Property For Industry Limited (PFI) Earnings Call Transcript & Summary

Ladies and gentlemen, it's gone faster than we thought. So we call the meeting to order, if we can, please. Good morning. My name is Anthony Beverley, and I'm the Chair of the Board of Directors of PFI. Welcome to the 28th Annual Meeting of PFI. And it's a pleasure to have you here today. It's obviously still chaotic conditions we live in. And a lot of people in the market and the public are very cautious still about COVID, of course. So we appreciate you taking the effort to come along today. Thank you very much. We obviously have a quorum. So let's get underway. This year, we are once again holding the meeting as a hybrid meeting, which means that we have participants both here in person, of course, and attending virtually. Before we start, can I just remind those who are here in person to please put your phones on side. In case of emergency, please follow the instructions of the Eden Park staff. The nearest exit is back down the entry stairs [indiscernible] you would have entered from, and the assembly point is on Reimers Ave. In order for this hybrid meeting to run smoothly, I'd like to just confirm how questions and answers and how voting will work today. First, let's deal with the procedure around questions and answers. [Operator Instructions] There will be time allocated for in-person attendees to ask questions during the course of the meeting, and we will try to get to as many of them as possible. But it might be that not all of these are able to be answered here today. And in this case, we will answer those as a follow-up to the meeting. The second key procedure is voting. We will open the poll for virtual attendees now to give you plenty of time to vote. The vote tab is located on the right-hand side of your screen. And from here, the resolution and voting choices will be displayed. To vote simply select your voting choice from the options shown on the screen. You may vote for all of the resolutions at once or you can vote resolution by resolution. Once your vote has been cast, a green tick will appear. You can change your vote at any time up until when the poll is closed. Prior to the poll closing, simply select change your vote and choose another voting choice if you wish to do so. I will explain procedures for voting in person later in the meeting. [Operator Instructions] Here is the agenda. I will start with a short presentation and then our CEO, Simon Woodhams, will do likewise. You will then have the opportunity to ask questions or to make comments about those presentations or about the financial statements and auditor's report. Then as you have seen in the notice of meeting, we have 2 resolutions we would like you to approve. Following those resolutions, we will finish with a further opportunity for questions and answers when we get to general business. Those of you who are here in person are also welcome to join us for refreshments after the meeting for a more informal chat with the Board and the management team. Let me start by reintroducing the management team and the Board, Craig Peirce, Chief Finance and Operating Officer; Simon Woodhams, Chief Executive Officer; Susan Peterson, Independent Director; David Thomson, Independent Director; Dean Bracewell, Independent Director; and finally, Greg Reidy, who you know, Non-Executive Director. We also have representatives here from our auditors, PricewaterhouseCoopers and from our legal counsel, Chapman Tripp, and thank you for your attendance. So this year, ladies and gentlemen, PFI reached a significant milestone. We achieved in excess of $2 billion in assets for the first time. They might just seem like a number, albeit a big number, but the significance of that is that it represents a big change in market perception for PFL. PFI is clearly a key player in the industrial sector by scale. As a professional landlord to the industrial sector, breaking through the $2 billion mark does matter because that lift in our market presence generates new relationships and new investment opportunities from scale. The other and key part of this achievement, of course, is that it has occurred in a year of record earnings and dividends. This is really important. As if you have followed PFI for a while, you will, no doubt, be aware that the company has always had a primary critical focus on capturing earnings and delivering dividend growth. So we've seen an uplift in both assets and earnings together as the industrial property sector has continued to build momentum as an attractive place for investment. We're not the only ones, of course, to recognize the potential of industrial property as an attractive sector to achieve competitive and consistent returns. But what we have done this year, I think fair to say, perhaps better than some others, is that we have balanced portfolio, weight and strength with portfolio earnings, and that is a sure sign to us that our refresh 3- to 5-year strategy is achieving the 3 goals we have set ourselves, growing returns for shareholders, continuous improvement in our portfolio and first-class management, all critical. The industrial property sector continues to draw in more participants, eager to make the most of the environment as the heat comes out of some of the other property sectors, which is clearly doing so, has been for some time. But as an experienced and successful industrial sector investor and participant, we are staying true to our commitment and indeed drawing in our long history and deep working knowledge to make the most of current market conditions and to take a more intentional and proactive approach to opportunities. In keeping with that commitment, in 2021, we made a range of acquisitions that all together have added to our presence and capability and our Chief Executive Officer, Simon Woodhams, will speak to some of those in a few moments. Overall, though, we ended the year with a fully occupied industrial portfolio of 97 properties value in excess of $2.15 billion, while we are weighted towards the buoyant Auckland industrial market, our tenant base includes 136 different businesses. Our weighted average