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

Ladies and gentlemen, It's just going 11, then I'd just like to draw the meeting to order, please. My name is Anthony Beverley, and I'm the Chair of the Board of Directors of PFI. Welcome to the 29th Annual Meeting of PFI. We have a quorum present today, so let's get underway. This year, we're once again holding this meeting as a hybrid meeting, meaning that we'll be having participants here both in person and attending virtually. Can you hear that, okay? There is a bit of echo. You're okay. Before we start, can I just remind those here in person today to put your phones on silent, please. And in case of an emergency, please follow the instructions of the generator staff, follow the emergency exit out of the meeting room and the assembly point is on Key Street. In order for this hybrid meeting to run smoothly, I'd like to confirm how questions and answers and how voting will work. First, let's deal with the procedure around questions and answers. Any shareholder or appointed proxy is eligible to ask questions. If an eligible online attendee would like to ask a question, you can select the Q&A tab on the right-hand side of your screen at any time. Type your question into the box at the bottom of the screen and press send. There will be time allocated for in-person attendees to ask questions during the course of the meeting, and we'll try to get as many questions covered as possible, but not all questions we may be able to be answer in the meeting. And in this event, questions will be followed up after the meeting. The second key procedure is voting. We've opened 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 by each resolution. Once your vote has been cast, a green tick will appear, and 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. Should we require any assistance with asking questions or voting, you can type your query into the Q&A tab at any time and one of the Computershare staff will assist you or alternatively, you can call Computershare on 0800 650 034, and asked to speak to one of the administrators supporting the PFI annual meeting. I will explain procedures for voting in person later in the meeting. Ladies and gentlemen, here is the agenda. I will start with a short presentation and then our CEO, Simon will do likewise. You will then have the opportunity to ask questions or to make comments about those presentations or the financial statements and auditors report. Then as you've seen in the notice of meeting, you will have -- we have 6 resolutions we would like you to approve today. Following those resolutions, we will finish with an opportunity for questions and answers when we get to general business. For those who are here in person, you are welcome to join us for light refreshments and a more informal chat with the Board and management team after the meeting. Let me start by reintroducing the management team and the Board. Craig Peirce, our Chief Finance and Operating Officer; Simon Woodhams, Chief Executive Officer; Angela Bull, Independent Director, who was appointed to the Board in February and is up for election by shareholders today; Carolyn Steele, Independent Director, who was also appointed by the Board in August last year and is up for election by shareholders today; David Thomson, Independent Director; Dean Bracewell, Independent Director; and finally, Greg Reidy, Independent Director. We also have representatives from our auditors, PricewaterhouseCoopers; and our Legal Counsel, Chapman Tripp, here with us today. So ladies and gentlemen, standing back and looking at 2022 from the company's perspective. It's clear that the difficult economic market and operating conditions that arose around COVID transitioned into quite material changes to both the global and domestic economies and the capital investment markets, including property. Despite the emergence of more difficult conditions, we are pleased to report to you that 2022 was another solid year for the company. While our underlying leasing and asset management activity continued as normal, it was clear that market expectations and pricing were changing. And we took a much more opportunistic approach to our investment and divestment activity. On an overall basis, PFI had a much quieter year in terms of transactions. While demand for high-quality industrial properties in good locations remained high, it was harder to find properties with the right long-term returns profile. The shift in focus saw us looking to maximize the value of our existing assets, divesting assets where it made sense to do so and undertaking important activity behind the scenes to prepare a PFI for the next phase of growth. That activity included executing a buyback of 3.6 million shares, starting the process to bring facilities management in-house, relocating our team in operations to new premises and preparing for 2 major brownfield developments that will get underway this calendar year. While there has been a distinct shift in sentiment affecting market pricing generally, the underlying dynamics of the sectors and assets in which we are invested remains strong. Tenant demand for industrial property remains high, vacancies are limited and, in fact, in some areas are at record lows. Rentals continue to increase and construction in the sector continues at a healthy level. As a professional landlord to the industrial sector, we have maintained our $2 billion-plus presence. And that scale and profile continues to attract relationship and investment opportunities in our target markets. As expected, earnings were lower than last year's record result, but importantly, when we step back and take in the 2019 and 2020 results, there is consistent upward movement over the medium term. Equally importantly, dividends rose again to $0.081 per share, an increase of 2.5% on last year. And I will come back to the dividend that we have later in the presentation. At year-end, our funds from operations were down 7.8% to $0.1021 per share, while adjusted funds from operations reduced by 5% to $0.0883 per share. However, occupancy remained at 100% and rental income increased by $1.4 million to $95.6 million. Overall, we ended the year with a fully occupied industrial portfolio comprising 94 properties and 132 tenants valued at $2.12 billion this following a $56.7 million revision downwards in our valuations. Our weighted average lease term also decreased slightly but remained above the 5-year mark. Not surprisingly, given general cost inflation, a lift in interest rates and the scarcity of experienced, talented staff, we incurred higher costs this year. Interest expenses, bank fees and admin expenses all climbed as we continue to invest in our developments, our team, our premises and our systems. On the other hand, ongoing high levels of demand for quality industrial space worked to our advantage in terms of rental increases. We leased around 15% of our portfolio by rent or 104,000 square meters of space this year at rentals of around 12% above the previous contracted rents. Reviews of more than 100 leases with $62.8 million resulted in an average annual uplift of 4%. The end result was an increase in our contract rent from $95.6 million last year to $98.2 million this year. By our calculations, our portfolio remains around 11% under-rented, giving us ample headroom to capture further market increases. As a result of changes in market pricing during the year, net tangible assets reduced from a historic high in 2021 to $2.988 per share, still well above the 2020 result of $2.209 per share. I would like to stress that during the 2022 year, it was considerable uncertainty as to the degree and longevity of the changes we were observing to both general economic conditions and to market pricing. And we purposely took a very careful approach. We had a particular focus in ensuring that our gearing remained low. We remain well covered in terms of capital, and we had an overall focus on making sure we had a solid balance sheet to take PFI forward into the next phase. In short, ladies and gentlemen, while it is clear, we remain in difficult economic times, both globally and domestically, we are confident that our underlying portfolio in business are well placed. At last year's meeting, I spoke about the significant focus and effort we were investing into continuing to strengthen our strategic environmental, social and governance or our ESG framework as it is known. This year, we made pleasing and tangible progress in terms of our sustainability program. And I just want to call out 6 of those initiatives because both individually and collectively, they speak to our focus in this area and how actively we are adopting a sustainability lens to address longer-term factors in a much more sophisticated way. During 2022, we refreshed our sustainability strategy. We completed the R22 gas refrigerant gas replacement project. We released our third task force on climate-related financial disclosures, or TCFD report within our annual report. We chose to specifically target 5 Green Star ratings for our Bowden and Springs Road developments. We created a strategy to roll out solar across our portfolio. And finally, we started undertaking sustainable refurbishments. Simon will talk more about the exciting work happening in this area and what it means for PFI and for our tenants going forward. Before that, though, let me return to the subject of our dividend. Shareholder return has always been PFI's overriding imperative and steady growth in dividends is a key part of that. In one way we measure our success to you, our shareholders. The 2022 year has seen another increase in dividend, as I referred to earlier, with the board declaring a cash dividend of $0.081 per share representing a payout of around 92% of adjusted funds from operations for the year or 91% on a 3-year rolling basis. One of the key reasons we made the shift to a 3-year dividend framework you'll recall, was to enable the company to continue to steadily increase dividends even when activities and market temperament meant potentially less immediate earnings accretion. This year's dividend guidance demonstrates that. And as I said last year, it protects our assurance to you, and it gives the company the ability to reduce the impact of short-term market volatility and to pursue opportunities that may take longer to materialize. Our projection at this stage for next year is a dividend of between $0.081 and $0.083 per share and the upper end of that production represents another 2.5% increase. So despite the changes in the market in the last 12 months, the Board and the management team are confident that our strategy is strong and that the business case to deliver you stable returns is both compelling and achievable. Our broader governance framework includes an ongoing focus on board composition and capability, and we have previously referred to our director selection and appointment process and our broader succession plan. In accordance and with that plan, the Board made 2 director appointments during the year, and I'd like to take a moment to welcome Carolyn Steele and Angela Bull, to the Board. But Carolyn and Angela have strong technical and commercial backgrounds, and each brings a different set of skills and experience to the Board. We believe both our strong appointments and great additions to the wider PFI team and we very much look forward to working with Carolyn and Angela going forward. On behalf of the Board, I would also like to acknowledge and thank retiring Director, Susan Peterson for her guidance and expertise during her as a Director of the company. In terms of succession, I have been on the PFI Board for many years, initially as a manager appointee and for the last decade or so as an Independent Director. I would like to note that as part of our succession plan, I have advised the company that it is my intention to step down from the Board at a time that suits the company. Given we have recently farewelled Susan and welcomed Carolyn and Angela to the Board, the Board has asked that I continue as a Director and the chair for a further period, and I've agreed to that. We will update shareholders in due course when PFI takes the next steps in terms of our governance succession. In terms of the broader environment we face, while the challenges of COVID may now feel for many like they are behind us, the long tail influence of the pandemic still very much remains. What's more, the Ukraine war, rising interest rates globally, cooling consumer sentiment and speculation by some that things will get worse before they get better, may have many feeling that we have simply swapped one type of uncertainty for another and that new perhaps even broader challenges loom. The recent banking crisis and the immediacy of the impact that this has had and will continue to have around the world is a live example. The good news, however, for us, is that the demand for quality logistics space remains high, and we have a portfolio comprising quality assets ideally suited to that sector. PFI's long-term strategy and continued focus on industrial property has advanced on a range of fronts, and the Board is happy with progress. But that doesn't mean that we can continue on the same pathways as we always have been on in recent years in order to leverage our current scale and presence. The best way to take advantage of less frenetic market conditions is to minimize the value of our current portfolio. With large sites hard to come by and even harder to justify commercially, redesigning what we have from the ground up represents much better use of our capital in these circumstances. In other words, this is very much the time for us to play to a different strength, careful capital management and at maximizing what we have to deliver stable returns for investors. Last year, the team made good news for the drivers available to them through that strategy to do exactly that, to divest sensibly and position the company to continue to grow in the years ahead. Ladies and general, I'll now hand over to Simon to comment on the year, where he sees PFI heading and our 2 major brownfield opportunities.

