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

Good day, and thank you for standing by. Welcome to Property For Industry's FY '25 Interim Results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Simon Woodhams, Chief Executive Officer. Please go ahead.

Thank you, and good morning. Welcome to Property For Industry's FY '25 Interim Results Briefing. As the speaker said, it's Simon Woodhams here, the CEO of PFI. And on the line with me today is Craig Peirce, our Chief Finance and Operating Officer. Just moving through to Page 2. And before we get into the results, we just wanted to point out that we are presenting results for the 6 months ended 31 December 2024, referred to as the H1 FY '25 results. Throughout this presentation and the accompanying interim financial statements, the audited annual 6-month results from 1 January to 30 June 2024 are presented as the prior comparable period or the PCP, unless otherwise stated. So turning to Slide 3. Craig and I will speak to the topics outlined here. I'm going to begin by reviewing the highlights for the period and then give an overview of the portfolio and its performance. Craig is then going to take you through the interim results and the section on capital management before giving an update on sustainability. I'll then give a brief update on the market before reviewing our priorities, and then we'll close the presentation, after which there will be an opportunity for participants to the call to ask any questions that you may have. So if you can turn to Page 5, headed Highlights. We're really pleased to report another robust set of operating results, highlighting the continued stability of the company's industrial property portfolio and our disciplined execution of its strategy. Highlights that Craig and I will expand on throughout this presentation include the valuation of our NZD 2.1 billion industrial property portfolio has now stabilized and has shown signs of recovery with the 15 properties receiving full valuations at the half year, delivering an average uplift of 3.1%. Our core assets have delivered annualized rental growth of 6.6% across the NZD 36.7 million of contract rent that was reviewed during the period. And NZD 4.9 million of stabilized contract rent was leased during the period with rents agreed on NZD 2.9 million of contract rent at an average of 21.3% above previous contract rents. And we're really happy to report that post balance date, we have leased 212C Cavendish Drive to Portacom New Zealand, following which our occupancy has risen to almost 100%. Our Green Star development pipeline has been advanced with NZD 220 million of 5 Green Star developments completed on time and on budget across our projects at Bowden Road and Stage 1 of Springs Road. In addition, Stage 2 of Springs Road has commenced and is around 60% pre-leased. Our balance sheet remains in great shape. We have refinanced or established NZD 550 million of facilities since June 2024, leaving us with almost NZD 180 million of available liquidity. Gearing remains well within our target range at 33.4%, and the interest rate environment continues to improve. This activity has combined to deliver a robust interim result with profit after tax of NZD 28.8 million for the period, which is up NZD 7.6 million on the prior comparable period. We have also announced a second quarter interim cash dividend of NZD 0.02 per share, with FY '25 dividend guidance confirmed at NZD 0.085 per share, an increase of 2.4% on annualized FP24 dividends. You can now turn to Slide 7, headed Portfolio Snapshot. Our portfolio has continued to benefit from strong re-leasing outcomes and structured rental growth supported by the company's newly completed