leasing term and average property value have both continued to increase, continuing a pattern of long-term upward trajectory. So as I said earlier, I'm very pleased to report a year of record results with profit after tax of $452.8 million. Adjusted funds from operations increased 15.7% to $0.929 per year, a solid increase. And within the results themselves, there are some very positive highlights. Our contract rent, for instance, increased to $95.6 million and we negotiated on 150,000 square meter of space. That's a lot of space. We saw important growth this year through our acquisitions and a significant growth in our valuations, including fair value gains on our properties of $392.5 million, which speaks to the strength of our portfolio. And of course, we concluded the sale of Carlaw Park which not only rebalanced our portfolio but also added a full year of income be for settlement, contributing to funds from operations increasing 14.4% from the previous year to $0.1107 per share. At year-end, our balance sheet was strong. Our net tangible assets decreased 37.3% to $3.034 per share. At the same time, a gearing reduced to 27.7%. We also refinanced all our bank facilities during the year. These arrangements included refinancing our short-term Commonwealth Bank of Australia facility to a $125 million 7-year facility, refinancing our $300 million bank syndicate and establishing a $100 million short-term facility with the BNZ. These new facilities, alongside our significant portfolio revamp and the proceeds from the Carlaw settlement, provided us with over $120 million of available liquidity at year-end. Our success, of course, is delivered to shareholders through future growth and dividends. The Board declared cash dividends of $0.079 per share, which is exactly what we signaled to you at this meeting last year. In line with that commitment, the Board decided to move to a 3-yearly framework and will enable the company to steadily increase dividend while at the same time engaging in activity with potentially less immediate earnings accretion. This shift has 2 benefits. It protects our assurance to you regarding dividends, and it gives the company a movement needs to pursue opportunities in the market with growth in earnings can sometimes take longer to materialize like the brownfields opportunities that Simon Woodhams will speak to. I would note and stress that going into 2021, the company was very conscious that the COVID-19 environment remained very much at large. And it was not clear what impact that environment would have on the operations, the performance and, in some cases, the liquidity of our tenants. We consciously took an approach that acknowledge that some of our tenants might struggle. And we engage with and supported them where they needed help. As a company, we believe it is important to work together through circumstances like these, which were really challenging for some. And it's really pleasing to be able to report that approach work really well and in some cases strengthen the alliance with our tenants going forward. We also put a lot of focus on and effort into continuing to strengthen our strategic environmental social governance or our ESG framework as it's known, once again making important advances on this front. We released our second task force and climate-related financial disclosures, or TCFD report as it's known, including undertaking a climate risk analysis to identify which of our assets were most vulnerable to the possible risk of climate change. We replaced HVAC systems containing ozone depleting R22 gas on 12 of our properties, and we began planning our first Green Star development at Bowden Road. As I have said previously, an ESG yields new insights and helps the Board and the management team to approach and consider long-term factors in a more sophisticated way. That in turn influences our decisions and how we value opportunities actually. There is also increasing expectations from shareholders, analysts, tenants in the wider market that everyone needs to play their part in addressing climate-related issues. Right and so do we say, and we are focused on understanding what that means to us in practice. Sometimes that's not 100% clear. What does that mean in practice? But both in terms of meeting our obligations but also capturing any broader opportunities to contribute to mitigation of climate change. So we ended 2021 in good spirits. Our strategy is progressing well. We have a fully occupied high-quality industrial property portfolio of significant scale, and we are better placed than we've ever been to take hold of market opportunities that are available to us. While things went well for the company over the last year, there is no ignoring what has occurred in recent months. All of us are painfully aware of significant challenges that exist both locally and abroad. The war in Ukraine with all its fallouts. It's a tragedy that alongside what has been out to be a record surge in inflation, its corresponding impact on interest rates as the market really consumed. There is no dodging new circumstances. And as we sit here today, there are no signs of a quick resolution to this. Shareholders will, no doubt, be aware of PFI share price, has not been immune to these factors. The company had an incredibly strong run over the last 3 years. If you look back, the share price rose from $1.80 at the beginning of the 2018 to an excess of $3 at the end of 2021, 3 years, $1.80 to $3, generating a total shareholder return of over [indiscernible] time, making PFI a top performer. Since the end of the year, having company shares have tracked down in line with the rest of the listed property sector and the wider market. Nevertheless, the Board is confident that we are well placed to deliver on our strategy. So I would like to conclude with guidance that I know you will welcome. As signaled in our annual results released in February, we anticipate delivering a 2022 dividend range of $0.0805 to $0.0810 per share, a further increase of up to 2.5% on our 2021 dividend level. I'll now hand over to Simon Woodhams, our CEO, to comment on the year and outline where he sees PFI.