Thanks, Anthony. Good morning, everyone. It's great to be able to be here in person. Obviously, a new venue for us. You would have got used to turn up [ Dean ] Park over the last few years. Obviously, with the decline in attendance, we've decided to bring it into town, hopefully track some more people in here, with car parking and public transport. So welcome. I appreciate you taking your time to turn up. It's always good as a Board and a management team to be able to see the investors, in particular, face-to-face and some of our other stakeholders. So thank you for taking the time. Welcome, if this is your first time here, and welcome to those who are attending online. I'm going to take us through some of the stuff that we've got planned over the next 12 months. But I'm going to focus on 2 topics today. Firstly, a subject that's dominated the news cycle for much of 2023 already. And if we're honest, there's going to be a major factor for the foreseeable future, and that's our ability to plan for and respond to the challenges of climate change. This is something we have invested in as part of our overall approach to maximize in our portfolio value. I'll talk about what we're doing and how sustainability is influencing our approach to Property in general going forward. Secondly, I'm going to provide an update, as Ant said, on 2 of our major developments at Bowden Road and Mount Wellington in Springs Road and East Tamaki. So as Ant pointed out, last year was a quiet year for us in terms of transactional activity. There was a good reason for that. The properties that were available and presented to us didn't meet our commercial criteria. And as I've said in past years, we consider the merits of each and every acquisition very carefully and divestment for that matter when we make a divestment. 2021 was a strong year for us transactionally. But last year, we bided our time and we focused on adjusting and preparing the business for the years ahead. Our strategy continues to focus on reading prevailing market conditions for opportunities, being intentional in our management style and making deliberate decisions in our specialist area that strike the right balance really between short-term earnings and long-term value creation. Part of that has been specific about what constitutes a really good PFI investment. In terms of portfolio growth, we're going to continue to grow our base through proactive and deliberate investments. Our divestments last year have served 2 purposes. They help to continue to hone our portfolio and they recycled cash to enable us to continue looking for investments, both internally and externally for the benefit of our investors, tenants in this industry and wider people. Everything we've been doing behind the scenes this year is quite aligned with these intentions. Our business really thrives on 2 things and both of them are people related. One is obviously our strong relationships with our tenants and the other is the expertise of our team. We've paid a lot of attention to developing a capable and agile team within a distinctive and very healthy office culture. And last year's decision to bring facilities management in-house, bringing us even closer to our tenants and enable us to serve them even better. So sustainability. It's an increasing commitment for us. Going forward, we believe there can be no separation between sustainability and our commercial goals. This year, we continue to make progress on our plans while turning our attention to the next phase of that journey with the development of a refreshed sustainability strategy. This strategy is really driven by 6 core principles. Firstly, the company will create a future proofed and resilient portfolio, and we'll do this by infusing sustainability into everything we do in terms of refurbishments, developments, acquisitions and divestments going forward. We'll maximize the useful life span of our buildings, and that will have 2 effects that will help us minimize waste and will also transform our core holdings or portfolio. We're determined to become a trusted partner to our tenants in terms of sustainability and reducing greenhouse gas emissions. And as a professional landlord to the industrial sector, we see that as a real pivotal responsibility going forward. We'll collaborate with supply chain partners to minimize waste and promote positive social impacts. We'll focus on strong employee engagement and maintaining health and safety standards. And finally, we'll maintain high standards of financial and governance performance, as you would expect. So those 6 principles will be applied to 5 material focus areas that are shown on the slide before you. greenhouse gas emissions, resources and waste, disaster and climate resilience, people and well-being and economic value. The recent impacts of weather-related events on infrastructure, livelihoods, well-being and regional prosperity. A reminder that a changing natural world demand is focused, integrated and yet patient responses. We understand that sustainability is not certificate, rather, it requires us to be responsive to our changing external environment to constantly challenge ourselves to act in the best interest of all and to remain open to try new approaches. And all of this needs to take place within the context of changing expectations of regulators, financial markets and our business partners. Our strategy is about making sure that we do the right thing by all stakeholders that the tenants have buildings that they can rely on, that we continue to generate income that our investors can depend on and that our buildings formed the basis for industrial activities that support regional economies. Land choice and land use is critical. Energy choices need to be thought through carefully. And we need to consider emissions holistically. We've detailed out our plans in a lot of detail in our annual report, and I'd encourage you to take some time to find out more about our longer-term plans after the meeting. Today, however, I'm going to focus on one area in particular, and that's how we're now targeting 5 Green Star certification as a minimum for all of our significant developments going forward. So change doesn't just happen. If it has to be meaningful and not just reactive, it must be planned and designed. Over the past 3 years, we've really grown our understanding of the wider context of our organization for an emissions -- from an emissions perspective. We have identified that there are 2 types of emissions in particular that have the most material impacts. Emissions relating to developments and refurbishments, known as embodied carbon and emissions relating to the operational performance of our buildings. Our ambition is to minimize both. And to do that, we've said we'll build and refurbish in ways that reduce both embodied and operational greenhouse gas emissions, and we'll measure the operational performance of our buildings over time with a view to improving that performance. The best way to lock in reduced impacts is when we are building from the start from