Vital Healthcare Property Trust (VHP) Earnings Call Transcript & Summary

[Foreign Language] Welcome to the 2024 Annual Meeting of Vital Healthcare Property Trust. My name is Graham Stuart. I'm the Chairman -- Independent Chair of Vital Healthcare Property Trust. Vital's Supervisor has appointed me of Chair of your meeting today. We are holding this meeting in person in the offices are one of Vital's Charity Partners, Starship Foundation, which raises funds for children's hospitals. We're also holding this meeting online via Computershare's virtual meeting platform. Unitholders, proxy holders and guests can attend the meeting either in person or virtually. All attendees can watch the live webcast of the meeting and read the associated documents. Holding this meeting in person and online provides our unitholders with the maximum ability to participate in this meeting from wherever they are located. During the meeting, I will invite questions in relation to 2 formal addresses and also to Vital's 2024 accounts and to general business. Later in the meeting, I will hand over to my fellow Director, Angela Bull, to deal with questions and voting relating to my proposed reelection as an independent director. If you are a unitholder or a proxy holder, attending in person, we would -- and you want -- wish to ask a question, please wait until the relevant time, raise your hand, and we'll ask you to either go to the back of the room and stand to the microphone, which is our preferred option for you to be able to be best heard by those attending virtually or if necessary, we have someone that will bring a microphone to you. If you are a unitholder or a proxy holder attending virtually, you can submit a written question during the live meeting. [Operator Instructions] Whilst you can submit questions online from now on, I will not address them until the relevant time in the meeting. Your questions may be moderated or if we receive multiple questions on the same topic, they may be amalgamated. If we run out of time to answer questions, we'll ask them -- answer them in due course via e-mail or by posting out responses on our website. Voting today will be by way of a poll. Voting will shortly be opened online. Computershare will collect voting forms from those attending in person and will collate the results from both voting methods. The results of the poll will be released on the NZX later today. Now the notice of the Annual General Meeting has been circulated to all unitholders. It sets the scope of what we are scheduled to discuss today and includes the details of the 1 resolution we are due to consider. I'm now pleased to confirm that there is a quorum present, and I declare the 2024 Annual Meeting of Unitholders of Vital Healthcare Property Trust open. If you're eligible to vote at this meeting, you're now eligible -- you're now able to cast your votes online. To vote, simply select your voting directions and the options are shown on screen. Your vote has been cast when the green tick appears. To change your vote, simply select Change Your Vote, and you can change your vote until I declare voting will be closed. I'll give you a 10-second warning before I move to close voting. The order of today's meeting is as follows: there will be 2 formal presentations. First, my addresses independent chair, and that will include a short video celebrating Vital's 25 years of listing on New Zealand Stock Exchange and highlights of the recent official opening of the Ormiston Hospital; and I will be followed by Aaron Hockly, who leads Vital Executive team. I will then table the annual financial statements, invite questions on any matter regarding Aaron or my presentation, the Trust or the financial statements. I'll allow questions on any matter other than my reelection. I will then pass the floor to Independent Director, Angela Bull, to chair a formal section of the meeting with the proposed resolution that I be reelected as Independent Director of NorthWest properties -- Healthcare Properties Management Limited, Vital's Manager. Angela will then invite questions on that proposed resolution. While voting occurs a short video providing an overview of what Starship Foundation does will be played. After voting is complete, we have an opportunity for general business, and I will invite you to ask any other relevant questions that you may have, and we will then conclude the meeting. Copies to the -- of the minutes of last year's meeting are available on Vital's website. The full Board of the managers are in attendance today and with all of my Board colleagues attending in person, except for Mike Brady, who's attendant virtually from Canada. I would also like to welcome NorthWest executive team and the co-head of the region, Chris Adams; Regional CFO, Michael Groth; and the Company Secretary, Vanessa Flax. Paul Cassidy and Raveen Kaur from -- the supervisor of the Trust; Andrew Boivin and Rebecca Clark from the auditors, and Toby Sharpe, the legal adviser to the manager. For those attending in person, some quick health and safety guidelines. In the event of a fire alarm please evacuate immediately via the fire exits located at the front of the building. Do not use the elevators. Everyone will need to move swiftly and safely up Grafton Road to the Wilson parking lot. Please gather there and wait for a clear call -- an all clear call from the fire wardens before moving back to the building. There is a first aider on-site and toilets are located through that door, adjacent to the -- adjacent to the elevated doors from where you entered the building. So that concludes the formalities. So I'll now move to my address. Fellow unitholders, I'm pleased to report that the operating performance of our fund remains at satisfactory levels despite the challenging economic environment. Our operations in 2024 year continued on the strategic direction that we set for ourselves in 2023. We significantly reduced the resources and the capital allocated to our development pipeline. We recycled capital by divesting noncore properties to fund remaining capital activities that we'd either committed to prior to the monetary tightening cycle, or that we're delivering compelling short-term benefits to the fund. These moves have ensured that the fund maintains a high-quality property portfolio, a sound capital structure and a sustainable growth strategy that can be activated when the broader economic environment becomes more favorable. Vital remains a long-term investor in an inherently attractive sector. While recent economic changes have necessitated some course corrections, our overall strategy remains unchanged, and we continue to focus on investing in high-quality health care properties in attractive locations. We partner with strong and stable tenants, and we maintain a portfolio which can be characterized by CPI index leases and a weighted average lease term, which is currently 19.4 years. This approach provides resilient and predictable returns on capital with indexation offering protection against inflation. Our development pipeline helps us to deliver our long-run target of 2% to 3% growth in distributions per unit. We continue to progress a number of strategic objectives, including capital partnering, and we also remain of the view that an ASX listing remains in the interests of unitholders, but we would consult before bringing another proposal to you for a vote. Your Board is conscious that markets and economies move in cycles. We have adopted strategies to ensure that we do not overextend ourselves during the good times, allowing us to readily adapt to down cycles. By maintaining discipline in our investment decisions, focusing on our relationships, we are well-positioned to navigate the current economic landscape. In addition to our financial focus, we have continued to enhance our governance in response to stakeholder feedback and market conditions. These activities that I've highlighted represent only a small part of the efforts over the past year. For 25 years now, Vital's has been listed on the NZX. During this time, we've successfully navigated through the Asian financial crisis, the global for financial crisis. And now the post COVID-19 monetary policy tightening, which we hope, by the way, is nearing its end. The fund's robust condition after a quarter of a century reflects the quality of our portfolio and of its management. The Board and management team have continued to manage our portfolio dynamically to mitigate the impacts of higher interest rates, which have adversely affected property values and funding costs. Our approach provides the fund with the resilience needed for more challenging economic environment while also sustaining long-term distributions to unitholders. In this context, it's particularly gratifying to note that we have maintained distributions at $9.75 per unit during the 2024 financial year, consistent with what we paid in 2023. And we've also provided guidance to maintain this distribution level during the current year. To commemorate Vitals' 25 years of listing, the NZX put together a video, which we're going to show now. [Presentation]