developments. We have a summary of the portfolio statistics as at 31 December. You can see the company owns a portfolio of 90 properties leased to 124 tenants. The portfolio was 98.7% occupied. And as mentioned earlier, occupancy has increased to 99.9% post balance date after a new 12-year lease of the previous vacant space at Cavendish Drive was signed earlier this month. The period's activity has also delivered significant increases in contract rent, which has risen from NZD 99.7 million at the end of June 2024 to NZD 108.5 million at the end of December 2024. And the company's weighted average lease term or WALT has risen from 5.07 years to 5.67 years over that same period. Moving to Slide 8. We revalued 15 properties at the end of the interim period, resulting in a write-up on those properties of NZD 16.6 million or an average increase of 3.1%. The valuation outcome was driven by 3.5 basis points of cap rate compression as well as realized rental growth. As a result of the portfolio valuation activity, the portfolio market cap rate firmed by 8 basis points to 5.81% and PFI's portfolio is around 14% under-rented at the end of the interim period. We believe signs of recovery are emerging in the valuation of PFI's NZD 2.1 billion portfolio as Auckland industrial cap rates respond to the 125 basis points of OCR cuts delivered by the Reserve Bank over the second half of 2024, not to mention last week's further 50 basis point cut. Turning to Slide 9. During the period, the team completed 13 leases on almost 87,000 square meters of area with 12.8% of the portfolio by rent for an average lease term of 10.7 years. A total of NZD 13.8 million of contract rent was secured in H1 FY '25, with NZD 8.9 million of this contract rent related to newly developed properties. Of the remaining NZD 4.9 million of stabilized contract rent, rents were agreed on NZD 2.9 million of this, with rent settling 21.3% above previous contract rents and 5.4% above June 2024 market rental assessments. The remaining NZD 2 million of stabilized contract rents secured during the period is subject to market rent review on renewal. Those leases are 14% -- approximately 14% under-rented at the end of the interim period, are all uncapped reviews and have a weighted average review date of August 2025. If you move to Slide 10. As I mentioned earlier, the portfolio was 98.7% occupied as at 31 December 2024, rising to 99.9% post balance date, and the near-term expiries are very, very manageable. As the graph on the left-hand side illustrates, we have no contract rent due to expire during the remainder of FY '25 and just 3.9% of contract rent due to expire in FY '26. Commercial terms have been agreed on the largest single expire in FY '26, leaving just 3.2% of contract rent at risk in the next 18 months. If you could turn to Slide 11, 49 rent reviews were completed during the interim period, resulting in an average uplift of 7.8% or 6.6% annualized on NZD 36.7 million of contract rent. Around 40% of our portfolio is subject to some form of lease rent during the second half of FY '25 with no contract rent expiring until August 2025. NZD 7.6 million of contract rent or 7% of the portfolio is subject to a market review in the second half of FY '25, and those market reviews are about 21% under-rented at December '24 after factoring in review caps. PFI's core portfolio continues to deliver growth via structured rental growth and re-leasing spreads with a portfolio under renting cap of around 14%, providing further tailwinds, noting that market reversions continue to be settled in excess of valuers-assessed market rents. I'm now going to hand you over to Craig, who's going to speak to the topics I mentioned earlier. Craig?

