PFI Announces Record Annual Results
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17 February | 2020
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PFI ANNOUNCES RECORD ANNUAL RESULTS
The PFI management team will present these results via live webcast from 10.30 am NZT today. To
view and listen to the webcast, please visit https://edge.media-server.com/mmc/p/5n3sjqp8. We
recommend you log on a few minutes before the start time, and if you cannot attend the live webcast, a
recording will be available on PFI’s website shortly after the conclusion of the live event. Alternatively,
you can listen to the live presentation by dialling in on 0800 667 018 and using the access PIN 9797585.
Highlights
▪ Record annual results: profit after tax of $176.3 million, Funds From Operations (FFO)
1
earnings
up 2.6% to 9.07 cents per share, Adjusted Funds From Operations (AFFO) earnings up 4.4% to
7.79 cents per share
▪ Dividends AFFO covered: cash dividends of 7.60 cents per share, AFFO dividend pay-out ratio of
98%
▪ Strong balance sheet: net tangible assets up 15.6% or 27.8 cents per share, bank facilities and
bonds secured for an average of 4.1 years, gearing of 28.2%
▪ Positive portfolio activity: nearly 100,000 square metres or 17% of the portfolio leased during the
year to 24 tenants for an average increase in term of 6.7 years, rent reviews completed on 103
leases delivered an average annual uplift of ~4.6%
▪ Priorities advanced: four Auckland industrial opportunities secured totalling $106.4 million, $40
million of non-industrial divestments contracted during the year, committed to or completed ~$26
million of value-add strategies
Property for Industry Limited (PFI, the Company) today announced record results for the year ended 31
December 2019.
“This year we achieved a record annual result, continued to deliver strong, stable investor returns, and
made constant progress on focusing the portfolio on our core industrial strengths.” says PFI Chief
Executive Officer Simon Woodhams.
Financial performance
Net rental income increased by $4.2 million or 5.3% to $83.3 million. Positive leasing activity contributed
an increase of $3.3 million or 4.2%, and acquisitions contributed a further increase of $1.8 million. These
increases were partially offset by disposals ($0.4 million), lost rental income from properties now under
re-development ($0.3 million), and lost rental income from a fire at 314 Neilson Street, Penrose
2
in April
2019 ($0.2 million).
Property costs – net of recoveries from tenants – increased by $0.3 million and administrative expenses
increased by $0.4 million.
Interest expense and bank fees increased $0.2 million or 1.3%: average borrowings increased by $21.2
million, but the impact of this was partially offset by a reduction in the Company’s weighted average cost
of debt
3
, down ~23 basis points from the end of the prior year to 4.63%.
--------
1
Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) are non-GAAP financial information and are
common property investor metrics, which have been calculated in accordance with the guidelines issued by the Property Council
of Australia. Please refer to Appendix 1 for more detail as to how these measures were calculated.
2
PFI has material damage insurance up to a value of $9.65 million and 24 months of business interruption insurance in place for
this property. The final amounts to be received under these insurance policies are yet to be determined and received.
3
Weighted average cost of debt comprises float interest rates, hedging, margins and all borrowings related fees.
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PFI’s effective current tax rate was 22.9% during 2019, up from 20.2%
4
in the prior year, in part due to
a higher level of maintenance capex in the prior year.
Profit after tax for year of $176.3 million (35.35 cents per share) was up $66.2 million (13.27 cents per
share) on the prior year and this is the highest level of profit ever recorded by the Company.
FFO and AFFO
FFO earnings of 9.07 cents per share were 0.23 cents per share or 2.6% ahead of the prior year, whilst
AFFO earnings of 7.79 cents per share were 0.33 cents per share or 4.4% ahead of the prior year.
AFFO adjustments totalled $6.4 million in the current year, down $0.5 million or 8.0% from the prior year.
A key component of AFFO adjustments is maintenance capex. As noted in previous communications,
PFI expects that maintenance capex on its existing portfolio will average 35 basis points per annum, but
that the timing of this will be volatile. This volatility can be illustrated when comparing the level of
maintenance capex in the current and prior years: in 2019, maintenance capex totalled $3.4 million or
25 basis points, whereas in 2018, maintenance capex totalled $4.5 million or 35 basis points.
Q4 Final Dividend
The PFI Board has today resolved to pay a fourth quarter final cash dividend of 2.1500 cents per share.
The dividend will have imputation credits of 0.8015 cents per share attached and a supplementary
dividend of 0.3637 cents per share will be paid to non-resident shareholders. The record date for the
dividend is 24 February 2020 and the payment date is 4 March 2020. The dividend reinvestment scheme
will not operate for this dividend.
The fourth quarter dividend will take cash dividends for the full year to 7.60 cents per share, an increase
from the prior year of 0.05 cents per share, resulting in an FFO dividend pay-out ratio of 84% (2018:
85%) and an AFFO dividend pay-out ratio of 98% (2018: 101%, refer Appendix 2).
Given the level of volatility in maintenance capex and other AFFO adjustments, PFI will also be mindful
of the AFFO dividend pay-out ratio over a longer time horizon than any one year when setting dividends.
For example, the average AFFO dividend pay-out ratio is 101.0% since PFI began disclosing AFFO
5
in
2016 (refer Appendix 4).
Guidance
PFI Chief Finance and Operating Officer, Craig Peirce, notes: “At the beginning of 2018, we announced
our transition to a dividend policy that is based on FFO and AFFO. Since then, we have been working
to grow earnings at a faster rate than we have been growing dividends. Now that our dividends are
covered by AFFO earnings, we will target an increase in the rate of growth of our dividends. Historically,
dividends have increased by 0.05 cents per share each year, if performance allowed, but in 2020, we
plan to lift dividends by 0.05 to 0.10 cents per share resulting in a forecast dividend of between 7.65 to
7.70 cents per share, subject, of course, to matters outside of our control.”
The Company expects that this level of full year cash dividends will approximate 80% to 90% of FFO
earnings and 95% to 100% of AFFO earnings, in line with the Company’s dividend policy.
Net tangible assets (NTA)
PFI’s NTA per share increased by 27.8 cents per share or 15.6% from 177.7 cents per share as at the
end of 2018 to 205.5 cents per share as at the end of the year.
--------
4
2018 excludes the impact of the June 2017 internalisation.
5
AFFO has been disclosed for the financial years ended 31 December 2016 to 31 December 2019.
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The change in NTA per share was driven by the increase in the fair value of investment properties
(described below, +25.1 cents per share), retained earnings (+1.4 cents per share), gains made on the
disposal of PFI’s non-industrial properties (+0.8 cents per share) and the decrease in the net fair value
liability for derivative financial instruments (+0.5 cents per share).
Capital management
PFI’s bank facilities were refinanced in November 2019. Existing lenders ANZ, BNZ, CBA and Westpac
each committed a quarter of a combined total of $300 million of facilities, up from $275 million prior to
the refinancing. The facilities are in two equal $150 million tranches, expiring November 2022 and 2023.
When combined with the Company’s November 2024 ($100 million) and October 2025 ($100 million)
bonds, at 31 December 2019, the weighted average term to expiry of PFI’s bank facilities and bonds
stands at 4.1 years.
PFI’s weighted average cost of debt
6
reduced during the year to 4.63% as at 31 December 2019 from
4.86% as at 31 December 2018. The Company remains well placed to continue to take advantage of
the current low interest rate environment: based on current hedging and debt levels, an average of
approximately 59% of PFI’s debt will be hedged at an average rate of approximately 3.58% during 2020,
down from 3.75% as at 31 December 2019, with the remainder on low floating interest rates.
The Company ended the year with gearing
7
of 28.2% and an interest cover ratio
8
of 4.0 times. After
allowing for 2019 tax, the Q4 final dividend, settlement of the divestment of 2 Pacific Rise and capital
commitments, gearing could move up to ~33%. Allowing for the divestment of PFI’s remaining non-
industrial properties, gearing could return to ~27%.
Portfolio performance
Portfolio snapshot as at 31 December 2019 31 December 2018
Book value $1,476.2m $1,322.0m
Number of properties 94 94
Number of tenants 144 148
Contract rent $84.9m $82.0m
Occupancy 99.0% 99.3%
Weighted average lease term 5.38 years 5.39 years
Auckland property 84.1% 83.1%
Industrial property 90.0% 87.3%
Further to the announcement in December 2019, PFI recorded an annual increase in the value of its
property portfolio from independent valuations of $125.2 million or 9.3% to $1,476.2 million. Around one-
third of this valuation outcome was due to rental growth, which in part reflects the successful leasing
outcomes, described below. Continued high levels of demand for industrial property from both investors
and owner occupiers was also an influence, with movements in cap rates contributing the remaining two
thirds of the increase in value. As a result of the year-end valuation process, PFI’s passing yield firmed
from 6.21% to 5.75%.
An independent market rental assessment of the entire portfolio was completed at the end of the year
as part of the independent valuation process. This assessment estimates that PFI’s portfolio is ~3.5%
under-rented, but internal estimates are that the Company’s Auckland industrial portfolio is around 6%
--------
6
Weighted average cost of debt comprises BKBM, hedging, margins and all borrowings related fees.
7
That is, total borrowings as a percentage of the most recent independent valuation of the property portfolio. Covenant: 50%.
8
That is, the ratio of interest expense and bank fees to operating earnings excluding interest expense and bank fees. Covenant:
2 times.
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under-rented.
Nearly 100,000 square metres, representing more than 17% of PFI’s existing portfolio by rent, was
leased during the interim period to 24 new and existing tenants for an average increase in term of 6.7
years. Lease renewals accounted for more than 76% of the contract rent secured, with 16 PFI tenants
retained for an average increase in term of 6.9 years. Across these leasing transactions, low levels of
incentives and capital expenditure were required to attract and retain tenants, with average leasing costs
of less than half a month per year of term.
Included in these totals is a renewal of DHL’s lease at 7-9 Niall Burgess Road in Mount Wellington, and
a new lease to Coca-Cola Amatil at the recently refurbished 6 Donnor Place, also in Mount Wellington.
You can learn more about both of these transactions in PFI’s annual report, released today.
Rent reviews were completed on 103 leases during the year, resulting in an average annual uplift of
~4.6% on ~$52.7 million of contract rent. 11 market rent reviews on $5.3 million of contract rent delivered
an annualised increase of 4.7% over an average review period of 3.6 years, and these reviews were
settled at an average of approximately 7.5% above December 2018 market rental assessments.
At the end of the year, the Company’s portfolio was 99.0% occupied and just 6.5% of contract rent is
due to expire in 2020. When combined with rent reviews, almost 73% of PFI’s portfolio is subject to some
form of lease event during 2020.
In their December 2019 Auckland Market Outlook, CBRE predict industrial rental growth over the next
five years to average 2.5% per annum for Prime properties and 3.0% per annum for Secondary
properties. PFI will continue to access this projected market rental growth as approximately 23% of the
Company’s 2020 lease events
9
are market related.
Market update
In their January 2020 Quarterly Economic Outlook, ANZ note that: “The [New Zealand] economy is at a
crossroads and the political and international context will be crucial.”
On the one hand, they highlight that monetary policy appears to be doing its job, that the housing market
has strengthened, fiscal spending is supportive, and the labour market is strong. Countering this, they
also believe that credit availability will be crucial, and that business investment will be constrained.
Drought conditions in some parts of New Zealand – and floods in others – combined with the risks from
the novel coronavirus, are also potential risks.
Given these conditions, they forecast for 2020 and 2021 to end with an Official Cash Rate of just 1.00%,
with forecast 10-year Bond Rates of 1.30% and 1.20% respectively.
Low interest rates play an important part in the attractiveness of property and its returns relative to other
asset classes. In December 2019 Auckland Market Outlook, CBRE note: “Low interest rates combined
with property’s return profile relative to other assets... underpin further yield firming for the next two
years.”
“Omnichannel retailing” is also expected to be a key driver for industrial property, according to CBRE.
They estimate that for every $1 billion of additional online sales, an extra 100,000 sqm of distribution
space is required. With the likes of H&M and Chemist Warehouse recently arriving in New Zealand, and
others like Cos, Costco, Decathlon, Ikea and Uniqlo signalling their arrival, this trend is expected to
gather momentum in the medium term.
--------
9
Being 16.6% of total contract rent.
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Also in their December 2019 Auckland Market Outlook, CBRE note other favourable indicators: they
estimate total industrial vacancy of just 1.4%, rental growth in the last 12 months of 3.3% in prime
industrial and 4.1% in secondary industrial, firming yields and continued increases in industrial zoned
land.
These factors combine to result in secondary industrial remaining as their top ranked category in in their
December 2019 Auckland Market Outlook. CBRE’s forecast of secondary industrial annual returns over
the next five years totals 10.6% per annum (June 2019: 11.2%), comprising an income return of 5.8%
(June 2019: 6.0%) and capital growth of 4.8% (June 2019: 5.2%).
Prime industrial is also set to deliver above-average returns: despite falling from second place in June
2019 to fourth place (out of 12) in December 2019, CBRE have forecast a small increase in average
annual returns over the next five years expected to 9.0% per annum (June 2019: 8.9%), comprising an
income return of 4.9% (June 2019: 5.1%) and capital growth of 4.1% (June 2019: 3.8%).
Our priorities
Simon Woodhams notes: “We are pleased to report excellent progress on the four priorities we stated
at the beginning of the year.”
In addition to the asset management activity, discussed earlier in this announcement, these priorities
included the replacement of PFI’s non-industrial properties with quality industrial properties in sought-
after areas.
Simon Woodhams continues: “To that end, $106.4 million has been committed during the year to four
prime Auckland industrial opportunities. 12-year leases have been secured at three of the four sites,
with tenant commitment to be secured by PFI’s leasing team at the fourth property in Tidal Road whilst
the property is under construction. Across these transactions, the return to PFI is estimated to be around
5.57%.”
Significant progress has also been made in divesting PFI’s non-industrial properties, with $40 million of
divestments contracted during the year. Included in this total is the divestment of the mixed-use property
at 229 Dairy Flat Highway in Albany, Auckland, for $33 million, and you can learn more about this
divestment in the Company’s annual report, released today. Non-industrial properties now account for
just 10% of PFI’s portfolio.
Finally, value-add strategies within the existing portfolio also formed an important part of the Company’s
2019 priorities. In addition to the $14.6 million spent during 2019, PFI has committed a further $21 million
to four new significant projects. These projects include the completion of the refurbishment of PFI’s
property at 6 Donnor Place in Mount Wellington, Auckland, prior to occupation by Coca Cola Amatil.
More details on this project can also be found in PFI’s annual report.
Simon Woodhams concludes: “In 2020 we will continue on our pathway to becoming a pure-play
industrial listed property vehicle. In order to achieve that goal, we will remain focused on our core asset
management and value-add strategies within our portfolio. We also plan to supplement that activity with
the replacement of PFI’s remaining non-industrial assets – including Carlaw Park in Parnell, Auckland –
via acquisition of quality industrial properties in sought-after areas.”
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ENDS
ABOUT PFI & CONTACT
PFI is an NZX listed property vehicle specialising in industrial property. PFI’s nationwide portfolio of 94 properties is leased to
144 tenants.
For further information please contact:
SIMON WOODHAMS CRAIG PEIRCE
Chief Executive Officer Chief Finance and Operating Officer
--- ---
Phone: +64 21 749 770 Phone: +64 21 248 6301
Email: woodhams@pfi.co.nz Email: peirce@pfi.co.nz
---
Property for Industry Limited
Shed 24, Prince’s Wharf, 147 Quay Street, Auckland 1010
PO Box 1147, Shortland Street, Auckland 1140
---
www.propertyforindustry.co.nz
Attachments
NZX Form – Results Announcement
NZX Form – Distribution Notice
Annual Results Presentation
Annual Report
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17 February | 2020
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Appendices
Appendix 1 – FFO and AFFO Calculations
Funds / Adjusted Funds From Operations For the year
ended
For the year
ended
(unaudited, $000, unless noted)
31 December
2019
31 December
2018
Profit and total comprehensive income after income
tax attributable to the shareholders of the Company
176,286 110,094
Adjusted for:
Fair value gain on investment properties (125,193) (66,370)
Material damage insurance income (1,125) -
Loss / (gain) on disposal of investment properties (4,126) (53)
Fair value (gain) / loss on derivative financial instruments (2,577) (2,009)
Amortisation of tenant incentives 2,656 2,330
Straight lining of fixed rental increases (1,690) (1,203)
Deferred taxation 986 3,316
Adjustment to current taxation for the deductibility of the termination
of the management agreement
- (1,994)
Other 12 -
Funds From Operations (FFO) 45,229 44,111
FFO per share (cents) 9.07 8.84
Maintenance capex (3,446) (4,476)
Incentives and leasing fees given for the period (2,955) (2,426)
Other - (10)
Adjusted Funds From Operations (AFFO) 38,828 37,199
AFFO per share (cents) 7.79 7.46
Appendix 2 – FFO and AFFO Dividend Pay-out Ratios
Full year dividends per share (cents) 7.60 7.55
FFO dividend pay-out ratio (%) 84% 85%
AFFO dividend pay-out ratio (%) 98% 101%
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Appendix 3 – AFFO Pay-out Ratios (2016 – 2019)
Year AFFO per share (cents) Full year dividends per
share (cents)
Pay-out ratio (%)
2016 6.95 7.35 105.8%
2017 7.49 7.45 99.5%
2018 7.46 7.55 101.2%
2019 7.79 7.60 97.6%
Total 29.69 29.95 101.0%
---
Template
Results announcement
(for Equity Security issuer/Equity and Debt Security issuer)
Updated as at 17 October 2019
Results for announcement to the market
Name of issuer Property for Industry Limited (PFI)
Reporting Period 12 months to 31 December 2019
Previous Reporting Period 12 months to 31 December 2018
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$229,307 +45%
Total Revenue $229,307 +45%
Net profit/(loss) from
continuing operations
$176,286 +60%
Total net profit/(loss) $176,286 +60%
Interim/Final Dividend
Amount per Quoted Equity
Security
$0.02150000
Imputed amount per Quoted
Equity Security
$0.00801500
Record Date 24 February 2020
Dividend Payment Date 4 March 2020
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$2.055 $1.777
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
This dividend is fully credited with imputation credits to the
extent permitted by the imputation credit rules and to the extent
that the directors of PFI determine were available.