Thank you for your continued support and trust in Vital. We remain confident that our strategy will continue to deliver superior returns over time, benefiting from the positive dynamics of the health care industry. Now for a more comprehensive overview of the year, I'm pleased to introduce Vital's Fund Manager, Aaron Hockly.

[Foreign Language] Greetings, and welcome to Vital's annual meeting. At 30 September, Vital's property portfolio was valued at NZD 3.2 billion, split 69% to Australia and 31% to New Zealand. And that follows our deliberate expansion in the New Zealand market over recent years. The portfolio is dominated by private hospitals, representing 79% of Vital's portfolio by value and at least to the leading hospital operators across Australia and New Zealand, including Aurora, Healthe Care, Epworth, Evolution, Southern Cross and the recently rebranded [ Olivia ] who operate Ascot Hospital among other facilities. Because I get this question following every one of these meetings, a reminder that we are the landlord or property partner who the health care operators. We don't operate the hospitals themselves. We acquire, develop and maintain properties for our health care tenants. Since March 2023, we have sold NZD 360 million of assets with the proceeds reinvested into Vital's development pipeline. This includes $47 million of assets sold since the last -- over the last quarter. By way of example, we have divested all of Vital's aged care assets, comprising 5 assets identified as noncore due to a mixture of tenant covenant, asset quality and ESG considerations and 3 assets sold in response to an unsolicited offer. The other assets we've been selling include where there is a current or upcoming vacancy or where the assets do not match our strategy, across tenants, location, asset type and ESG, among other considerations. NZD 80 million of assets are currently in due diligence for sale with a further $110 million being considered for sale, and this will bring 20 into Vital's asset recycling program. Asset sales, coupled with developments, have improved the resilience of Vital's portfolio through lowering our average building age, increasing weighted average lease term and reducing future risks. Over the last quarter, several key leases were extended in Australia, expanding Vital's weighted average lease term to 19.4 years. And this is the longest weighted average lease term of any listed property group across Australia or New Zealand and as a key metric of income security for our unitholders. In October, we were pleased to be ranked first place by GRESB for health care development globally for the second year running. In addition, for the third year in a row, Vital was awarded a 5-star rating for our developments. We are committed to achieving a minimum of 5 Star Green Star for all major developments as these are the developments, we think will achieve high valuations and rental returns going forward. During FY '24, 5 developments with a total spend of NZD 197 million completed with an additional AUD 16 million development completed in the first quarter of this financial year. This includes completion of the expansion of Ormiston Hospital in Botany. And you would have seen from the video, this was officially opened by Prime Minister Christopher Luxon, accompanied by the Minister of Health, Dr. Shane Reti and Attorney General Judith Collins. Vital has 5 committed developments with NZD 106 million left to be spent. And this is able to be funded from existing debt capacity. In addition, we have close to NZD 2 billion of potential developments on land Vital already owns. A range of factors would be considered to convert them into committed developments and these include our balance sheet capacity, noting that we are targeting keeping gearing at or below 40%, and this is partly why capital partnering remains a key strategic focus for us. But we also consider tenant precommitments and other business conditions, including cost of the construction, cost of capital, and the projected returns for Vital. The Board and management is committed to only progressing developments where they add value for our unitholders. For FY '24, we recorded a 3.7% increase in net property income on a like-for-like, same-property and constant-currency basis. The higher interest rate environment has translated into this strong uplift in cash earnings to a modest fall in adjusted funds from operations or AFFO. We'll put simply, debt costs have risen faster than net property income, but AFFO was still well above the level required to fund our distributions. Vital's FY '24 distributions were free cash flow covered and represented around 90% of AFFO. Management fees fell by 26% over the year. Despite some modest declines in property values, we have retained balance sheet gearing at 40%, in line with our target due to asset sales, offsetting development spending. With New Zealand now firmly on a lower interest rate trajectory and Australia's rate is expected to remain at or around current levels for some time, we anticipate to have largely ended the negative property revaluations for the cycle. We have NZD 123 million of debt headroom available under existing debt facilities. And this is more than enough to fund the existing -- the balance of our committed development pipeline without the need for any further asset sales. Since August 2024, approximately AUD 300 million of forward starting interest rate hedges have been added to align with our interest rate hedging policy and to reduce interest rate volatility going forward. Sustainability remains a key focus and impacts how we approach acquisitions, developments, divestments and capital works. We believe this will provide higher and more sustainable returns for our unitholders over the medium to longer term. During FY '24, developments targeting 6 Star Green Star were completed in Sydney and Adelaide. 