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

Okay. Good Morning .[Foreign Language]. My name is Dean Bracewell, and I am the Chair of Property for Industry Limited. Welcome to the 33rd Annual Meeting of PFI, and thank you for your attendance. I'm pleased to welcome you all today, whether you're joining us here in person or online via the virtual meeting platform. Firstly, please switch your mobile phone to silent. In the case of an emergency, please follow the green exit emergency doors out of the HSBC meeting and event suites. The assembly areas are located on Key Street and the corner of customs and Albert Street, depending on which exit has chosen. For record that the notice of meeting was sent to shareholders on 18 September 2026, and we have a quorum present, so let's get underway. In order for this hybrid meeting to run smoothly, I would like to confirm how questions and answers and voting will work. First, they [indiscernible] with the procedure around questions and answers. I confirm that any shareholder or appointed proxy is eligible to ask questions. For those of you attending the meeting virtually, if you would like to submit a question, the Q&A is always open. So please feel free to submit questions throughout the meeting, and these will be addressed at the relevant time. There will be time allocated for in-person attendees to ask questions during the course of the meeting. We will try to get as many of the questions as possible answered, but not all questions may be able to be answered during the meeting. In this case, questions we followed up after the meeting. The second key procedure is voting. We will open the poll for virtual attendees now to give you plenty of time to vote. If you are eligible to vote at this meeting, you'll be able to cast your vote under the vote tab. Once voting is opened, you can submit your vote for each resolution. You can change your vote up until the time I declare voting closed. I now declare that voting is open on all items of business. I will give you a warning before I move to close voting. Should you 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 team will assist you. Alternatively, you can call Computershare on 0800-650-034 and asked to speak to one of the administrators supporting the PFI annual meeting. I'll explain procedures for voting in person [indiscernible]. Here is the agenda. I'll start with a few remarks before handing over to our CEO, Simon Woodhams. You will then have the opportunity to ask questions or to make comments about the materials presented in the financial statements and auditor's report. Then as you have seen in the notice of meeting, we have 4 resolutions we would like you to approve. These resolutions will consider the election of each of David Thompson, Jeremy Simpson and Murray Jordan and the fixing of the remuneration of PwC as auditor for the financial year ending 30 June 2027. Prior to voting, you will hear from each of the 3 directors seeking election, and you will also have another opportunity to ask questions on each of the resolutions. Following the resolutions, we will finish with a further opportunity for questions and answers when we get to general business. Finally, those who are here in person are welcome to join us for light refreshments and a more informal chat with the Board and management team after the meeting. Okay. Let me start with some introductions. With me here in the room today are Simon Woodhams, Chief Executive Officer; David Thomson, Independent Director; Jeremy Simpson, Independent Director; Murray Jordan, Independent Director Angela Bull, Independent Director; Carolyn Steele, Independent Director; and finally, Craig Peirce, Chief Finance and Operating Officer. We also have several other members of the PFI team in the room here with us and welcome representatives from our auditors, PwC, our external legal counsel, Chapman Tripp, our bond Supervisor, Public Trust and our share registrar, Computershare to the meeting today. I just pause as that slide just unfolds. Turning now to my comments on PF's performance and the outlook for the year ahead. I'm very pleased to report that PFI has delivered another year of strong financial performance. Underlying earnings increased dividends grew development activity progressed and our portfolio remains in an excellent position as we move into FY '27. PFI's Board and management team and the financial year with optimism that New Zealand's economy was slowly emerging from one of its most challenging periods in recent memory. However, ongoing global tensions, renewed inflationary pressures, supply chain risk and a cautious business environment continued to influence investment decisions and economic activity throughout the year. I'll leave a Simon -- leave to our CEO, Simon Woodhams to step through our FY '26 results in more detail in a moment. but PFI's Board was particularly satisfied in the way that the business weathered the tricky economic conditions that persisted throughout 2026. At a headline level, we were delighted to have declared FY '26 cash dividends of $0.095 per share, this represented a very healthy increase of around 10.5% on FY '25 dividends. The full year -- would pause again some at that. The full year cash dividends or PFI deliver a total shareholder return, meaning the change in share price combined with all dividends reinvested of around 10.2% for the financial year ended 30 June 2026. It also added to our long-standing track record, meaning the PFI has now delivered an average annual total return of around 9.2% since our inception in 1994. These strong and consistent levels of growth have arisen from having the hard work and industrial sector and a long-term term view at the core of what we do. PFI continues to invest in high-quality industrial buildings in the most in-demand locations. Past and current year development completions, leasing decisions and investment in the core portfolio have all contributed to the outcomes delivered for shareholders in FY '26. Turning to FY '27, while economic uncertainty is likely to remain a feature of the environment in the year ahead, the fundamentals supporting PFI remains sound. As these fundamentals that continue to underpin our performance and give us confidence that we are well positioned to deliver long-term value to shareholders. Occupancy levels in the portfolio remain high. The balance sheet is strong, and the development pipeline continues to provide opportunities for future earnings growth. At the same time, long-term demand for quality industrial property remains supported by the projected growth of logistics, distribution and supply chain activity. PFI's underlying strategy for FY '27 remains unchanged. We will continue to support tenants, maintain portfolio quality and allocate capital in a disciplined way, reflective of the conditions that we are operating in. We will also continue to execute our development program, including the multi-stage Springs Road and [ Tetra Creek ] estate projects. These projects represent strategic opportunities for PFI to develop high-quality 5 green star-rated industrial estates in areas of Auckland earmarked for strong continued growth. These activities are intended to drive the continued delivery of reliable and growing dividend income for shareholders. Looking ahead and subject to events beyond PFI's control, we expect to grow dividends in FY '27 to $9.75 to $9.85 per share, which would represent an increase of around 2.6% to 3.7% and on FY '26 dividends. This guidance reflects the conviction that the Board has in our strategy and the confidence we have in our highly experienced management team to execute that strategy for the benefit of our shareholders. Turning to governance matters. I also wish to welcome Murray Jordan to the Board. Murray joined the Board in April 2026 following a comprehensive recruitment process. Murray brings extensive capability and leadership and governance and adds to the depth of property experience we have on the board. The board was very pleased to secure a Director of Mary's caliber and uneasy recommends that shareholders approve Murray's appointment later in the meeting. I'll now hand over to our CEO, Simon, and look forward to rejoining you later in the meeting for further discussion and agenda items.