Thanks, Ant, and good morning, everyone. It's always great to be in a room with people and get away from Zoom and to have setup in the room which I'm used to. Welcome to those who have tuned up again and tuned up many years in a row. Welcome to the first timers. And we've also got a series of people who have tuned in online, so that's great to have the modern technology working for us. We say it every year, and we genuinely mean that as a Board and a management team, we really enjoy the opportunity of meeting our investors and stakeholders face the pace and review what we've done over the last 12 months. So let's crack into it. So in terms of 2021 is a very significant year for us, as Ant mentioned. Just looking at the volume and the value of the transactions that we undertook, we completed $368 million worth of transactions. This was made up of $115 million of divestments, the main 1 being our property that we own for a long time down Parnell Carlaw Park $115 million. And then we also invested $27 million into value-add opportunities throughout the year, and we acquired $226 million of good industrial property by way of acquisitions. Our ongoing goal is to actively manage the portfolio to ensure that our investors, stakeholders are receiving maximum benefit from the decisions we make as a management team and a Board. We absolutely see portfolio optimization is the key to securing stable growing returns. And there are really 3 key aspects to this. First is focus. Every asset that we acquire or divest or develop, we do with the goal of building a pure and higher-quality industrial portfolio, that's our absolute goal. The second is balance. We want the right mix of assets, and we want them in the right mix of locations. And the final one is results. In order to drive shareholder returns, we've got to strike the right balance between what's good for the business in the long term and our desire to deliver to you as investors with year-on-year dividend growth. Our new dividend policy that we founded last year reflects this by company dividends at 80 -- sorry, 90% to 100% of FFO on a rolling 3-year basis with targeting ongoing annual dividend increases. So portfolio optimization is how we achieve the best mix that we can of focus, balance and results. There's no one thing that achieves all 3 of these things, rather the secret sauces and how we combine the different elements together that drive the results that we're looking for. And right now, we're intending -- we're intent on maximizing the portfolio by 4 key ways. The first is future demand to use a sporting analogy and we here at Eden Park. We want to plan to be where the Board is going to be, not where it is right now. And I think demand happens is about looking through the current environment and planning to cater for the medium to long-term needs of industry and demand areas. The second way we can achieve is by looking out. Auckland has been a fantastic place for us to do business in over the years. But it's fair to say there are a lot of opportunities outside the Bombay Hills. And so we've spent some time going around the country looking at opportunities. And what we're finding there is there's some significant businesses that operate out of the Bombay Hills. And we think we can embrace these by identifying opportunities throughout the country where lease terms and tenants can be attractive, and we're -- our presence, our expertise and our capital is welcoming. The third aspect on the slide there is accumulation. Instead of thinking of our portfolio of collection of singular pieces of land or properties, we can generate additional value by joining the dots to make a bigger picture by connecting passes of land where it makes sense to do so. We can transform individual holdings with a singular value into states with a stronger collective value. And finally, we can anticipate -- we can see buildings not just for what they are today, but what they could be tomorrow, seeing the potential underutilized industrial property can take a little bit of vision and it can also take a bit of time. But the payoff is in the potential to redefine what the property can be for the right tenant in the years ahead. So focus, balance and results achieved through reading future demand, looking out, creating estates and anticipating through brownfield acquisitions, that's really our strategy and action. And if you look carefully, the activity we undertook through the last 12 months or last year, you'll see it aligns directly with these things. So the next few slides are going to run through a couple of examples of what we undertook and how it correlates to what we've been talking about. Let me start with this property here, 44 Noel Burnside Road. You remember if you attended last year that we touched briefly on it. It's a property that we acquired in May last year for $91.7 million. It's a large property. It's a $3.64 million hit their site on the corner of Noel Burnside and Cavendish Drive, has excellent motorway linkages to stay high 20 about 100 meters down the road. We acquired the property in May through a sale and leaseback transaction with ABC Tissue, who were the teams, an owner at the time. That came with an initial 2-year lease term. Obviously, that's a very short lease too for a property of this size. And at the time, we recognize and perceive that as a risk, but as a Board and a management team, we decided that was a risk worth taking due to the quality of the property and the location. The original claim for this property was to allow the lease to run its course and then look to secure a long-term lease arrangement. However, 6 months into that initial lease term ABC Tissue turned up and informed us of the decision that they were going to vacate New Zealand. So we said about working with ABC Tissue. And pleasingly, we were able to secure a new 10-year lease back-to-back. ABC moved out the new tenant who is Cottonsoft New Zealand, New Zealand's largest manufacturer of toilet paper moved on and took over the site. The quality of the property made this possible. It's a really good example of looking through the current environment and the risks at the time when we brought it, which, in this case, was the 2-year lease term. We were confident that the property would cater to a wide range of users over medium to long term due to its quality and its location. And pleasingly, the Cottonsoft transaction validated our thinking on that one. During the year, we also acquired a large, specialized asset, 22 Whakatu Road in Hastings. We paid $79.5 million for this asset. The property house is a fresh processing facility for Turners and Growers, T&G. It's right in the heart of country down in the Hawke's Bay. And again, it's another substantial site. It's close to 10 hectares in size. It comes with 36,000 square meters of post-harvest processing facilities. There's 2 core stores warehousing in up to 3.5 hectares of storage. This property came to market because T&G were looking to release to unlock funds to investment into the core business, specifically, the developing offshore markets and some innovative technology. They wanted to continue building -- sorry, they wanted to continue to occupy the site and by taking a 15-year triple-net sale in this venture, leaseback transaction that allowed them to do so. The transaction made sense to us on a lot of different levels. Firstly, we were able to achieve an attractive yield that wasn't available in the Auckland market at that time. And also directly in line with our portfolio target of having between 5% and 10% of our assets held in specialist assets. And it also fell within our portfolio target of 15% to 25% of our assets being held outside Auckland. So this acquisition shows how we're identifying opportunities outside of Auckland, where