6 Star Green Star is the highest possible rating available and is expected to provide immediate and longer-term income and valuation benefits. In the case of Macarthur, as shown on your screen, the rating process was undertaken in conjunction with the tenant who occupies 100% of this building. For Playford, also shown on your screen, it is a key selling point as we seek to lease the remaining 1/3 of this building. We've been working on improving our ESG scores with a range of ratings providers and have included scoring improvements in Vital's annual report. This includes being awarded sector leader status from GRESB and the developments benchmark for listed health care entities globally. GRESB reviews over 2,000 entities in 75 countries, representing over USD 7 trillion in investments, making us extremely proud of these achievements. Vital is a climate reporting entity, and so is now required to provide an annual climate-related disclosure. Our first report was released last week and is available on our website. In alignment with compulsory reporting standards, our climate scenario analysis includes climate-related risk and opportunity assessments on all assets across a variety of time horizons and global temperature outcomes. To facilitate the analysis of these climate scenarios, Vital was an active participant in 2 industry working groups: Collaborating to deliver the New Zealand Green Building Council climate scenarios for the construction and property sector and the Aotearoa climate change scenarios for the health sector. And these sector scenario working groups brought together industry leaders across the health, property and development sectors. The disclosure provides plausible future scenarios to support an efficient allocation of capital. And this work helps drive how we think about investment and capital works. This remains a work in progress for us as we, like most of our peers, continue to adopt to changing legislative and physical environments, which will help shape future targets for Vital. Despite recent heightened market volatility, which has clearly impacted Vital's unit price, health care property remains a defensive asset class, underpinned by a high level of government support and nondiscretionary spending. We expect Vital's portfolio will continue to demonstrate strong operating metrics and portfolio resilience based on a long history of investment in the assets and our partnerships with market-leading health care operators. In FY '25, we will continue to enhance the resilience of Vital's property portfolio and balance sheet through some further noncore asset sales, targeting receipt of at least NZD 100 million. We will also continue to look for a capital partner to support activation of Vital's potential development pipeline to unlock embedded value and land Vital already owns. Part of the reason why we continue to prepare strategic land that Vital owns to be shovel-ready. These developments provide Vital with options for future growth should market conditions be supportive. FY distribution guidance of $0.0975 per unit has been provided, consistent with FY '24. The work we have undertaken over FY '24, and will continue to undertake, will help support future growth in AFFO and distributions. Sustainability remains at the core of everything we do. Despite growing competition, we will seek to maintain sector leads leader state --leadership, which should, in turn, support future earnings and valuation growth for our unitholders. And before I hand back to Graham, given recent media retention, I wanted to touch on the role we can and could play in supporting New Zealand's health system. All of our facilities provide significant community benefit. As among other things, they help take pressure off the public health system, whether it be through Health New Zealand funded patients, ACC funded patients or privately funded patients. According to research recently cited by the OECD, New Zealand has the sixth best health system in the world, reflecting, in part, the integration between private and public health care operators. There is plenty of international evidence that a mixed model produces the best health outcomes. And so we applaud the government in [ Te Whatu Ora ] for considering a wider range of delivery and funding options for health care going forward. This could include involvement by Vital, albeit in a relatively limited way. [Foreign Language], I will now hand back to Vital's Independent Chair.

