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Edited Transcript of PFI.NZ earnings conference call or presentation 16-Feb-20 9:30pm GMT

Full Year 2019 Property for Industry Ltd Earnings Call

Wellington Feb 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Property for Industry Ltd earnings conference call or presentation Sunday, February 16, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Craig Peirce

Property For Industry Limited - Chief Finance & Operating Officer

* Simon Woodhams

Property For Industry Limited - CEO

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Conference Call Participants

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* Adam Lilley

Craigs Investment Partners Limited, Research Division - Research Analyst

* Angus Simpson

ANZ Investment Services (New Zealand) Limited - Equity Analyst

* Jeremy Andrew Simpson

Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities

* Owen Batchelor

Jarden Limited, Research Division - VP of Equity Research

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Property For Industry full year results presentation. (Operator Instructions) Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to your first speaker today, Mr. Simon Woodhams, CEO of Property For Industry. Thank you. Please go ahead.

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Simon Woodhams, Property For Industry Limited - CEO [2]

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Good morning, everyone, and welcome to PFI's 2019 annual results briefing. Simon Woodhams speaking, CEO. Alongside with me today is Craig Peirce, our Chief Finance and Operating Officer.

Today, Craig and I will speak to the topics outlined on the Contents page. I will begin by reviewing the highlights for the year, then give an overview of the portfolio and its performance along with a summary of the key transactions throughout the period. Craig will then going to take you through the 2019 results and update you on our capital management. I will give a brief update on the market and then review our priorities before opening the session up for any questions you may have.

So if you want to turn to Page 4 of the presentation headed Highlights. Really pleased to report a record year of performance for PFI, which at the conclusion, sees the company in excellent shape. Some of the highlights on which we'll expand on throughout the presentation included another very busy year of portfolio activity with nearly 100,000 square meters of area leased through the year. Now this contributed to an increase in both earnings and cash dividends. And pleasingly, our AFFO payout ratio was below 100% for the period. Continued strong valuation gains and capital management work meant our balance sheet is in excellent shape with our year-end gearing sitting at just 28.1% (sic) [28.2%]

Finally, in a strong market, we continue to advance the priorities we set out 12 months ago with sales of nonindustrial property and numerous acquisitions and capital commitments undertaken.

If you turn to Slide 6. Here, we have a snapshot of the portfolio statistics. You can see the company owns a diversified portfolio of 94 properties that are leased to 144 tenants. Over the last 12 months, the value of the portfolio increased by approximately $154 million to just shy of $1.5 billion. You can see with the divestment of some nonindustrial property, our weighting towards pure industrial has increased to 90%, with the majority of the portfolio located here in Auckland, obviously, the deepest and strongest market in the country. Pleasingly, we maintained our strong occupancy level at 99%, along with our weighted average lease term or WALT, which now sits at 5.38 years.

On to the next slide. We always include this graph to highlight or continue highlighting the fact that industrial property as an asset class traditionally enjoys very high levels of occupancy. Since 2010, PFI had a year-end average above 98.5% occupancy, with an average WALT of close to 5 years. These 2 metrics are very much the lifeblood of PFI and have allowed the company to deliver stable growing returns to our shareholders.

Moving on to Slide 8 headed Valuations. We were pleased with our year-end valuations that resulted in the portfolio increasing the value by $125 million or approximately 9.3% to $1.48 billion. While asset management over the year was reflected in a number of individual property values increasing, which made it approximately 1/3 of this increase was as a result of rent growth within the portfolio. The continued demand for industrial properties saw a further cap rate compression in the market, with our portfolio cap rate firming 46 basis points to 5.75%. This accounted for the other 2/3 of the increase in the portfolio's value. As noted on this slide, our values estimate the overall portfolio's slightly under-rented. By our own internal calculations, we estimate that our Auckland industrial assets, approximately 6% under-rented. Again, this is a reflection of the strong market rental growth over the last 3 years.

On Slide 9, we highlight some of the larger transactions that took place during the period. As noted, we secured or leased close to 100,000 square meters of area for an average term of 6.7 years. Approximately 76% of these transactions were with existing tenants and importantly, high-quality tenants such as DHL, Jacobs and GrainCorp. This is a continued testament to the functionality of the properties within our portfolio and the strength of the relationships we've put with our tenants over the years.