This announcement is extracted from PFI’s audited financial
statements as at and for the twelve months ended 31 December
2019. A copy of these audited financial statements is attached to
this announcement.
Authority for this announcement
Name of person
authorised
to make this announcement
Craig Peirce
Contact person for this
announcement
Craig Peirce
Contact phone number +64 9 303 9651
Contact email address peirce@pfi.co.nz
Date of release through MAP
17 February 2020
Audited financial statements accompany this announcement.
---
Template
Distribution Notice
Updated as at 18 December 2019
Section 1: Issuer information
Name of issuer Property for Industry Limited
Financial product name/description Property for Industry Limited Shares
NZX ticker code PFI
ISIN (If unknown, check on NZX
website)
NZPFIE0001S5
Type of distribution
(Please mark with an X in the
relevant box/es)
Full Year X Quarterly
Half Year Special
DRP applies
Record date 24 February 2020
Ex-Date (one business day before the
Record Date)
21 February 2020
Payment date (and allotment date for
DRP)
4 March 2020
Total monies associated with the
distribution
$10,722,552
Source of distribution (for example,
retained earnings)
Retained earnings
Currency NZD
Section 2: Distribution amounts per financial product
Gross distribution $0.02951500
Gross taxable amount $0.02862500
Total cash distribution $0.02150000
Excluded amount (applicable to listed
PIEs)
$0.00089000
Supplementary distribution amount $0.00363700
Section 3: Imputation credits and Resident Withholding Tax
Is the distribution imputed Fully imputed X
Partial imputation
No imputation
If fully or partially imputed, please
state imputation rate as % applied
28%
Imputation tax credits per financial
product
$0.00801500
Resident Withholding Tax per
financial product
N/A
Section 4: Distribution re-investment plan (if applicable)
DRP % discount (if any)
N/A
Start date and end date for
determining market price for DRP
Date strike price to be announced (if
not available at this time)
Specify source of financial products to
be issued under DRP programme
(new issue or to be bought on market)
DRP strike price per financial product
Last date to submit a participation
notice for this distribution in
accordance with DRP participation
terms
Section 5: Authority for this announcement
Name of person
authorised to make
this announcement
Craig Peirce
Contact person for this
announcement
Craig Peirce
Contact phone number +64 21 248 6301
Contact email address peirce@pfi.co.nz
Date of release through MAP
17 February 2020
---
Highlights
Annual
Results
Briefing
2019
PRIORITIES ADVANCED:
four Auckland industrial opportunities secured totalling $106.4 million,
$40 million of non-industrial divestments contracted during the year,
committed to or completed ~$26 million of value-add strategies
1
Funds From Operations and Adjusted Funds From Operations are non-GAAP financial information and are common property investor metrics, which have been calculated in accordance with the guidelines issued by the Property
Council of Australia. Please refer to slide 33 for further details.
STRONG BALANCE SHEET:
net tangible assets up 15.6% or 27.8 cents per share, bank
facilities and bonds secured for an average of 4.1 years,
gearing of 28.2%
4
RECORD ANNUAL RESULTS:
POSITIVE PORTFOLIO ACTIVITY:
DIVIDENDS AFFO COVERED:
profit after tax of $176.3 million, Funds From Operations
(FFO)
1
earnings up 2.6% to 9.07 cents per share, Adjusted
Funds From Operations (AFFO) earnings up 4.4% to 7.79
cents per share
nearly 100,000 square metres or 17% of the portfolio leased
during the year to 24 tenants for an average increase in term
of 6.7 years, rent reviews completed on 103 leases delivered
an average annual uplift of ~4.6%
cash dividends of 7.60 cents per share, AFFO dividend pay-
out ratio of 98%
25 LANGLEY ROAD
Portfolio
Snapshot
Annual
Results
Briefing
2019
▪PFI’s portfolio is diversified across 94 properties
and 144 tenants, with 99.0% occupancy and a
weighted average lease term of 5.38 years,
weighted towards Auckland industrial property
DECEMBER 2019DECEMBER 2018
BOOK VALUE$1,476.2m$1,322.0m
NUMBER OF PROPERTIES9494
NUMBER OF TENANTS144148
CONTRACT RENT$84.9m$82.0m
OCCUPANCY99.0%99.3%
WEIGHTED AVERAGE LEASE TERM5.38 years5.39 years
AUCKLAND PROPERTY84.1%83.1%
INDUSTRIAL PROPERTY90.0%87.3%
6
1
1
4
4
74
4
1
1
4
Historical
Operational
Performance
Annual
Results
Briefing
2019
▪Since 2010 PFI has achieved
a year end average
occupancy of 98.5% and a
weighted average lease term
of 4.97 years
7
0
1
2
3
4
5
6
93%
94%
95%
96%
97%
98%
99%
100%
Dec-10Dec-11Dec-12Dec-13Dec-14Dec-15Dec-16Dec-17Dec-18Dec-19
Occupancy (%)WALT (years)
Valuations
Annual
Results
Briefing
2019
▪Annual increase from independent valuations of $125.2 million or
9.3% to $1,476.2 million
▪Around one-third of valuation outcome was due to rental growth
▪Passing yield firmed from 6.21% to 5.75%
▪Independent market rental assessment estimates portfolio is
~3.5% under rented
▪Internal estimates of PFI’s Auckland industrial portfolio estimates
~6% under-renting
▪CBRE estimate
1
Auckland prime industrial yields are 4.96% and
secondary industrial yields are 5.83%
1
CBRE “Auckland Rent and Yield Trends”, January 2020.
6 DONNOR PLACE
8
Leasing
Annual
Results
Briefing
2019
▪24 leases agreed over ~99,000 sqm of space
for an average term of 6.7 years
▪Eight new leases and 16 renewals secured
▪Lease renewals accounted for more than 76%
of the contract rent secured
▪Average leasing costs less than half a month
per year of term
ADDRESSTENANTTERMAREA% RENT ROLL
7-9 NIALL BURGESS RDDHL7.0 years23,525 sqm2.8%
CARLAW PARKJacobs5.4 years4,334 sqm2.1%
6 DONNOR PLCoca-Cola Amatil6.0 years3,858 sqm1.7%
92-98 HARRIS RDGrainCorp13.0 years7,194 sqm1.6%
2 PACIFIC RISEHewlett-Packard0.5 years2,757 sqm1.1%
320 ROSEBANK RDDoyle Sails12.0 years6,625 sqm1.0%
9 NESDALE RDCHEP5.0 years14,163 sqm0.9%
VARIOUS17 Other Transactions6.0 years36,646 sqm6.0%
24 LEASING TRANSACTIONS6.7 years99,102 sqm17.3%
9
Fixed41.6%
No Event27.1%
CPI14.7%
Market9.1%
Expiry6.5%
Vacant1.0%
Rent
Reviews
Annual
Results
Briefing
2019
▪103 rent reviews delivered an average annual uplift of ~4.6% on
~$52.7 million of contract rent
▪11 market rent reviews delivered an annualised increase of 4.7%
over an average review period of 3.6 years on $5.3 million of
contract rent, reviews settled at average of 7.5% above
December 2018 market rental assessment
▪At the end of the year, the portfolio was 99.0% occupied and just
6.5% of contract rent is due to expire in 2020. When combined
with rent reviews, almost 73% of PFI’s portfolio is subject to
some form of lease event during 2020
▪CBRE predict
1
industrial rental growth over the next five years to
average 2.5% per annum for prime properties and 3.0% per
annum for secondary properties
▪PFI will continue to access projected market rental growth as
approximately 23% of the Company’s 2020 lease events are
market related
1
CBRE “Auckland Market Outlook”, December 2019.
10
1.0%
6.5%
6.6%
9.5%
12.7%
23.5%
9.4%
3.7%
6.8%
4.7%
15.6%
0%
5%
10%
15%
20%
25%
Vacant202020212022202320242025202620272028Onwards
2020 Lease
Expiries
Annual
Results
Briefing
2019
▪Portfolio is 99.0% occupied (1.0% vacancy) and 6.5% of contract
rent is due to expire in 2020
▪2 Pacific Rise has been sold (with settlement due to take place
in March 2020) and is therefore excluded from any 2020 expiries
analysis
▪59 DalgetyDrive to be redeveloped post Goodman Fielder
expiry (refer slide 29)
H2 2019 EXPIRIES TENANT% RENT ROLL
59 DALGETY DRIVEGoodman Fielder1.7%
CARLAW PARK OFFICEJacobs0.5%
23 ZELANIAN DRIVEExclusive Tyre Distributors0.5%
2-6 NIALL BURGESS ROADRepco0.5%
OTHERVarious3.3%
TOTAL (EXCLUDING 2 PACIFIC RISE)6.5%
11
+2.5
+1.8
+0.9
+0.2
-0.4
-0.3
-0.3
-0.2
79.1
83.3
$74m
$75m
$76m
$77m
$78m
$79m
$80m
$81m
$82m
$83m
$84m
$85m
2018 net rental
income
Rent reviews &
adjustments
AcquisitionsNew leases
& lease
renewals
OtherDisposalsVacancyDevelopmentsFire2019 net rental
income
Net Rental
Income
Annual
Results
Briefing
2019
▪Net rental income of $83.3
million up $4.2 million or 5.3%
▪Increases due to positive leasing
activity totalling $3.3 million and
acquisitions ($1.8 million)
▪Partially offset by lost rental
income from disposals ($0.4
million) and lost rental income
from the fire at 314 Neilson
Street, Penrose in April 2019
($0.2 million)
1
13
1
PFI has 24 months of business interruption insurance in place for this property.
+0.71
+0.21
-0.44
-0.05
-0.05
-0.05
7.46
7.79
7.0
7.2
7.4
7.6
7.8
8.0
8.2
8.4
2018 AFFONet rental incomeMaintenance
capex
Current taxationNon-recoverable
property costs
Interest expense
and bank fees
Administrative
expenses / Other
2019 AFFO
Adjusted
Funds From
Operations
(cents per share)
Annual
Results
Briefing
2019
▪Profit after tax up $66.2 million
to $176.3 million
▪FFO earnings of 9.07 cents
per share, 0.23 cents per
share or 2.6% ahead of the
prior year
▪AFFO earnings of 7.79 cents
per share, 0.33 cents per
share or 4.4% ahead of the
prior year
▪FY19 maintenance capex of
$3.4 million or 25 basis points,
down from FY18 maintenance
capex of $4.5 million or 35
basis points
14
Earnings,
Dividends,
Guidance
Annual
Results
Briefing
2019
▪2019 cash dividends of 7.60 cents per
share (cps), up 0.05 cps from 2018
▪2020 dividend guidance of 7.65 –7.70 cps,
up 0.05 –0.10 cps
▪2020 earnings guidance: 2020 dividend of
7.65 –7.70 cps forecast to equate to 80%-
90% of FFO, 95%-100% of AFFO
▪Given volatility in maintenance capex and
other AFFO adjustments, PFI will be
mindful of the AFFO dividend pay-out ratio
over a longer time horizon than any one
year when setting dividends
▪For example, average AFFO dividend pay-
out ratio is 101.0% since PFI began
disclosing AFFO
EARNINGS2019 CPS2018 CPSCHANGE
FUNDS FROM OPERATIONS
9.078.84+0.23 CPS or +2.6%
ADJUSTED FUNDS FROM OPERATIONS
7.797.46+0.33 CPS or +4.4%
DIVIDEND PAY-OUTPOLICY
2019 PAY-OUT RATIO2018 PAY-OUT RATIO
FUNDS FROM OPERATIONS
80 –90%84%85%
ADJUSTED FUNDS FROM OPERATIONS
95 –100%98%
101%
15
1,469.3
+125.2
+45.7
+14.2
+0.4
-34.9
1,318.7
$1,240m
$1,290m
$1,340m
$1,390m
$1,440m
$1,490m
$1,540m
December 2018
investment
properties
Fair value gainAdditionsCapitalised
expenditure &
interest
Movement in lease
incentives, fees and
fixed rental income
DisposalsDecember 2019
investment
properties
Investment
Properties
Annual
Results
Briefing
2019
▪Portfolio value of ~$1.47 billion
▪Increase from annual
independent valuations of
$125.2 million or 9.3%
▪25 Langley Road, Wiri,
purchased in December 2019
for $36.0 million
2
▪51-61 Spartan Road, Takanini,
purchased in March 2019 for
$17.2 million
▪Significant capex at 6 Donnor
Place (refurbishment) and 212
Cavendish Drive (development)
▪229 Dairy Flat Highway, Albany,
sold in October for $33.0 million
1
Investment properties as at 31 December 2019 exclude 2 Pacific Rise, Mt Wellington, as this property had been moved to “non-current assets classified as held for sale”.
2
Initial settlement of $28.5 million completed in December 2019, with a second settlement expected to take place in May 2020 on completion of an additional 3,240 sqm of warehouse and 120 sqm of office, which is
currently under construction.
16
205.5
+25.1
+1.4
+0.8
+0.5
177.7
160
164
168
172
176
180
184
188
192
196
200
204
208
212
December 2018 NTAFair value gain on
investment properties
Retained earningsGain on disposal of
investment properties
Fair value gain on
derivative financial
instruments
December 2019 NTA
Net Tangible
Assets
(cents per share)
Annual
Results
Briefing
2019
▪Net tangible assets (NTA) per
share increased by 27.8 cents
per share or 15.6%
▪Change in NTA per share driven
by the increase in the fair value
of investment properties (+25.1
cps), retained earnings (+1.4
cps), gains on disposal of non-
industrial investment properties
(+0.8 cps) and the decrease in
the net fair value liability for
derivative financial instruments
(+0.5 cps)
17
Five Year
Financial
Summary
Annual
Results
Briefing
2019
▪The last five years has seen strong
growth in earnings and valueswhilst
keeping gearing at low levels and
maintaining a high ratio of interest cover
18
YEAR ENDING 31 DECEMBER ($M, UNLESS NOTED)
20152016201720182019
TOTAL COMPREHENSIVE INCOME AFTER TAX
72.8123.451.7110.1176.3
DISTRIBUTION ADJUSTMENTS
(41.5)(92.1)(17.3)(72.9)(137.5)
ADJUSTED FUNDS FROM OPERATIONS
31.3
1
31.334.437.238.8
TOTAL ASSETS
1,027.21,121.81,242.11,358.91,522.7
TOTAL LIABILITIES
369.2365.7399.2443.8468.7
TOTALEQUITY
658.0756.1842.9915.11,054.0
NET TANGIBLE ASSETS (CENTS PER SHARE)
140.5160.7163.2177.7205.5
LOAN-TO-VALUE RATIO (COVENANT: <50%)
33.3%30.1%30.8%30.3%28.2%
INTEREST COVER RATIO (COVENANT: >2.0X)
2.9x3.4x3.7x3.9x4.0x
1
AFFO not disclosed for this period, therefore Distributable Profit is disclosed.