scratch. So we agreed that when we develop significant new buildings or redevelop current sites that we built the latest sustainability standards by targeting 5 Green Star rating. The advantage of the Green Star tool is that it's a holistic approach to ensuring building performs to a range of sustainability standards. It ensures that we minimize the impact of building materials and practices on the environment and that the building is designed to efficiently minimize greenhouse gas emissions during the operation of the buildings lifetime. In terms of our other immediate targets, we've committed to a range of projects and key targets through to 2025. They include implementing power metering and monitoring to 50% of our buildings by the end of '25, installing solar systems to 5 buildings within the next 3 years, and minimizing and offsetting our residual Scope 1 and Scope 2 greenhouse gas emissions. I'm next going to bring you up to speed with progress at developments at Bowden and Springs Road. These developments are significant, not only because of their brownfields potential, but because we're targeting 5 Green Star certification for both. As such, they service precedents and benchmarks for the blending of commercial and sustainability objectives I referred to earlier. So starting with 78 Springs Road. We originally acquired the site in 2013 via the merger with Direct Property Fund. It's a large land holding, approximately 10.4 hectares and sites and a prime site in East Tamaki. It comes with a long-term high-quality tenant in the terms of Fisher & Paykel appliances, and there's low site coverage that allows for additional redevelopment. In developing new buildings and refurbishing some of the existing buildings, we've recognized that we can incorporate best practice design and deliver a more sustainable future-proof industrial estate. This multistage project will start by replacing one of the existing warehouses that's poorly located with a new 25,500 square meter storage and distribution warehouse targeting that 5 Green Star rating I talked about. This stage is looking to be completed by the end of 2024 and an extension option will then enable Fisher & Paykel appliances to increase the warehouse up to 30,000 square meters should they wish to in the future. Sustainability features planned for the site include rain water harvesting, the use of sustainable construction materials, electric vehicle charging stations, greenhouse gas emissions performance standards and the version of construction and demolition waste from landfill. All up, this development enables us to target best-in-class 5 Green Star new buildings and to introduce further sustainable initiatives into the estate. At the same time, and just as importantly, a new 15-year lease to Fisher & Paykel appliances will ensure that the project delivers accretion to both earnings and net tangible assets on a per share basis. These accretive returns demonstrate that sustainability and positive commercial outcomes can and should be into woven. The seasoning example I want to talk to today is Bowden Road in Mount Wellington. Throughout the meeting last year, you may recall, I cited this property as a great example of a brownfield opportunity. We purchased the site back in 2013. Now extensive redevelopment over the next 2 years, we will see the current manufacturing storage and office buildings which are built in the 1960s in essentially obsolete, removed and replaced with best-in-class storage and distribution warehousing. Again, we'll be targeting that 5 Green Star rating for the site. The existing lease in place expires at the end of next month, and the first stage of the redevelopment will comprise a 7,000 square meter warehouse for Tokyo Foods, who are New Zealand's longest standing Japanese food importer and distributor. And they have committed to a 12-year lease from completion, which is forecast for Q3 next year 2024. The second stage of this development will be an 11,200 square meter high-stud warehouse along with 800 square meters of office, a large breezeway canopy and 80 car parks. Due to the strength of the industrial market here in Auckland, we've committed to this portion of the development without tenant commitment first. Given we've got 18 months to lease it up, we're very confident. In many ways, this redevelopment marks the start of a new era of development for PFI. Bowden Road will be our first fully Green Star-rated industrial estate and as such, it will underpin the next era of development for the company, both in terms of size and sustainability. It also endorses our ability to undertake large-scale best-in-class developments. Again, we expect this development to be accretive both to earnings and net tangible assets per share once fully leased. Sustainability features will be very similar to the Fisher & Paykel site and will include solar arrays, water retention, energy efficiency measures and the use of building materials with a lower environmental impact. Brownfield opportunities like Bowden Road will play a crucial role in embedding sustainability and resilience into the wider portfolio. I talked about this last year. In time, as these projects complete and long-term leases are secured, these brownfield opportunities with the Green Star ratings will be moved into our core generic holdings, making way for more brownfield opportunities to be taken into the portfolio. We can then repeat the process using brownfield opportunities like Springs Road and Bowden Road to form an ongoing growth and sustainability engine for the company. We should, therefore, be securing stable returns and strengthen our profile, credibility and influence in the sector. So looking ahead, we finished 2022 in a good place. We recorded a steady underlying result. Demand for our properties remains very high. Rents are forecast to grow and underwritten within the current portfolio offers us a platform for further rental growth. We have a clear plan for development in projects like Bowden and Springs Road will lock in a range of gains for the company. Our sustainability strategy is preparing us for tomorrow. Our strong balance sheet, our proactive capital management and defensive portfolio give us confidence that we can look through any short-term challenges and volatility and execute on opportunities to continue growing a resilient industrial portfolio of scale. Doing that will enable us to maintain momentum while meeting investor expectations. In terms of the outlook, we may not see the record results of 2021 in the short or even the medium term, but we are confident that we can continue to deliver resilient results. And through that, we'll set ourselves up for the next stage of our journey. Just before I hand back to Ant, I'd just like to take a moment to say thank you to the shareholders and to the other supporters of PFI, particularly those who have turned up today, it's appreciated. As a management team and our Board, we look forward to working with you all and including you on our growth story as we move forward. Thank you very much.