Thank you, Aaron. The annual report and financial statements for the year ending 30 June 2024 have been circulated to all unitholders and are now formally tabled at the meeting. If you have any questions related to the Trust or the presentations, now is the opportunity to raise them. Only unitholders or proxy holders are permitted to ask questions. You may ask questions through the Computershare platform if attending virtually or raise your hand in the room and wait for the microphone be given to you or wait to be queued to walk up to the microphone. Those wanting to ask a question online, please do so as early as possible to ensure that it's received and answered. In consideration for other unitholders, we ask that questions that relate to your personal situation or unitholding be dealt with outside the meeting, via e-mail or by phone. Repeated questions or questions that have already been answered may not be put to the meeting again. I'll open the floor for questions.

Good afternoon, I should say. [ Peter Moosbrugger ] unitholder. The 26% decrease in management fee sounds very interesting. Could you give us some information on how that was achieved?

Certainly, Peter, I'll have a go at this. And to the extent it needs further elaboration or I'll have our CFO, Michael Groth, sitting over here. So first up, the incentive fees not being earned. So the incentive fee is earned on the growth and the scale of the funds under management. And of course, with the fiscal tightening, interest rates going up, cap rates going up, the property portfolio has come down. So we don't have that significant component that we've had in previous years when we had monetary easing. Second up, there has been a slight decrease -- looking at Michael for confirmation, a very slight decrease in the total funds under management, which drives the base fee. But that's a small contributing factor. The most significant contributing factor is the incentive fee. I would also add to that, that we're not paying development fees to the extent that we were when we had a more active development pipeline. So you may recall, if you're familiar with the trustee that sets out the schedule fees and there are fees around development-related activities, that -- because we've toned down our development activities, we're paying [ years ] of those. We probably -- we are paying a little bit more on the divestment because we are, as Aaron's pointed out, we've divested over $320 million of assets, so there is a slight fee correction on that. But overall, fees for development and divestment have gone down. Aaron, how are we going online?

No relevant questions.

[ Allan King ], unitholder. I've been struggling to find my way around the structure of the company. NorthWest Australia, or should we call it, that wing has other interest besides Vital. Is that correct?

Yes. It manages other funds in addition to the Vital fund.

So imagine other funds in exactly the same area as Vital, in other words, you're a competitor to Vital?

Yes. I'm coming down the road with you. Yes.

Yes. So your left hand is competing with your right hand with the same personnel?

So there is potential for that. Correct. Yes.

I mean there's potential for it? Or is that the way it is?