Funding,
Covenants,
Interest
Rates
Annual
Results
Briefing
2019
▪Bank facilities refinanced in November 2019
▪Gearing currently 28.2%, could move up to
~33%, allowing for divestment of remaining
non-industrial properties, could return to
~27%
DECEMBER 2019 DECEMBER 2018
FUNDING
SYNDICATED BANK FACILITY DRAWN
$215.6m $201.1m
SYNDICATED BANK FACILITY LIMIT
$300.0m$275.0m
SYNDICATED BANK FACILITIES HEADROOM
$84.4m$74.0m
FIXED RATE BONDS
$200.0m$200.0m
FUNDING TERM (AVERAGE)
4.1 years4.0 years
SYNDICATED BANK FACILITYBANKS
ANZ, BNZ, CBA, WestpacANZ, BNZ, CBA, Westpac
COVENANTS
LOAN-TO-VALUE RATIO (COVENANT: <50%)
28.2%30.3%
INTEREST COVER RATIO (COVENANT: >2.0X)
4.0 times3.9 times
INTEREST RATES
WEIGHTEDAVERAGE COST OF DEBT
4.63%4.86%
INTERESTRATE HEDGING (EXCL. FORWARD STARTING)
$245m/ 3.75% / 2.4 years$220m/ 4.16% / 2.1 years
FORWARD STARTING INTEREST RATE
$190m / 3.32% / 3.5 years$210m / 3.43% / 3.5 years
20
2.2%
2.6%
3.0%
3.4%
3.8%
4.2%
4.6%
5.0%
$0m
$50m
$100m
$150m
$200m
$250m
$300m
Dec-19Jun-20Dec-20Jun-21Dec-21Jun-22Dec-22Jun-23Dec-23Jun-24Dec-24Jun-25Dec-25
CoverInterest Rate
150.0150.0
100.0100.0
0
50
100
150
200
FY20FY21FY22FY23FY24FY25
Bank facilitiesBonds
Debt Facility
Maturity
Profile,
Hedging
Annual
Results
Briefing
2019
▪Debt facility maturity profile:
average term to expiry of 4.1
years, $84.4 million of unutilised
bank facility capacity
▪Fixed rate payer hedging profile:
swap cover profile provides for
an average of ~59% of debt to
be hedged at an average fixed
rate of ~3.58% during 2020
21
Market
Update:
Economy
Annual
Results
Briefing
2019
✓Monetary policy
✓Housing market
✓Fiscal spending
✓Labour market
XCredit availability
XConstrained business investment
XDrought / floods
XNovel coronavirus
▪ANZ interest rate forecasts:
−Q4 2020 OCR: 1.00%
−Q4 2020 10-year Bond Rates: 1.30%
−Q4 2021 OCR: 1.00%
−Q4 2021 10-year Bond Rates: 1.20%
23
Market
Update:
Property
Annual
Results
Briefing
2019
▪CBRE December 2019 Auckland Market
Outlook:
−“Low interest rates combined with
property’s return profile relative to
other assets... underpin further yield
firming for the next two years.”
−Estimated total industrial vacancy of
1.4%
−Estimated rental growth in the last 12
months of 3.3% in prime industrial
and 4.1% in secondary industrial
▪“Omnichannel retailing” also expected to be
a key driver for industrial property
CBREAUCKLAND MARKET OUTLOOKDECEMBER 2019JUNE 2019
PRIME INDUSTRIAL RANKING
4 ▼
2
PRIME INDUSTRIAL INCOME RETURN
4.9%▼
5.1%
PRIME INDUSTRIAL CAPITAL RETURN
4.1% ▲
3.8%
PRIME INDUSTRIAL TOTAL RETURN
9.0% ▲
8.9%
SECONDARY INDUSTRIAL RANKING
1 ◄►
1
SECONDARY INDUSTRIAL INCOME RETURN
5.8% ▼
6.0%
SECONDARY INDUSTRIAL CAPITAL RETURN
4.8% ▼
5.2%
SECONDARY INDUSTRIAL TOTAL RETURN
10.6% ▼
11.2%
24
Our
Priorities
Annual
Results
Briefing
2019
ASSET MANAGEMENT:
DISPOSALS:
VALUE-ADD STRATEGIES:
ACQUISITIONS:
2019: begin disposing PFI’s non-industrial assets
2019: recycle capital from disposals into value-
add strategies within the existing portfolio
2019: recycle capital from disposals into quality
industrial properties in sought-after areas
2019: Carlaw Park a key priority, as is leasing of vacant and expiring
industrial spaces (refer “Section 2: Portfolio” for progress)
26
CARLAW PARK
Disposals
Annual
Results
Briefing
2019
▪2019 priority: begin disposing PFI’s non-
industrial assets
▪Progress: $40 million of divestments
contracted during the year
▪Includes the disposal of the mixed-use
property at 229 Dairy Flat Highway in
Albany, Auckland, for $33 million and a ~$5
million gain on sale
▪Non-industrial properties now account for
just 10% of PFI’s portfolio
▪2020 focus:disposal of remaining non-
industrial properties, including Carlaw Park
and Shed 22
27
229 DAIRY FLAT HIGHWAY
Acquisitions
Annual
Results
Briefing
2019
(1) 51-61 SPARTAN ROAD,
TAKANINI
(2) DEVELOPMENT 1 AT TIDAL
ROAD, MANGERE
PURCHASE PRICE$17.2m$34.2m
TENANTMaxiTRANSSupply Chain Solutions
PROPERTY DESCRIPTIONGeneric industrial, development potentialGeneric industrial development
PURCHASE YIELD5.35%5.35%
LEASE TERM12 years12 years
RENT REVIEWSFixed rent reviews, 2.75% annuallyFixed rent reviews, 2.50% annually
▪2019 priority: replace PFI’s non-industrial
properties with quality industrial properties
in sought-after areas
▪Progress: $106.4 million committed to four
prime Auckland industrial opportunities
▪Estimated return to PFI of ~5.57%
▪2020 focus: acquisitions to match the
disposal of remaining non-industrial
properties
▪Target acquisition parameters include:
−Increase Auckland weighting
(currently 84.1%)
−Improving the property and tenancy
fundamentals of PFI’s portfolio
−Decreasing the average age of PFI’s
portfolio
28
(3) 25 LANGLEY ROAD,
WIRI
(4) DEVELOPMENT 2 AT TIDAL
ROAD, MANGERE
PURCHASE PRICE$36.0m$19.0m
TENANTGrayson EngineeringN/A –empty
PROPERTY DESCRIPTIONHeavy industrialGeneric industrial development
PURCHASE YIELD5.65%6.00%
LEASE TERM12 yearsN/A
RENT REVIEWSFixed rent reviews, 2.50% annuallyN/A
Value-add
Strategies
Annual
Results
Briefing
2019
▪2019 priority: recycle capital from disposals into value-add
strategies within the existing portfolio
▪Progress: $14.6 million spent during 2019, committed additional
~$21 million to four new significant projects
▪2020 focus: complete build out of these projects, advance other
opportunities within the portfolio
ADDRESS PROJECT2020 COMMITMENT
6 DONNOR PLACEFinalise refurbishment$1.4m
59 DALGETY DRIVERefurbishment$6.6m
47 DALGETY DRIVEDesign and build$8.1m
314 NEILSON STREETDesign and build$4.7m
TOTAL$20.8m
29
314 NEILSON STREET
Review &
Questions
Annual
Results
Briefing
2019
Questions?
31
Simon Woodhams concludes: “In
2020 we will continue on our
pathway to becoming a pure-play
industrial listed property
vehicle.In order to achieve that
goal, we will remain focused on
our core asset management and
value-add strategies within our
portfolio. We also plan to
supplement that activity with the
replacement of PFI’s remaining
non-industrial assets –including
Carlaw Park in Parnell, Auckland
–via acquisition of quality
industrial properties in sought-
after areas.”
Highlights
▪Record annual results
▪Dividends AFFO covered
▪Strong balance sheet
▪Positive portfolio activity
▪Priorities advanced
Appendix 1:
FFO and
AFFO
Annual
Results
Briefing
2019
(Unaudited, $000, unless noted)YE December 2019YE December 2018
Profit and total comprehensive income after income tax attributable to the shareholders of the Company
176,286110,094
Adjusted for:
Fair value gain on investment properties
(125,193)(66,370)
Insurance proceeds
(1,125)
Loss / (gain) on disposal of investment properties
(4,126)(53)
Fair value (gain) / losson derivative financial instruments
(2,577)(2,009)
Amortisation of tenant incentives
2,6562,330
Straight lining of fixed rental increases
(1,690)(1,203)
Deferred taxation
9863,316
Adjustment to current taxation for the deductibility of the termination of the management agreement
-(1,994)
Other
12-
Funds From Operations (FFO)
45,22944,111
FFO per share (cents)
9.078.84
FFO dividend pay-out ratio (%)
84%85%
Maintenance capex
(3,446)(4,476)
Incentives and leasing fees given for the period
(2,955)(2,426)
Other
-(10)
Adjusted Funds From Operations (AFFO)
38,82837,199
AFFO per share (cents)
7.797.46
AFFO dividend pay-out ratio (%)
98%101%
33
Disclaimer
Annual
Results
Briefing
2019
The information included in this presentation is provided as at 17 February 2020 and should be read in conjunction with the NZX results
announcement, NZX Form –Results Announcement, NZX Form –Distribution Notice, and Annual Report (including audited financial
statements) issued on that same day.
Property for Industry Limited (PFI) does not guarantee the repayment of capital or the performance referred to in this presentation.
Past performance is not a reliable indicator of future performance.
The presentation includes a number of forward looking statements. Forward looking statements, by their nature, involve inherent risks
and uncertainties. Many of those risks and uncertainties are matters which are beyond PFI’s control and could cause actual results to
differ from those predicted. Variations could either be materially positive or materially negative.
While every care has been taken in the preparation of this presentation, PFI makes no representation or warranty as to the accuracy or
completeness of any statement in it including, without limitation, any forecasts.
This presentation has been prepared for the purpose of providing general information, without taking account of any particular
investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the
appropriateness of the information in this presentation, and seek professional advice, having regard to the investor’s objectives,
financial situation and needs.
This presentation is solely for the use of the party to whom it is provided.
34
---
Property
for
Industry
Limited
Annual
Report
31 December
2019
THE
FUTURE
ISSUE
C O N S TA N T
PROGRESS
THE YEAR IN REVIEW
WHERE WE ARE TODAY
THE FUTURE VISION
OUR FOUR WAYS FORWARD
BUILDING A SUSTAINABLE BUSINESS
+
As professional
landlords in the
industrial sector,
our solutions
go far beyond
providing
warehouse
space. We are
resourcing the
strategies of
some of New
Zealand’s most
successful
companies –
helping them
meet the needs
of their
customers now
BUILDING
A FUTURE
TOGETHER
tomorrow.and
PFI generates income for investors by clearly
focusing on New Zealand’s industrial economy.
We look to generate strong, stable returns for
our investors, which in turn generates prosperity
for New Zealand.
READ MORE
p.08
THE FUTURE
VISION
Why we’ve chosen to be
industrious by nature
SECTION
OUR FOUR WAYS FORWARD
HERE & NOW
3
READ MORE
p.06
WHERE WE ARE
TODAY
The key things you
should know about us
SECTION
2
READ MORE
p.04
THE YEAR IN
REVIEW
A summary of the
year’s performance
SECTION
1
READ MORE
p. 14
THE
DRIVING
FUTURE
TOWARDS
READ MORE
p.12
ACQUISITIONS
Where we decided
to invest this year
SECTION
4
DISPOSALS
How we are focusing
our portfolio
SECTION
5
02
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
SUSAN PETERSON
Independent Director
LEADING
Profiles of our team members
can be found on our website at
pfi.co.nz/people
GREG REIDY
Non-Executive Director
HUMPHRY ROLLESTON
Independent Director
ANTHONY BEVERLEY
Chairman and Independent
Director
SIMON WOODHAMS
Chief Executive Officer
CRAIG PEIRCE
Chief Finance and
Operating Officer
DAVID THOMSON
Independent Director
GETTING IT DONE
READ MORE
p.16
VALUE-ADD
The benefits of
enhancing experiences
SECTION
6
READ MORE
p.20
BUILDING A
SUSTAINABLE
BUSINESS
How we think about
the future
SECTION
8
READ MORE
p. 18
ASSET
MANAGEMENT
How we continue to make
the most of what we have
SECTION
7
DEAN BRACEWELL
Independent Director
03
THIS WAS THE FIRST YEAR in which we pursued our
refreshed four-part strategy. “The Company has pursued
a deliberate and effective growth plan,” says Chief
Executive Officer, Simon Woodhams.
The dividend increased again this year to 7.60 cents
per share (cps), up on last year’s dividend of 7.55 cps.
Net profit after tax increased by 60% to $176.3 million,
with both our key growth metrics showing positive
progress: Funds From Operations increased by 2.6% to
9.07 cps, while Adjusted Funds From Operations were
up by 4.4% to 7.79 cps. The revaluation of our portfolio
resulted in an increase in value of $125 million, and our
portfolio is now valued at $1.476 billion. At a tenancy
level, 99,000 sqm of space has been leased this year
for an average term of 6.7 years and a total rent of
$14.8 million.
In this report we look at how we have made progress
on all four aspects of our strategy. We continued to
manage our assets to good effect, retaining a key tenant,
DHL, at 7–9 Niall Place Burgess Road in Mount
Wellington. We disposed of 229 Dairy Flat Highway in
Albany as part of a realignment of our portfolio towards
purely industrial. By adding value at 6 Donnor Place in
Mount Wellington, we attracted Coca-Cola Amatil as a
tenant. And we acquired the property at 51 – 61 Spartan
Road, Takanini, in a sale and lease-back with ASX-listed
company MaxiTRANS. Details of these transactions,
and others, are included as case studies later on in
this report.
This positive activity has contributed to a lift in
share price to $2.44, a total return for the year of around
For more information on our
annual results, please visit :
https://www.propertyforindustry.
co.nz/investor-centre/results-
centre/
STRONG RETURNS
THIS YEAR WE CONTINUED
TO≈DELIVER STRONG, STABLE
INVESTOR RETURNS AT THE
SAME TIME AS WE FOCUSED
OUR PORTFOLIO ON OUR
CORE STRENGTHS.
40%, and Net Tangible Assets (NTA) are up 15.6% on last
year to $2.06 per share.
In October, we successfully refinanced $300 million
of bank facilities. This increased our weighted average
term to expiry for our bonds and bank facilities to
4.1 years, giving us a good balance of certainty around
tenor and attractive pricing. “We are appropriately
funded to deliver on our strategy of replacing the
Company’s non-industrial assets with quality industrial
properties in sought-after areas,” says PFI Chief Finance
and Operating Officer, Craig Peirce.
There was a new addition to the PFI Board during
2019 with the appointment of Dean Bracewell.
“We continue to review and refresh the core skills
needed within the Board, and how we apply our
collective knowledge as a team, to make the most
of the opportunities the market presents us with,”
says PFI Chairman, Anthony Beverley.
This year, we decided to place environmental, social,
and governance topics in the spotlight in response to the
challenges of our changing world. We chose to adopt
internationally recognised best-practice reporting
processes and sought professional sustainability
consultants to advise us. We’re proud to present our first
sustainability report, which provides a benchmark from
which to gauge the size of the challenges we face; a way
to measure our future successes; and encouragement to
play our part in creating a more sustainable future.
Further details about the Company’s Environmental,
Social and Governance (ESG) framework, strategy, and
performance can be found on pages 20 to 25.
01.
04
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
2019 REVIEW
2019 REVIEW
cents per share, up 0.7%
on last years dividend of
7.55 cents per share.
7. 6 0
7.302015
7.352016
7.452017
7.552018
7.60
2019
DIVIDEND
For an average of 6.7 years and
a total rent of $14.8 million
99,000
SQM LEASED
LEASING ACTIVITY
CONTRACT
RENT UP
84.9
$82.0M
$85.0M
20182019
82
UP 60.1%
$
176.3 M
NET PROFIT
$
$
300M
REFINANCING
bank facilities
successfully refinanced
$
2.06
NET TANGIBLE ASSETS
CENTS PER SHARE UP
15.6% ON LAST YEAR
140.52015
160.72016
163.22017
177.72018
206.0
2019
REVALUATION
1.476
$
BILLION
Portfolio
$
125 M
UP 4.4%
ADJUSTED FUNDS
FROM OPERATIONS
7.7 9 CPS
05
THINGS YOU
SHOULD
KNOW
ABOUT PFI:
RELIABILITY
TA K E S
DISCIPLINE
5.3815.7
AVERAGE
PROPERTY VALUE
02.
94
PROPERTIES
144
TENANTSAVERAGE OCCUPANCY
OVER THE LAST 10 YEARS
WEIGHTED AVERAGE
LEASE TERM (WALT)
$
98.5
YEARSMILLION
%
_ 51 – 61
Spartan Road is
now part of the
PFI portfolio.
10
06
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2019
WHERE WE ARE TODAY
WHERE WE ARE TODAY
126
BOARD OF DIRECTORS
28.2
GEARING
30
NUMBER OF PROPERTIES
OCCUPIED BY TOP 10 TENANTS
AVERAGE ANNUALISED TOTAL
RETURN SINCE INCEPTION
NUMBER OF STAFF
11.14
PEOPLEDIRECTORS
%
%
_ 6 Donnor
Place in Mount
Wellington
is now home
to Coca-Cola
Amatil.
_ 229 Dairy
Flat Highway
in Albany
has been
successfully
sold.
07
INDUSTRIOUS
NATURE
OUR PURPOSE AT PFI has always been to deliver strong and stable income for our
investors and to generate prosperity for New Zealand. Right now, the industrial
property sector is buoyant, with some pundits saying it’s the best it’s been in a long time.
Extremely low levels of vacancy coupled with high levels of demand for existing and
new properties bear this out. Research we’ve seen from CBRE shows that while there
has been 2.5% rental growth over the past year, the average change in rents in the
Auckland industrial sector has been 26.9% over the last five years.
Contrast that growth with an economic environment typified by low interest rates
and it’s clear there’s now a large weight of capital looking for a home. Industrial property
is a market leader at the moment because, among other things, it’s tangible, and has long
lease terms, often with fixed growth in income.