Moving on to Slide 10. 2019 saw the team complete over 100 rent reviews, which delivered an annual average uplift of approximately 4.6% over $52.7 million of rent. This is up from the average annual uplift of 2.5% we experienced last year and highlights the strong market we're operating in. 11 of these reviews were the market, and they delivered an annualized increase of 4.7% over an average review period of 3.6 years on just over $5 million of rent. This year, 73% of our portfolio is subject to some form of lease events. CBRE are forecasting continued growth for the industrial market of between 2.5% and 3%. So with 23% of our 2020 lease events subject to a market event, we will continue to access this market growth.

On to Slide 11. Look at the graph on the bottom right-hand corner, you can see that we have approximately 6.5% of the portfolio due to expire during 2020. This is slightly below recent years, where we have typically had close to 10% expiring at the start of the year. You can also see that next year in 2021, we also have a very low expiry profile. This reflects a lot of the work completed in the last 18 months. We will work with our tenants on extending or renewing their existing lease terms.

The top table highlights some of the larger expiries during the year. The largest at 59 Dalgety Drive is actually in the process of being refurbished and redeveloped. So it will be available for lease later on in Q4. Pleasingly, post year, we've now agreed terms with the existing tenant at 23 Zelanian Drive in East Tamaki.

I'm now going to hand over to Craig, who will talk you through the results.

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Craig Peirce, Property For Industry Limited - Chief Finance & Operating Officer [3]

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Well, thanks, Simon, and good morning, everyone. Over the next few slides, I'll take you through the 2019 annual results. I'll then provide a quick update on capital management before touching on current economic conditions.

But before we turn the page, as Simon has already touched on, 2019 was a record year for PFI, with profit after tax of $176.3 million, FFO earnings up 2.6%, AFFO earnings up 4.4%, AFFO covered dividend of $0.076 per share and net tangible assets up 15.6%.

Our bank facility is refinanced and our gearing is just 28%. These results, combined with that strong market Simon has been talking about, resulted in total returns to PFI shareholders of around 40% last year, lifting our annual returns since inception to over 11%.

So let's dig into those numbers a bit. Please turn to Slide 13. First up, we take a look at net rental income, which increased by $4.2 million or 5.3% to $83.3 million. Looking at the composition of the change, we can see from the graph on this slide, positive leasing activity during the year caused net rental income to increase by a total of $3.3 million. The impact of acquisitions also caused an increase of $1.8 million. These increases were then partially offset by $0.4 million due to properties we disposed of and $0.3 million (sic) [$0.2 million] of lost rental income from properties now under redevelopment. The fire at 314 Neilson Street in Penrose in April of last year also caused a reduction albeit this loss range is recovered from insurers.

Moving to Slide 14. Here we see how 2019's activity is translated into funds from operations and adjusted funds from operations. As we note on the slide, FFO earnings per share were up 2.6% on the prior year to $0.0907 per share, while AFFO earnings were up 4.4% on the prior year to $0.0779 per share. Net rental income was the major source of these increases, offset somewhat by higher level of tax. The maintenance CapEx was once again a key driver of the increase in AFFO. Maintenance CapEx was $3.4 million or 25 basis points in the current year, which is down from $4.5 million or 35 basis points in the prior year.

If you turn over to Slide 15, starting to think now about dividends. The PFI Board today resolved a fourth quarter cash dividend of $0.0215 per share, and this dividend will take cash dividends for the year to $0.076 per share, up $0.005 per share from the prior year.

As mentioned earlier, one aspect of this year's result that we're particularly pleased about is that dividends are covered by AFFO earnings with an AFFO dividend payout ratio of 98%. Looking forward, now that the dividends are covered by AFFO earnings, we would target an increase in the rate of growth of our dividends. Historically, dividends have increased $0.005 per share each year if performance allows. And in 2020, we plan to lift dividends by $0.005 per share to $0.10 per share, resulting in a forecast dividend of between $0.0765 and $0.077 per share, subject of course to matters outside our control.