I wasn't sure whether you got to the ultimate question there. I was coming down the road with you. But -- so let me anticipate where you're coming from. So we'll take a hypothetical situation where a building comes up for sale and that building may be of interest to the Vital fund or may be of interest to another fund that NorthWest and it's within the scope of our SIPO. So this can only happen in Australia, because NorthWest is precluded from having other funds operating in health care properties in New Zealand. So from a New Zealand point of view, everything that comes up, Vital has -- but if there's a property where both of us would have interest and it's consistent with our strategy, then the default position is that we'd share that 50-50. So that's the -- and so we have a mechanism set out in our governance documents which allows for an investment committee to be formed to oversee any of the situations where there might be a conflict between the appetite of the other fund to invest and ours. And when it's been -- when we've been in acquisition mode, which has not been for the last 2 years, but prior to that, on a fortnight year basis, the independent directors would review or myself and then, in a less frequent basis, the other independent directors would review the total pipeline of investment opportunities that the fund manager has that NorthWest has and would go through those to ensure that we're getting our opportunity to invest in any properties that we wanted to. By and large, the other fund has an appetite for larger properties, then we would be prepared to participate. Where we have encountered properties where potentially we could go 50-50, we've looked at the complexity of what a 50-50 arrangement might look like and weighted up against the benefit and decided to either take that property into our fund or go with the other. But nonetheless, we have full disclosure of the whole pipeline. And we have a process and a procedure by which we can evaluate what's best for our unitholders. And we start with a default position that if we can't agree otherwise, it becomes 50-50. So does that give you the answer you're looking for, [ Allan ]?

It is what I expected. Yes. It seems a very, very -- I don't know what the correct word to say is, but difficult situation. You've got -- you're in where you're competing with yourself.

North -- yes so we are Vital and the NorthWest is NorthWest and then there's another fund. So when -- so in effect, NorthWest has got interest across 2 funds. Yes, there have been properties that -- where we intersect, but there's surprisingly few. But when they do come up, I think the process is quite rational. What I can say is I don't think the growth of the Vital fund has, in any way, been impaired by the fact that NorthWest manages another fund. So we haven't been sort of growth opportunities. So if anything, we're -- yes, in the period prior to monetary tightening, we had more opportunities to invest capital than we had capital. So we were, to some extent, capital constrained. And in that environment, we've got the quality of properties that we were seeking through the pipeline. But it is an area where we have vigilance. I guess the quid pro quo is that we get the benefit of a NorthWest team of over 50 professionals who manage over $5 billion worth of -- $6 billion of health care properties in Australasia. So we actually get that deep specialist expertise, and we can call on people that, if we are only a $3 billion fund, we wouldn't be able to afford and have access to that quality of human resource. So there is a balance in here, but -- and I'm not disputing the fact that there is a trade-off, but I believe that the interests of the unitholders are well protected by the processes that we have in place. And they're kind of formalized in the governance structure, and you can sort of see those in the investment policy documents that are on the website if you dig down through the website references.

I have another question if no one else wants to get on.

You have the floor, [ Allan ].

Great. My other one is a general question about NorthWest again. And I'm just wondering about the Canadian NorthWest. It seems like they have been in a financial strife, should we say. And they've had to flick off the whole great Britain side of their company to sort of raise a bit of cash or reduce a bit of debt. And I also note with interest that NorthWest have actually sold some units in Vital recently as well. So they're really scraping the barrel there. I guess my question is, is there any cause for concern about NorthWest's viability financially and managerially? I know we now have the CEO sitting right there. But in the last 2 years, the previous, I think, Chairman, CEO, Founder has been rolled or ousted. There's obviously a lot of turmoil in NorthWest Canada. Could we have a little update on how things are in NorthWest at the highest level?

So I'm not going to pass the mic to Craig. So Craig, is the CEO of NorthWest REIT, but he's not here in that capacity today. He's here as a Director of the Vital Healthcare Trust. And I don't have insight or the ability to comment on what happens at the NorthWest REIT in Toronto. So I know about as much as you do. And so what we do know is they've sold properties. They've done what everyone's done or done it to a far greater extent to what we've done and they've had to recycle capital to reduce debt. So to that extent, down here in Australasia, we've seen a little bit of belt tightening as we've gone through this cycle and the manager has made staff redundant and restructuring, which is pretty prevalent across the property sector. We've got a very stable and what I'd say a high-performing team of management in Australia and New Zealand who have been stable through this period and continue to come to work every morning, focus on 2 funds, as you've pointed out before, but Vital gets its fair share of that attention. And we've gone through a pretty tough period, some properties in tough markets and recycling capital in order to be able to maintain the dividend and keep the business, but also to make sure that when we get into an easing cycle, we're ready to kick off that development pipeline and get growing again to increase their AFFO per unit. So we know that noise is happening in Toronto. But down here, we're almost in a bubble. And yes, we're operating, yes, business as usual in that context.