Fuelling this, say CBRE, is omnichannel retailing, which requires stable, long term
homes for their businesses to fulfil orders from. In today’s click-and-collect world, the
trends in the industrial sector and physical retail couldn’t be starker. Storage footprints
are on the rise as retail footprints continue to decline.
But the appeals of industrial property stocks for investors extend beyond the
physics of supply and demand. Industrial properties have offered healthy capital growth
and good returns, but they also require relatively low capex because, as unlike office and
retail property, ownership doesn’t require continually refreshing spaces. With yields
compressing, this is also a good time to be investing in the right sorts of property.
PFI has had another good year. Our portfolio includes great assets, we have great
customers, a strong balance sheet with low levels of gearing, and a motivated team
that has continued to deliver earnings growth and valuation gains for our investors.
As an investment,
we appeal to investors
with ‘patient capital’”
SIMON WOODHAMS,
Chief Executive Officer
03.
BY
08
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2019
THE FUTURE VISION
THE FUTURE VISION
09
“Our role in the economy is to help businesses grow
by providing them with a home,” says Simon Woodhams.
“As an investment, we appeal to those with “patient
capital” – people with a long-term view – not wanting to
take on higher levels of risk and intent on building and
preserving their retirement savings. We’re really pleased
with our performance and the dividend we have
delivered this year.”
FOUR WAYS FORWARD
WHILE THE MARKET is positive at the moment, PFI has
a responsibility to actively manage its assets in order to
deliver stability and consistency. “We recognise that no
one aspect of our strategy is sufficient for us to rely on.
Instead, we need to weigh a range of initiatives that
together enable us to build on what we do best while
preparing for the future,” says Simon Woodhams.
“By taking a long-term view across all four aspects
of our strategy, we can move towards securing our vision
while taking advantage of tactical opportunities as
they present themselves. The strategy gives us a clear
framework for managing our portfolio holistically and
lifting value overall.”
Each part of our strategy has a specific purpose.
Through careful asset management, we are looking
to maintain and extend the value of our current assets
so that they represent clear value for tenants at the same
time as they deliver longer-term to benefit investors.
We have a number of legacy properties that have
helped boost the portfolio historically but are now out of
sync with our determination to see PFI become an
industrial property specialist. Through our disposals
strategy, we are now taking these to market.
Our value-add strategy recognises there is an
undersupply of available, zoned industrial land that is
ready to go and therefore we should, where we can,
reconfigure current space through partial redevelopment
to appeal to corporates such as Coca Cola Amatil who
were looking for new premises.
Finally, our acquisition strategy is about thinking
about not just where we invest, but how, in order to
add properties to the portfolio that will strengthen
our future positions.
We provide examples of all four of these strategies
at work in this report.
THE ROLE WE LOOK TO PLAY
WE ARE PROFESSIONAL landlords to the industrial
economy. Our vision is to be one of New Zealand’s
foremost listed property vehicles; a leader that others
respect and admire. Our measures for success are:
performance, as in the returns we deliver based on
the scale and quality of our portfolio and the robustness
of our relationships; quality and scale, in the form of
our portfolio of high-quality industrial properties in
sought-after locations; and our reputation as a good
company to invest in, do business with and work for.
If there is a single thought that drives us in our bid
to achieve constant progress, it is this: we will do what
we said we will do. This year we’ve continued to build
on what we have. We’ve made good progress in
strengthening and focusing our portfolio, and our ability
to procure off-market deals has given us access to larger
properties and opportunities on terms that make sense.
We have a
responsibility to
deliver constant
progress.”
SIMON WOODHAMS,
Chief Executive Officer
CURRENT
OCCUPANCY
99.0
%
PORTFOLIO
YIELD
5.75
%
_ Grayson Engineering
25 Langly Road
10
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
THE FUTURE VISION
new outlooks to the Board. Dean’s experience is highly
relevant, of course, because that sector represents
a significant part of our current and future customer
base. Understanding what drives them, so we can tailor
our solutions to better meet their needs, is all part of
sharpening our customer focus and positioning
ourselves as a true partner.
LOOKING AHEAD
WE BELIEVE the year ahead is likely to exhibit similar
volatile characteristics to the last 12 months, and while
all sectors are cyclical, we anticipate no immediate
or significant change to current market conditions.
Our goal as always will be to protect the interests of
those who depend on us.
“At a time when investors want steady returns
and customer tenants want reliable occupancy
arrangements that give their businesses a long-term
home, we have a responsibility to deliver constant
progress,” says Simon Woodhams. “Our commitment
to our investors is about delivering the strong and stable
returns we always talk about. For our customers, our
tenants, we recognise their needs are constantly evolving
and we must adapt our offering accordingly to meet
these changing needs.”
We’ve also used positive market conditions to position
ourselves, to get out of non-industrial assets.
We’ve stayed true to who we are, by growing the
portfolio and paying dividends that truly reflect the
returns of our properties. Our payout ratio is based on
95 – 100% of Adjusted Funds From Operations (AFFO),
meaning we are paying out only what we have left after
we properly maintain our portfolio. And we continue
to be intentional and proactive in how we evaluate
transactions and evolve the company. Our low gearing
gives us headroom and an ability to take opportunities
as they arise, at the same time as our increased
earnings show that we are using this time in the
cycle to our investors’ advantage.
We plan to make the most of our presence in the
industrial property sector, and that means looking for
new opportunities and being even more proactive
around creating new “product” for ourselves.
We also believe we have a role to play in encouraging
participation in the industrial property sector through
investment channels like Kiwisaver. “Investors need
places to put their money in order for it to grow,” says
PFI Chief Finance and Operating Officer, Craig Peirce.
“We try to attract investment from the likes of Kiwisaver
funds and then generate attractive returns for their
investors. At the same time, those funds will help fund
the wider investment needed to lift productivity across
the economy.”
REFRESHING THE BOARD
THE BOARD IS COMMITTED to refreshing its core skills.
“In order to provide the best guidance around the
strategy, it’s important we future-proof our governance,”
says Anthony Beverley. “That requires continuing
to review our collective skills to ensure the PFI
management team are receiving timely and value-adding
advice that advances our purpose and our commitment
to investors, enhances our relationships with tenants
and keeps the Company performing to capacity in
current market conditions.”
The arrival of Dean Bracewell, with his experience
in logistics and freight, is another example of bringing
We are using this
time in the cycle
to our investors’
advantage.”
CRAIG PIERCE,
Chief Finance and
Operating Officer
IF THERE IS A SINGLE THOUGHT THAT
DRIVES US, IT IS THAT WE WILL DO
WHAT WE SAID WE WILL DO. OUR
STRATEGY LAYS OUT A CLEAR PLAN
FOR HOW WE INTEND TO DELIVER.
$
MILLION
NET
RENTAL
INCOME
83.3
_ 51-61 Spartan Road,
Takanini
11
FOUR WAYS FORWARD
ACQUISITION
DISPOSAL
VALUE ADDED
ASSET MANAGEMENT
04.
Adding this property to our
portfolio has freed up cash
for MaxiTRANS and enabled
them to focus on their
strategic priorities.
LETTABLE AREA::
19,350 SQM
PURCHASE PRICE::
$17.2M
INCREASE IN VALUE SINCE ACQUIRING THIS PROPERTY::
$967,000
OUR ROLE::
In an increasingly competitive industrial property market,
we continue to use our reputation and relationships to
acquire high quality properties, off-market.
TAKANINI
CONIFER GROVE
MANUREWA
Location
1
1
3
3
O
UR LOW gearing
gives PFI the opportunity
to acquire new properties
and opportunities that
align with the Company’s
objective to focus on
industrial property.
This year, we added a
number of properties to
our portfolio that align
with our overall vision
and add attractive
long-term revenue
streams to our portfolio.
Despite widespread
interest in the industrial
ING
GROUND
GAIN
1.
SPARTAN ROAD
TAKANINI
—
51–61
CASE STUDY
_ 51-61
Spartan Road,
Takanini
12
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
ACQUISITIONS
ACQUISITIONS
Many of our important
acquisitions are
now taking place
off-market.”
SIMON WOODHAMS,
Chief Executive Officer
says Peter Loimaranta, General Manager MaxiPARTS
and New Zealand, MaxiTRANS. “We chose PFI because
of the speed of their response, their flexibility around
development and their commercial approach. I was
impressed with their ability to react quickly within an
aggressive timeframe and to deliver what they said
they would.”
“Many of our important acquisitions are now
taking place off-market,” says Simon Woodhams,
“and that reflects the trust we build with vendors
and their belief that we will do right by them.”
Other important acquisitions this year have
included properties in Wiri and Mangere.
25 Langley Road, Wiri was built by Grayson
Engineering in 2005. It has now been successfully
acquired by us for $36 million and leased back to
the company on a 12-year lease, including fixed
annual reviews. The site itself includes almost
11,000 sqm of warehouse, and a further 3,200 sqm
is under development and due to be completed
in May next year. “This acquisition offered us
the opportunity to add a property to our portfolio
that included a large yard and extra land, with
low site coverage ,” says Simon Woodhams.
In Tidal Road, Mangere, we finalised an agreement
with Aintree Group to develop 10,400 sqm of
warehousing, 2,640 sqm of breezeway canopies and
740 sqm of offices for Auckland logistics provider
Supply Chain Solutions. The property was purchased
off-market for $34.2 million and is estimated to deliver
PFI a 5.35% return. “Our involvement in this project will
deliver a newly built, high-stud, true logistics warehouse
when it is completed, with a 12-year lease,” observes
Simon Woodhams.
We are also working with the same developer on
another lot in the same area to deliver a 7,100 sqm
warehouse, 600 sqm office and 1,200 sqm of canopies
at a total project cost of $20.2 million. We will buy this
property empty and plan to have it leased by the time
the project is built in 18 months time.
“Each acquisition is allowing us to add new
buildings that improve our overall portfolio. Three of
the four acquisitions are secured with 12-year leases,
stable tenancies, and fixed rental increases. Together,
these acquisitions help future-proof our earnings and
enable us to gain quality properties in areas with
great prospects.”
property market, there are opportunities available for
those prepared to search for them. As a portfolio owner,
we continue to look for new acquisitions. We apply
stringent criteria around what we buy based on pricing
and property and tenancy fundamentals. Acquisitions
balance our disposals and give us new properties through
which to build relationships, and earnings. As such, they
add to our ability to grow PFI in the measured way our
investors expect.
In March, we announced the purchase of the
property at 51 – 61 Spartan Road for $17.2 million.
The property, which has around 2,700 sqm of warehouse,
1,100 sqm of canopy, office spaces totalling 550 sqm
and 15,000 sqm of yards, was purchased off-market
in a sale-and-lease-back transaction.
The tenant, MaxiTRANS, is an ASX listed company
that supplies truck and trailer parts to the road transport
industry in Australia and is the largest supplier of
locally manufactured road transport trailer solutions
in Australia and New Zealand. The lease is for 12 years
and includes fixed rental growth of 2.75% annually.
The 2.4-hectare site also includes opportunities for
further development.
“As part of our capital allocation review, we
contacted a number of parties looking to sell and lease
back the land and buildings in order to free up capital
for us while retaining operating security over the site,”
— Grayson Engineering
25 Langley Road
13
FOUR WAYS FORWARD
ACQUISITION
DISPOSALS
VALUE ADDED
ASSET MANAGEMENT
05.
PFI’s investors will be
pleased we achieved a
$33 million sale price”
JODIE WARMAN,
Asset Manager
W
HEN WE
refreshed our strategy,
we resolved to carefully
dispose of those assets
that fell outside the
category of being purely
industrial. This year, we
looked for opportunities
to get maximum value for
some of those assets by
making them available
to the market.
Disposing of these
assets ensures we focus
on the area we consider
to be our core strength.
In choosing to take a
property to market,
we look at its current
valuation, the market’s
interest in similar assets,
timing and the potential
for recycling the capital
we are freeing up.
LETTING
2.
LETTABLE AREA::
6,718 SQM
SALE PRICE::
$33.0M
OUR ROLE::
Disposing of this property enables PFI to continue
to sell down its non-core assets as it moves
towards a 100% focus on industrial property.
Location
1
29
18
25
BROWNS
BAY
ALBANY
ROSEDALE
1
% OF ASSETS THAT ARE NOT INDUSTRIAL::
10%
down 2.7% from the prior year.
We sold 229 Dairy Flat Highway
to an experienced investor after
a competitive sales process for
a price that exceeded book
value by $5 million.
DAIRY FLAT HIGHWAY
ALBANY
—
229
CASE STUDY
_ 229
Dairy Flat Highway,
Albany
14
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
DISPOSALS
DISPOSALS
_ 229
Dairy Flat Highway,
Albany
These properties don’t have a long-term future
in our portfolio. By choosing to sell them, we increase
our capacity to pursue better long-term returns in the
industrial property sector.
“The most significant asset we sold this year was 229
Dairy Flat Highway in Albany, which settled on 6
December. Using an open-market campaign, including
national press, online listings and email marketing to
a targeted group of investors, we were able to attract
multiple offers for this high-quality, well-managed
property,” says PFI Asset Manager Jodie Warman.
“In total we received six offers that we considered,
all of which were above the book value and half were
on or around our final price.
“The interest demonstrates the strong demand
such assets command. PFI’s investors will be pleased
we achieved a $33 million sale price for a property
with a book value of $28 million.”
A 10-year WALT from established, quality tenants,
including Massey University, Auckland Council and
Quest, attracted investors looking for a property in
Auckland’s North Shore.
“We’ve had a very good relationship with PFI over
the years,” says Rod Grove, Campus Operations Manager,
Massey University, Auckland Campus, “and the fact that
we had a long-term lease with them and that we
GO
LETTING
extended it recently is proof of that. Massey University itself has grown significantly,
and today the site is home to our Engineering and Psychology departments. We’ve
always found the PFI team to be very responsive and we look forward to building an
equally positive relationship with the new owners.”
“Institutional investors want to be able to invest in a specific asset class,” says
Jodie Warman. “With that in mind, the PFI team are agreed on a strategy where we
are looking to dispose of the 10% of our assets that are not purely industrial over a
medium-term timeframe.”
These legacy assets have served their purpose for our investors, but the timing is
now right for us to look at passing them to others who have a more natural place for
them in their portfolios.
“In order to ensure we continue to pay a consistent level of dividends, we cannot
simply sell these all at once on the open market. Instead we are managing these
disposals through a staggered release to the market. 229 Dairy Flat Highway is an
important asset to have sold but the biggest of our sales will likely take place during
2020. At this point, we have banked $40 million for investors on our way to being a
pure-play industrial property company. The funds from this sale and those that follow
will be reinvested into acquiring quality industrial properties in a range of sought-after
areas and to pursuing value-add strategies within our current portfolio.”
At year end, following an off-market approach, we also contracted to divest the
property at 2 Pacific Rise, Mount Wellington, for a gross sale price of $7 million, in line
with the recent valuation. “An upcoming lease expiry prompted us to consider the sale
of this obsolete data centre that we acquired via our merger with Direct Property Fund
in 2013. This sale too frees up funds to be reinvested into other projects.”
15
FOUR WAYS FORWARD
ACQUISITION
DISPOSAL
VALUE ADD
ASSET MANAGEMENT
ENHANCEXPERIENCES
An effective way
to add value to
PFI as a whole”
LUKE GLEN
Property Manager
06.
OMPLEMENTING
our approach to asset
management, our
value-add strategy
focuses on enhancing
the experience for our
tenants by reconfiguring
and upgrading some of
our older assets. At the
same time, we are adding
value to properties
within the portfolio that
still have significant
future potential.
OUR ROLE::
By investing in the future of this asset, we are
transforming it into a modern open-plan warehouse
that meets the expectations of larger companies.
ING
1
1
20
MT
WELLINGTON
ONEHUNGA
AUCKLAND
Location
C
LETTABLE AREA::
11,500 SQM
VALUATION::
$24.8 M
INCREASE IN VALUE DURING 2019::
$4.8 M
3.
CASE STUDY
Upgrading this older
industrial warehouse to
meet the needs of a major
New Zealand corporate
has significantly lifted its
value and attractiveness.
DONNOR PLACE
MOUNT WELLINGTON
—
6
_ 6
Donner Place
Mount Wellington
16
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
VALUE ADD
VALUE ADD
“As industrial buildings age, decisions
must be made as to how to upgrade,”
says PFI Property Manager Luke Glen.
“Upgrading an asset is about keeping the
current bones and then improving the
overall appeal through refurbishment.”
At 6 Donnor Place in Mount Wellington,
the refurbishment work we are undertaking
includes the installation of a new canopy,
seismic strengthening and the removal of
asbestos. These works have enabled us to
reposition the asset for use by Coca-Cola
Amatil, one of the largest bottlers of non-
alcoholic beverages in the Asia-Pacific
region and one of the largest Coca-Cola
bottlers in the world, as a place to store
products for distribution.
The property itself sits on 2.5 hectares
close to Sylvia Park Shopping Centre and
to Coca-Cola Amatil’s main Auckland
headquarters on Carbine Road. Our warehouse
at Donner Place offered around 9,000 sqm of
warehouse, extensive offices and amenities,
large concrete yards, carparking and a small
amount of surplus land.