Turning to Slide 16 and looking at the balance sheet. On this slide, we provide more detail on the increase in the value of PFI's investment properties. The value of the portfolio is now almost $1.5 billion, up over $150 million. This was in part due to the increase from the annual independent valuation cycle of $125.2 million, a lift of 9.3%. Acquisitions, too, played a big part for the purchase of 25 Langley Road in Wiri in December for $36 million and the purchase of 51-61 Spartan Road in Takanini in March for $17.2 million. Over $14 million spent on CapEx during the year, including the refurbishment of 6 Donnor Place and the development for Kiwi Steel at 212 Cavendish Drive. And of course, disposals have also played a part. 229 Dairy Flat Highway in Albany was sold in October for $33 million, around $5 million over book value, and the sale of 2 Pacific Rise in Mount Wellington was contracted and is due to settle in March this year.

Turning to Slide 17, where we look at NTA. This slide bridges NTA per share at the end of 2018 of $1.777 per share to $2.055 per share at the end of 2019. The chart by and large speaks for itself with the largest reason for the increase in NTA being the fair value movement in investment properties.

So we'll move on to the next slide, #18. Here we present PFI's 2019 results in the context of the longer term tracking some of PFI's key measures over the last 5 full financial years. As noted on the slide, the company has seen a strong growth in earnings and values while keeping gearing at low levels. One stat I'd like to keep a close watch on is interest cover, and it's great to see that it is 2x covenant levels at 4x.

Turning now to the capital management section of the presentation on Slide 20. This slide headed up funding, covenants and interest rates. Our bank facilities were refinanced in November last year. Existing lenders ANZ, BNZ, CBA and Westpac each committed 1/4 of a combined total of $300 million of facilities, up from $275 million prior to the refinancing. The facilities have earned 2 equal $150 million tranches expiring November 2022 and 2023. When combined with the company's bonds at the end of the year, the weighted average term to expire all facilities stood at 4.1 years.

We ended the year with gearing at 28%. As we note on this slide, depending on the timing of our committed spend, this could move up to around 33%. That said, once we allow for the divestment of our remaining nonindustrial properties, we expect it would return to around 27%.

Turning to Slide 21. The graph on this slide look at 2 things, the maturity profile that we just talked about for PFI's bank facilities and bonds and also hedging. So thinking now about hedging, we're pleased to report that PFI's weighted average cost of debt has reduced once again during the year, down to 4.63% from 4.86%. One of the drivers of that decrease is, of course, the company's fixed rate hedging. In that regard, we believe we're well placed to continue to take advantage of the current low interest rate environment: based on our current hedging and debt levels, an average of approximately 59% of our debt will be hedged at an average of -- average rate of approximately 3.58% for the year, and the remainder is on those low float interest rates. So that's all on capital management for now.

If you turn to Slide 23, we'll touch on the market and the economy in general. So starting with the macro view, in the January 2020 economic -- Quarterly Economic Outlook, ANZ noted that the New Zealand economy is at a crossroads and the political and international context is going to be crucial. On the one hand, they highlight that monetary policy appears to be doing its job, the housing market has strengthened, fiscal spending is supportive and the labor market is strong. Countering this, ANZ also believe that credit availability will be crucial, business investment will be constrained and drought conditions in some parts of New Zealand with floods and others, combined with the risk from the coronavirus, are also potential risks. Here in our office, we're also keeping an eye on Elton John's health.

Given these conditions, ANZ forecast for 2020 and 2021 to be at -- to end the year with an official cash rate of just 1% and a forecast 10-year bond rate of 1.3% and 1.2%. In our view, these low forecasted interest rates will continue to drive demand for industrial property for some time.

I'll now hand you back to Simon to close out the presentation. Please feel free to ask any questions at the end. Simon?

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Simon Woodhams, Property For Industry Limited - CEO [4]

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Thanks, Craig. I'm now on Slide 24, where we're going to just have a quick look at the property market. So referencing CBRE's December '19 Auckland market survey, they noted low industrial vacancies, strong rental growth and a continued improvement of cap rate for the last 12 months, which is pretty much what it's been for the last 48 months. As a result of these factors, secondary industrial remains at their forecast -- sorry, as they forecast top ranked property category out of 12 classes that they track. And pleasingly, from a PFI point of view, CBRE anticipated total return of over 10% per annum over the next 5 years for this secondary industrial and 9% per annum for prime industrial. So these numbers, obviously, bode well for our portfolio. If the market does continue as forecast, we're confident that PFI is very well placed to benefit from those conditions.