Well, good morning, everyone, and thanks for tuning in, as we share with you PFI's robust interim results. As Simon mentioned on the highlight slide, profit after tax of NZD 28.8 million was up NZD 7.6 million on the prior period, incorporating fair value gains on properties of NZD 16.6 million as compared to fair value losses of NZD 4.2 million in the prior period. Funds from operations or FFO were down 3.8% on the prior period to NZD 0.048 per share and adjusted funds from operations or AFFO were down 4.9% to NZD 0.0435 per share with both measures reflecting increased interest and tax. And finally, cash dividends for the first half of the year of NZD 0.040 per share have been declared with guidance of NZD 0.085 per share for the full year dividends. So let's dig into those numbers a little bit. Please turn to Slide 13. On this slide, we take a look at net rental income, which is NZD 51.9 million is up NZD 3.5 million or 7.3% on the prior period. The completion of 3 significant 5 Green Star facilities at Bowden and Springs Roads have contributed to an increase in rent of NZD 2.5 million with positive leasing activity across the portfolio contributing a further NZD 2 million. Current and prior period divestment activity as well as vacancy together contribute to a decrease of NZD 1.1 million. Moving to Slide 14. On Slide 14, we see how the half year's activity has translated into adjusted funds from operation, or AFFO. On the positive side, AFFO level net rental income was up NZD 2.9 million or NZD 0.58 per share on FP24. The largest offsetting factors were a NZD 1.7 million increase in interest expense due to lower levels of capitalized interest following the completion of our developments and an increase in the effective tax rate of 15.4%, driven by lower depreciation deductions as a result of changes to tax legislation. If you could now please turn to Slide 15. And turning our attention to dividends. The PFI Board has today resolved to pay a second quarter interim dividend of NZD 0.02 per share with the dividend reinvestment scheme not operating for this dividend. The second quarter dividend will take cash dividends for the first half of the FY '25 financial year to NZD 0.04 per share. At the beginning of FY '25, we guided to dividends of between NZD 0.083 and NZD 0.085 per share. Based on the first half of the year's performance and recent trading and subject to events beyond our control, we now expect to declare FY '25 cash dividends of NZD 0.085 per share being the top of the initial guidance range. This will represent an increase of NZD 0.02 per share or 2.4% on annualized FP24 dividends. Cash dividends of NZD 0.085 per share are anticipated to result in a dividend payout towards the middle of PFI's dividend policy range and close to 100% of AFFO on a 1-year basis. Turning to Slide 16. Looking now at the balance sheet. Here, we provide more detail on the change in value of PFI's investment properties valued at almost NZD 2.1 billion. The increase from the end of FP24 was in part driven by the deployment of NZD 30.4 million of CapEx with the vast majority of this being spent completing the company's Green Star development projects at Bowden and Springs Roads. Adding to that increase, 15 properties were revalued at the end of the interim period, resulting in that fair value gain on those properties of NZD 16.6 million, an average increase of 3.1%. These increases were somewhat offset by the divestment of 44 Mandeville Street in Christchurch, and that divestment settled in December 2024. Turning to Slide 17, where we look at net tangible assets. Net tangible assets or NTA per share increased by NZD 0.016 per share or 0.6%, with the increase being the result of a positive valuation outcome and retained earnings offset by a loss on our derivatives or swaps. Moving now to Slide 19 for an update on capital management. The first half of FY '25 saw us refinance or establish NZD 550 million of facilities, along with the repayment of PFI's inaugural PFI010 bonds in November 2024. After having successfully disposed the company's property at 44 Mandeville Street, gearing sits at 33.4% as at 31 December 2024. And when accounting for our committed projects being the settlement of Spedding Road land acquisition and building out Stage 2 of Springs Road, we see gearing lift to around 35.8%, excluding any development margin. We have, of course, welcomed 125 basis points of OCR cuts over the period and the more recent cut, which has resulted in a significant decrease to our cost of debt. And looking forward, whilst the bank loan market remains very supportive of PFI, as announced this morning, we are also considering an offer of 5.5-year senior secured fixed rate bonds to further extend and diversify our borrowings. Moving over the page to Slide 20. On this slide, the top chart shows our bank and nonbank facilities and the lower chart shows our hedging profile. And as can be seen by that lower chart, interest rate hedging provides for an average of around 69% of the company's debt to be hedged at a fixed rate of 2.73% for the second half of FY '25, and that offers us some near-term protection from floating interest rates, which while coming down are still higher than that. Turning now to Slide 22 for an update on sustainability. We've continued to make strong progress in delivering on our sustainability strategy. We previously set 3 key targets relating to the installation of solar systems and power metering and targeting a minimum of 5 Green Star certification for significant new buildings. We made strong progress on all 3 targets in the first half of FY '25 and are pleased that our work on each of these initiatives continues to bring benefit to a wide range of stakeholders, including our tenants. We have solar systems installed across 7 buildings and intend to set an updated target for further installations later this year. We've also got power metering installed at 92% of our portfolio, which is allowing us and our tenants to better understand and manage the energy use of those sites. And finally, 5 Green Star developments have now been completed at 30-32 Bowden Road and Stage 1 of 78 Springs Road, and we're well progressed through the Green Star certification process for each of these. We've also recently commenced Stage 2 of the redevelopment of 78 Springs Road. And there again, we'll be targeting 5 Green Star certification. Turning now to Slide 23. Another key component of our sustainability strategy is applying our sustainable refurbishment framework to big refurbishment projects, where we seek to extend the useful life of our existing buildings. Recognizing that each building is unique, our framework ensures that we have a range of sustainable design options to consider for each refurbishment. In FY '25, we completed a sustainable refurbishment of one of our larger buildings located at Cavendish Drive in Wiri. Our refurbishment included the installation of solar panels, EV chargers, LED lighting and controls, rainwater harvesting, double glazing and further installation of the office. As mentioned earlier, we're very pleased to have secured Portacom as a new long-term tenant for this property and believe that sustainable refurbishments like this help us attract large repeatable tenants like Portacom. That's all from me for now. I'll hand you back to Simon, and I'll be around for questions at the end. Simon?