Graham, a question from online. "Is there any long-term strategy to merge the 2 NorthWest interests in Australia?"

I can't comment on it. I'm not aware of any. If there were, then the independent directors -- it's a rated part of the transaction from NorthWest obviously, so the independent directors would kick into play and would make sure that if that did happen, that would have to be in the best interest of unitholders of Vital. But I'm not aware of any --and there's sort of any move in -- to talk along those lines. Yes.

[ Simone Kowal ], unitholder. Just looking at the portfolio of buildings that Vital has built. You've got some fantastic bespoke buildings there. I just wondered, from a building perspective, whether it would be better to have a template that you were operating and using.

So I've got a challenge between Aaron and Chris, but you haven't heard from Chris before, so I'm going to ask Chris to come up and answer that question. Come on up to the podium, Chris.

Thanks, Graham. Chris Adams, a co-head of the business across Australia and New Zealand. As part of that role, I lead the development team. It's a good question. And across health systems, efficiency of design is a big factor. We do work with operators and they do have templates that are consistent across facilities. But we also operate in different circumstances, the earthquake standards in Wellington are different to Auckland. Standards of buildings versus and consistency of Australasian health care guidelines, different operators have different working methodologies. So it is relevant. It is an increasing consideration, but it's not as easy as just continuing to replicate it on a on a basis where we continue to roll it out. But as we do more work with operators, we will -- it's a definite consideration.

And the next question I have is regarding population. I note that most of the buildings are in areas with big populations. Are there any plans to sort of develop health facilities in areas like New Zealand as a relatively large land mass compared to where the population actually sits? So do you have any plans to develop medical facilities like in Queenstown or areas which are less able to -- who have the same health needs, but are less able to access oncology, for example, and gastroenterology from a distance?

So we have a fantastic facility in Queenstown and that is a precinct in its own right. And certainly, medical precincts are a key part of what we believe in, and that is a smaller scale precinct, recognizing that the market is down there, but it's a very high-quality asset, so. But there is a balance in terms of the economic model. For us, it is a balance to scale in terms of -- as a $3 billion business, doing projects at $5 million or $10 million is not an economic model for us in doing that. So -- and also, the economics and commentary in Australia, for example, about the challenges of running regional hospitals, the economics of regional areas are difficult. So our focus is on the metro areas where the people are and larger scale facilities. And there's obviously others that cover smaller parts of the market. We are, though, however, the likes of cancer services, the Macarthur facility, very much an integrated cancer center. And whether that's public or private, you can get access to that. And that sort of model, I think, is certainly relevant, and it's relevant in a New Zealand sense.

I think there'd be people sort of in the -- out in those country areas who would be interested to talk with you about operating private facilities for those, particularly in oncology.

Yes. And I think there's an element of, again, hub-and-spoke opportunity, where we're probably more likely to build the hub and work with other players to integrate the spoke and how do you touch the regions and how do you improve health services.

A couple of questions online. The first is about attendance. So we have 26 unitholders in the room and 50 online. And then a question for you, Graham, from a previous Board member. Given -- have there been discussions around internalizing management as we've seen with other property companies in New Zealand?

No. Yes, we have kept a close eye on what Goodman's doing. We've raised the question with NorthWest which is, at the end of it, is not obligated, some of the things we should do on the best interest of unitholders. We've had some dialogue with NorthWest, but there's no current initiative in that respect.

[ Edward Stranahan ], I'm a unit holder. Question here. I understand, say, around this area, that there are smaller properties and so on that NorthWest may own for development and perhaps accumulating to get a bigger mass. One that comes to mind, I believe, was occupied by Midas. They get garage people across the road. Have you got many of those actual properties? Because I don't see them actually defined anywhere, nor do we really, therefore, see if there's any, shall we say, trading in them or unloading of them as -- for various reasons that might arise?

There is -- they are disclosed in the property schedules in the financial statements and as -- investment properties were probably out for development. But on the one -- the very local one you've just asked specifically about, Aaron's sitting here with the answer.