Great stuff. Thanks, Simon. That's a great coverage. Thank you. Ladies and gentlemen, there's now an opportunity for questions on the presentations or on the financial statements and auditor's report, which you can find on Page 44 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 start by introducing yourself, please, your name and whether you are a shareholder or a proxy holder. And if a proxy holder, the name of the shareholder you are representing. For virtual attendees select the Q&A tab, type your question in the box and press Send to submit. Ladies and gentlemen, questions on the presentations, the financial report or the auditor's report. Bruce, good to see you again.

Hey, it's John Bruce. I'm a shareholder. I'm also the proxy holder of the Shareholder Association. Looking at your proactive conservative capital management, how are you going to fund your redevelopments? Last year, we were buying back shares. This year just talk about getting a USPP, which is a bit scary. Do we have funds for development?

Look, PFI, as you know, Bruce been around looking at the company for a long time. PFI has traditionally had a very cautious, careful approach to its capital management position and its capital management coverage. And I think it's fair to say, as we've gone through different cycles over the years, PFI has been very proactive early in the [ piece ] to make sure it's bank, bank, bank. And in the early days it was only bank nowadays, it's bank, it's bonds and other capital sources. We've got a really robust banking syndicate in place, and we've got a really good bond program. That's a long-winded way to start the answer to your question. But essentially, we're going to -- we're well covered, we can fund the developments as of right with bank funding now. We're sitting at a gearing rate of 28%. So we're well sitting in terms of LVR. We've got a debt policy of -- an internal debt policy of 40% of value. Under our bank and our bond covenants, we could take that to 50%. But the company has always operated in the low 30s late 20s in terms of its LVR position and really driven that in terms of our position in the cycle. So we can as a right funded from our bank facilities. And the team is also looking at the portfolio, as I mentioned in my earlier material that we're looking in these markets to look actually our existing portfolio recycling assets -- as the portfolio ages, there's a natural look at which assets we should be selling and which we should be developing and investing. And so there will be capital recycled from that activity as well.

So what's the story on the USPP?

At the moment, the Board is not considering a capital raising at all. And in this market has an open mind actually to all of the sources. In terms of the USPP market currently, it's not competitive. The market has hurt at the moment through recent experience on USPP and everyone is sitting up and conscious of that, which is a challenge in some quarters but a learning exercise for the market. We're not looking at capital raising, but the Board has an open mind to what's in the best interest of the company. But USPP is not on the table at the moment. Other questions on the presentation of the financial statements or the auditor's report?

There's one online and it says are we at the end of the current yield cycle?

Simon?

I wish we all knew him. You'll need it for online -- yes. So obviously, cap rates are a big focus -- point of focus for us here at the company and the wider market. In terms of where cap rates have got to over the last 12 months since we last got together in a room, they have definitely moved out. And that's a reflection, obviously, of where interest rates are going, both globally but here in New Zealand as well. It's a function of that. So at the moment, there's been very little transactions in our space. There's been some recent transactions sort of below that $15 mark, a $15 million mark. And we've seen sort of prime cap rates anywhere from sort of 4.65% to 5.25%. The secondary stuff is sort of more out around that 5.5% to 6%. Where it's going to end up? No one really knows. Our view, I guess, well, my view is that with the strong industrial rental growth that we've seen, and we're seeing new leases done at in some cases, 20% up from what we were doing last year. A lot of that value will be protected by the strong rental growth that sits and behind the cap rates. There's obviously a little bit going on, both domestically and internationally around the interest rate piece. I would think in the next 6 to 9 months, that will flow through to some transactions here in New Zealand, and you'll start to see the value is simply where they think it should be. Does that answer the question, Craig?

I think so, yes. although I didn't answer.

It's good. I feel like I have answered the question.

Good. Other questions. Other questions online, Craig? No. All right. Well, look, thank you for your questions and comments. We will now move to the resolutions. I've been advised that 324 shareholders, representing 167,584,210 shares or 33.37% of the company's shares on issue are represented by proxies. Voting for the resolutions will be conducted by poll. For the purpose 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 the meeting. Pens required will be distributed now. If you need a pen, please raise your hand. If you don't 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 sign the voting paper provided when you arrived at the meeting. Where you are a proxy holder and you have been granted a discretion on how to vote, please use the voting paper provided when you arrived at the meeting. After recording your vote, please remember to sign your voting paper then place the voting paper in the boxes provided at the back of the room, where they will be collected by a Computershare staff. Having collected the votes that were taken to a separate room for counting. The results of the poll will be announced on NZX as soon as they are available. Please note that the Board recommends that you vote in favor of each of the 6 ordinary resolutions. Turning to those resolutions. The first resolution is that Angela Bull, appointed by the Board as a director on the 20th of February 2023, who retires and is eligible for election, be elected as a Director of the company. The Board considers that Angela will be an independent Director, if elected, and supports her election. Angela was appointed as a Director of PFI in February 2023. She is an experienced director and executive and property investment and commercial developments. Angela is also a qualified lawyer with significant experience in environment and property law. There was a profile of Angela in the Notice of Meeting. Angela, would you like to say a few words?