the leases and the tenants can be attractive. And through acquisition, we can improve in the 4 to 5 our portfolio and progress again on our strategy. So far the 2 examples shown, you've obviously been large acquisitions, transactions of scale, but not every deal we did last year falls into that category. If you take our most recent acquisition, which was the acquisition of 32 Honan Place in Avondale, which you can see on the slide there. This property only has 2 small buildings on it. The site itself was only 1,436 square meters in size. But what is important to us is directly adjoins a much larger property at 15 Jomac Place that we also own. That property, there is 1.5 hectares in sites. By combining the 2 properties, it gives us the ability to create an additional easement or access road and additional car parking for Jomac Place should we need it in the future. Later in 2021, we also acquired 520 Rosebank also at Avondale. We spent $5.2 million on this acquisition. Again, it's a rather -- it's a smaller site, it's 3,100 square meter in size. It's got an 1,100 square meter warehouse facility on it. It's leased for 6 years. And so whilst not a significant property in and of itself, there's a distinct development here for us is it sits adjacent to a large industrial estate that we own next door. So 528 to 550 Rosebank Road comprises 9 other separate buildings. It's leased to 5 different tenants. Weighted average lease to across that site of close to 6 years with an income of nearly $3.5 million, so very substantial industrial estate. And again, like Honan and Jomac Place, by combining these 2 properties, it also offers opportunities for future integration down the track. The final copy on that slide there is a recent acquisition we completed at the start of this year, 318 Neilson Street in Onehunga. And this is a 5,000 square meter site. It's adjacent to 4 other properties that we own in the area. Combined, they form almost 5 hectares of industrial zone land, which is a pretty key critical recent in the middle of Auckland here. Again, this acquisition while in the short term won't add too much in terms of capabilities in the medium to long term, when we develop out some of the bigger sites in and around it, we'll provide further opportunities, which is attractive to us. So in each case, a relatively small property as our cumulative strength. It adds capabilities and creating a large enough states that wouldn't have been possible otherwise. Ant spoke earlier about the importance of scale. These transactions are another way of getting scale. Through examples of thinking like a portfolio owner in finding creative ways to unlock some value and create additional value to these properties. The final property I'm going to talk to you this morning is 30-32 Bowden Road and Mount Wellington. This is a great example of some of the brownfield opportunities that we're becoming more active. Currently, this 4-hectare site and central Mount Wellington is occupied by a manufacturer. The lease expires at the end of March next year, 2023. And that opportunity -- sorry, at that point, we've got the opportunity to demolish the existing buildings, which were built in like 1960s, early 1970s and effectively obsolete. And create a significant new best-in-class development. The development at South is going to happen in 2 parts. First, we've just recently agreed commercial terms to the design and build and lease of a new 9,500 square meter industrial facility, the 12-year lease in place, and that's on the rear part of the site. And then the second part is the speculative building of about 12,000 square meters start new building on the front part of the site. So combined, those 2 construction projects, we see us investing about $50 million into this property. I'll take the value of the property from a current value of $32.5 million to -- we're forecasting close to $100 million at the end of 2024 when we complete the process. One of the great attractions of this site is its versatility. The property has everything needed for a modern, best-in-class development. We've got dry ground access with multiple canopies roller shutter doors and high not warehousing. We're going to target a 5-star Green-rated development here, 1 that will enhance our ESG capabilities. We're anticipating using 51% less water on the site, 66% less energy usage through the buildings and admitting 66% less greenhouse gases on the site. So brownfield opportunities like Bowden Road performed about 10% of our portfolio or $220 million worth of property. As we complete these developments and secure long-term leases, we move these brownfield opportunities into the long-dated core generic holdings that we have within the portfolio. This then frees up the ability to acquire more brownfield projects, and we repeat the process. We see these opportunities has been a real growth engine within the company. We undertake these projects typically at better returns than what you can go out and buy profit. for. And it's another reason why we see our continued growth in the dividend on the way through. So we've all heard the phrase change is constant. But equally, for us, constant performance requires change. In order for us to keep delivering on these growing returns and what can be at the dynamic market, we need to keep adjusting and adapting. We can afford to take some risks now because we do have a portfolio of scale. It's fully occupied, but we're not going to take risks just for risk stake. Success is about including an element of risk into what we do in terms of portfolio optimization. But they need to be proportional -- they need to be considered and managed so we don't stagnate. Let's move to the next slide, sorry. So that potential is pretty exciting, but cash is still come to every business today, the PFI is no different. We've had a really positive and strong start to the new year in terms of asset management with our existing portfolio. As of last night, we've completed 9 new lease renewals already at an average increase of annual rate of 12.2% on the previous contract rate. And pleasingly we've also achieved these new renewals at an average of 4.7% above what the valuers had estimated the rent was in December 2021. So 4 months, we're seeing some really good rental growth. The story of rental growth is also being backed up with our reviews. To date, end of April, we have completed 36 reviews across the portfolio here after period across $17.4 million of contract rent. And on average, we've seen an annualized increase of over 5%. So that story of rental growth you're hearing in the papers is definitely coming through, which is pleasing. We think the sustained demand for our properties proves that we've made good decisions in the properties that we've chosen to own. We think it shows that tenants enjoy being at our properties and value being part of the PFI story. And we see this as a really important validation of the quality of the properties that we have in the portfolio. Looking forward, as always, there may be some challenges on the horizon, but we think the company is very well positioned to take to respond to these. And just as importantly, we think we're very well positioned to take advantage of opportunities that will no doubt present themselves as we move forward. So just before I hand things back to you, Ant, I just want to say a quite thank you to everyone who's turned up today to our stakeholders for your continued support, not just over the last 12 months, but over for something go a long period of time. It has appreciated. So thank you very much. As a management team and Board, we look forward to including you in our continued growth story as we continue to move forward. So thank you very much, and we look forward to having a cup of tea with you.