Yes, you're right. We saw an opportunity to acquire the site that's directly across the road from the entrance of Auckland Hospital, so it's a really strategic site for us. We recently achieved a resource consent for a facility that we're currently marketing. So we're out there looking for tenants at the moment. Ideally, we'd build something brand new to meet demand. As Graham said, we've -- we list all the properties that we hold for future developments, so we've got about $200 million of land across Australia and New Zealand for future development. And that's why we spend a lot of time talking about the embedded value that sits in the portfolio that we'd like to unlock, probably with a capital partner so it doesn't all come off Vital's balance sheet. But it's a mixture of making sure that we've got the funding capacity, that there's tenant demand, typically with a significant tenant pre-commit before we commence construction and then construction costs themselves.

What sort of land area -- is that minus one occupying? Or the one that you're going to develop on?

Of course, it's on the back sheet, that off the top of my head.

726 square meters.

726 square meters.

So it's fairly small, really.

It's quite small for what we would normally do, but it's really around the strategic location for us. We've got resource consent for a 6-story building that would go on that site, so yes.

Another question, different matter. You talk about the star rating that you have in the Green Star rating. Is there any defined matter on what that -- what you actually have to do to achieve that rating?

There is.

Like for 1 Star, 2 Star and so on?

There is, it's an incredibly detailed process that you have to go through a whole -- I'm not able to summarize it quickly for you, but it is available online, if you wanted more detail.

Is that online under the heading of the Vital or under some other organization?

Just the Green Building Council releases, the details on how you get a are 6 Star Green or 5 Star Green Star Building. It's slightly different between Australia and New Zealand, but not significantly.

And it's independently assessed.

And it's independently assessed as well.

So when you say it's slightly different in Australia and New Zealand, does that mean that it's actually done by a different organizations in the 2 countries?

That's right. So the New Zealand Green Building Council and the Australian Green Building Council.

You wouldn't -- would you say that there's -- at any stage, it comes to a point where there's a significant, shall we describe it as cost difference in achieving that rating?

There is a bit of a cost difference. So it does cost more to produce, particularly 6 Star Green Star. But as I said in my prepared remarks, we think there's justification for that because we see those properties having the superior valuations going forward. They're probably going to have -- it makes it easy for us to attract tenants and extract higher rents as a result. We're already seeing some tenants won't go into buildings that don't have Green Star ratings. So it's becoming an increasing part of the health care market, much as it was for the office market a couple of decades ago.

You say won't go into them?

That's right. Won't go into a -- something that has too low a Green Star or without a Green Star.

Another question relating to the management fee. I noticed in the annual report and that you set out in quite detail how you calculate the management fee. Why don't you show us the actual figures alongside each of those each year.

I'll hand to you, Michael.

So the financial statements actually do set out in detail the management fee on a line-by-line basis depending upon the activity involved. So if I can take you to, effectively, note number 22 in the annual report on Page 109, there is the full details of exactly what the management fee was and the composition for both the current year as well as the prior year.

This is the note of all the notes that the independent directors take the most interest in. And over the last 3 or 4 years, I think you've seen quite an increase in the transparency of disclosure around those fees. That sort of coincide at what the -- the resetting of some of those fees when the trustee was revised about 3 years ago. So it's something we pride ourselves on in terms of improving the quality of disclosure and the standard of governance.

What page was that on? [ What's ] the page number?

Sorry, Page 109.

Sorry, perhaps you might like to go answer if someone else has got a question while I just check this out and I'd indicate and come back to it if I want to go further.

No problem.

Another question from online. With interest rates in New Zealand now falling, when might VHP begin to benefit from this?

Hopefully, soon. Who knows. What we do know, of course, we can see some easing and we've come off about 16 basis points on our average cost of funds in the last 3 months. So 16 basis points, it's a start. So while we see kind of I don't want to use the term green shoots, but I can't think of a better one at the moment in New Zealand around fiscal easing. When we look across the [ Tasman ] we've got 69% of the portfolio. And we're still probably 6 to 9 months away from that. I'm being careful not to try to be an economic pundit here and predict the future. But the good news is it stopped tightening. We're seeing signs of easing in New Zealand and every indication that, that will continue, including from the Reserve Bank governor himself, but too soon to call Australia. But quantitatively, in the last 3 months, we've seen a 1.6, 0.16 of a percent, 16 basis point decline in our average cost of debt. So it's starting to come through. And you'll see in the quarterly shareholders' update, the unitholders' update that was released today that we've stabilized the value of the portfolio overall. So the revaluations that are flowing through this quarter's report, the portfolio is largely stable in value, which I'll remind everyone, net tangible assets per unit is $2.60. And last time I looked, we're trading at $1.96, so. How are we doing Edward?