Great. Thanks, Dean, and good morning, everyone. Once again, it's nice to [indiscernible] to join you all here today reflect on the period 30 June to 2026. See some familiar faces out here. So it's good to see you here. Thanks for coming along. A warm welcome to those who attend regularly and to those who are joining online. We see the AGM as a really good opportunity for both directors and the management team to engage directly with you, our shareholders and our stakeholders in the room. So again, thanks for being here today. I'm going to start by delving into some more highlights of the FY '26 year before outlining our key sustainability and capital management activities. I'll then provide an update on some of our key development projects, which we see as playing an important role in our ongoing success. So just echoing Dean's earlier comments, we're very pleased with the performance over the last 12 months to 30 June, as we continue to execute on our strategy. While profit after tax of $77 million was down $28 million on the prior year. This was largely driven by fair value gains on properties and FY '26 of $16 million as compared to gains of $71 million in the prior year, and those fair value gains resulted in a total portfolio valuation of $2.3 billion. Our adjusted funds from operations or FFO result was attributable to net rental income of $123.2 million, being up around 14% on the prior year. Rent reviews were completed on 12 leases during the period, delivering an average uplift of 7.2% on prior contract rents. And pleasingly, our under-renting gap closed from 11.5% to 7.1% during the year, indicating that we were able to capture under-renting opportunities in the market with scope continuing to exist for similar activity in the future. As noted by Dean, the Board declared cash dividends of $0.095 per share, being an increase of around $0.10 -- sorry, 10.5% on FY '25 dividends. And this was driven by the EFO result that I mentioned a moment ago, being up around 14% to $0.109 per share. This resulted in an FO dividend payout ratio of around 90% on a rolling 3-year historic average basis, which is at the lower Board's dividend policy. Turning now to the key metrics that we look at. Throughout the period, we took further steps to maintain and improve key portfolio metrics, as I said on this slide. As at 30 June, we're in a very healthy position. We now own 94 properties occupied by 124 tenants that was generally consistent with the number in the prior year. As we reported during the year, we were very pleased to acquire properties located at 507 and 511 Mount Wellington Highway in Mount Wellington. These acquisitions have allowed us to continue building a strong presence in this highly sought after industrial present. You can see on the slide, contract rent increased around 7.7% to $121 million for the year, primarily driven by strong leasing and rent review outcomes. Our portfolio occupancy remained stable at 98.7%, and our weighted-average lease term was also well positioned at a shade over 5 years. These metrics are generally in line with our position from last year, and we are continuing to see good levels of engagement, not only from our existing tenants but prospective tenants to the portfolio. These guys see good value in quality, well-located industrial premises which we provide. We also pleasingly outperformed the wider Auckland industrial precincts or market with CBR reporting market vacancy rate of 3% as at June 2026. Sustainability continues to be a key focus for us here at PFI and is closely aligned with industrial property when viewed as a long-term asset class. We recognize that decisions made today will influence how buildings perform for decades to come. Investing in sustainability helps us to ensure that our assets remain resilient, cost [indiscernible] and are attractive to tenants over the long term. During the year, we continued to expand our portfolio of green buildings, progressing both Green Star certification for developments and green star performance ratings across existing properties. I'm pleased to report that around 20% of our portfolio now has a green rating, whether it's through certification or new Green Star building. The business also continued to invest in practical initiatives such as LED lighting upgrades and solar installations that improve building performance and lower operating costs for our tenants. Our sustainability strategy continues to guide our activities in what we see as an important area. The target set under that strategy were last revised in 2025 and you can see on this slide here that in particular, we're going to continue to target 5 Green Star certification for our significant new buildings. We're going to aim to double our solar capacity across the portfolio by the end of FY '27, and we're going to continue to increase the LED lighting throughout the portfolio so that at least 80% of our tenancies have full LED lighting by the end of FY '28. You can see we're on track to meet these targets, and are committed to demonstrating ongoing progress in what we see as an important area. We had a very busy and positive year in terms of capital management activities. A key highlight no doubt, was the successful completion of our largest ever bond issue. Despite turbulent market conditions, strong investor demand supported the raising of $200 million of new debt capital at highly competitive pricing. The strength of demand for our fourth bond provide further evidence to us of the market's confidence