Thanks, Craig. I'm on Slide 25. As can be seen on this slide, Auckland industrial rents have experienced a period of unprecedented growth over the last 5 years, increasing by over 43% during the period. CBRE are expecting rents to plateau over 2025 before returning to more normal levels of growth from 2026 onwards. And notwithstanding this, PFI has recently achieved what we believe to be market-leading rents on the company's 5 Green Star developments at Bowden and Springs Road around the NZD 230 to NZD 240 per square meter mark, which we note is well above anything in the forecast detailed here. And CBRE also report that Auckland industrial cap rates have peaked, and they are forecasting some slight yield compression over the forecast period through to 2028. Both these dynamics are expected to benefit our portfolio as re-leasing and market reviews close our 14% under-renting gap and our weighted average market cap rate of 5.81% firms over the coming years. Turning to Slide 27, speak to our portfolio. As many of you know, when we look at our portfolio, we split it into 4 categories. We do this as it gives us focus and enables us to act with confidence as the portfolio continues to grow and mature. As you can see, there has been a bit of movement across these categories since June 2024 as Green Star developments have completed and moved from the brownfield opportunities bucket into the core generic holdings. We expect these allocations to continue to move around, particularly having recently commenced Stage 2 of the redevelopment of 78 Springs Road and looking ahead to the initial settlement of the acquisition of the Spedding Road land. Over the next few slides, we can take you through some of the key priorities for the company. We move through to Slide 28. Following the practical completion of both buildings at Bowden and Springs Road Stage 1, we have taken the opportunity to present the final financial outcomes for each project as compared to the December 2024 valuations, as shown on this slide. These are presented on a site-wide basis, noting that total project cost figures include land. As detailed in the table above, the redevelopment of 30 to 32 Bowden Road was able to achieve a modest positive development margin despite nearly 80 basis points of market cap rate expansion from the original project valuation through to December 2024. Stage 1 of the redevelopment of Springs Road was able to deliver a healthy development margin of NZD 8.8 million or nearly 8% on a total project cost of NZD 111.2 million, despite 75 basis points of market cap rate softening brought about by the RBNZ's [ rapid ] hiking cycle and the sustained high interest rate environment that followed. Both projects were delivered on time and within the budget and have unlocked the combined 55,300 square meters of covered workable industrial area, and we expect all buildings will be awarded 5 Green Star ratings in the coming months. Moving on to Slide 29. With Bowden Road and Stage 1 of Springs Road now complete, our focus firmly moves to building out the remainder of the company's NZD 355 million Green Star development pipeline, starting with Stage 2 at Springs Road and 5.8 hectares of land PFI has contracted to purchase within the proposed industrial subdivision at Spedding Road in Northwest Auckland. The setting -- sorry, the settlement of the Spedding Road land is on track for mid- to late 2025 when titles are delivered, and we expect to deploy around NZD 130 million into this project. Looking to 2027 and beyond, PFI will look to commence the development of our remaining brownfield sites in Auckland with these redevelopments providing us with the ability to regenerate older assets that we already own into best-in-class Green Star-rated buildings that will underpin the company's performance for the next 50 years and beyond. Moving through to Slide 30. Here, you can see a render for the planned Stage 2 of 78 Springs Road, along with some of the key development metrics. Stage 2 early works commenced in January. And as previously mentioned, we have secured MiTek on a 12-year lease over 6,500 square meters of the warehouse and around 2,500 square meters of breezeway, underpinning the second stage of the development of this site. The balance has been undertaken on a speculative basis. Turning to Slide 31. Another key strategic lever for us has been to complete bolt-on acquisitions, targeting properties adjacent to locations where we already have a strong presence. Post balance date, we announced an unconditional agreement to acquire a 5,600 square meter site at 316 Neilson Street, Penrose here in Auckland for NZD 8.5 million. The property is adjacent to existing PFI properties located at Neilson Street shown here, which including 31 (sic) [ 316 ] Neilson Street have combined -- have a combined value of NZD 80.8 million as at 31 December 2024. When combined with the company's existing holdings post settlement, PFI will have a circa 5.7 hectare estate zoned heavy industrial in one of Auckland's key industrial precincts. In the longer term, the acquisition of the property will facilitate future redevelopment of the company's Neilson Street properties. Settlement of the acquisition is expected to take place later this week. Moving to our final slide, #33. So to summarize, we're pleased to deliver this robust set of interim results. PFI's industrial property portfolio has continued to perform, supported by exceptional leasing outcomes, very low levels of vacancy and expiries and a strong balance sheet. Looking forward, with our property valuation showing signs of recovery and sufficient balance sheet capacity to support the company's near-term Green Star development pipeline, the outlook for our earnings and cash flow will be supported by realizing rental growth from the core portfolio against the backdrop of a more supportive interest rate environment. Thank you. That now concludes the presentation. We would welcome any questions that you may have.