“This is a sizeable property in the very
heart of Mount Wellington with a significant
frontage to the south-eastern highway. Its
location in one of the more centralised and
established industrial precincts in Auckland
makes it a site with a healthy future,” says
Luke Glen.
“Our assessment was that this property
met all our criteria for our value-add strategy.
While the asset itself had been altered and
extended over the years and included features
we now considered obsolete, such as a lot of
partitioning and a suspended ceiling,
it nevertheless had significant potential to
attract a longer-term commitment.
“That’s why we are making a significant
investment,” says Luke Glen. “In December
2018, the property was valued at $15.1 million.
By the time we complete this upgrade in
March 2020, our expectation is the property
will have a valuation in excess of $25 million.
We will have spent between $5 million
and $6 million to undertake these changes,
but investors will see a close to $10 million
increase in value, and a significant
improvement in the rents being paid
for the site.
“Once complete, the refurbishment works
will add a generic open-plan warehouse that
is significantly more useable and valuable.
By addressing the essential maintenance
issues, we will have a large site that will meet
the standard requirements for many large
industrial prospects. Beyond the value that
adds to the site itself, this strategy is an
effective way to add value to PFI as a whole.
Having such an asset in our portfolio lifts our
attractiveness and credibility as a landlord of
choice to the significant industrial companies
we want to forge relationships with.”
EXPERIENCES
This strategy is about getting more from
assets that we consider currently below their
potential. In each case, we assess how the
current state of the property could be evolved
and what that would enable us to deliver for a
client. We look at how and where we can make
improvements that will deliver us a more
valuable building.
Adding value to assets in this way lifts the
overall value of our portfolio and our earnings,
and has a positive impact on our ability to
deliver consistent and stable returns.
_ 6
Donner Place
Mount Wellington
17
FOUR WAYS FORWARD
ACQUISITION
DISPOSAL
VALUE-ADDED
ASSET MANAGEMENT
0 7.
1
20
MT
WELLINGTON
ONEHUNGA
Location
AUCKLAND
1
FI’S ASSET
management strategy
focuses on managing
relationships with tenants
so they have the facilities
and arrangements they
need to plan with
confidence. It’s also about
maintaining and lifting
the value of our portfolio
by paying close attention
to these assets, including
ensuring they remain fully
occupied. In each case,
we weigh what we are
P
earning from the property,
whether our customers
are happy, and whether
there is further potential
for earnings.
These properties
represent a significant
part of our portfolio
value. As such, they
underpin our ability
to deliver consistent
long-term value.
“This year the team
have done a great job of
leveraging our existing
MAKING
THE
MOST
OF WHAT WE HAVE
OUR ROLE::
We structured a deal that incentivised DHL to take a
longer-term lease, a year early, with a significant increase in
rent structured in a way that worked for both parties. We
also took the opportunity to reinvest in the asset by making
a contribution to a new fit-out that upgraded the office.
LETTABLE AREA::
19,715 SQM
VALUATION::
$43.5 M
INCREASE IN VALUE DURING 2019::
$11.7 M
4.
CASE STUDY
DHL restructured their lease
with us to give them more
certainty around this
property that has been
their home for some time.
NIALL BURGESS ROAD
MOUNT WELLINGTON
—
7-9
18
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
ASSET MANAGEMENT
ASSET MANAGEMENT
Actively managing
our assets improves
our relationships
and stabilises
our earnings.”
EWAN CAMERON
Portfolio Manager
relationships to extend leases and prolong
relationships with tenants,” says PFI’s
Portfolio Manager Ewan Cameron.
“Our approach has enabled us to take good
advantage of market rental growth, improved
our WALT or Weighted Average Lease Term,
and allowed us to future-proof some of our
older properties in the process.”
At 7–9 Niall Place Burgess Road in
Mount Wellington, DHL’s lease still had a
year to run, with a right to renew for another
five years. Rent at the property had been
linked to the CPI. With a market review due
at the time of renewal, we knew this was
now a significantly under-rented asset.
To encourage this valued client to stay,
we structured a deal that incentivised DHL
to take a longer-term lease of seven years,
a year early, meaning in effect an eight-year
term. We also structured the increase in rent
in a way that worked for both parties, and took
the opportunity to reinvest in the asset by
making a contribution to a new fit-out that
upgraded the office.
“Our revised arrangement with DHL
works for everyone,” says Ewan Cameron,
“From our perspective, taking a constructive
approach to managing this asset has extended
our lease, lifted earnings and value, and
ensured we retain a valued and loyal
client relationship.”
As demand for industrial property has
increased, the market has also rentalised more
aspects of each property, meaning there are
good opportunities to redefine the value of a
range of assets. For example, at 15 Copsey
Place in Avondale, the sitting tenant left
because the property had become too small
for them. This 2,300 sqm first-generation
warehouse was attracting a reasonable rent,
but when we signed an eight-year lease for
the property we were able to increase what we
receive by rentalising the yard and carparking.
“Asset management is about getting WALT
up and adding to book value. In this case, we
went from a rent with eight months left to run
to a new arrangement of eight years, with a
market-adjusted rent, a new tenant, fixed
annual growth and a market review at the
end of four years,” says Ewan Cameron.
“Actively managing our assets improves
our relationships and stabilises our
earnings. For our investors, it’s a highly
effective way of continuing to make the
most of existing assets.”
OF WHAT WE HAVE
19
08.
THE WORLD FACES unprecedented change that already
threatens the stability of our environment, societies, and
economy. In response, in 2019, we chose to put fresh
focus on the ESG topics likely to affect PFI into the
future, in every aspect of our business, including our
people. We’re proud to present our first sustainability
report that details our 2019 position on ESG topics that
matter to PFI.
“We significantly strengthened our approach to
identifying, managing, and reporting on environmental,
social and governance issues in 2019 by developing a
comprehensive ESG strategy and framework. This
includes looking hard at how these issues affect our
licence to operate and ability to create value over the long
term,” says Simon Woodhams.
Our ESG approach
links directly to
our purpose of
generating income
for investors and
long-term prosperity
for New Zealand.”
SIMON WOODHAMS,
Chief Executive Officer
SUSTAINABLE
ESG PERFORMANCE
BUILDING A
BUSINESS
“Our ESG approach links directly to our purpose of
generating income for investors and long-term
prosperity for New Zealand. Our reporting is in
accordance with the internationally-recognised GRI
Standards and, as such, is focused on the most relevant
and important issues for PFI.” (see page 22)
“We take a long-term view on the investment
of capital and the factors that affect our ability to
create value over time. That’s why it makes sense
for us to measure and report on ESG factors as
they can impact our ability to create value. Having
robust and accessible information about these
factors enables us to make evidence-based decisions
about how to manage ESG factors and, at the
same time, meet the expectations and information
needs of our investors and stakeholders.”
20
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2019
PLANNING AHEAD
PLANNING AHEAD
AN ESG FRAMEWORK
AND STRATEGY FOR PFI
In 2019, we engaged an independent
consultant to help us develop an ESG
framework and strategy for PFI. This process
included canvassing opinions on critical ESG
issues for PFI through workshops with the PFI
team, and interviews with external
stakeholders. The Board adopted the ESG
framework and strategy in August 2019.
“Our ESG framework and strategy
demonstrates our thinking and distils
our environmental, social and governance
priorities. For each priority we are now able to
clearly articulate where we want to be and
how we’re going to get there,” says Craig
Peirce.
To achieve PFI’s purpose, the ESG
framework is built around three pillars
reflecting PFI’s approach to sustainability:
^
A focus on the health, safety, and
wellbeing of people
^
Efficient resource use
^
Long-term thinking
The framework helps the PFI management
team determine and communicate
a management approach to material
ESG topics.
The ESG strategy sets out four themes
aligned with PFI’s core value drivers – our
team, our tenants, our properties, and our
future. PFI uses these themes to organise how
it manages ESG priorities, including
establishing targets and developing business
plans to address ESG topics.
ESG PERFORMANCE
PFI’S ESG
FRAMEWORK
PFI’S ESG
STRATEGY
PURPOSE
PFI generates income for investors as professional
landlords to the industrial economy, generating prosperity
for New Zealand
VISION
PFI will be one of New Zealand’s foremost listed property vehicles.
Our measures will be performance, quality, scale and reputation.
ESG PRIORITIES
Leadership
—
Strategy
—
Transparency
—
Diversity and Inclusion
—
Wellbeing
—
Community
—
Environment
—
Climate
STRATEGIC PILLARS
Health, safety and wellbeing
—
Resource effciency
—
Long-term thinking
STRATEGIC THEMES
Taking care of our team
—
Looking after our tenants
—
Responsible
property ownership
—
Delivering for our investors
21
ABOUT THIS ESG REPORT
We have prepared this ESG report in
accordance with the GRI Standards
(core option). The GRI Standards are the
world’s most widely used and internationally
recognised ESG reporting framework.
In following the GRI Standards, we established
which topics to report based on GRI’s
Materiality Principle. This method ensures our
report covers the topics that may have a
significant impact (economically, socially, or
environmentally), or a substantive influence,
on PFI stakeholders’ decisions and
assessments – see our matrix of material
topics on this page.
Key stakeholders for PFI include
shareholders, staff, tenants, partner suppliers,
industry groups and regulators, investors, and
financiers. To establish the materiality of
topics, PFI engaged an independent consultant
to interview key stakeholders, carry out expert
analysis, and prepare a materiality review
report. The materiality review report informed
which ESG topics to include in this annual
report as well as the management approach
to topics in PFI’s ESG strategy. The ESG topics
material to PFI are:
^
Health, safety and wellbeing
^
Environmental compliance and footprint
^
Transparency, reporting and responding to
stakeholder concerns
^
Sustainability strategy, policy
and processes
^
Energy management and GHG emissions
^
Industry leadership
^
Diversity and Inclusion
^
Community involvement
A description of PFI’s management
approach to these topics and current
performance follows.
TAKING CARE OF OUR TEAM
Health, safety and wellbeing of the PFI team is
an important priority for PFI. The PFI team
includes staff, facilities management partners,
and specialist contractors. All team members
play an important role in achieving wellbeing
and ensuring a safe and healthy workplace.
Health, safety
and wellbeing
Environmental compliance
and performance
Transparency, reporting and
responding to stakeholder concerns
Sustainability strategy,
policy and process
Energy management
and GHG emissions
Industry leadership
Diversity and inclusion
Community involvement
SIGNIFICANCE OF IMPACTS
ST
AKEHOLDER IMPORT
ANCE
HIGH
HIGH
MEDIUM
PFI MATERIALITY
MATRIX
ESG PERFORMANCE
22
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2019
HEALTH AND SAFETY:
PFI has established controls for managing
health and safety risks and outcomes. These
include a Health and Safety Policy, tenant
and team induction processes, independent
health and safety audits, and governance and
management systems for health and safety.
PFI owns, leases, and maintains industrial
property. To support health and safety for
everyone at PFI properties, we work closely
with tenants, facilities management partners,
and contractors to make sure health and
safety processes are in place and followed
effectively. We don’t conduct or control our
tenants’ day-to-day industrial activities at PFI
properties. Accountability and responsibility
for health and safety is clearly defined at all
levels within PFI’s supply chain and within
our own business.
In 2019, PFI commissioned 104
independent health and safety audits across
80 of its properties. In response to those audit
findings, PFI has actively identified, addressed
and closed-out health and safety issues.
The total number of reported health
and safety incidents in 2019 was 6, down
from 8 in 2018. Of those incidents, five
resulted minor injuries, and the other did
not result in injury. PFI actively pursues our
ultimate health and safety goal of zero harm
and zero incidents, whilst at the same time
encouraging a culture of open and honest
health and safety reporting.
TEAM WELLBEING
“Our team of 12 is relatively small in relation
to the scale of the business, which reflects
the lean, open, and agile way PFI operates,”
says Craig Peirce. “To be effective at scale
we’ve focused on creating an open and
inclusive culture that promotes feedback
and enhances productivity.”
As part of PFI’s commitment to
health and wellbeing, staff are entitled
to regular health checks, health insurance
and a healthy workstation assessment.
As part of the office refurbishment in
2019, we actively involved the staff in the
design of an inclusive, healthy, and productive
workplace. PFI staff can take advantage of
flexible working arrangements and all staff
completed an on-site first aid training
course in 2019.
ESG PERFORMANCE
Health
Checks
Flexible Working
Arrangements
Health
Insurance
Healthy
Workplace
First Aid
Training
OUR TEAM
OUR WELLBEING
INITIATIVES
HEALTH AND SAFETY
INCIDENTS
2019
2018
23
OUR ENVIRONMENT
PFI owns 94 existing industrial properties
throughout New Zealand. In 2019, PFI invested
approximately $14 million to develop new
properties — about 1% of the total value of
PFI’s portfolio.
The environmental impacts of PFI’s
management and maintenance of its property
portfolio derive from management office
activities, the types of materials used in
maintenance, and the refrigerants used in
cooling systems owned and operated by PFI.
“We take a long-term view of our property
assets to ensure they are safe and fit for
purpose for our tenants. Using resources
efficiently and eliminating waste is key to
maintaining the status and value-creating
potential of those assets,” says Luke Glen.
OUR GREENHOUSE GAS (GHG) EMISSIONS
PFI’s energy consumption and GHG emissions
figures exclude consumption and emissions
generated by tenants’ activities. In 2019,
PFI engaged an independent consultant to
establish a GHG emissions inventory baseline
using the internationally-recognised GHG
Corporate Protocal. The total measured
emissions were 219 tonnes of carbon dioxide
equivalents (CO₂e) emitted as a result of
operational activities over the year.
Refrigerants used in cooling systems at PFI
properties account for 84% of operational
GHG emissions. Electricity use and waste from
PFI’s offices account for 7% of emissions and
the remaining 9% are associated with air and
vehicle travel. Emission sources and quantities
are presented on this page, following GHG
reporting conventions for scopes 1, 2 and 3
1
.
THINKING LONG-TERM
PFI adopted a formal ESG Framework and
Strategy in 2019. The framework sets out how
ESG issues are linked to PFI’s purpose, and the
strategy specifies PFI’s ESG aspirations and
how we will achieve them (see page 21).
“As part of our vision to be one of
New Zealand’s foremost listed property vehicles,
we have established a robust ESG framework
and strategy,” says Simon Woodhams.
“This is our first report on our ESG
performance against that strategy. We will
continue to focus on being responsive and
transparent, while addressing our material ESG
issues, which will maintain our ability to create
value over the short, medium, and long term.”
1 GHG Protocol
Corporate
Accounting
and Reporting
Refrigerants84%
Electricity7%
Air Travel6%
Car Travel2%
Accommodation<1%
Waste<1%
ESG PERFORMANCE
GHG EMISSION SOURCETONNES CO
2
e
SCOPE 1 EMISSIONS
Refrigerants183.2
SCOPE 2 EMISSIONS
Electricity15.5
SCOPE 3 EMISSIONS
Air travel14.5
Car travel4.5
Accommodation0.8
Waste0.7
TOTAL219.2
PFI GHG
EMISSIONS 2019
24
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2019
ESG PERFORMANCE
When developing
212 Cavendish Drive
we incorporated
sustainable design
features to future-
proof the property
so it was safe, fit
for purpose, and
could create value
over the long-term”
EWAN CAMERON,
Portfolio Manager
Safety and sustainability were key to PFI’s design for developing
a new facility at 212 Cavendish Drive. With this in mind, a number
of specific focus areas were incorporated in the design.
SUSTAINABLE DESIGN FOR
INDUSTRIAL PROPERTY
^
Separating vehicles and people through safety zone design
^
Constructing fencing and exclusion barriers for potentially dangerous areas
^
Designing safe lighting levels in all areas
^
Creating safe maintenance and construction buffers around the building
^
Installing safe roof access hatches and fixed ladders to reduce health and safety
risks associated with roof maintenance, including safety lines and harness points
on the roof
^
Ensuring easy, understandable, and safe access for public, pedestrians, and
cyclists to the facility reception
A healthy and safe
place for people:
^
Creating a healthy work environment through natural light and natural ventilation,
minimising artificial lighting and ventilation
^
Including outdoor breakout areas and visually appealing planted landscaping buffers
^
Using durable construction materials and coatings, flexible and adaptable for future
use to maximise the life of the building
^
Building with pre-fabrication techniques for optimal construction efficiency
^
Including energy-efficient LED lights and zoning lighting layout switches
^
Considering thermal performance of the office building envelope carefully,
including insulation, glazing selection, and shading in summer
^
Using low VOC paint, carpet, and adhesives in all interior areas
^
Providing end-of-trip facilities for people using different travel modes to work
^
Installing advanced storm water filtration before discharge to network
^
Incorporating a flexible, adaptable, open-plan-base build warehouse and office,
to readily accommodate re-purposing and use by future tenants.
A green building with
optimal resource use:
25
26
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
Property
for
Industry
Limited
Financial
Statements
31 December
2019
FINANCIAL
STATEMENTS.
