved and one of them, the Charles Ferguson building, the sale was opposed by the Ministry of Defence.

So just a couple of things. First of all, you're right around 4, the building you mentioned is Defence House, not Charles Fergusson. Let me just paint a bigger picture for you, though, which might help you to understand why the opportunity sits in front of us today. If it's not already obvious, we are moving away from using just our own balance sheet to purchase properties to using other people's balance sheets to help purchase properties and coinvest with them in return for a funds management income stream. So to put it bluntly, we are moving into an era where we are both on balance sheet owner of property, as you have traditionally been used to, and a receiver of annuity income as a manager of properties owned partly by others. That is a huge opportunity for us and creates lots of opportunities to create a higher return on equity performance for you because they're using less of our equity and more of others. I think that's wonderful and the Board is completely behind it.

You didn't see perhaps that you'd get that independently through other sources? For instance, I'm aware of some companies that have even entered into contracts with the Canadian Pension Fund.

I think you're onto the right line of thinking, which is that there's a range of teams around the world that may want to work with us. The attraction of working with us is our track record of managing assets, developing assets and most importantly, looking after and attracting clients to come into those portfolios. So you're absolutely right, the Canadian Pension Plans or others around the world may seek to join with us, isn't that fantastic? It's good for you as our shareholders.

So you see the company moving more into management of properties than owning properties? Is that what you're saying?

It's a combination of using our balance sheet to 100% own properties as you have been used to and in addition, coinvesting with others who want us to also manage their properties for them, and we receive this wonderful annuity management income stream. It's fabulous. It's kind of like reengineering a new business that we didn't have prior to internalization. It's wonderful.

Thank you.

Thank you for your questions.

Good morning, [ Bob Hayward ], a shareholder. Just following on from that last comment on the use of the new partnership. Did Precinct enjoy an uplift on the prior valuation when those properties were transferred? Was there a capital gain to be realized at that point, over and above the last valuation in the most recent balance sheet?

Well we release our valuations formally every individual financial year. So March 31, I don't think we have valuations recorded since then, our next interim valuation if it is to be disclosed is in December.

So is the answer yes or no?

No.

All right. Moving on to some other questions I have. With the current interest rate backdrop, I noticed from the most recent accounts that the largest component of your rent review process are fixed reviews. Currently, you have an under-rented shortfall of 6.3% in counting. How are you going to address recovery of these shortfalls in light of ongoing interest rate increases?

As you'll appreciate, leases have different review periods and different rates of termination before new ones are entered into and there's a variety of leasing techniques used by the business. So there's going to be a lag.

Yes. How material do you believe that will be?

Well, we can only point to what we are seeing in the market today and the demand for our office space is very strong, and we are recording strong interest for what little vacant space we have. So we're very optimistic around how that rent role may look in the future. It just takes time to roll through a little bit like a pig in a python, it just takes a while to come through.

Have you modeled it?

Yes. Yes. Scott or Richard, you want to talk through it?

I'm not sure if it's working or not. Look, it's about 3.5 years until all of that fully reversed. That's the time frame before it reverts back to market. So it just takes some time.

Thank you for that. Just another question. What at this point in time, would you suggest that current NTA is?

Last recorded NTA $1.54.

Have you any internal reference points in light of the current interest rate increases and where the whole things go?

Yes. Well, as I mentioned earlier, our valuation period is at December interim and full year June. So, the evidence is what we see in transactions in the marketplace that helps and the transactions by both ourselves, but also with our peers, that gives us some indication of what that may look like. I think more generally speaking, the market has taken a view on listed property prices, as we talked about earlier with the share price, that may also be an indication of what the market is thinking. But where we are particularly strong, and Scott mentioned this earlier, is the demand for our office space and the rent roll that we are seeing in the marketplace for us and that's a pretty important contribution to valuations. But they acknowledge the headwinds from states. Let's not forget that. Thank you.

Finally, the development pipeline, the Halsey and Flow Street proposing. In the report, you suggest the yield on completion fully leased at 5.75%. Do you think this is the sort of yield is still acceptable in light of current interest rate trends and ongoing development risks?

As I mentioned to the earlier gentleman, I think you've got to see it in the context of a bigger culture around owning the asset and managing the asset as a core investor. There are 2 components to think about. So we wouldn't be doing this, so we didn't think it was accretive.

My name's [ Robert Grey ], a shareholder. I find it rather intimidating trying to get access to this building. I've got ulcers on my feet and I'm not very good on escalators. When you come to the building and you've got these revolving doors, and I'm very slow getting through them. I find that intimidating. Other doors you go through are very heavy. Sometimes I get a lot of meetings at marketing and sometimes in the morning, those doors won't even open. I came today and as a lift I always use. There's not normally any problem, but this morning, it would only go to level 7. That's all it would come up. I had to get a member of the staff with the access card or something to get it to go.