[Operator Instructions] Our first question comes from Nicholas Hill from Craigs Investment Partners.

Congratulations on the results. At the FP24 result, you provided dividend guidance of 8.3 to 8.5 (sic) [ NZD 0.083 to NZD 0.085 ], and you cited this was subject to downside risk from that is outside your control, such as the interest rate outlook. Since then, forward yields have risen materially. And I was wondering if you could provide any more commentary on what's improved to offset this forward rate rise and guide to the top of the range.

Yes. Thanks for your question, Nick. I think there's a couple of things there. As we sort of highlighted throughout the presentation, with the leasing and cabinet drive now, we are 100% occupied again. And we have very, very low levels of expiry through FY '26 as well. So I guess when we look at the remainder of FY '25 and into FY '26, obviously, outside of control is tenant failure. But from an expiry point of view, we sort of feel very comfortable through FY '25 and FY '26. And so that's really what gives us the confidence around going to the top of that range.

Are you seeing, I guess, build costs continue to come down for your brownfield development pipeline, which, I guess, all else equal, would also reduce your total finance needs and future interest costs?

Nick, it's Simon here. Yes, that's a good observation. We're about a month away from finalizing a build contract on Stage 2 at Springs Road, but the early indications are that the construction costs have fallen or continue to fall over the last 6 to 9 months. So yes, that's a good observation.

Okay. And then I guess just on some other parts of your brownfield development, is there any sort of update on the leasing inquiry for the spec build component of Stage 2 Springs Road as well as Spedding Road?

In terms of Stage 2 at Springs Road, no, there's no -- I mean, we've put it to several parties, but nothing material has come out of that yet. Understanding though that the completion of that is not until June next year. So we've got a fair runway on that. And if you remember, at Bowden Road, the final lease we did, which was a spec lease to Daikin was completed about 4 months before completion of the building. So we would expect activity on Springs Road not really to pick up until Q3 -- or sorry, Q3 financial -- calendar year this year, towards the end of this year. Spedding Road, we're still working with the party on Stage 1, yes, which is looking positive -- promising, positive. It's just taken a bit of time to get offshore approvals. So we're working through that. And hopefully, in the next couple of months, we'll have a result there.

Okay. And then just on Cavendish Drive, did this require any refurbishment of the asset?

Yes. So when Mainfreight left the asset, and I think you'll see that one of the slides we sort of talked about quite extensively what we did there. So we did a sustainable refurbishment on that asset. And I think off the top of my head, we spent roughly NZD 2 million doing that process.

And I guess you would consider that capital spend over maintenance spend?

Yes. I mean we've achieved a pretty significant uplift in rent, getting -- going from the main -- the tenant there in Portacom. And we suppose, reset that building to be sort of future proof there. But the way it works, I guess, and as you go through each sort of item of spend and some of it is the maintenance CapEx, which you're also familiar with and some of it is capital spend as well, just depending on exactly what you're doing there.

Okay. And last one from me. What was behind the positive revaluation? Was it solely achieving rents above June '24 assessed rents? Or have there been some transactions which provided read-through for the valuers you can point to?

All the properties that we revalued had a transaction attached to it, whether it was a new lease or a large market rent review. So yes, transaction based on those 15 properties.

And I think your question is around the market transactions, Nick. Am I sort of reading your question right?

Yes.

Yes. So Simon, I think maybe a little bit of color around any recent market transactions that have been out there is what we're talking about, so.

Not PFI related. You mean the wider market?

Sales and things like that.

Yes. I mean, if it's still -- there's been no real like market transactions that sort of like influence that or were an input for that positive revaluation, then that's fine. Perhaps you could point to any others, that would be great?

Yes. It's still been quite a quiet -- yes is what I'd say. In terms of transactional volume, it's still well done on -- well down, sorry, on 24 months ago. In saying that, I was speaking to one of the agencies this morning who have just reported their largest January ever. So they've had a lot of transactions that were in the pipeline towards the back end of next year that pushed out, but have now completed. So yes, it's still on a volume basis, quiet out there, but there's definitely an uptick in activity is how I'd describe it.

I suppose one other thing to kind of one anecdote to note is we are seeing a number of offshore parties in the market now. And whilst they haven't come through to completion yet, there's a number of pretty decent-sized transactions which are tracking through some of the offshore parties as well. So there's quite a lot of interest coming out of that space.

Our next question comes from Nick Mar from Macquarie.

Just in terms of the Portacom lease, can you talk about the reversion on that and how much you exceeded? I guess the release on that portfolio.

How much we exceeded the market rent on that?

Yes. I guess if you're saying that there was a return on the development spend that you did, so I guess [ you can ] or what the prior expected market rents were on the shed?