Thank you very much, Simon. It's great to get a live example of some of the activity the team has been involved, and it's been a really busy year for the team. And you can just see some of those assets are great assets to get your foot on, both big and tall. So ladies and gentlemen, there's now an opportunity for questions and comments on the presentations that you've seen or on the financial statements and auditor's report, which you'll find from Page 78 of the annual report. For those here in person, if you raise your hand, we'll get a microphone to you so everyone can hear. And can you please start by introducing yourself whether you are a shareholder or a proxy holder. And for proxy holder, the shareholder you'll hear representing. [Operator Instructions]. So ladies and gentlemen, questions on the presentations and the auditors and financial statements.

My name is [ Robert Gray ], I'm a shareholder. We have all these beautiful buildings, and we're only getting -- based on the NAV of $3.3, 2.5% in dividends. Can you hear me all right, can you?

I've got you.

2.5% in dividends. All these syndications that the papers are full of them, the interior and do vial and all these ones, they're offering -- all of them are based on they are offering a minimum of 5% and up to 10%. How can they do that when we can't?

That's a good question. Look, it's an interesting question that's been a part of the industry since the time syndications started to evolve. And the key difference, I think, between a core property portfolio like PFI and a syndicate asset. And often the syndicates rent themselves around a single asset. So they had single lease and regal characteristics, which may or may not be relevant to the market at the time. This is the bigger core property portfolios, which have a diversified large ongoing portfolio. There's quite often a difference for that reason. And the other thing the syndicates seem to be aggressively geared they intend to give themselves up as far as they can possibly get it. And of course, for that to work, interest rates must be below the inherent property yield and they've got really strong leverage as a result of that. But of course, that carries a lot of great risk. And quite often, they're quite aggressive in terms of the effects of growth. So I think the difference is quite important when you're considering that difference to understand the nature of the investment, syndicates often single-asset, higher risk often terminating but heavily geared investments. And hence, you get a higher risk to reflect the higher -- sorry, higher yields to reflect a higher risk. That's predominantly why the difference is there.

Centuria, they have a whole lot of different funds. I'm a Centuria shareholder, too. Another thing I looked at Page 89 of the annual report. And I say only 3 of the directors hold shares in the company. Some of these directors have been a long time. They think they're not listed having shares in the annual report anyway.

Certainly, the Board's policy is -- it encourages the directors to own shares. There's a variety of holdings across the ship in terms of shares. I personally don't have shares in the company. That's a legacy issue. I was an appointee originally from AMP Capital was the manager, and that was not appropriate to own shares in that capacity, and that's been a legacy that sort of carried on with me. The other directors, the incomings are all shareholders and, as I said, the policy of the Board is to encourage directors to own shares. That's not a mandatory requirement. It's an optional requirement.

Yes, I know. You think as a good partner. You think they actually think of it as a good company and they would.

And I think the recent appointments have all taken chairs up. Thanks for your questions. Other questions on the presentation of the financial statements or the auditors' report.

I'm [ Bruce Parks ] with Shareholder Association proxy. You've got to move with the Board on the south of the Bombay Hills, that's time when there's headwinds with increased global inflation. How are you going to fund that by the best of in Auckland or getting more capital or what?

Look, the Board -- the company and the Board has a very clear capital management strategy, and that involves basically having a certain level of debt. We've got a sort of a self-imposed debt max of 40%. And we've got statutory imposed documentation or contract or imposed limits on debt. But we tend to be much lower than that, but we do utilize bank debt. And it's typically both now a combination of bank debt and bonds. Bonds, an instrument that the property sector used in the early days, very much part of the capital structure now and really, they've added a lot of value in terms of their cost, competitive cost at the time. And secondly, the tenure, they tended to be longer than we could have got bank tenured before. It's changing there. You'll see the latest facility we filed last year was 1 of the facilities was the Common Bank facility. So we use a combination of bank debt which has been very competitively priced. But we also look in terms of our portfolio position and our recycling of asset. And that's driven from both a portfolio composition and quality point of view, but also long-term capital requirements. So we look at assets all the time to say, look, are they suitable for the portfolio rather than saying, look, we need some capital to which asset should we sell. We don't take that approach. We take a portfolio approach first and foremost. But then we do recycle assets on merit, but that frees up capital. And Carlaw Park was a classic example of that, where we -- that came into the portfolio we merged with property fund. We were happy that while it wasn't a direct industrial asset, it was a great asset to have actually. And it's a high -- it's been a high unit. But long term, it hasn't been an asset that meets our long-term strategic goals for the portfolio and it predominantly industrial assets that wasn't the case. It was an asset in the sector that we thought the time was up. And so we sold it. We sold it on pretty good deals. We got a premium over valuation, and we managed to organize the settlement so that we've got earnings on the way through. But that, of course, in terms of the sort of money that put back there was close to, I think, $100 million back into the hold. And so that was a great example of recycling an asset for asset purposes, but, using that to fund our ongoing portfolio activity. So it's the combination of capital sources, but very much in accordance with our capital management plan.

Thank you. Second question, your leadership in ESG has been impressive and your duty so far. Do you have any financial restrictions around how much you put it into your improvements?

Simon, do you want to give any ratio or limitations?

There's no restrictions, so to speak. It's really a decision that we make as a management team or Board about what we're prepared to invest into our assets. So a good example is we've gone through our portfolio. By the end of this year, we will have removed all old air conditioning systems that were poor performance for the environment. It's a $2 million capital spend. There's no return for that, but we've chosen to do that as part of our internal policies. Bowden Road, by way of an example, it's a $50 million development. We're anticipating spending about $500,000 to achieve the Green Star rating. So upfront is a small capital cost, not a material 1 in our view, but we think we'll achieve returns off that in the future. So in 10, 15 years' time, when these buildings are available for re-leasing. We, think the fact that the Green Star rate will prove more attractive. And we think there'll be a differential on the rent that you can actually change. So we're investing now for the long term, basically.

Other questions on the presentation, financial statements or the auditors' report?

There's a question here that's been dialed in by technology, which is great. I can read it. Is there any evidence of changing market cap rates on the portfolio in light of the increasing interest rate environment? This is a question that's come through from [ Peter Truman ]. There's a question that we've been asked a lot in the last 6 weeks, especially with the way the share price has traded down or the whole market trend it down. To date, there's no real evidence. Values operate off hard evidence in terms of transactions that have completed. So we're in a bit of a holding pattern really where we're not seeing any sort of significant industrial property sales go through. But what we are seeing we've referred to it earlier about the growth in REITs is with the new lease renewals that we're writing, not just us, but other landlords and the rent reviews that have been undertaken as a sharp increase in industrial REITs. So we think with interest rates moving up. You might see cap rates moving out slightly drifting out. But I think what we're hoping or what we're anticipating is that growth in region will maintain the capital value. So we haven't really seen anything to date. And then there's 1 other question here. How do we approach our brownfield acquisitions? Are they generally off market? Or to PFI necessarily have to engage an auction process with other third parties? Typically, industrial property is not auctioned the next due to the size. If you look at our average size of an asset we own, it's close to $20 million. So people generally don't take those to auction. We have brought brownfield opportunities off market in the past. And a good example is the Bowden Road property that was acquired back in 2013, so nearly 10 years ago. At the time, that came with a lease -- a long-term lease in place with Fletcher. So that's the tenant that's moving out. And we recognize that it was a manufacturing site that had long-term income, which is attractive. But we also noted that within the 10- to 15-year time frame, we had the opportunity to redevelop that site. So we're not afraid to compete an online processes or market processes. But that one there was an off-market transaction.