in PFI strategy, our portfolio quality and the long-term performance of the company. Post balance date, we've refinanced our $600 million of syndicated bank facilities, introducing greater flexibility to align funding allocations between green and nongreen debt tranches with the growth in PFI's pool of eligible green assets. We have a diversified funding base, which provides significant liquidity and financial flexibility. We're pleased to end the period with gearing at 34.2%, which is comfortably within our target gearing range. This continues to provide us with capacity to pursue growth opportunities while maintaining a disciplined balance sheet and approach to risk. So those highlights in mind, I'm going to shift our focus to the key development projects that the team is currently working on. We see development as one of the core or most effective ways that we can continue to grow earnings for you, our shareholders by increasing site coverage, modernizing buildings, improving the productivity of industrial land development enables us to generate stronger returns while meeting the changing needs of our tenants. Before I provide an update on each of the current developments, [indiscernible] it's important to note that we have deliberately staggered our development pipeline so that development opportunities make up around 5% to 15% of our portfolio at any 1 time. This ensures that developments can be executed in a way that appropriately balances commercial drivers with our risk settings. Turning to developments on the screen, you see now. Following the completion of major developments at Bowden Road and Stage 1 Springs Road in recent years, a major milestone during the year was the completion of Stage 2 at Springs Road. This was a 2 warehouse development as the next stage and transforming a previously unutilized site into a modern industrial estate, increasing site coverage, growing rental income and adding a significant new 5 Green Star-rated building to the portfolio. Secondly, we're now well progressed with Stage 1 of the development of the [indiscernible] Creek estate in [indiscernible] where we're transforming a greenfield site into around 8,500 square meters of 5 green star targeted warehouse space. And thirdly, we're planning to get underway shortly with the first stage of the redevelopment of 92 to 98 Harris Road in East Tamaki. To support this, we are in advanced negotiations with a leading international occupier in relations to -- relation to to a tenancy of around 7,000 square meters of what will be 5 green star space. In summary, these developments contribute to a 5 Green Star development pipeline over the medium term of approximately $335 million, and this will help to position us for sustained growth and value creation in the coming years. The team and I will continue and look forward to sharing further progress updates as we move to the future. So while the key focus of today's meeting is to reflect on the last 12 months to 30 June and to attend to the more formal agenda items later in the meeting. I just want to give you a brief update on our key activities over the last 3 months. We had a pretty positive start to FY '27 with a particular focus on key leasing activity during the period. At the end of FY '26, 7.8% of contract rent was due to expire during FY '27, that excluded development opportunities. Pleasingly, leasing momentum in the first quarter has seen approximately 45% of these expiries represented around 3.5% of total contract rent, either secured or in active lease negotiations. Of that 45%, around 14% has been secured, and the balance are in lease negotiations taking place right now. This includes advanced discussions with an existing PFI tenant regarding a new 15-year lease at 678 to [indiscernible] Rosebank Road, which we had previously identified as a material FY '27 lease expiry, and it represents 1.4% or about $1.6 million of total contract rent. All told, after factoring and leasing progress achieved during the first quarter, just 4.3% of contract rent remains due to expire over the balance of FY '27, assuming the lease negotiations are all completed as we expect them to be. As noted a moment ago, lease negotiations with an international tenant for Stage 1 of Harris Road are well in advance. In parallel, we've begun detailed design with construction expected to commence in November 2026, and completion targeted for Q3 FY '28. Finally, our cash collections remained very healthy over the first 3 months of FY '27. So looking ahead and in conclusion, I just want to reiterate our commitment to you, our shareholders and delivering for you. As Dean mentioned earlier, the Board has set dividend guidance for FY '27 of [indiscernible] per share, which would represent another increase of around 2.6% to 3.7% on last year's dividends. We have conviction in our strategy and the fundamentals of our business remains strong. Our portfolio is underpinned by high-quality industrial property, long-term tenant relationships disciplined capital management and a clear focus on creating sustainable value over time. Combined with our track record, strong team and well-positioned development pipeline, we're in an excellent position to continue to grow and maintain the business. Finally, I'd just like to take a moment to say thank you to you, the shareholders and other stakeholders who continue to support us. We do appreciate it. As a management team and a Board, we look forward to continue to repay its support into the future. Thank you.