Yes. Look, I don't have that detail in front of me, Nick. But I mean, essentially, if you walk out the value from when we started through to the end of there, we captured the sort of CapEx spend and an uplift in value through that, captured sort of the level of market rent through that as well. So yes, I suppose, like I said, the detail in front of me exactly of what the market rent was prior to the deal there versus what we got now. I think it's now just ever so slightly -- or sorry, Nick Moloney is here with me, he showed me it's on the market. It's been assessed on market at the end of that deal now. So before we got into it, it was around 32% underrented.

Is that an asset level?

At an asset level, not just that particular asset. Not just that particular lease, sorry.

Okay. No, that's fine. And in terms of incentives, can you talk to what you're seeing or what you're offering out there for something like that Portacom lease and also the TDX one where you've agreed to?

Yes. So the Portacom lease, which is 12 years, effectively through early access and rent-free equated to 5 months on a 12-year lease. The TDX ones are a little bit different in that there was an existing tenant that had a final expiry. So we've retained the tenant who has been on the site for close to 30 years, I might add. And so the 5-year lease, I think off the top of my head, it was 1 month for 5 years, but existing tenant. But again, a large increase in passing rent. It's gone up circa 20%.

I suppose the other thing just to talk about was on the -- on Slide 9, Nick, you can see on stabilized assets, we did roughly NZD 5 million of stabilized assets during the half in terms of leasing. The average incentive there was 0.2 months per year of term, so...

That's helpful. And then just on the valuation, so you did the properties, which is great, and you sort of had no material change on the balance of the portfolio. On sort of balance, would you say that they probably had nudged up slightly or do you think stable, sort of the right view on the balance?

I think stable is fair. Yes, I mean I think it's pretty normal once we get into these sorts of markets where you'll see valuation uplift come from transactions. I guess, typical valuation as you start to roll towards an expiry, we'll have CapEx allowance and agent's fee and incentive period of downtime. And if you can retain your tenants through that process, you'll see that drop out of the valuation and you'll capture valuation uplift through that. And so, that's certainly what you're sort of experiencing now as you do these valuations there.

Our next question comes from Vishal Bhula from Jarden.

Congrats on 6 months. Just a couple from me. Just on your nonrecoverable property costs and service charge expenses, they seem like they're up about 17% on the PCP. And I appreciate there are developments coming online in there, but is there anything specific to kind of call out or maybe is there another step-up coming in the second half?

No, nothing brings to mind there, Vishal, in terms of those nonrecoverable property costs. I suppose some anecdotes, our insurance renewal was largely flat this year. So the insurance isn't affected by rate increases or anything like that. So really, you are into things like council rates and that sort of stuff like that, which are obviously still seeing some pretty rapid increases.

No, perfect. That's all good there. And then just on the guidance, at 100% payout, it does sort of imply a weaker second half AFFO. And you've got the rental uplift and the vacancy coming through partway through that. So what's sort of driving your guidance to a weaker second half? Is that mostly just interest rates? Or is there something else in the picture?

Well, again, of course, we just talked about with Cavendish. We aren't actually going to see AFFO rent through the second half of the year for that. So I guess that would be one item. I mean, again, we didn't see it in the first half. So you're not seeing any uplift from that. That doesn't drop until that incentive comes off. So I guess you've got that element to it. Yes. And then I guess the other part being the mix of capitalized interest prior when you were completing these developments versus rolling through, no, nothing, I guess, especially to call out there, Vishal. Tax is probably -- sorry, tax is probably the only other thing. Sorry, Vishal, just to say tax is probably the other thing during the period, current tax did benefit from the level of deductible capital expenditure there, and we wouldn't expect to achieve quite that tax rate in the second half of the year. So that will be one item which will cause a bit of softness in those numbers.

Oh, no, that's -- yes, perfect. No, I did have that written down, so that's good. And then just lastly, on Slide 31, the big picture of Neilson Street, there's obviously a clearing hole there. Do you think it's likely you guys will get your hands on that last piece anytime soon?

The bit on the actual street there? Well, if you could broker a deal, Vishal, we could talk about it, that would be great. So yes, we remain interested in that piece as well. But yes, having filled in that little back there, that allows us -- I think you can see where you have, I suppose, a bit closest to the bottom of the photo. That's the bit where we would be looking to redevelop. That's currently occupied by Fletcher's subsidiary. And it's across that back there, which you redevelop and it takes in that 316 Neilson Street portion there, so...