Good morning. Thank you for the opportunity to speak with you this morning and introduce myself. My bio has been included in the Notice of Meeting, as Ant alluded to, but I thought I would just give you a quick summary of my experience to date and why PFI is of interest to me. So firstly, I commenced my career as a property and environmental lawyer for close to 10 years, practicing in development work and infrastructure pieces. I then have held executive roles in commercial and industrial property for close to 20 years. The first 10 years of that was as the General Manager of Property at Foodstuffs North Island, which was responsible for the acquisition of land and the development of Pak'nSave, New World and Four Square supermarkets across the North Island. And then more recently, since 2016, I have been the Chief Executive of Tramco Group. Tramco Group may not be known to all of you, but it is one of the largest privately held companies of commercial and industrial land across predominantly Auckland. The portfolios that may be more known to the Viaduct Harbour precinct to my left, just along the waterfront there. And there is also a commercial and industrial portfolio called [ Tremlease ] across new market. [indiscernible] only hanger in parts of Mount Albert. I've held that Chief Executive role as I say since 2016, but do step down from that role this Friday as it happens, although I'll be continuing in some form of advisory capacity there. I also more recently have held several governance roles as an independent director, notably Vital Healthcare Property Trust, which I was appointed to April 2022. In Foodstuffs South Island Limited being a separate cooperative to the Foodstuffs North Island, and that I was appointed to in February last year. So why PFI for me? Well, PFI is a company that I've known for many years. It's very well regarded in the property sector, and it has an impressive industrial property portfolio. For me, I think it has an increasing relevance with the growth of logistics in New Zealand in concentration in Auckland, and I have always been particularly impressed with its very disciplined approach to portfolio growth. Simon has also outlined to you today the aspects of PFI sustainability program and PFI's really authentic commitment to sustainability and ESG. And for me, there is one aspect that has particularly attracted me to the role with my environmental background. So based on my legal experience and my property and commercial -- particularly commercial property experience, I believe I have a skill set that can add value and offer through PFI. Thank you. Thank you, Ant.

Good stuff. Thank you. So ladies and gentlemen, the resolution is that Angela Bull, appointed by the Board as a director on the 20th of February 2023, who retires and is eligible for election, be elected as a Director of the company. Is there any discussion on the resolution? Okay. Thank you very much. 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. As the next resolution is in respect of my reelection, I'd like to call upon our People Committee Chair, Dean, to chair the meeting. Thank you.

Thank you, Ant. Second resolution is that Anthony Beverley, who retires and is eligible for election, be elected as a Director of the company. The Board considers Anthony to be -- Anthony -- Ant will be an independent director, if elected, and supports his reelection. Ant is well known to many of you, having joined the PFI Board in 2001. There was a profile of Ant in the Notice of Meeting. The resolution is that Ant Beverley, who retires and is eligible for election, be elected as a Director of the company. I'd just add that the Board understands the importance of refreshing the Board of introducing new directors and working on succession within a Board as is evidenced through David's appointment, mine, Angela's and Carolyn's, but we also recognize the importance and the value that experience brings to the board. And I think we've got a great mix on this Board. Obviously, Ant's one of our more well-seasoned director. But as a still relatively new director, the high value his input as does the rest of the Board, and we fully recommend his appointment today. Is there any discussion on this appointment? Anything online Craig? Okay. 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. I'll now hand the meeting back to Ant. Thank you.

Thanks, Dean. The third resolution is that Carolyn Steele, appointed by the Board as a Director on the 22nd of August 2022, who retires and is eligible for election, be elected as a Director of the company. The Board considers Carolyn will be an Independent Director, if elected, and supports her election. Carolyn was appointed as a PFI Director in August '22. She had as a background in investment management, capital markets, mergers and acquisitions and currently chairs PFI's Audit and Risk Committee. There is a profile of Carolyn in the Notice of Meeting. Carolyn, would you like to say a few words?

Thanks, Ant. [Foreign Language]. So good morning, fellow PFI shareholders and guests here today. It's my pleasure to stand here for reelection today. It's been clear over the last 6 months since I joined in August, it's a really high-caliber team and it's a great set of assets. So I kindly ask that you support my election. The skills and the experience that I mainly bring to the PFI Board are largely financial investments and capital markets focused. My background includes first class honors degree in finance and my career experience includes 10 years investment banking, largely mergers and acquisitions, as Ant mentioned, and 6 years in investment management where I was responsible for acquiring and overseeing large private investments and companies and often representing the super fund on the board of those companies. So really, the work experience that I've been involved with has required me to apply a high level of financial and commercial judgment, and I think that's really what I bring to the Board, a strong level of commercial judgment. So in summary, I think my skills and experience are complementary to the set of skills and experience. You have it in front of you and at the Board today, and also well suited to PFI's -- PFI as a large assets business and a listed company. So assuming I am elected today, I look forward to continuing to be a [ temporary garden ] of PFI's future with a focus on providing sustainable, resilient and quality property assets for PFIs' industrial tenants and also sustaining long-term superior returns for PFI shareholders. So [Foreign Language], and I hand back to Ant. Thank you.