Yes. And I think fair to say, Simon, that's one of the things the company has been pretty well placed to do it. Actually, we've had a number of counterparties come to us and say, "Look, we're not in a position, don't want to go to the market and aggressive public marketing campaign, but we want to do a deal and work through that process and the knowledge that PFI is a long-term industrial landlord that makes money out of being very good at what it does. So Fletcher's tenant well got really good assets, and that has really flown back to the company to say, "Look, actually, people come to us and say, "Look, let's do an off-market opportunity, but money has got to be right. So that's sort of a given.

I actually think there will be a change in the dynamic in the market for the last 3 years, whether it's residential through to industrial, if you've had a property to sell, why would you go off market and there's been plenty of buyers out there, plenty of demand, pushing prices up. But I think with the change in interest rates, et cetera, some of the other participants in the market, the syndicators will stand on sidelines for a bit. So I do think you'll start to see more off-market transactions happening. And we've been approached by 2 or 3 people already this year with opportunities. So it's interesting times coming up.

Just to add to your earlier comment about the market, where the market sits and the online cushion. And I think it's fair to say the market is behaving as expected. We've seen a dramatic increase in inflation at a high correlation to interest rates. And so the interest rate environment is going up. Obviously, the swap rates have risen materially in the last sort of to 4 months. And of course, most of the market is sitting on its hands and that's completely sensible. So look, we know where this is going to go. Would we be buying assets in this market? Is there a better buying here next month, next year type thing. And I think clear to say that we're doing the same. I mean it's just sensible. So we're just sort of certainly are seeing where the things get to. The value is, of course, it's called the spotlight because the values have got to proceed on with our valuations, which are transaction based. So I think as you see, Simon, and I was sort of saying, well, let's see whether it all gets to at the moment, there's not a lot of evidence. Instinctively, cap rates are moving out. We've got to be careful about where we put our values based on evidence. So I think behaving is intended and is watchful space. Any other online questions?

No other online questions.

Any other questions on the...

[ Alan Vest ] Recently, we've had a report -- a geophysical report. Have you looked at all the properties in the light of that geophysical report and reviewed your portfolio to see whether you've got a higher risk profile in some of those properties?

In terms of climate change or...

Climate change and geophysical element. Accentuating climate change.

Thanks for the question. As part of the TCFD reporting we did, we engaged an entity called Standard & Poor's. And so we have modeled all of the properties in the portfolio using Standard & Poor's modeling, and that gives us a view of risk around sea level rises, flood from other causes, coastal inundation, I think they call it. I mean there's a whole raft of things they're looking at. So we have a very good knowledge of how our portfolio would perform against a set of scenarios through that. I think there's 4 properties. I'm getting the nod from Sarah. There are 4 properties which have a heightened risk, not a high risk, but a heightened risk. And so they remain -- those risks remain on the asset plans for those properties. And that will play into whether we think about holding on to them, investing further capital, divesting those sorts of things. So yes, very much something that's on the radar. And sorry, just to say Simon said the total view of those properties is just $30 million. So it's a very small part of the portfolio.

And just to extend that comment, Craig, of course, that extends to our acquisition work as well. So now our thinking around what we do in terms of our due diligence around potential acquisitions. That's front of mind. Of course, it's sort of a given [indiscernible]. Of course, earthquake, since the earthquake experiences and crisis, of course, in the early days, but also more recently Sedona Wellington. We've gone through a session of each of our properties to clearly understand where they're at and what work they do. Some of them need work, and we're well through that program. And of course, going into purchases, that's front of mind as well. So those things are new things, the new aspects of our deals, they've been around for a while. So when I say new. They've been around for a while, but they are critical elements now. And I think the climate change aspect will just rise and it's important because it's not only the physical risk it runs. That's run around any particular property, but it's a market perception. I think one of the real concerns the market hasn't got its head around, particularly with things like residential properties, not only the risk of water and undulating sites than your foundation framework. But it's the market's perception. It's going to be more expensive, more risky. Even if your property is not itself vulnerable. No other question? Any other questions from the audience, ladies and gentlemen. So look, if there's no other questions, I will move to the resolutions. And I've been advised that 345 shareholders representing 174,927,991 shares or 34.6% of the company's shares on issue are represented here today by proxy. Voting for the resolutions will be conducted by poll. And for the purposes of the poll, I appoint the company's registrar, Computershare, to carry out the poll. The procedure for the conduct of the poll for in-person attendees will be as follows: Voting papers have been provided with the notice of meeting. Pens required will be distributed now. If you need a pen, please raise your hand. If you do not have a voting paper, please see a Computershare representative at the registration desk who will provide you with a voting paper. Indicate your vote for, against or abstain by placing a tick in the appropriate box. If you are here as a proxy for a shareholder who has not marked proxy discretion on their proxy form, your vote will be automatically counted in accordance with the voting directions given by your appointer. But please remember to sign the paper, the voting given when you arrived at the meeting. Where you are a proxy holder and you have been granted a discretion on how to vote the resolution, please use the voting paper provided when you arrived at the meeting. After recording your vote, please remember to sign your voting paper and place the voting paper in the boxes provided. At the back of the room, where they will be collected by Computershare staff. For virtual attendees, the poll is open to vote now. The resolutions and voting choices are found under the vote tab. And to vote, simply select your voting choice from the options shown on the screen. You can change your vote at any time up until when the poll is closed. To change your vote, simply select change your option on the screen. Having collected the votes, they will be taken to a separate room for counting and the results of the poll will be announced via NZX as soon as they are available. Please do note the Board recommends that you vote in favor of each of the 2 resolutions. So turning to the resolutions. The first is that Susan Peterson, who retires and is eligible for election, be elected as a director of the company. The Board considers Susan will be an independent director if reelected and supports her reelection. Susan has been a Director of PFI since 2016. She has an experienced business leader with a particular interest in helping companies to drive growth in technology, innovation and organizational culture. There is a profile of Susan in the notice of meeting. Susan, would you like to say a few words?