27
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
ALL VALUES IN $000SNOTE20192018
INCOME
Rental and management fee income2.3 96,051 89,710
Licence income5.8 50 100
Interest income 8 6
Fair value gain on investment properties2.1 125,193 66,370
Gain on disposal of investment properties 4,126 53
Fair value gain on derivative financial instruments 2,577 2,009
Business interruption insurance income2.6 177 –
Material damage insurance income2.6 1,125 –
Total income 229,307 158,248
EXPENSES
Property costs2.4 (14,850) (12,507)
Interest expense and bank fees (19,008) (18,766)
Administrative expenses5.1 (5,072) (4,679)
Total expenses (38,930) (35,952)
Profit before taxation 190,377 122,296
Income tax (expense) / benefit5.2 (14,091) (12,202)
Profit and total comprehensive income after income tax attributable
to the shareholders of the Company4.1 176,286 110,094
Basic earnings per share (cents)4.1 35.35 22.08
Diluted earnings per share (cents)4.1 35.35 22.08
28
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
FINANCIALS 2019
The accompanying notes form part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
NOTE
Cents
per Share
(cents)
No. of
Shares
(#)
Ordinary
Shares
($000s)
Share-Based
Payments
Reserve
($000s)
Retained
Earnings
($000s)
Total
Equity
($000s)
Balance as at 1 January 2018–498,723,330562,429–280,514842,943
Total comprehensive income––––110,094110,094
Dividends
Q4 2017 final dividend - 7/3/20182.15–––(10,723)(10,723)
Q1 2018 interim dividend - 31/5/20181.80–––(8,977)(8,977)
Q2 2018 interim dividend - 31/8/20181.80–––(8,977)(8,977)
Q3 2018 interim dividend - 28/11/20181.85–––(9,225)(9,225)
Long-term incentive plan5.9–––––
Balance as at 31 December 2018–498,723,330562,429–352,706915,135
Total comprehensive income––––176,286176,286
Dividends
Q4 2018 final dividend - 13/3/20192.10–––(10,474)(10,474)
Q1 2019 interim dividend - 24/5/20191.80–––(8,977)(8,977)
Q2 2019 interim dividend - 4/9/20191.80–––(8,977)(8,977)
Q3 2019 interim dividend - 20/11/20191.85–––(9,226)(9,226)
Long-term incentive plan5.9––270–270
Balance as at 31 December 2019–498,723,330562,429270491,3381,054,037
29
The accompanying notes form part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
ALL VALUES IN $000SNOTE20192018
CURRENT ASSETS
Cash at bank1,1851,652
Accounts receivable, prepayments and other assets5.32,4191,239
Total current assets3,6042,891
NON-CURRENT ASSETS
Investment properties2.11,469,2851,318,655
Property, plant and equipment5.1061662
Derivative financial instruments3.213,2124,891
Goodwill5.529,08629,086
Total non-current assets1,512,1991,352,694
Non-current assets classified as held for sale2.26,8933,313
Total assets1,522,6961,358,898
CURRENT LIABILITIES
Derivative financial instruments3.284094
Accounts payable, accruals and other liabilities5.49,59710,460
Taxation payable12,8678,805
Total current liabilities23,30419,359
NON-CURRENT LIABILITIES
Borrowings3.1412,948398,222
Derivative financial instruments3.218,98213,982
Deferred tax liabilities5.213,18512,200
Lease liabilities5.10240–
Total non-current liabilities445,355424,404
Total liabilities468,659443,763
Net assets4.21,054,037915,135
EQUITY
Share capital562,429562,429
Share-based payments reserve5.9270–
Retained earnings491,338352,706
Total equity1,054,037915,135
These Group financial statements are signed on behalf of Property for Industry Limited and were authorised for issue on 17 February 2020.
Anthony Beverley Susan Peterson
Chairman Chair, Audit and Risk Committee
30
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
FINANCIALS 2019
The accompanying notes form part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019
ALL VALUES IN $000SNOTE20192018
CASH FLOWS FROM OPERATING ACTIVITIES
Property and management fee income received96,28790,610
Business interruption insurance income2.6177–
Licence income5.850100
Net GST received15655
Interest received86
Interest and other finance costs paid(19,007)(19,170)
Payments to suppliers and employees(20,256)(17,806)
Income tax paid(9,044)(49)
Net cash flows from operating activities48,37153,746
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment properties35,45885
Acquisition of investment properties2.1(45,734)(28,369)
Acquisition of property, plant and equipment(241)(22)
Expenditure on investment properties(16,073)(14,800)
Capitalisation of interest on development properties2.1(135)(41)
Material damage insurance income2.61,125–
Net cash flows from investing activities(25,600)(43,147)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from / (repayment of) from syndicated bank facility14,526(71,650)
Proceeds from the issue of fixed rate bonds–100,000
Principal elements of finance lease payments(110)–
Dividends paid to shareholders(37,654)(37,902)
Net cash flows from financing activities(23,238)(9,552)
Net (decrease) / increasein cash and cash equivalents(467)1,047
Cash and cash equivalents at beginning of year1,652605
Cash and cash equivalents at end of year1,1851,652
Cash and cash equivalents at end of year comprises:
ALL VALUES IN $000S20192018
Cash at bank1,1851,652
Cash and cash equivalents at end of year1,1851,652
31
The accompanying notes form part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FLOWS FROM OPERATING ACTIVITIES
ALL VALUES IN $000SNOTE20192018
Profit for the year after income tax176,286110,094
Non-cash items:
Fair value gain on investment properties2.1(125,193)(66,370)
Gain on disposal of investment properties(4,126)(53)
Fair value gain on derivative financial instruments(2,577)(2,009)
Movement in deferred taxation 5.29853,316
Depreciation5.112455
Provision for doubtful debts23(18)
Lease Liability interest expense5.1032–
Employee benefits expense – share-based payments5.09270–
Movements in working capital items:
Accounts receivable, prepayments and other assets(977)(689)
Accounts payable, accruals and other liabilities 587583
Taxation payable4,0628,837
Other: material damage insurance income (classified as cash flows from financing activities)2.6(1,125)–
Net cash flows from operating activities48,37153,746
32
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
FINANCIALS 2019
The accompanying notes form part of these financial statements.
1. GENERAL INFORMATION34
1.1. Reporting entity34
1.2. Basis of preparation34
1.3. Group companies34
1.4. Basis of consolidation34
1.5. Critical judgements, estimates and assumptions34
1.6. Accounting policies34
1.7. Adoption of new standards35
1.8. Significant events and transactions35
2. PROPERTY35
2.1. Investment properties35
2.2. Non-current assets classified as held for sale45
2.3. Rental and management fee income46
2.4. Property costs46
2.5. Net rental income46
2.6. Insurance income46
3. FUNDING47
3.1. Borrowings47
3.2. Derivative financial instruments48
4. INVESTOR RETURNS AND INVESTMENT METRICS49
4.1. Earnings per share49
4.2. Net tangible assets per share49
5. OTHER50
5.1. Administrative expenses50
5.2. Taxation51
5.3. Accounts receivable, prepayments and other assets54
5.4. Accounts payable, accruals and other liabilities54
5.5. Goodwill54
5.6. Financial instruments55
5.7. Financial risk management55
5.8. Related party transactions57
5.9. Share-based payments59
5.10. Leases60
5.11. Operating segments61
5.12. Capital commitments61
5.13. Subsequent events61
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
33
1. GENERAL INFORMATION
IN THIS SECTION This section sets out the basis upon which the Group’s Financial Statements are prepared. Specific accounting policies are
described in the note to which they relate.
1.1. Reporting entity
These financial statements are for Property for Industry Limited (the Company) and its subsidiary P.F.I. Property No. 1 Limited (PFI No. 1) (together,
the Group). The Company is a limited liability company incorporated in New Zealand and is registered under the New Zealand Companies Act 1993.
The Company is a FMC reporting entity under Part 7 of the Financial Markets Conduct Act 2013 and these audited consolidated financial statements
have been prepared in accordance with the requirements of the NZX Listing Rules and the Financial Markets Conduct Act 2013. The Company is listed
on the NZX Main Board (NZX: PFI).
The Group’s principal activity is property investment and management in New Zealand.
1.2. Basis of preparation
The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP) and the Financial
Reporting Act 2013. They comply with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial
Reporting Standards as appropriate to for-profit entities. The financial statements also comply with International Financial Reporting Standards (IFRS).
The financial statements have been prepared on the historical cost basis except where otherwise identified. All financial information is presented
in New Zealand dollars and has been rounded to the nearest thousand.
1.3. Group companies
As at 31 December 2019 and 31 December 2018, PFI No. 1 is the only controlled entity and is wholly owned.
1.4. Basis of consolidation
The consolidated financial statements comprise the Company and the entity it controls. All intercompany transactions are eliminated on consolidation.
1.5. Critical judgements, estimates and assumptions
In applying the Group’s accounting policies, the Board and Management regularly evaluate judgements, estimates and assumptions that may have
an impact on the Group. The significant judgements, estimates and assumptions made in the preparation of these financial statements are as follows:
2.1. Investment properties Page 35
3.2. Derivative financial instruments Page 48
5.2. Taxation Page 51
5.5. Goodwill Page 54
5.9. Share-based payments Page 59
1.6. Accounting policies
No changes to accounting policies have been made during the year, other than following the adoption of new standards outlined in section 1.7,
which follows below.
Significant accounting policies have been included throughout the notes to the financial statements.
Other relevant policies are provided as follows:
Share capital
All shares on issue are fully paid, carry equal voting rights, share equally in dividends and any surplus on wind up and have no par value. All shares are
recognised at the fair value of the consideration received by the Company. Incremental costs directly attributable to the issue of new shares are shown
in equity as a deduction from the proceeds.
Measurement of fair values
A number of the Group’s accounting policies and disclosures require the measurement of fair values. The Board and Management have overall
responsibility for overseeing all significant fair value measurements and transfers between levels of the fair value hierarchy. The Group’s policy
is to recognise transfers into and out of fair value levels as of the date of transfer or change in circumstances that caused the transfer.
The carrying values of all balance sheet financial assets and liabilities approximate their estimated fair values, apart from the fixed rate bonds
(refer Note 3.1 (ii) for further details).
The Board and Management review significant unobservable inputs and valuation adjustments. If third party information is used to measure fair
values, then the Board and Management assesses the evidence obtained from the third parties to support the conclusion that such valuations
meet the requirements of NZ IFRS, including the level of the fair value hierarchy in which such valuations should be classified.
34
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
Goods and services tax
These financial statements have been prepared on a goods and services tax (GST) exclusive basis except for the accounts receivable balance, accounts
payable balance and other items where GST incurred is not recoverable. These balances are stated inclusive of GST.
1.7. Adoption of new standards
The Group has adopted NZ IFRS 16 ‘Leases’ on its effective date of 1 January 2019, as required, which has replaced the previous guidance in NZ IAS 17.
NZ IFRS 16 now requires a lessee to recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts.
Included is an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees.
The Group has identified the lease of its head office as the only right-of-use asset and lease liability recognised due to NZ IFRS 16, and the impact of
adopting the standard is not material to the Group. The simplified retrospective transition method allows the Group to calculate the lease liability and
the right-of-use asset based on the remaining cash flows discounted at transition date ”incremental borrowing rate”, being the property yield for the
office lease of 7.86%. It does not require a restatement of prior period presented and there is no impact requiring an adjustment to equity. Additionally,
included in the 2019 investment property balance is a right-of-use asset of $3.75 million primarily in relation to a ground lease, representing the value
of the land, with an associated immaterial lease liability.
1.8. Significant events and transactions
The financial position and performance of the Group was affected by the following events and transactions that occurred during the reporting period:
Investment property acquisitions and disposals
On 23 January 2019, the Group settled the disposal of a non-current asset classified as held for sale located at 50 Parkside Road, Wellington, for a net
sales price of $3.4 million.
On 29 March 2019, the Group purchased an investment property located at 51-61 Spartan Road, Takanini, for a net purchase price of $17.2 million.
On 6 December 2019, the Group disposed of an investment property located at 229 Dairy Flat Highway, Albany, for a net sales price of $33 million.
On 17 December 2019 the Group announced the divestment of 2 Pacific Rise, Mount Wellington for a gross sales price of $7 million. Settlement is
expected to take place in March 2020, and this property has been classified as a non-current asset classified as held for sale in these financial
statements.
On 19 December 2019 the Group made an initial payment of $28.5 million towards the purchase of an investment property located at 25 Langley
Road, Wiri. A final payment of $7.5 million towards the property will be made in Q2, 2020 – see note 5.12 “Capital Commitments”.
2. PROPERTY
IN THIS SECTION This section shows the real estate assets used to generate the Group’s trading performance which are considered to be the most
relevant to the operations of the Group.
2.1. INVESTMENT PROPERTIES
ALL VALUES IN $000S20192018
Opening balance1,318,6551,210,805
Capital movements:
Additions45,73428,369
Disposals(28,020)(32)
Transfer to non-current assets classified as held for sale(6,893)(3,313)
Capital expenditure14,07413,629
Capitalised interest
a
13541
Movement in lease incentives, fees and fixed rental income4072,786
25,43741,480
Unrealised fair value gain125,19366,370
As at 31 December1,469,2851,318,655
a The effective interest rate applied to capitalised interest was 4.71% (2018: 4.81%).
1. GENERAL INFORMATION (continued)
1.6. Accounting policies (continued)
35
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
2. PROPERTY (continued)
2.1. Investment properties (continued)
ALL VALUES IN $000S UNLESS NOTEDKey tenant Occupancy (%) Yield on valuation (%) Contract rent
Lettable
area (sqm) Valuer
Carrying
value
Capital
movements
Fair value
adjustment
Carrying
value
2019201920182019201820192018201920192018201920192019
Avondale:
15 Copsey Place Canterbury 100%100%
5.9%5.6% 944 767 7,907 JLL 13,780 (44) 2,164 15,900
15 Jomac Place Southern Spars 100%100%6.6%6.6% 1,661 1,614 9,378 JLL 24,500 77 523 25,100
61-69 Patiki Road Bidvest 100%98%5.8%6.2% 1,205 1,127 9,767 CBRE 18,250 158 2,292 20,700
320 Rosebank Road Doyle Sails 100%100%5.1%5.7% 756 679 7,198 CBRE 11,900 232 2,768 14,900
686 Rosebank Road New Zealand Comfort 100%100%5.8%6.2% 2,583 2,489 21,565 CBRE 40,000 505 3,945 44,450
100%100%5.9%6.2% 7,149 6,676 55,815 108,430 928 11,692 121,050
East Tamaki:
17 Allens Road TSB Living 100%100%
5.9%6.1% 1,105 1,050 9,926 CBRE 17,300 15 1,285 18,600
43 Cryers Road Astron Plastics 100%100%5.1%5.8% 721 721 6,068 CBRE 12,500 (19) 1,619 14,100
6-8 Greenmount Drive Bridon 100%100%5.6%6.4% 686 644 6,590 JLL 10,000 46 2,104 12,150
92-98 Harris Road GrainCorp 100%100%8.5%8.9% 1,401 1,354 10,687 Savills 15,250 (150) 1,400 16,500
36 Neales Road Mainfreight 100%100%5.1%5.3% 1,470 1,147 12,563 Colliers 21,700 89 6,911 28,700
1 Ron Driver Place Stewart Scott Cabinetry 100%100%5.6%5.2% 473 403 4,032 JLL 7,800 (27) 727 8,500
78 Springs Road Fisher & Paykel Appliances 100%100%6.4%7.1% 6,106 5,920 41,536 Colliers 83,000 315 11,685 95,000
10c Stonedon Drive Chemical Freight Services 100%100%6.0%6.3% 857 857 8,711 JLL 13,600 22 678 14,300
11 Turin Place Thermakraft Industries 100%100%5.4%5.8% 978 925 9,981 Savills 16,000 126 1,874 18,000
12 Zelanian Drive Central Joinery 100%100%4.9%5.2% 582 582 6,098 JLL 11,140 10 800 11,950
23 Zelanian Drive Exclusive Tyre Distributors 100%100%5.2%6.0% 438 426 3,811 CBRE 7,100 1 1,249 8,350
100%100%6.0%6.5% 14,817 14,029 120,003 215,390 428 30,332 246,150
Manukau:
212 Cavendish Drive Mainfreight 100%100%
5.4%6.5% 1,941 1,929 26,067 JLL 29,650 2,653 3,597 35,900
232 Cavendish Drive
a
Fletcher Building Products 100%100%4.5%5.1% 1,100 1,100 16,832 Colliers 21,750 1,071 1,579 24,400
47 Dalgety Drive
a
Peter Hay Kitchens 100%100%5.5%5.8% 885 885 8,860 Colliers 15,240 522 238 16,000
59 Dalgety Drive Goodman Fielder 100%100%9.5%8.3% 1,441 1,392 8,649 Colliers 16,700 (128) (1,372) 15,200
1 Mayo Road Transdiesel 100%100%5.7%6.1% 559 552 6,361 CBRE 9,100 (36) 761 9,825
61 McLaughlins Road TIL Logistics 100%100%5.1%5.0% 1,202 1,150 13,347 Savills 22,800 187 763 23,750
9 Nesdale Avenue Iron Mountain 100%100%5.0%5.9% 790 633 14,163 Colliers 10,800 16 4,884 15,700
12 Hautu Drive Kiwi Steel 100%100%5.0%5.1% 665 646 6,492 JLL 12,700 215 335 13,250
9 Narek Place Z Energy 100%100%4.8%5.2% 547 538 5,663 CBRE 10,250 (10) 1,160 11,400
25 Langley Road Grayson Engineering 100%n/a5.2%0.0% 1,608 – 21,248 CBRE – 28,503 2,447 30,950
100%100%5.5%5.9% 10,738 8,825 127,682 148,990 32,993 14,392 196,375
a
Excludes development land shown separately below.