I apologize if that happened. I'm glad the staff member helped you.

Normally, a whole lot of floors come up.

I'm sorry that happened. I'm glad the staff member helped you and if I can even talk to you later on, we can improve it for you, we'll try and do that.

These buildings, they keep changing their names all the time. What is AON? I never heard that before.

Yes. AON is a global multinational insurance broker, a very important client of ours. They've got naming rights to one of our buildings associated with this building.

Has it had a different name previously?

It used to be called AMP. That's right. AMP was the previous name and on the waterfront here, you've seen HSBC change to one Crenstreet, change to Deloitte's, PWC's changed to HSBC and the new tower that we're in today is the PWC tower. You're right but that tells you the demand that clients have for signage rights, which is wonderful because they pay us an income stream.

The new development, is that going to be...

No, it'll be called Deloitte. Deloitte will be the name of that building.

Deloitte? I thought Deloitte was up the road.

They are but they are moving to our building, which is great.

Now the name of these rooms are Generator, who is Generator?

Generator, as Scott explained, a fully owned now in-house business that looks after clients who need smaller spaces or they need event management like this building, this space here where they want to hold conferences. They run that for us.

Who runs that?

Precinct, you do.

We do. How many Generators are there around town? I've been to a few Generators.

There's quite a few and they're growing. We're opening in Wellington as well. As you mentioned, we're in Tata Street, just opened, and we're opening more Generator space in 44 Bowen. That's our Wellington presence in addition to our sites here in Auckland.

I've been to meetings previously the Generator down the Wynyard Court.

Yes, there is.

That and I think there's another one.

That's right.

How many are there in Auckland?

Well, those are sites that you've mentioned, and we hope to grow more. We're looking to, as Scott mentioned, hope to have some spaces in the new Deloitte Center as well. So it's growing. It's wonderful because they're incubators, they grow little businesses into bigger businesses, and then they say, oh, this is too small for us. Can you put us into at least climate office suite, for example, or we can go into a traditional lease space? We want to go towers. It's wonderful because it's a feeder to our larger business. And some of our existing clients use Generator for their own needs to hold conferences or to start little business as their own, where they can move away from the traditional office space. So what it's demonstrating is the flexibility of response to our client needs, which I think is wonderful. Thank you. Thank you for your questions. Any more questions? No more questions. Are there any online questions, Louise?

Thank you, Craig. Can you hear me okay?

Not quite. Yes, lovely.

So we have a question from [ Peter and Mirium Truman ], and they've asked for an update on redevelopment plans for the Friberg building in Wellington.

Do you want to talk to that, Scott?

Hopefully you can hear me. There you go. So look, that asset presents really fantastic development opportunity. It's currently fully occupied or largely occupied on short-term leases. So we will choose to develop that at the right time and that there will be a number of factors that we will consider around that and economic strength and demand for office space or other uses will be considered. At the moment, it's yielding really nicely. We'll continue to own the asset as it is, take the yield, take the income and then choose when we want to develop it. That could be in 12 months' time, but it also could be in 36 or 48 months' time. So we can choose when we want to do that.

Okay. And I've got another 2-part question for you, Craig, from Michael Brandon. With regard to Precinct's gross annual rental income, one, what percentage is paid by the government or government agencies?

What's the latest number on the annual report. 25% as an estimate?

Okay and the second part is what percentage is subject to CPI increases?

I think that's in the annual report. What number, Richard? 10% CPI-related rent?

No further questions.

Thank you. Right. We'll now turn to the formal business of the meeting. As set out in the notice, voting entitlements have been determined as at 5:00 p.m. on 20th October 2022. Registered shareholders at that time are the only person entitled to vote and only the shares registered and those shareholder names at that time may be voted at the meeting. Votes can be lodged by attending the fiscal meeting today or during the virtual meeting or by proxies. For your proxy to be effective, it must have been received by 11:30 a.m. New Zealand Time on Tuesday, 1, November 22. Proxies have been appointed for the purpose of this meeting in respect of 519 shareholders, representing 48.8% of all shares on issue. Voting on all resolutions put before the meeting will be conducted by poll only, and the Board recommends you vote in favor of all resolutions. All shareholders present at today's meeting should have received a voting paper we enriched at the registration table this morning. If anyone does not have a voting paper, could you please raise your hand now and a Computershare staff member will come and give you one. Has everyone got one, who is here today? Good. Shareholders will have been given the opportunity to ask questions following the reading of each resolution. I'm sorry, they will be given the opportunity to ask questions following the reading of each resolution. I ask that in the interest of fairness to all shareholders attending the meeting that any shareholder wishing to speak should be as concise as possible and be considerate to other shareholders wishing to ask questions. So Resolution 1 relates to the reelection of Anne Urlwin as an Independent Director of Precinct. Before we vote, I'd like to invite Anne up to the podium to address you today.