Thanks, Ant, and good morning, everybody. Thank you very much for the opportunity to present my credentials to the shareholders for reelection as an independent director of PFI. As Ant mentioned, I've been a full-time director adviser in Vista for the past 9 years. I currently Chair Vista Group. I'm a Director of Xero and Arvida and Craigs Investment Partners. I am a previous Director of ASB Bank and Trustpower. I've also been on the board for not-for-profit global women for the past 4 years, and I've recently concluded 9 years as the member of the New Zealand Markets Disciplinary Tribunal. Look, firstly, I'd really like to say I've hugely enjoyed being part of the PFI team while COVID in the seemingly endless lockdowns we've all enjoyed here in Auckland over the last 2 years, have introduced unprecedented challenges and change. I can't say how proud I am of our team at PFI in the way we've responded. Everyone is called together, look after the well-being of each other in our tenants while never losing sight of our collective responsibility to continue to deliver strong and stable returns for you as our shareholders. And I really would like to say today and use the opportunity warmly and sincerely thank our team over here with us present in this room. In terms of me, I have a particular interest in helping companies drive performance through technology, innovation and organizational culture. And I've worked with companies at all stages of their life cycle with their startups, small businesses, large multinationals, software and technology companies and companies that have really struggled. And all of these experiences have been and continue to be very relevant for PFI as we steer into more market uncertainty. So in terms of skills that I bring, I guess you could say now I'm a reasonably experienced listed company director. I'm currently on the Board of 4 listed companies, particular interest in helping them grow. As I said earlier, I've spent 9 years the member of the New Zealand Market Discipline and Tribunal. And I understand very clearly and keenly what our obligations are to support and promote a healthy and vibrant capital market. I've had a wide range of hands-on experiences in a variety of relevant disciplines, whether it's digital technology, customer service, legal, banking, general commercial, risk management, conduct, culture and capital markets. And I think you'll find that my colleagues will agree with me when I say that I'm instinctively independent, and I'm afraid to share a minority perspective when the issues are debated at Board meetings. But finally, in a response to questions today, I'm a PFI shareholder. And so like everyone here today, I remain firmly focused on adding value to this company and delivering shareholder value. So look, I really enjoyed working with the PFI team as we continue to realize the opportunities ahead and it excites me, and I very much appreciate the opportunity to continue to serve on the board and assist the team as we work together as we confront the many issues as we grow this great company. Thank you very much.

Thank you very much, Susan. So to put the resolution to the meeting, the resolution is that Susan Peterson, who retires and is eligible for election, be elected as a director of the company. Is there any discussion? Any questions? There are no questions or discussion. Please mark your voting papers for Resolution 1. Or for virtual attendees select your voting choice from the options shown under the vote tab on your screen. Thank you. [Voting]

The second resolution is that the directors are authorized to fix the fees and expenses of the auditors, PricewaterhouseCoopers Auckland. Is there any discussion on this resolution? Okay. Again, please mark your voting papers for Resolution 2 or for virtual attendees select your voting choice from the options shown under the vote tab on your screen. We'll just give a few moments for final voting and then we'll close the poll. [Voting]

Okay. Ladies and gentlemen, the poll is now closed. Thank you very much. So we now come to general business. If there is something you wish to put to the meeting, could you raise your hand, please, and we'll get the microphone to you. I remind you, please state your name and whether you are a shareholder or a proxy holder. [Operator Instructions] As mentioned earlier, we'll try to get through as many questions as possible, but not all may be able to answer in this meeting. And in this case, questions will be followed up after the meeting.

[ Even as evident as ] shareholder. I was delighted to be able to vote for Susan Peterson to remain on the board. And this is not a criticism of the Board. I think it has excellent -- an excellent board with excellent members with excellent caliber and quality and experience. But I would hope that when there's a next vacancy on the board, you would consider increasing the diversity of the Board and adding another female.

Look, thank you for that question. I'll comment. I can assure you that property for industry is fiercely focused on that issue at both the Board level and the team level. And in fact, we -- from the companies and the entities I'm involved and we're probably leading that charge. And the directors would like to make a comment on that. But I can assure you that we are in a regular discussion of our Board members and team members in achieving diversity, better diversity is front and foremost. And I should add, actually, that for a long time now, I think we've probably addressed the last 3 or 4 annual meetings that Property For Industry broadly has been working to a pretty orchestrated succession plan at Board level, and the new directors are a result of that is ongoing. And the issue of diversity features top of line in terms of one of the consider one of the key considerations in terms of potential Board nominees. So thanks for your comment, and I can assure you that that's taken on Board. Any comments?