36
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
2. PROPERTY (continued)
2.1. Investment properties (continued)
ALL VALUES IN $000S UNLESS NOTEDKey tenant Occupancy (%) Yield on valuation (%) Contract rent
Lettable
area (sqm) Valuer
Carrying
value
Capital
movements
Fair value
adjustment
Carrying
value
2019201920182019201820192018201920192018201920192019
Avondale:
15 Copsey Place Canterbury 100%100%
5.9%5.6% 944 767 7,907 JLL 13,780 (44) 2,164 15,900
15 Jomac Place Southern Spars 100%100%6.6%6.6% 1,661 1,614 9,378 JLL 24,500 77 523 25,100
61-69 Patiki Road Bidvest 100%98%5.8%6.2% 1,205 1,127 9,767 CBRE 18,250 158 2,292 20,700
320 Rosebank Road Doyle Sails 100%100%5.1%5.7% 756 679 7,198 CBRE 11,900 232 2,768 14,900
686 Rosebank Road New Zealand Comfort 100%100%5.8%6.2% 2,583 2,489 21,565 CBRE 40,000 505 3,945 44,450
100%100%5.9%6.2% 7,149 6,676 55,815 108,430 928 11,692 121,050
East Tamaki:
17 Allens Road TSB Living 100%100%
5.9%6.1% 1,105 1,050 9,926 CBRE 17,300 15 1,285 18,600
43 Cryers Road Astron Plastics 100%100%5.1%5.8% 721 721 6,068 CBRE 12,500 (19) 1,619 14,100
6-8 Greenmount Drive Bridon 100%100%5.6%6.4% 686 644 6,590 JLL 10,000 46 2,104 12,150
92-98 Harris Road GrainCorp 100%100%8.5%8.9% 1,401 1,354 10,687 Savills 15,250 (150) 1,400 16,500
36 Neales Road Mainfreight 100%100%5.1%5.3% 1,470 1,147 12,563 Colliers 21,700 89 6,911 28,700
1 Ron Driver Place Stewart Scott Cabinetry 100%100%5.6%5.2% 473 403 4,032 JLL 7,800 (27) 727 8,500
78 Springs Road Fisher & Paykel Appliances 100%100%6.4%7.1% 6,106 5,920 41,536 Colliers 83,000 315 11,685 95,000
10c Stonedon Drive Chemical Freight Services 100%100%6.0%6.3% 857 857 8,711 JLL 13,600 22 678 14,300
11 Turin Place Thermakraft Industries 100%100%5.4%5.8% 978 925 9,981 Savills 16,000 126 1,874 18,000
12 Zelanian Drive Central Joinery 100%100%4.9%5.2% 582 582 6,098 JLL 11,140 10 800 11,950
23 Zelanian Drive Exclusive Tyre Distributors 100%100%5.2%6.0% 438 426 3,811 CBRE 7,100 1 1,249 8,350
100%100%6.0%6.5% 14,817 14,029 120,003 215,390 428 30,332 246,150
Manukau:
212 Cavendish Drive Mainfreight 100%100%
5.4%6.5% 1,941 1,929 26,067 JLL 29,650 2,653 3,597 35,900
232 Cavendish Drive
a
Fletcher Building Products 100%100%4.5%5.1% 1,100 1,100 16,832 Colliers 21,750 1,071 1,579 24,400
47 Dalgety Drive
a
Peter Hay Kitchens 100%100%5.5%5.8% 885 885 8,860 Colliers 15,240 522 238 16,000
59 Dalgety Drive Goodman Fielder 100%100%9.5%8.3% 1,441 1,392 8,649 Colliers 16,700 (128) (1,372) 15,200
1 Mayo Road Transdiesel 100%100%5.7%6.1% 559 552 6,361 CBRE 9,100 (36) 761 9,825
61 McLaughlins Road TIL Logistics 100%100%5.1%5.0% 1,202 1,150 13,347 Savills 22,800 187 763 23,750
9 Nesdale Avenue Iron Mountain 100%100%5.0%5.9% 790 633 14,163 Colliers 10,800 16 4,884 15,700
12 Hautu Drive Kiwi Steel 100%100%5.0%5.1% 665 646 6,492 JLL 12,700 215 335 13,250
9 Narek Place Z Energy 100%100%4.8%5.2% 547 538 5,663 CBRE 10,250 (10) 1,160 11,400
25 Langley Road Grayson Engineering 100%n/a5.2%0.0% 1,608 – 21,248 CBRE – 28,503 2,447 30,950
100%100%5.5%5.9% 10,738 8,825 127,682 148,990 32,993 14,392 196,375
37
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
ALL VALUES IN $000S UNLESS NOTEDKey tenant Occupancy (%) Yield on valuation (%) Contract rent
Lettable
area (sqm) Valuer
Carrying
value
Capital
movements
Fair value
adjustment
Carrying
value
2019201920182019201820192018201920192018201920192019
Mt Wellington:
30-32 Bowden Road Fletcher Building Products 100%100%
6.3%6.2% 1,761 1,685 17,047 JLL 27,000 (47) 797 27,750
50 Carbine Road Fletcher Building Products 100%100%4.5%4.8% 190 190 2,592 CBRE 4,000 (10) 235 4,225
54 Carbine Road & 6a Donnor Place Hancocks 100%100%6.1%6.1% 2,008 1,749 17,015 Savills 28,600 (43) 4,443 33,000
76 Carbine Road Atlas Gentech 100%100%5.1%5.2% 461 433 5,080 JLL 8,400 12 588 9,000
7 Carmont Place CMI 100%100%4.8%5.0% 625 621 5,336 JLL 12,400 16 584 13,000
6 Donnor Place Coca-Cola 100%100%5.8%6.0% 1,446 900 15,534 CBRE 15,100 4,882 4,818 24,800
4-6 Mt Richmond Drive Brambles 100%100%4.5%5.5% 835 835 7,946 Colliers 15,200 17 3,383 18,600
509 Mt Wellington Highway Fletcher Building Products 100%100%5.5%5.8% 1,036 1,023 8,744 Colliers 17,500 (7) 1,207 18,700
511 Mt Wellington Highway Bremca Industries 100%100%5.2%5.9% 461 461 3,247 Savills 7,750 101 949 8,800
515 Mt Wellington Highway Stryker 100%100%4.8%5.1% 266 266 1,708 Savills 5,225 88 287 5,600
523 Mt Wellington Highway BGH Group 100%100%5.0%5.2% 228 228 1,677 Colliers 4,400 8 192 4,600
1 Niall Burgess Road Bremca Industries 100%100%5.1%5.4% 253 230 1,742 JLL 4,275 150 575 5,000
2-6 Niall Burgess Road McAlpine Hussmann 100%100%5.9%6.2% 928 920 6,874 JLL 14,800 (36) 936 15,700
3-5 Niall Burgess Road Electrolux 100%100%5.1%5.4% 1,072 1,072 9,373 JLL 20,000 (12) 1,012 21,000
7-9 Niall Burgess Road DHL Supply Chain 100%100%5.0%6.7% 2,180 2,148 23,565 Savills 32,000 (176) 11,676 43,500
10 Niall Burgess Road Outside Broadcasting 100%100%4.9%5.2% 257 250 1,725 Savills 4,800 42 358 5,200
2 Pacific Rise Hewlett-Packard 100%100%n/a11.0% 972 972 2,757 JLL 8,850 (6,895) (1,955) –
5 Vestey Drive PPG Industries 100%100%5.5%5.5% 236 223 1,269 Colliers 4,050 (2) 252 4,300
7 Vestey Drive True North 100%100%4.1%4.8% 516 516 4,598 CBRE 10,800 5 1,845 12,650
9 Vestey Drive Multispares 100%100%4.9%5.0% 220 212 1,600 Colliers 4,200 (5) 305 4,500
11 Vestey Drive N & Z 100%100%4.8%5.5% 452 441 3,470 Colliers 8,000 12 1,388 9,400
15a Vestey Drive Hills 100%100%5.7%5.9% 581 562 3,261 Savills 9,450 (32) 832 10,250
36 Vestey Drive Hose Supplies 100%100%4.8%5.1% 168 163 1,120 JLL 3,200 7 293 3,500
100%100%5.7%6.0% 17,152 16,100 147,280 270,000 (1,925) 35,000 303,075
North Shore:
2-4 Argus Place Pharmapac 100%100%
4.9%5.0% 440 430 3,560 JLL 8,675 29 296 9,000
47 Arrenway Drive Device Technologies 100%100%5.3%5.3% 245 231 1,245 JLL 4,370 7 223 4,600
51 Arrenway Drive Pacific Hygiene 100%100%5.1%5.0% 391 384 2,680 JLL 7,645 (11) 16 7,650
229 Dairy Flat Highway Massey University 100%100%n/a6.7% – 1,874 6,719 – 28,000 (28,000) – –
15 Omega Street Wesfarmers 100%100%5.0%5.1% 498 498 3,498 JLL 9,700 4 296 10,000
322 Rosedale Road BSGi NZ Limited 100%100%5.6%5.8% 1,122 1,095 7,936 Colliers 19,000 56 1,044 20,100
41 William Pickering Drive Innopak Global 100%100%4.9%5.3% 450 437 3,027 CBRE 8,200 (6) 1,056 9,250
100%100%5.2%5.8% 3,146 4,949 28,665 85,590 (27,921) 2,931 60,600
2. PROPERTY (continued)
2.1. Investment properties (continued)
38
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
ALL VALUES IN $000S UNLESS NOTEDKey tenant Occupancy (%) Yield on valuation (%) Contract rent
Lettable
area (sqm) Valuer
Carrying
value
Capital
movements
Fair value
adjustment
Carrying
value
2019201920182019201820192018201920192018201920192019
Mt Wellington:
30-32 Bowden Road Fletcher Building Products 100%100%
6.3%6.2% 1,761 1,685 17,047 JLL 27,000 (47) 797 27,750
50 Carbine Road Fletcher Building Products 100%100%4.5%4.8% 190 190 2,592 CBRE 4,000 (10) 235 4,225
54 Carbine Road & 6a Donnor Place Hancocks 100%100%6.1%6.1% 2,008 1,749 17,015 Savills 28,600 (43) 4,443 33,000
76 Carbine Road Atlas Gentech 100%100%5.1%5.2% 461 433 5,080 JLL 8,400 12 588 9,000
7 Carmont Place CMI 100%100%4.8%5.0% 625 621 5,336 JLL 12,400 16 584 13,000
6 Donnor Place Coca-Cola 100%100%5.8%6.0% 1,446 900 15,534 CBRE 15,100 4,882 4,818 24,800
4-6 Mt Richmond Drive Brambles 100%100%4.5%5.5% 835 835 7,946 Colliers 15,200 17 3,383 18,600
509 Mt Wellington Highway Fletcher Building Products 100%100%5.5%5.8% 1,036 1,023 8,744 Colliers 17,500 (7) 1,207 18,700
511 Mt Wellington Highway Bremca Industries 100%100%5.2%5.9% 461 461 3,247 Savills 7,750 101 949 8,800
515 Mt Wellington Highway Stryker 100%100%4.8%5.1% 266 266 1,708 Savills 5,225 88 287 5,600
523 Mt Wellington Highway BGH Group 100%100%5.0%5.2% 228 228 1,677 Colliers 4,400 8 192 4,600
1 Niall Burgess Road Bremca Industries 100%100%5.1%5.4% 253 230 1,742 JLL 4,275 150 575 5,000
2-6 Niall Burgess Road McAlpine Hussmann 100%100%5.9%6.2% 928 920 6,874 JLL 14,800 (36) 936 15,700
3-5 Niall Burgess Road Electrolux 100%100%5.1%5.4% 1,072 1,072 9,373 JLL 20,000 (12) 1,012 21,000
7-9 Niall Burgess Road DHL Supply Chain 100%100%5.0%6.7% 2,180 2,148 23,565 Savills 32,000 (176) 11,676 43,500
10 Niall Burgess Road Outside Broadcasting 100%100%4.9%5.2% 257 250 1,725 Savills 4,800 42 358 5,200
2 Pacific Rise Hewlett-Packard 100%100%n/a11.0% 972 972 2,757 JLL 8,850 (6,895) (1,955) –
5 Vestey Drive PPG Industries 100%100%5.5%5.5% 236 223 1,269 Colliers 4,050 (2) 252 4,300
7 Vestey Drive True North 100%100%4.1%4.8% 516 516 4,598 CBRE 10,800 5 1,845 12,650
9 Vestey Drive Multispares 100%100%4.9%5.0% 220 212 1,600 Colliers 4,200 (5) 305 4,500
11 Vestey Drive N & Z 100%100%4.8%5.5% 452 441 3,470 Colliers 8,000 12 1,388 9,400
15a Vestey Drive Hills 100%100%5.7%5.9% 581 562 3,261 Savills 9,450 (32) 832 10,250
36 Vestey Drive Hose Supplies 100%100%4.8%5.1% 168 163 1,120 JLL 3,200 7 293 3,500
100%100%5.7%6.0% 17,152 16,100 147,280 270,000 (1,925) 35,000 303,075
North Shore:
2-4 Argus Place Pharmapac 100%100%
4.9%5.0% 440 430 3,560 JLL 8,675 29 296 9,000
47 Arrenway Drive Device Technologies 100%100%5.3%5.3% 245 231 1,245 JLL 4,370 7 223 4,600
51 Arrenway Drive Pacific Hygiene 100%100%5.1%5.0% 391 384 2,680 JLL 7,645 (11) 16 7,650
229 Dairy Flat Highway Massey University 100%100%n/a6.7% – 1,874 6,719 – 28,000 (28,000) – –
15 Omega Street Wesfarmers 100%100%5.0%5.1% 498 498 3,498 JLL 9,700 4 296 10,000
322 Rosedale Road BSGi NZ Limited 100%100%5.6%5.8% 1,122 1,095 7,936 Colliers 19,000 56 1,044 20,100
41 William Pickering Drive Innopak Global 100%100%4.9%5.3% 450 437 3,027 CBRE 8,200 (6) 1,056 9,250
100%100%5.2%5.8% 3,146 4,949 28,665 85,590 (27,921) 2,931 60,600
39
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
ALL VALUES IN $000S UNLESS NOTEDKey tenant Occupancy (%) Yield on valuation (%) Contract rent
Lettable
area (sqm) Valuer
Carrying
value
Capital
movements
Fair value
adjustment
Carrying
value
2019201920182019201820192018201920192018201920192019
Penrose:
4 Autumn Place Ryco Hydraulics 100%100%
4.7%4.8% 157 152 1,210 CBRE 3,175 (5) 155 3,325
6 Autumn Place MOTAT 100%100%4.6%4.9% 174 174 1,718 CBRE 3,525 8 267 3,800
10 Autumn Place MOTAT 100%100%5.0%5.2% 679 666 7,646 CBRE 12,700 72 878 13,650
122 Captain Springs Road New Zealand Crane Group 100%100%5.1%5.7% 521 521 7,431 CBRE 9,200 (14) 1,014 10,200
8 Hugo Johnston Drive Argyle Schoolwear 100%100%6.0%6.2% 733 683 4,359 Colliers 11,100 4 1,196 12,300
12 Hugo Johnston Drive W H Worrall 100%100%5.6%5.8% 372 337 2,639 Colliers 5,800 (22) 922 6,700
16 Hugo Johnston Drive Newflor Industries 100%100%5.1%5.3% 385 379 2,619 JLL 7,150 3 347 7,500
80 Hugo Johnston Drive Boxkraft 100%100%5.1%5.5% 481 469 3,872 CBRE 8,550 (3) 903 9,450
102 Mays Road Go Logistics 100%100%5.5%5.9% 538 525 7,588 CBRE 8,950 (63) 888 9,775
304 Neilson Street Fletcher Building Products 100%100%5.7%5.9% 738 737 13,438 Savills 12,400 (5) 605 13,000
306 Neilson Street Trade Depot 100%100%5.5%5.5% 900 883 6,301 Savills 16,200 67 (17) 16,250
312 Neilson Street Transport Trailer Services 100%100%5.1%5.2% 362 346 3,862 JLL 6,600 1 449 7,050
314 Neilson Street
a
Wakefield Metals 100%100%5.5%5.3% 383 562 3,438 Savills 10,600 (1,857) (1,748) 6,995
12 Southpark Place Storepro Solutions 100%100%4.8%5.0% 510 500 5,477 JLL 9,945 (29) 684 10,600
100%100%5.3%5.5% 6,933 6,934 71,598 125,895 (1,843) 6,543 130,595
Other Auckland:
58 Richard Pearse Drive, Mangere EBOS 100%100%
4.7%5.2% 1,215 1,174 12,708 Colliers 22,700 (90) 3,090 25,700
Carlaw Park Gateway Building, Parnell Quest 85%100%6.9%7.0% 2,425 2,481 2,369 CBRE 35,500 88 (188) 35,400
Carlaw Park Office Complex, Parnell Jacobs 95%95%6.4%7.0% 4,586 4,462 11,149 CBRE 63,800 224 7,976 72,000
170 Swanson Road, Swanson Transportation Auckland 100%100%5.1%5.4% 1,068 1,068 37,601 JLL 19,800 (13) 963 20,750
51-61 Spartan Road, Takanini MaxiTRANS 100%n/a5.0%n/a 920 n/a 13,423 JLL – 17,383 967 18,350
94%97%5.9%6.5% 10,214 9,185 77,250 141,800 17,592 12,808 172,200
2. PROPERTY (continued)
2.1. Investment properties (continued)
a
Excludes development land shown separately below.