Thanks very much, Carolyn. So the resolution is that Carolyn Steele appointed by the Board as a Director on the 22nd of August 2022, who retires and is eligible for election, be elected as a Director of the company. Is there any discussion on the resolution? No questions, Craig? Please mark your voting papers for Resolution 3 or for virtual attendees select your voting choice from the options shown under the vote tab on your screen. The fourth resolution is that Dean Bracewell, who retires and is eligible for election, be elected as a director of the company. The Board considers Dean will be an Independent Director, if elected, and supports his reelection. Dean has been a director of PFI since November 2019 and currently chairs PFI's people committee. There is a profile of Dean in the Notice of Meeting. Dean, would you like to say a few words?

Thanks, Ant. I've been on the PFI Board for just over 3 years, as Ant referred to. PFI is one of a number of governance roles I've taken on since my time finished up at Freightways, where I spent pretty much my entire career. I'm also on the Board of Air New Zealand, where I chair the Health and Safety Committee, and a member of Air New Zealand's People Committee. I'm also on the Boards of Port of Tauranga, Tainui Group Holdings and the Halberg Foundation, where I also sit on their respective people committees. The governance roles I've taken on with a couple of companies where I have some affinity and some interest. PFI operates an industrial New Zealand, where I have spent a great deal of my life. Over the years, I've visited customers and many of PFI's buildings. I've also signed up a large number of leases on buildings throughout industrial New Zealand, including one from PFI, and we owned and we developed a few ourselves. And my governance capacity of endeavor to bring to PFI my knowledge and experience of both the industrial and logistics sectors, but also my experience of the commercial realities of having run a business. The last 3 years have naturally been challenging. But irrespective of the times, the PFI team has continued to execute its strategy while keeping their eye out for opportunities to better position the company through both acquisition and some divestment activity. I applaud the discipline with which this activity has been executed. In my capacity as Chair of the People Committee, I particularly endeavor to build upon PFI's succession program to ensure appropriate depth of skills, experience and diversity in the PFI Board room. This Board and management team work constructively together for the betterment of your company while respecting the roles each party plays. PFI has lived up to my expectations of being a best-in-class listed property company. With your support, I'd welcome the opportunity to continue as a Director of PFI. Thank you.

So the resolution is that Dean Bracewell, who retires and is eligible for reelection be elected as a Director of the company. Is there any discussion on the resolution? Okay. Thank you. Please make your voting papers for Resolution 4 or for virtual attendees select your voting choice from the options shown under the vote tab on your screen. The fifth 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? Craig?

No.

No. Thank you. Please make your voting papers for Resolution 5 or for virtual attendees select your voting choice from the options shown under the vote tab on your screen. The sixth and final resolution is that the directors are authorized to fix the remuneration of the directors of the company from the close of this meeting as per the table shown in explanatory notes of the Notice of Meeting. In setting the proposed rates, the Board commissioned an independent benchmarking review of the current level of director's fees by Ernst & Young. A summary of Ernst & Young's report recommending increases to the fees has been made available to shareholders on PFI's website. In requesting this review and setting the proposed directors fees to be put to shareholders, the Board has also considered the continued robust performance of the company and the need to attract and retain directors of a strong caliber. The proposed rates are set out in the Notice of Meeting. And if resolution is approved by shareholders today, the set rates will apply from the close of this meeting. The sixth resolution is that the directors be authorized to fix the remuneration of the directors of the company from the close of this meeting as per the table shown in the explanatory notes. Is there any discussion on this resolution? Okay. No discussion. Thank you very much. Please mark your voting papers for Resolution 6 or for virtual attendees select your voting choice from the options shown under the vote tab on your screen. We'll just give you a few moments to finalize voting, and then we will close the poll. [Voting]

Thank you, ladies and gentlemen. The poll is now closed. We now come to general business. If there is something you wish to put to the meeting, could you please raise your hand and we'll get a microphone to you. A reminder, please to state your name and whether you are a shareholder or a proxy holder. If you are attending virtually, press the Q&A tab on your computer, tablet or mobile and then type and present to submit your question. As mentioned earlier, we'll try to get to as many questions as possible, but not all may be able to answer in this meeting. And in that case, we'll follow any questions up after the meeting.

Also the ballot boxes has just come around now. So [ Dale ] and the Computershare team will just pass the boxes. If you could just put your voting in the box, that would be great. No questions online.

We will just wait until the boxes are...

Thanks. Can the Chair of the Audit Risk Committee tell us what the biggest risk are to cut and how are you mitigating them?

Thanks, Bruce. Yes, I'm just thinking back to the risk register and I'm sure that Craig will add some more for me. But obviously, key risks in the economic environment with tenants being able to pay their bills. Other key risks would be disruption building damage or tenants not being able to access the buildings, and we have mitigations in terms of insurance there, NDVI insurance, and that has certainly helped in the last -- been tested in the last few months. And other key risks, I think, personally, people, very strong key risk, and that is also on our risk register. We are quite conscious. We've got a very high-caliber team with a lot of experience. And I think those -- that's a team that we want to retain. And certainly, a lot of businesses are struggling to keep their people. I think other key risks, so I guess -- for me, those are the key, I guess, as audit -- chair of audit and risk, I'm very conscious financial reporting and accurate financial reporting controls, fraud, especially in an economic environment that is key risk, and we have part of our mitigation is [indiscernible] auditing those accounts. So shareholders should take some comfort from that. But also, you have directors with very BDIs watching them as well. So I guess those are top of mind. I can't quite recall the rest of them, but Craig probably wants to add a few.