Just moving through to Slide 26. You may remember from last year's presentation at the start of 2019, we stated that we had 4 key priorities that the team were looking to progress throughout the period. In addition to the continued day-to-day asset management of the portfolio that I touched on earlier in the presentation, we were looking to start replacing our nonindustrial properties with quality industrial properties that were well-located and will improve the overall portfolio. And we also wanted to up the run rate on the value-add opportunities that exists within our portfolio. Pleasingly, we've made really good progress on these priorities. And I just want to [have] them in the next few slides.

So if we start on Slide 27. We talk about divestment or disposals. We divested $40 million of property during the period. The highlight being the sale of 229 Dairy Flat Highway, which was a mixed-use asset, sold it for $33 million, which was $5 million above its book value. We were pleased the asset management work we undertook on the property on the previous 18 months came to fruition and resulted in a very strong sales result. On the back of our divestments, nonindustrial property now accounts for just 10% of our portfolio. This year, 2020, we're looking to focus on divesting out of Carlaw Park and Shed 22 down in Wellington.

On the next slide, we summarize the progress we made on replacing the assets we sold or we're planning on selling. As the table illustrates, it has already announced to the market during 2019, a commitment of $106 million of capital towards 4 acquisitions was made. All 4 properties are industrial and located in Auckland, with 3 of them having 12-year lease terms in place. 2 other properties are new builds that we developed at Tidal Road in Mangere, a new industrial subdivision located between the airport and the Southwestern motorway. And we estimate the return to PFI across these 4 assets, once the second development at Tidal Road is leased, will be in the order of 5.55% to 5.65%. The focus this year remains on acquiring further property that enhances the portfolio fundamentals and will match the capital to be received from divesting the remaining of our nonindustrial properties.

Turning to the final slide, 29. Last year, we stated that PFI is looking to recycle out of capital -- sorry, looking to recycle capital into add-value opportunities. During 2019, we not only spent $14.6 million on projects, but we also committed a further $21 million that will be spent during this period principally on 4 main projects. These projects include the completion of a major refurbishment at 6 Donnor Place, which has already been leased to Coca-Cola Amatil for 6 years, and the construction of 2 new build properties, one on surplus land to the rear of 47 Dalgety Drive in Wiri, and the second, a rebuild at 314 Neilson Street in Onehunga to replace the building destroyed by fire in April last year. We continue to work with our existing and new tenant to unlock further opportunities, which sits within the portfolio.

And moving through to Slide 31 to close out the presentation. To say, 2019 was an excellent year for the company, a record year. The team successfully completed a significant amount of portfolio work, divested nonindustrial assets and acquired over $100 million of quality property in Auckland. Most importantly for our shareholders, this has resulted in earnings growth, dividends growth and strong share price elevation. As we move towards becoming a pure industrial property company, we'll continue to focus on what will serve the company very well: core asset management, working value-add opportunities and replacing the remaining nonindustrial properties we own with the acquisition of high-quality industrial properties.

That sector of the market, the industrial market, has performed well over the last 5 years. And while this is forecast to continue, we think PFI is very well positioned to take advantage of the conditions out there.

So that concludes Craig and I's presentation this morning. Thank you for listening. Would just welcome any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question today comes from the line of Angus Simpson from ANZ Investment.

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Angus Simpson, ANZ Investment Services (New Zealand) Limited - Equity Analyst [2]

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Just a couple of questions for me. Just firstly, the $21 million of developments being undertaken this year, can you sort of give an estimated yield on incremental cost for that?

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Simon Woodhams, Property For Industry Limited - CEO [3]

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That's case by case. We'd be targeting sort of a 5.5% to 6%. Some of them will be higher than that. And -- but although weighted number will sit in that 5.5% to 6% range.

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Angus Simpson, ANZ Investment Services (New Zealand) Limited - Equity Analyst [4]

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And just to be clear, that would include an allocation for the land on the couple of developments there being done on the existing land?

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Simon Woodhams, Property For Industry Limited - CEO [5]

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Yes, yes.

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Angus Simpson, ANZ Investment Services (New Zealand) Limited - Equity Analyst [6]

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And just second question, just on Carlaw Park, so you've mentioned you would like to sell it this year. Could you just give an update on the leasing there? Is that 100% occupied now?