[Operator Instructions] Our next question comes from Rohan Koreman-Smit from Forsyth Barr.

Rohan? We can't hear you, Rohan. No looks like he has stopped. Yes, it looks like Rohan stropped there. So I think we can take the next question.

Yes Next, we have Shane Solly from Harbour Assets.

Again, good solid results. One quickie from me. Do you -- obviously, the rental risk from the slower economy, you feel you've navigated that. Is there anyone you're still watching? Is there any areas you're still watching for?

Shane, Simon here. Thanks for listening in. Look, we've got 130 tenants. So we've got a wide range of people, some who are doing very well, some who are obviously in the thick of it. So all I can say really at the moment is our rental collections continue to be extremely high. I think for February, we've albeit late in the month, first week, we'd collected 97% of the rent. There's very little outstanding or very low [ debtor days. ] So at the moment, our tenants seem to be weathering the storm or the conditions pretty well is what I'd say. And I think just to go a little bit further that, part of that goes back to, as you remember, Craig and I were around in the GFC days. And we've made a real effort to really run the rule over tenants as they come into the portfolio. So going back 15 years, I think hands down the portfolio from a tenant basis is a lot stronger than it has been in the past, and that's held us in good stead. So yes.

The other part of that, Shane, sorry, Craig, here is I would say that now having no further expiries through to the end of the year and a sort of low level of expiries next year, I think helps with that as well. Obviously, a tenant's sort of key opportunity to sort of cut some costs out is when they get a chance to move, perhaps they could downsize or something like that. We don't have a lot of people who have the opportunity to move in the next little while. And so, I guess as we look out across our earnings, that gives us a really good line of sight into the rest of this year and beyond. So that gives us some good confidence there as well.

That's great. Just a second follow-up then. Are you at the point where you think you're actually going to see demand growth? Is there actually expansion and increased space absorption starting to emerge? Or is it just a bit early to talk about that?

It's probably a bit early to talk about that. What I would say is [ Griffith ] has caught up with one of our architects last week who -- if you've spoken to them 6 months ago, they would have said it's quietest they've been since pre-GFC days. But this side of Christmas, several projects that had been put on hold have been reengaged. So -- but an architect getting reengaged through to when work on site starts can be 6 to 9 months. So yes, it's still probably a bit early for that demand thematic to flow through, but it's feeling better than it was 4, 5 months ago.

Next, we have Rohan Koreman-Smit from Forsyth Barr.

Can you hear me this time?

We can hear you, Rohan. It looks like a little a little bit of user error back there.

I was off mute and then my line dropped. So I'm not sure what happened there.

We did it on purpose.

I know you screen my calls, Craig, so no surprise. Just on the guidance, previously, you said 8.3 to 8.5 (sic) [ NZD 0.083 to NZD 0.085 ] dividend based on a payout at the low end of policy? Towards the low end, I think was the exact word. And now you're saying 8.5 (sic) [ NZD 0.085 ] with in-year AFFO of 100%. That implies you've reduced your AFFO for FY '25. Cavendish was a known exit. The tax deductions look like they may have benefited you in the first half. So kind of how do you square that circle given some of the things you're talking about were known at the time and deductions that you got in the first half were probably maybe a little bit of a benefit versus prior expectations?

Yes. I mean I think Cavendish, as you say, was a known exit, but we won't see cash coming off that as early as we had first thought. I think it would be fair to say, both from an incentive, but also I guess, simply the time it took to lease to be completely blunt. So that definitely hasn't helped. I guess the other piece is around the maintenance CapEx side of things. We have a number of items, both in this half and in the second half, which would potentially be slightly higher on the maintenance CapEx side of things. And so that's caused us a little bit of softness in that, although I guess you'll all be pleased to know that we're putting through maintenance CapEx. So yes, but I guess the other part of it is around sort of looking past '25 as well. I mean, as you know, Rohan, we're one of the few listed property vehicles that's managed to grow dividends over the year. We've tended to target around that sort of 2.5% dividend growth. And as we sort of look through the second half of '25 and into '26 and we look at -- as I say, there's low levels of expiries and interest rates and these sorts of things, it's about looking to return to growth in that dividend as well in FY '25 and beyond. So I guess that's how we kind of puzzled all of that together. Yes. Does that make some sense?