Thanks, Simon. There's now an opportunity for questions or comments on the presentations or on the financial statements and auditor's report, which you can find from Page 20 of the annual report. For those here in person, if you raise your hand, we'll get a microphone to you so that everyone can hear. Can you please start by introducing yourself, your name and whether you're a shareholder or a proxy holder, and if you are a proxy holder, the name of the shareholder you are representing. For virtual attendees, if you just to ask a question, please select the Q&A tab, type your question in the box and press send to submit. Any questions? Any questions. Oh, sorry, we have one here. Yes.

Bruce [indiscernible], shareholder.

Thanks, Bruce.

It's a current passion for public companies to form a separate management company. Are you think of going down the track?

I might -- I could answer this but I might pass to Craig Pierce, the CFO of the company, to talk a little bit about the trend where we are today. Craig?

We've spent quite a bit of time looking at what I guess you're referring to as sort of a funds management platform. And as a result of our investigations, that's not something that we're planning on doing. I think principally, it adds quite a lot of complexity to your business and quite a lot of cost. And secondly, the nature of our portfolio is such that perhaps a little bit less easy to establish. For instance, if you aren't large office assets, you can sell 1 or 2 of those and 1 go, whereas our average asset size is more in the 20s of millions of dollars. So you're having to put a huge number of buildings and to get a scale platform going, and that then creates that complexity and costs. So that's not something we're currently pursuing. .

And I knew Craig would be a heck of a lot more articulate than my answer, which was no. But thank you for the question, Bruce. Any other questions in the room? One over here.

Yes. [indiscernible], shareholder. Just 1 question. The world of data centers. There's PFI showing any interest in entering into the lease of buildings for data centers.

A fair question, particularly given the climate we're operating in and what is happening in that part of the marketplace. And Simon would love to answer that question for you.