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Simon Woodhams, Property For Industry Limited - CEO [7]

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No. So there's currently 550 square meters of building 2 top floor available for lease, so we're working on it. And also on the back of the leasing we did last year, we're just working with Wilson's car parking on refreshing the existing lease down there. So there's a little bit more to go down there.

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Angus Simpson, ANZ Investment Services (New Zealand) Limited - Equity Analyst [8]

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And so on your sort of [eastern one], would you sort of take them to market? Would it be in the back half or the first half of the year?

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Simon Woodhams, Property For Industry Limited - CEO [9]

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Midyear. Yes, midyear, with expected completion towards the end of the year.

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Angus Simpson, ANZ Investment Services (New Zealand) Limited - Equity Analyst [10]

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Okay. Brilliant. And then just last question, just on 59 Dalgety Drive. So as Goodman Fielder moved out of there, but still got a bit of a lease tail. Is that right?

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Simon Woodhams, Property For Industry Limited - CEO [11]

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No, no. So they actually shut operations down there in late 2017, but their lease finished at the start of this month, start of February. So we're on-site now beginning the refurbishment program, but their lease is completed now.

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Angus Simpson, ANZ Investment Services (New Zealand) Limited - Equity Analyst [12]

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Okay. And what's sort of been the initial thoughts on leasing that? Is it going to be much tenant demand or tenant inquiry?

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Simon Woodhams, Property For Industry Limited - CEO [13]

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Well, so we're -- so as you might have been aware that was a quite a specialized asset and that it was set up for food manufacturing. So we're stripping that back and turn it into a generic warehouse, virtually expanding the warehouse and adding in some extra yard and stuff. So it will be a completely different product than what Goodman Fielder were leasing.

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Angus Simpson, ANZ Investment Services (New Zealand) Limited - Equity Analyst [14]

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And what sort of time frame on doing that redevelopment and getting that re-leased?

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Simon Woodhams, Property For Industry Limited - CEO [15]

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We are hoping to have that in the market for -- well, it's for lease now but we'll complete the refurbishment Q4 this year.

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Operator [16]

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Your next question comes from the line of Owen Batchelor from Jarden Securities.

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Owen Batchelor, Jarden Limited, Research Division - VP of Equity Research [17]

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Just a question on the guidance for FY '20. Does that allow for you to divest Carlaw Park and Shed 22 during the year?

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Craig Peirce, Property For Industry Limited - Chief Finance & Operating Officer [18]

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Yes. I mean that's -- our current intention is to do those things, and the guidance reflects everything we intend to do. Yes.

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Owen Batchelor, Jarden Limited, Research Division - VP of Equity Research [19]

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So okay. So -- yes, so as you're stating, this should -- it provides for those sales halfway through the year?

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Craig Peirce, Property For Industry Limited - Chief Finance & Operating Officer [20]

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Yes. It provides for those sales, yes, yes.

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Owen Batchelor, Jarden Limited, Research Division - VP of Equity Research [21]

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Yes. Okay. And then just on some yield movements. Just on Shed 22, it looks like the yield softened quite a bit around 100 bps, and the value was down around some 12%. Just wondering what the reason for that yield softening was?

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Craig Peirce, Property For Industry Limited - Chief Finance & Operating Officer [22]

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Yes. So that's a good question. That building, as you know, it's one of the buildings that we're going to bring to market. And so when preparing it to bring to market, we had a DSA, a Detailed Seismic Assessment, done on that property. And as a result of that, we've found that there is some more work that we need to do prior to bringing it to market. So that valuation reflects the work that needs to be done.

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Owen Batchelor, Jarden Limited, Research Division - VP of Equity Research [23]

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Okay. Great. And then just another Wellington asset, similar sort of thing, 48 Seaview Road, that 230 bps of softening there. Just can you talk to the reasons behind that?

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Simon Woodhams, Property For Industry Limited - CEO [24]

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Similar issues there and that is a small warehouse there, which is below 67% earthquake rating. And so it's our intention once the tenant who has a lease expiry towards the end of this year moves out that we would go in and actually demolish that. It's an old 1970s warehouse, not very big. It's about 900 meters. We'll demolish that and start again. So it's reflecting a write-down and barely on the basis of that.

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Owen Batchelor, Jarden Limited, Research Division - VP of Equity Research [25]

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Okay. Great. And then I guess just given that yard, are there any other assets that we should be aware of with -- that requires quite work?