A little bit. It's just like to get to your old kind of guidance, you needed sort of NZD 0.09 full year, and now you're talking to NZD 0.085. So it does feel like it's...

When we say around 100%, I mean, it could be 99%, something like that, 98%.

Yes. Well, okay. So call it 4% to 6% still. It's a reasonable hit to AFFO even though you're lifting your distributions. And I get the confidence argument, but it just -- I guess those 2 don't quite square away direction, dividends up, earnings down. But anyway, carrying on, just on that maintenance CapEx, can you give us some guidance? Typically, your December half historically has been a stronger spend period. Should we expect it to be more kind of even this year?

No, no. Currently, based on what we see in front of us, we see maintenance CapEx being higher in the second half of the year than it was in the first half of the year. So I guess if you look at yes, FP24, it will be running at more than double FP24, which is what you'd expect from a full year period. But yes, I guess, elevated maintenance CapEx.

Perfect. And then I'm just circling back to kind of questions around demand, but more around the economic rent side. You said you're in the contracting phase, you must have a pretty good idea of build costs. But where do economic rents sit versus market when you look at kind of current contracting costs given they've come down further over the last 6 months?

Yes. So economic rents are still -- so I guess if you -- just to clarify a question here, you're sort of talking about, let's say, we signed up recent projects on NZD 230, NZD 240 per square meter. And so therefore, what kind of rent would achieve a breakeven margin is what you're talking about there? Just so, we're talking about the same thing. Is that right? What you're talking about?

Yes, broadly. I'm guess I'm trying to understand, you've got the slide there on rents and then being flat, but what sort of rents would you need to kind of progress with some of these developments? And kind of what would the metrics be on the back of that yield on cost and things like that, that you're targeting?

Yes, we're looking for rents that are broadly similar to what we have contracted those recent deals on would be the first thing to say. And that would deliver us yield on costs of -- in the 6s, call it. And those are the sorts of metrics we look to try and hit as we get into these projects. And again, I think we've put that on one of the slides there. We say in excess of 6%. That's a pretty high level number, I guess. Yes, but we're looking for those rents in that sort of NZD 230, NZD 240 mark to deliver up, call it, more than 6% as a yield on cost. And there's been recent market evidence that would suggest that those people are still out there getting those rents. We know other listed have recently put out information to that effect. And certainly, the conversations that we're having with tenants support those levels.

And then just looking at your NTA, you moved value up and you're talking about part of that's just rollout of end of lease costs and the valuations, you traded at a pretty big discount to NTA. Has any thought been selling more of the tail and buying back stock given the kind of implied accretion? I know historically, it's been difficult, but on a risk-adjusted basis, you'll be reinvesting in your portfolio, which might seem relatively attractive given that recent acquisitions have small marriage value site. So that's kind of also very helpful, but you've got a reasonable hurdle to clear in terms of other kind of uses of capital.

Yes. Look, I think we feel -- I suppose on both sides of the ledger. In terms of divesting, we obviously divested another asset during the period. We maintain a pretty comprehensive list and are always looking at ones that we could look to get out of. And over time, I guess our track record is we've sold a lot of assets over the years. I mean you'll continue to see us do that. As to whether the best use of that capital is to sort of go on market and try and buy back our stock versus continuing to progress some of these other projects. I suppose is, at the moment, we see these projects as being a really good use of that capital, acknowledging that, obviously, getting into the market and buying stock, we did it last time. I think we've got about NZD 8 million worth of stock back.

It sounds very, very good in theory, but in practice it's quite hard to do...

At any great scale...

Yes, scale is your issue there. I think it's 3, 4 months to buy NZD 8 million worth of shares.

Yes, something like that. So I think that's a little bit of the problem there. Yes, we will continue to sell. That's for sure.

Thank you for all the questions. This concludes the Q&A session. I will now hand back to Simon for closing remarks.

Thanks for listening in today, people. As always, the phone is there if you've got any further questions. I know we've got some of the analysts down later today, and then we've got an investor session tomorrow, so we'll get around to most of you. But yes, just at a very high level, very happy with the 6 months to-date and a very clean looking sheet looking forward over the next 6 months. I appreciate your time today. I appreciate it's a busy time of the year with others delivering results. So thank you very much for listening in, and we'll talk to you shortly. Cheers.

This concludes today's conference call. Thank you for participating. You may now disconnect.