I haven't got any [ question ].

Thank you. Well, thank you for your questions and comments. This is your meeting, and it's important that we have an opportunity to -- you have an opportunity -- we, unitholders, have an opportunity to ask all the questions. I'll now conclude this part of the meeting and hand the chair over to my colleague, Angela Bull.

Thank you, Graham, and good afternoon, everybody. We now move to the formal business of the meeting, which is the proposed reelection of Graham Stuart. The vote will be conducted by poll, comprising the proxies lodged in advance of the meeting and votes lodged through the forms for those in the room and via the Computershare platform for those attending virtually. Graham's nomination has the unanimous support of the Board. Now you've heard from Graham during the course of this meeting in the Chairman's address and his bio is also in the notice of meeting, which you'll have had an opportunity to review. He's very happy to take any questions ahead of the vote, so I invite any questions now. Thank you. The details of the proxies received...

There's a question.

Oh, I'm sorry. I missed that. Apologies, [ Allan ].

The question I have is, again, when the -- [ and it ] shows my age perhaps, getting old. But I'm trying to get my head around what independent means. Graham is paid by NorthWest, which is the biggest unitholder and, up the line, is the biggest unitholder in the Trust. What are you independent of, Graham?

Right. Let me just correct that. When I'm elected by you, I'm actually paid by you, so it doesn't come out of the NorthWest fee. It comes out of the fund. So I'm independent of the management -- of the manager, of NorthWest. So I chair the Board of the Manager in New Zealand, but I'm not an employee of NorthWest. So I am paid by you, unitholders, so not by NorthWest. I'm not a NorthWest salaried staff member.

I'm sure that I read in the annual report, just a little footnote, that you were paid by NorthWest, something or the other.

It wasn't until I get elected by you, I'm not sure -- sort of opening up quite a complex regime of rotation here, but the trustee provides for 3 independent directors, 1 to be appointed by NorthWest and 2 to be elected by unitholders. So Toby, please, if I stray off track here, correct me. What we've decided to do as a Board is to make sure that all the independent directors get elected in a cycle. So what that means is at any one time, 2 independent directors are appointed by unitholders and 1 by NorthWest. So I have been appointed by NorthWest last year. I've come off NorthWest now, and I stand in front of you today for reelection. I'll stay there for another this year and then another year, it's a 3-year term then I'll become a NorthWest appointee in order to allow you to have an opportunity to vote for one of my 2 colleagues next year and the year after. So all 3 of us kind of look each other in the face and, say, every 3 years -- one of us stands every 3 years or less, stand in front of the unitholders, and you have the opportunity to say yes or no to our appointment. So we felt that was important. But if you go back to the construct of the trustee. The trustee gives NorthWest authority to a point. We couldn't convince NorthWest to give up that authority, but we could convince them to rotate that appointment amongst us in a way that allows unitholders to vote for each of us. And I'm going to look to Toby to see whether I've explained that, probably. It's quite a complex construct. But it's -- we've implemented this in the last 2 years in the interest of having closer alignment to what a corporate structure might look like in other entities on the -- listed in the New Zealand Stock Exchange and also to create greater transparency and accountability amongst the independent directors. So I hope that answers your question, [ Allan ].

Yes.

I'll just check whether there are any questions online. No, thank you.

The details of the proxies received on the election are on the screen. If I have been appointed as proxy to vote and not directed on how to vote, I will vote in favor of this resolution. If you are attending virtually, please cast your vote by clicking for, against or abstain through the Computershare platform. Your vote has been cast when the green tick appears on your screen. To change your vote, simply select Change Your Vote. You can change your vote until I declare the voting closed. And a reminder we'll be given 10 seconds on your screen before I close voting. Once voting has closed, you will not be able to amend your vote. If you are attending in person, please now pass your completed form to a Computershare representative who's coming through the room. While people are voting, we will show you a short approximately 5-minute video from our charity partner, the Starship Foundation. At the end of the video, voting will close. We'll now play the video. [Presentation]

Thank you. Voting is now closed. The results of the votes will be released to the NZX later today. I'll now pass back to Graham for any general business.

Thank you, Angela. I'll now open the floor to general business. Nothing online, nothing here. Well, there being no further business, I'd like to thank you all for attending. We were extremely proud today, as you've just seen, to be able to showcase our charity partner, Starship Foundation. And thank you all for attending. We'll see you again next year. All the best.