Thank you very much, Craig. [Foreign Language] Good afternoon, shareholders. It is so wonderful to be back together here today in person for this Annual Shareholders Meeting. In addition, of course, to having our online participation for those wishing to attend virtually via a live webcast. The COVID situation has changed and continues to change, and I hope that everyone and their families are healthy and safe. I joined the Precinct Board 3 years ago, and I'm pleased to have the opportunity to now seek your support for my reelection as an Independent Director. Precinct is operating like so many other businesses in interesting times. We're all adjusting to multiple economic, political and social challenges. It's a different business world and a very different geopolitical backdrop, supply chain and workforce challenges, including the war for talent. Of course, as has been mentioned, the current interest rate environment. These factors are impacting us all. The establishment of the new strategic investment partnership with GIC, which has been referred to by both Craig and Scott, which went unconditional a couple of weeks ago, has enabled a repositioning of Precinct's balance sheet, putting it in a very strong position to consider future opportunities. Precinct's management and Board apply a very disciplined approach to capital management and capital allocation and opportunities only get pursued where we can see long-term value for you, our shareholders. the new normal for office workplaces is still being established, and there won't be a one-size-fits-all. Precinct's ongoing delivery of its strategy focusing on high-quality buildings located in inner-city precincts in Wellington and Auckland, offering high-quality amenities for clients resulted in a very high portfolio occupancy of 99% at the end of FY '22, along with a WALT of over 7 years. I chair Precinct's Audit and Risk Committee, and I also chaired the company's due diligence committee for its equity raise last year and its bond issuances. I am a member of the People and Performance Committee, and I was a member of the Independent Directors Committee that earlier last year led the internalization of Precinct management. I bring to my role at Precinct, a broad-ranging professional business and governance background that has provided me with experience in construction, infrastructure, regulatory environments, health, safety and sustainability, delivery of major projects and the maintenance of critical systems and services. And that experience has been with both public sector and private sector organizations as well as public listed companies. I am a Director of Retirement Village developer and operator, Somerset, and of Auckland's electricity and gas distribution company, Vector. I'm also a Director of Citi Ralink, a project that many of you will be familiar with, if you've experienced the inevitable disruption here in the CBD as the company delivers New Zealand's largest infrastructure project. My other roles include being on the boards of Queenstown Airport and infrastructure services company, Ventia. Previous governance roles include being a Director of telecommunications company, Corus and Chair of National Commercial Construction Company, Naylor Love, and of the New Zealand Blood Service. Being a Director of your company is both a responsibility and to privilege, and I hope that the brief details that I provided about myself today demonstrate my experience and focus on effective governance and commercial performance. I would welcome your support for my reelection as an Independent Director and if reelected, I look forward to working with my fellow directors and Precinct's very strong management team to achieve ongoing success in delivering value and sustainable investment returns to you, our shareholders. But thank you very much for the opportunity to address you here today. I'm very, very happy to answer any questions you may have of me and looking forward to chatting with you over a cup of tea afterwards. Thank you.

Thank you, Anne. So now moving to the first resolution. I move as an ordinary resolution that Anne Urlwin be reelected as a Director of Precinct. The resolution is set out in the Notice of Meeting and on the voting form you will have received. We will take first shareholder question from the fiscal for which we don't have any, any questions from online? No, Louise? Thank you. As there are no more questions, voting of this resolution will now proceed to the poll. While that's still live, I'd like to turn to Resolution 2, which is the auditor remuneration. The resolution is on the screen before you. I'd like to move as an ordinary resolution that the Directors be authorized to fix the remuneration of Ernst & Young as auditor for the ensuing year. The resolution was set out on the notice of meeting and on the voting form you will have received. We'll take any shareholder questions from the floor first. Any questions? There are no questions, any questions from online, Louise? None, thank you. As there are no more questions, voting of this resolution will now proceed to the poll. So that concludes our discussion of the items of business. Computershare representatives will now bring ballot boxes around the room for any shareholders who have not yet voted. If you could please complete your voting paper, ensure that it is signed and placed in the boxes being brought around now. Pins are available and Computershare staff will be able to assist you with any questions. I'll just wait to leave all the voting papers are collected. In a couple of minutes, I will also close the voting system. Please ensure that you have cast your vote on all resolutions. I'll now pause for those minutes. No more? All completed? Thank you. right. I think that's sufficient time. So I am now going to declare voting closed. Finalized results will be announced to the NZX in due course, and a copy of the announcement will be available on our website. So that concludes the formal business today. Thank you all for joining us and for your participation. I'd like now to formally declare the meeting closed and invite you for those who are in the tower with us today at Generator Meeting Suites to join us for refreshments. Thank you very much. Look forward to any questions you have for directors or management informally as we have some refreshments. Thank you.