The only other one that Carolyn didn't refer to, as we keep health and safety risk is 1 of our top 5 and that's obviously front of mind, across a whole range of fronts, be it our team or our tenants or contractors visiting our sites and those sorts of things. So health and safety -- whilst we do -- quite a small team is still very much on the top 5 for our risk register, but Carolyn covered all the others as well.

It's quite an interesting thing to think about that, Bruce, isn't it? Because if you look back, call it, 3 years, we went into the pandemic very, very quickly and very quickly got to a point where, certainly, in my time, I've never known a situation we're all locked up at home. We can remotely and trying to understand where this goes and what it means. Not long ago, we had people here in Auckland walking through streets in chest deepwater and you would have said that would never ever have been possible and look at what happened in Hawke's Bay. You look at people who had to bust their way through the ceilings to try and get on the roof. And you would have said, look, in this environment, that's not possible. So when you -- when we think about risks, these sort of events sort of set you up and say, actually, this is what's really tangible here. PFI has got a number of properties that are situated on sites that are close to floods spillways or joining floods spillways. And our normal due diligence process is very thorough in terms of looking at the types of events that might impact the property and that sort of stuff, and we've done a very thorough assessment of all our properties. But we bought a property in [indiscernible], not long ago, the [indiscernible] building, which was so flooded and we did a good exercise on that. But the forecast event, that event had never been forecast in the way it occurred. And so the risk thing is a formal exercise we go through blow by blow by blow, mitigate each of the risks we identify. But you really got to stand back and say, "Look, actually, we've learned some things in terms of what risk really is and the degree to which you can put the company and its activities at risk based on things that we've never experienced before. So Carolyn runs a very thorough process around the audit risk in terms of our formal risk management, but there's a high level overlay. And I guess that's why it sort of goes back to a diversified board and management team who have got a wide range of schools and experience to sort of consider these things when they come up. So it's a long-winded way to say those events have set us up quite rightly. Other questions?

Yes. Thank you. My name is [ Li Pasi ]. I'm a shareholder. I'd like to ask a question about the 5-star ratings of these buildings. My question is quite a simple one. What sort of price premium does that bring in for us versus a non 5-star rated building? Is it a clear-cut situation or not?

Simon.

Yes. It's a good question actually. It's one we've been asking ourselves for the last 3 years as we've been hitting towards this. If you had asked us 3 years ago, I'd have said, there was no premium for that for the cost that you're investing in to. These days that has become apparent, particularly in the last 12 months what you're seeing is it's probably a top-down approach. So the high-quality tenants, particularly the internationally located tenants who have branches here in New Zealand are now requesting 5-star accreditation and are prepared to pay additional rent for that. So we are pitching for instance, the Bowden Road property. We've pitching there at a square meter rate over $200 a square meter for that property once it's a little bit up. To put that into some sort of context for a comparable building that's already completed now that doesn't have a Green Star rating, it's probably about $180, $185. So you are seeing a premium for that. The cost to build that Green Star rating into the overall development is actually not that great. It's probably an additional 1.5% to 2.5% in terms of construction costs. And what we're seeing or what our view is if you don't put it in now you can never put it in. So in 10, 15 years' time, when these new build buildings come up for re-lease, if you're not rated or have a performance rating, you'll really suffer in terms of trying to attract new tenants. So it is an investment upfront. 2 or 3 years ago, you probably didn't see that initial return, but you are definitely now. So we're pretty confident.

Simon, just the last point you touched on there actually is a key part of it. So one part of, of course, is the pricing premium you might get through your rentals. And in fact, you're more efficient building from a cost saving point of view for your tenants, therefore, they should be prepared to pay you more. But the other thing you touched on was there will come a time when a large part of the market will not go into a non-green star rated building. And the lives of our building are we have long buildings that last a long time. And so in that duration, there will come a time and they must meet those environmental standards in order to attract the tenants. That's going to be a part of it. But it is a real trade-off in terms of how much of a step you take in terms of spending money and actually developing technology in new buildings on the basis that the market will follow. So that's something that's happening. But if you look overseas, of course, into those markets that have been much more advanced in terms of that ESG framework and imperative. There are into these vesting entities that will not support companies that don't have a really, really strong ESG. And the proxies that go through our proxy houses that go through our ratings, look really carefully at our performance in the ESG framework in [indiscernible] and rate, and those ratings become relevant. So that's one example of something that we're really investing in. But in time, that will become a requirement rather than an option. Other questions? Okay. Ladies and gentlemen, thank you for your continued support of PFI and for your attendance today. That ends the formal part of the meeting, and I declare the voting and the meeting closed. For those here in person, feel free to join us for light refreshments and further conversation. And for those who have joined virtually, thank you for doing so. Thank you very much.