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Simon Woodhams, Property For Industry Limited - CEO [26]

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No, no. We're going through a program at the moment where we're testing any properties that we don't have and been ongoing project, but our expectation is the portfolio is okay at the moment.

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Operator [27]

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Your next question comes from the line of Adam Lilley from Craigs Investment.

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Adam Lilley, Craigs Investment Partners Limited, Research Division - Research Analyst [28]

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Just got a couple of quick ones. So with the weighted average cost of debt, so it's down year-on-year, but it's ticked up a little bit since half year, just flowing rates are tended to trickle down a bit more since then. So I'm just kind of curious as to why that is? Is it from the refinancing?

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Craig Peirce, Property For Industry Limited - Chief Finance & Operating Officer [29]

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Yes. I mean so the refinancing was definitely slightly higher rates. I think we last refinanced in 2016, which was pretty much the bottom of the market. So there is a small tick up in rates from there is the main reason. The other thing to say is that quite a -- this -- I'm going to say $50-odd million of the swaps dropped off on the 4th of January or something like that. So there's a sort of further reduction in rate that comes from those swaps dropping off fairly in 2020. And this forward starting swaps that match those that are quite a lot lower rates. So hence, I guess the reason to give the guidance around where the hedge rate is going.

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Adam Lilley, Craigs Investment Partners Limited, Research Division - Research Analyst [30]

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Yes. Okay. So they dropped off. Are you able to give any kind of [feel as to] the kind of the rate differential between the old and new?

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Craig Peirce, Property For Industry Limited - Chief Finance & Operating Officer [31]

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I think you can almost sort of work that out. If you look on Slide 20, you can see the hedge rate there, 3.75% in the middle sitting at bottom. And then if you look on Slide 21, you can see that the rate going forward will be 3.58%, so you drop down another 17 points on the rate at the end of the year.

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Adam Lilley, Craigs Investment Partners Limited, Research Division - Research Analyst [32]

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Okay. Cool. Sorry, just one other one. So on the revals, which, obviously, you still noted late last year. Given any part of the portfolio reval-ed at June and saying you recorded quite an uplift for the full year, I'm just kind of curious was that transitional activity weighted towards the second half that really kind of gave you that extra kick or just kind of understanding a bit more as to why such a strong performance given only if you got reval-ed at the midyear?

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Simon Woodhams, Property For Industry Limited - CEO [33]

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So the once we get revalued at the midyear are typically ones that have had a transaction in the first 6 months of the period. That's why we pick those ones out. We know they're going to have a material move, i.e., greater than 5%, so it's the way to put that. In terms of the overall outlook for the year, the 9-plus percent sort of movement, that was a combination of cap rate firming and rent reviews and then property-by-property that have hit results or new leases completed on them. So it's sort of a mixture of the lot, really.

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Craig Peirce, Property For Industry Limited - Chief Finance & Operating Officer [34]

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Adam, we do get -- if you get to the half way through the year and you took out the 5% from the desktop review, we do those -- full val on those properties. So every property are looked at to see if it's gone over 5% in the half year.

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Adam Lilley, Craigs Investment Partners Limited, Research Division - Research Analyst [35]

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Sure, sure, yes. So those desktop review is to fully look at kind of how cap rates are tracking at that point in time?

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Craig Peirce, Property For Industry Limited - Chief Finance & Operating Officer [36]

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I mean I'll look at the leasing activity as well on it. So -- and for example, if you had a rent review, I mean I think, market rent review, I think we had 1 property where we had quite a large market rent review. And so that was enough to tick that asset over 5% and result in full valuation for that asset. So Carbine Road then, so you do get the circumstance where it's not a new lease or anything like that.

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Adam Lilley, Craigs Investment Partners Limited, Research Division - Research Analyst [37]

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Yes. I got you. Okay. Okay. And then just kind of understanding in terms of like kind of capital commitment. So the 33% that you've guided to, is that just kind of based purely on kind of what you've committed and announced to market to date? Or is that allowing for a bit of flex or further by acquisition or development activity to help manage the earnings before you do a disposal, say, like, Carlaw?