I would like to comment on the idea of directors having some shares in PFI. I am a new shareholder. I've just bought my shares recently because I previously owned wholly my own property. And I thought that I had far too much money in real estate by owning that. I didn't -- I was refused to buy shares based on performance of real estate. Now I can buy them. Sometimes directors may have a very good personal reason for not buying shares in property. In case, I didn't introduce myself, I'm [ Jenny Merios ], a shareholder.

Right. Thank you. So just to make sure we've got your comment on question clear. You're reinforcing the desire for directors to buy shares in the company.

It's up to the shareholders' personal situation, whether they buy shares or not. And if I were a director, I would not have bought shares in any company that had to do with real estate because I felt I had more than enough investment in real estate as things were.

And I wonder if I can comment on that because I think it's a really important point and it links to the question that was asked just before, too, that if we expecting as we think about a pipeline of increasing our diversity that sits around the board table and bringing more voice at the table, the idea that directors are expected to buy shares and invest capital assumes they have the capital to do that. And that actually holds you potentially back from stepping forward. So I think we've just got to be, as you've quite rightly pointed out, respectful of the person's personal financial situation, but also thinking about, do they have the skills and experiences to represent the role properly. So thank you for raising that because I think it's a really important point.

Mr. Chairman, [ Alan Vest ] again. I'd just like to make a comment from a shareholder who has been a shareholder for many, many years. When I first joined the Shareholders' Association. This was the only listed company with an internal management. And I think we're seeing the benefits of that now. We've had no big break in proceedings because we've had to buy out a management company as has happened in precinct properties and a number of others. We're not still saddled with external management, say, another property company down the road. Even though it be very well managed, I believe. So we're beginning to see -- we have seen in the past few years, the benefits of not having that break and having an established internal management with a succession plan internally. So I'd like to say thanks for that.

Look, thanks for that comment because it's quite interesting, the history of Property For Industry is we recently, you'll recall, bought the external manager that PFI had and Greg was running that management company and managing very well, extremely, I should say. But one of the key differences with property industry from the inception of the listed property sector which reemerged in the early '90s was that Property For Industry at that time was the only entity that was a company that was independently governed. The others were all trusts, and they were governed by a single group of people, directors, all behaving properly, but who had a responsibility to govern both the entity and the manager. And that was an inherent conflict that made life really, really difficult. If I didn't have that had an independent Board that operated regularly fiercely independently. There was 1 appointed for the manager. I was at originally before I became an independent director. And that meant that could then operate completely independently as a Board, totally focused on the shareholders' interests and not having to worry about the manager's interest. That was different. Over time, the other entities have gravitated to that governance model, which is just a no-brainer. But the other thing that I've always sort of been careful about is taking a conclusion that an external manager is bad plan. In some cases, it's a good fun, and I've been involved in other entities who have been far better because they had an external manager, they had international representation and experience and that sort of stuff. At the end of the day, you'd probably have to say that the alignment is much better, having your own internal team, as you say. And there's no complications about what the manager is doing elsewhere than in the business. So I think we've been very pleased that we stepped up and bought the management contract with we had the opportunity. We had one opportunity to buy that. There were other bidders that would have taken it, and we would have never got it back. At that time, there was some concern about the price was expensive. We knew it was expensive, but strategically, we thought it was the right thing to do. Looking back, it's turn out to be a great thing to do, and we're delighted that we've done it. And the team now is really strong, internally focused, totally dedicated on PFI, and it's worked well. So thanks for your comments. And I think we are positioned well. And I think Simon and team, appreciate being part of a dedicated internal team.

Very much so.

There was another question.

It's [ Michael Chertoff ], shareholder. We've had unprecedented disruption "in the last 2 years" expected individuals and terms and whatnot. So how do you see trends in manufacturing affecting your business as we go forward.

Yes, it has been unprecedented. People use that word a lot. We spend a lot of time with our tenants. So not just manufacturing but logistics users across a full suite of industries really. I guess the key 1 we've seen is move away from the just-in-time type manufacturing where people would bring stock or raw materials in at the last possible moment to more of a buildup of supply. Obviously, supply chain logistics have been very much disrupted not only here in New Zealand but globally. So it's flowing through, I guess, into us feeding into our industrial portfolio, which is great around people wanting more space, more yard areas to store products, greater warehouse areas. And you can see that in the vacancy rates in Auckland industrial vacancies below 2%. Historically, it's never been there. It's been there for nearly 2 years now. So it's been a real change from trying to hold as little stock as possible in the case of a manufacturer to having to hold stock, which feeds into the rents you're seeing that we're able to achieve and the lease renewals that we're doing.

Yes. Look, it's very interesting. You could extend that comment to not only manufacturing but general industrial uses, particularly distribution. And when PFI started 1993, '94. The size of a -- good size share was 3,000 to 5,000 squares, Greg. The shares that are being built now for these automated distribution systems are clinically big. 30,000 square meter shares is not uncommon and really top-end quality real estate but they are very big assets, they're $100 million asset. So the market has changed dramatically over that time. And I think the sector that we heavily invested in the distribution with assets that meet that sort of latest modern criteria, that will evolve over time and our portfolio will evolve with it. But scale is important. If you don't have a presence in the market now, so if you don't have a pool of assets and you don't have scale, you're going to become insignificant. So we've always been focused on buying for dividend growth. That's our first priority, but scale brings us real benefits. And fortunately, we've been able to amalgamate assets that really work well for the portfolio. But the issue you raise is a really important one. Other questions from the floor, please? Okay. Look, if there are no other questions, that brings us to the end. So thank you very much for your continued support of PFI and for your attendance today. We really appreciate you taking the effort of coming along. That ends the formal part of the meeting, and I declare the voting and the meeting closed and would welcome those tenants here today to join us for light refreshments and discussion with the Board and the management team. Thank you.