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Craig Peirce, Property For Industry Limited - Chief Finance & Operating Officer [38]

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No, no. I'd say, if you go to Page 61 of the annual report, there's a table of capital commitments on Page 61. And so really, all that's saying is that if you take the gearing as at today and you add on there $81 million tax and -- as you pay the tax in January and your dividend in there as well. Then if that all kind of went through, you'd end up at 33% if they hadn't before you did any further disposals. Now I mean again, it's sort of a highly theoretical number, I guess. But just wanted to note that the 28% is before all that goes through.

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Operator [39]

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Next question comes from the line of Jeremy Simpson from Forsyth Barr.

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Jeremy Andrew Simpson, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [40]

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Few minor things for me. The -- in terms of what should be -- what's a good sort of ballpark number for maintenance CapEx for us this year? And has it changed a little bit -- your assumptions changed a little bit last couple of years of what do you think should be a good number for us for this year?

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Craig Peirce, Property For Industry Limited - Chief Finance & Operating Officer [41]

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I think we sort of pretty consistently said 30, 35 basis points. The difficulty, obviously, is a sort of volatility or the timing of that spend. So yes. But I think 30, 35 basis points that we've been talking about has been pretty consistently communicated. So I don't think we can say (inaudible) in our announcement there. And again take for example, this year, we had a bit of spend comes through from the higher coal fire process. The year before, we had -- the spend comes through from large reroof projects. So yes, pretty ballpark, to say the least.

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Jeremy Andrew Simpson, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [42]

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Yes. Cool. And in terms of current tax rate, medium term sort of current tax rate around these sorts of levels, something we should be working with?

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Craig Peirce, Property For Industry Limited - Chief Finance & Operating Officer [43]

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Yes. So I guess we were, what, 20.2% last year, 22.9% this year. So it's going to be in that zone between that sort of 23% to 20%, depending on, again, the sort of maintenance CapEx type thing. So we have a mid-point maybe for your model, might be a way of going about it. But yes, nothing sort of jumps out there. We will get a little bit of relief coming out of these Tidal Road deals because there'll be some capitalized interest as part of those. So potentially, it could change towards the bottom because of that -- the bottom of that range because of those.

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Jeremy Andrew Simpson, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [44]

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Cool. And just in terms of valuations, have valuers given you any sense on cap rates from here? Yes. Look, (inaudible) right, assuming a pretty stable interest rate environment, do you think we've kind of have some struggles?

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Simon Woodhams, Property For Industry Limited - CEO [45]

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At peak rate? Yes, yes, yes. I think you or someone's asked that question for the last 3 years. And we really have gotten the account that go much firmer. Look, there's been some recent sales that will start to come through, which are well into the force, generally for prime product or long lease terms or [short-term leases], et cetera. Yes, so I think, property-by-property, there's still going to be some surprising results out there. So yes, whether there's any more as an overall sort of feel, I'd be surprised of anything significant. But yes, I mean there's a sale out in Stonefields -- sorry, [Stonehill] down in Wiri. A vacant building with a rent roll close to $700,000, and that's sold for 4.65% vacant, no underwrite, nothing. So it's a new building to be developed, but that's the sort of pricing that's out there at the moment. So it's not a small number, sort of $15 million, $16 million. So yes.

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Jeremy Andrew Simpson, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [46]

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And just lastly for me, I guess, related to that question. Is there much in the portfolio that you're considering selling that is industrial? We have perhaps -- yes, there's limited value add from here and you can perhaps capitalize on the strong investments?

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Simon Woodhams, Property For Industry Limited - CEO [47]

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Yes. Look, we're always -- obviously, this time last year, we had a pretty firm view we want to get rid of the nonindustrial stuff. We're still working on that, but we're always evaluating and looking at the portfolio, as you would expect, and there's probably 1 or 2 smaller properties there that might come on the range in the next 3 to 12 months. So -- yes. But in general, we're pretty happy with where it's sitting at the moment. It will be around the edges as opposed to anything bigger.

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Operator [48]

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(Operator Instructions)

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Simon Woodhams, Property For Industry Limited - CEO [49]

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It looks like there's no further questions. So on the base of that, Craig and I will sign off. As always, I think we're catching up with a number of you over the next 2 or 3 days. And the phones there, if you've got any questions, just pick it up, otherwise, thanks for dialing in. Thanks for listening, and onwards and upwards, for PFI.

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Operator [50]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.