40
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
ALL VALUES IN $000S UNLESS NOTEDKey tenant Occupancy (%) Yield on valuation (%) Contract rent
Lettable
area (sqm) Valuer
Carrying
value
Capital
movements
Fair value
adjustment
Carrying
value
2019201920182019201820192018201920192018201920192019
Penrose:
4 Autumn Place Ryco Hydraulics 100%100%
4.7%4.8% 157 152 1,210 CBRE 3,175 (5) 155 3,325
6 Autumn Place MOTAT 100%100%4.6%4.9% 174 174 1,718 CBRE 3,525 8 267 3,800
10 Autumn Place MOTAT 100%100%5.0%5.2% 679 666 7,646 CBRE 12,700 72 878 13,650
122 Captain Springs Road New Zealand Crane Group 100%100%5.1%5.7% 521 521 7,431 CBRE 9,200 (14) 1,014 10,200
8 Hugo Johnston Drive Argyle Schoolwear 100%100%6.0%6.2% 733 683 4,359 Colliers 11,100 4 1,196 12,300
12 Hugo Johnston Drive W H Worrall 100%100%5.6%5.8% 372 337 2,639 Colliers 5,800 (22) 922 6,700
16 Hugo Johnston Drive Newflor Industries 100%100%5.1%5.3% 385 379 2,619 JLL 7,150 3 347 7,500
80 Hugo Johnston Drive Boxkraft 100%100%5.1%5.5% 481 469 3,872 CBRE 8,550 (3) 903 9,450
102 Mays Road Go Logistics 100%100%5.5%5.9% 538 525 7,588 CBRE 8,950 (63) 888 9,775
304 Neilson Street Fletcher Building Products 100%100%5.7%5.9% 738 737 13,438 Savills 12,400 (5) 605 13,000
306 Neilson Street Trade Depot 100%100%5.5%5.5% 900 883 6,301 Savills 16,200 67 (17) 16,250
312 Neilson Street Transport Trailer Services 100%100%5.1%5.2% 362 346 3,862 JLL 6,600 1 449 7,050
314 Neilson Street
a
Wakefield Metals 100%100%5.5%5.3% 383 562 3,438 Savills 10,600 (1,857) (1,748) 6,995
12 Southpark Place Storepro Solutions 100%100%4.8%5.0% 510 500 5,477 JLL 9,945 (29) 684 10,600
100%100%5.3%5.5% 6,933 6,934 71,598 125,895 (1,843) 6,543 130,595
Other Auckland:
58 Richard Pearse Drive, Mangere EBOS 100%100%
4.7%5.2% 1,215 1,174 12,708 Colliers 22,700 (90) 3,090 25,700
Carlaw Park Gateway Building, Parnell Quest 85%100%6.9%7.0% 2,425 2,481 2,369 CBRE 35,500 88 (188) 35,400
Carlaw Park Office Complex, Parnell Jacobs 95%95%6.4%7.0% 4,586 4,462 11,149 CBRE 63,800 224 7,976 72,000
170 Swanson Road, Swanson Transportation Auckland 100%100%5.1%5.4% 1,068 1,068 37,601 JLL 19,800 (13) 963 20,750
51-61 Spartan Road, Takanini MaxiTRANS 100%n/a5.0%n/a 920 n/a 13,423 JLL – 17,383 967 18,350
94%97%5.9%6.5% 10,214 9,185 77,250 141,800 17,592 12,808 172,200
41
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
ALL VALUES IN $000S UNLESS NOTEDKey tenant Occupancy (%) Yield on valuation (%) Contract rent
Lettable
area (sqm) Valuer
Carrying
value
Capital
movements
Fair value
adjustment
Carrying
value
2019201920182019201820192018201920192018201920192019
North Island (outside Auckland):
124 Hewletts Road, Mt Maunganui RMD Bulk Storage 100%100%
5.8%6.0% 2,926 2,853 29,169 Colliers 47,200 (156) 3,456 50,500
124a Hewletts Road, Mt Maunganui Ballance Agri-Nutrients 100%100%5.4%5.8% 1,059 1,013 10,497 Colliers 17,400 331 1,969 19,700
124b Hewletts Road, Mt Maunganui Ballance Agri-Nutrients 100%100%5.4%6.0% 898 885 8,867 Colliers 14,800 169 1,731 16,700
3 Hocking Street, Mt Maunganui Drymix 100%100%5.6%6.4% 162 159 1,211 Colliers 2,500 (81) 481 2,900
558 Te Rapa Road, Hamilton DEC Manufacturing 100%100%6.8%6.8% 461 461 4,606 Savills 6,750 1 49 6,800
39 Edmundson Street, Napier TIL Logistics 100%100%6.6%7.6% 230 220 8,540 Savills 2,900 47 553 3,500
20 Constance Street, New Plymouth Aviagen 100%100%12.2%11.9% 401 394 1,366 Savills 3,300 3 (3) 3,300
330 Devon Street East, New Plymouth TIL Logistics 100%100%7.0%7.0% 117 112 482 Savills 1,600 17 58 1,675
28 Paraite Road, New Plymouth TIL Logistics 100%100%7.6%7.6% 1,249 1,195 15,636 Savills 15,800 207 493 16,500
2 Smart Road, New Plymouth New Zealand Post 100%100%7.1%7.3% 320 320 2,359 Savills 4,400 22 78 4,500
Shed 22, 23 Cable Street, Wellington
b
Shed 22 Hospo 100%100%7.3%6.3% 873 851 2,809 CBRE 13,450 76 (1,576) 11,950
143 Hutt Park Road, Wellington EBOS 100%100%6.7%7.1% 1,200 1,200 11,372 Colliers 17,000 6 994 18,000
8 McCormack Place, Wellington Fletcher Building Products 100%59%6.2%4.8% 725 435 6,686 CBRE 9,000 169 2,581 11,750
48 Seaview Road, Wellington
a
Goughs Gough & Hamer 100%100%11.5%9.2% 587 583 8,996 Colliers 6,310 10 (1,220) 5,100
100%97%6.5%6.8% 11,208 10,681 112,596 162,410 821 9,644 172,875
South Island:
11 Sheffield Street, Blenheim TIL Logistics 100%100%
7.6%7.5% 512 490 10,823 Savills 6,500 84 116 6,700
15 Artillery Place, Nelson TIL Logistics 100%100%6.8%7.0% 565 540 18,052 Savills 7,700 93 507 8,300
8a & 8b Canada Crescent, Christchurch Polarcold Stores 100%100%7.2%7.4% 1,172 1,172 9,500 Savills 15,750 – 500 16,250
41 & 55 Foremans Road, Christchurch TIL Logistics 100%100%6.8%6.5% 767 670 14,710 Savills 10,250 1,025 (25) 11,250
44 Mandeville Street, Christchurch Fletcher Building Products 83%100%8.7%8.5% 1,086 1,124 11,154 CBRE 13,250 113 (813) 12,550
127 Waterloo Road, Christchurch DHL Supply Chain 100%100%7.5%7.3% 328 321 4,055 CBRE 4,400 54 (104) 4,350
95%100%7.5%7.5% 4,430 4,317 68,294 57,850 1,369 181 59,400
Investment properties - subtotal99%99%5.9%6.2% 85,787 81,696 809,183 1,316,355 22,442 123,523 1,462,320
Development land:
232 Cavendish Drive, Manukau
Colliers 750 (750) – –
47 Dalgety Drive, Manukau Colliers 1,260 140 – 1,400
48 Seaview Road, Wellington Colliers 290 – 1,670 1,960
314 Neilson Street, Penrose Savills – 3,605 – 3,605
Development land - subtotal 2,300 2,995 1,670 6,965
Investment properties - total 1,318,655 25,437 125,193 1,469,285
a
Excludes development land shown separately.
b
Included in the 2019 balance is a right-of-use asset of $3.75 million primarily in relation to a ground lease, representing the value of the land, with an associated immaterial lease liability.
2. PROPERTY (continued)
2.1. Investment properties (continued)
42
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
ALL VALUES IN $000S UNLESS NOTEDKey tenant Occupancy (%) Yield on valuation (%) Contract rent
Lettable
area (sqm) Valuer
Carrying
value
Capital
movements
Fair value
adjustment
Carrying
value
2019201920182019201820192018201920192018201920192019
North Island (outside Auckland):
124 Hewletts Road, Mt Maunganui RMD Bulk Storage 100%100%
5.8%6.0% 2,926 2,853 29,169 Colliers 47,200 (156) 3,456 50,500
124a Hewletts Road, Mt Maunganui Ballance Agri-Nutrients 100%100%5.4%5.8% 1,059 1,013 10,497 Colliers 17,400 331 1,969 19,700
124b Hewletts Road, Mt Maunganui Ballance Agri-Nutrients 100%100%5.4%6.0% 898 885 8,867 Colliers 14,800 169 1,731 16,700
3 Hocking Street, Mt Maunganui Drymix 100%100%5.6%6.4% 162 159 1,211 Colliers 2,500 (81) 481 2,900
558 Te Rapa Road, Hamilton DEC Manufacturing 100%100%6.8%6.8% 461 461 4,606 Savills 6,750 1 49 6,800
39 Edmundson Street, Napier TIL Logistics 100%100%6.6%7.6% 230 220 8,540 Savills 2,900 47 553 3,500
20 Constance Street, New Plymouth Aviagen 100%100%12.2%11.9% 401 394 1,366 Savills 3,300 3 (3) 3,300
330 Devon Street East, New Plymouth TIL Logistics 100%100%7.0%7.0% 117 112 482 Savills 1,600 17 58 1,675
28 Paraite Road, New Plymouth TIL Logistics 100%100%7.6%7.6% 1,249 1,195 15,636 Savills 15,800 207 493 16,500
2 Smart Road, New Plymouth New Zealand Post 100%100%7.1%7.3% 320 320 2,359 Savills 4,400 22 78 4,500
Shed 22, 23 Cable Street, Wellington
b
Shed 22 Hospo 100%100%7.3%6.3% 873 851 2,809 CBRE 13,450 76 (1,576) 11,950
143 Hutt Park Road, Wellington EBOS 100%100%6.7%7.1% 1,200 1,200 11,372 Colliers 17,000 6 994 18,000
8 McCormack Place, Wellington Fletcher Building Products 100%59%6.2%4.8% 725 435 6,686 CBRE 9,000 169 2,581 11,750
48 Seaview Road, Wellington
a
Goughs Gough & Hamer 100%100%11.5%9.2% 587 583 8,996 Colliers 6,310 10 (1,220) 5,100
100%97%6.5%6.8% 11,208 10,681 112,596 162,410 821 9,644 172,875
South Island:
11 Sheffield Street, Blenheim TIL Logistics 100%100%
7.6%7.5% 512 490 10,823 Savills 6,500 84 116 6,700
15 Artillery Place, Nelson TIL Logistics 100%100%6.8%7.0% 565 540 18,052 Savills 7,700 93 507 8,300
8a & 8b Canada Crescent, Christchurch Polarcold Stores 100%100%7.2%7.4% 1,172 1,172 9,500 Savills 15,750 – 500 16,250
41 & 55 Foremans Road, Christchurch TIL Logistics 100%100%6.8%6.5% 767 670 14,710 Savills 10,250 1,025 (25) 11,250
44 Mandeville Street, Christchurch Fletcher Building Products 83%100%8.7%8.5% 1,086 1,124 11,154 CBRE 13,250 113 (813) 12,550
127 Waterloo Road, Christchurch DHL Supply Chain 100%100%7.5%7.3% 328 321 4,055 CBRE 4,400 54 (104) 4,350
95%100%7.5%7.5% 4,430 4,317 68,294 57,850 1,369 181 59,400
Investment properties - subtotal99%99%5.9%6.2% 85,787 81,696 809,183 1,316,355 22,442 123,523 1,462,320
Development land:
232 Cavendish Drive, Manukau
Colliers 750 (750) – –
47 Dalgety Drive, Manukau Colliers 1,260 140 – 1,400
48 Seaview Road, Wellington Colliers 290 – 1,670 1,960
314 Neilson Street, Penrose Savills – 3,605 – 3,605
Development land - subtotal 2,300 2,995 1,670 6,965
Investment properties - total 1,318,655 25,437 125,193 1,469,285
a
Excludes development land shown separately.
b
Included in the 2019 balance is a right-of-use asset of $3.75 million primarily in relation to a ground lease, representing the value of the land, with an associated immaterial lease liability.
43
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
2. PROPERTY (continued)
2.1. Investment properties (continued)
Recognition and Measurement
Investment properties are held to earn rental income and for long-term capital appreciation. After initial recognition on the settlement date at cost
including directly attributable acquisition costs, investment properties are measured at fair value, on the basis of valuations made by independent
valuers on at least an annual basis. Gains or losses arising from changes in the fair values of investment properties are included in the Consolidated
Statement of Comprehensive Income in the year in which they arise.
Subsequent expenditure is charged to the asset’s carrying amount only when it is probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured reliably.
The fair value of investment property reflects the Directors’ assessment of the highest and best use of each property and amongst other things,
rental income from current leases and assumptions about rental income from future leases in light of the current market conditions. The fair value
also reflects the cash outflows that could be expected in respect of the property.
No depreciation or amortisation is provided for on investment properties. However, for tax purposes, depreciation is claimed on building fit-out and a
deferred tax liability is recognised where the building component of the registered valuation exceeds the tax book value of the building. The deferred
tax liability is capped at the amount of depreciation that has been claimed on each building.
Investment properties under construction are carried at cost until it is possible to reliably determine their fair value, from which point they are carried
at fair value less costs to complete.
Gains or losses on the disposal of investment properties are recognised in the Consolidated Statement of Comprehensive Income in the period in
which the investment properties are derecognised when they have been disposed.
Borrowing costs are capitalised if they are directly attributable to the acquisition or construction of a qualifying property. Capitalisation of borrowing
costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalisation
of borrowing costs will continue until the asset is substantially ready for its intended use. The rate at which borrowing costs are capitalised is
determined by reference to the weighted average borrowing costs of the Group and the average level of borrowings by the Group.
Key estimates and assumptions: Investment properties
The fair value of investment properties are determined from valuations prepared by independent valuers.
All investment properties were valued as at 31 December 2019 and 2018 by CB Richard Ellis (CBRE), Colliers International (Colliers), Jones Lang
LaSalle (JLL) or Savills. CBRE, Colliers, JLL and Savills are independent valuers and members of the New Zealand Institute of Valuers.
As part of the valuation process, the Group’s management verifies all major inputs to the independent valuation reports, assesses movements
in individual property values and holds discussions with the independent valuer.
The fair value was determined using Level 3 valuation techniques via a combination of the following approaches:
• Direct Capitalisation: The subject property rental is divided by a market derived capitalisation rate to assess the market value of the asset.
Further adjustments are then made to the market value to reflect under or over renting, additional revenue and required capital expenditure.
• Discounted Cash Flow: Discounted cash flow projections for the subject property are based on estimates of future cash flows, supported by the
terms of any existing lease and by external evidence such as market rents for similar properties in the same location and condition, and using
discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.
Significant inputs used together with the impact on fair value of a change in inputs:
RANGE OF SIGNIFICANT
UNOBSERVABLE INPUTS MEASUREMENT SENSITIVITY
20192018Increase in inputDecrease in input
Market capitalisation rate (%)¹4.75 – 7.754.75 – 10.50DecreaseIncrease
Market rental ($ per sqm)²28 – 40828 – 370IncreaseDecrease
Discount rate (%)³6.50 – 9.506.50 – 12.00DecreaseIncrease
Rental growth rate (%)41.78 – 3.131.71 – 2.94IncreaseDecrease
Terminal capitalisation rate (%)⁵5.00 – 8.255.00 – 12.00DecreaseIncrease
1 The capitalisation rate applied to the market rental to assess a property’s value, determined through analysis of similar transactions taking into account location, weighted average
lease term, tenant covenant, size and quality of the property.
2 The valuers assessment of the net market income which a property is expected to achieve under a new arm’s length leasing transaction. Includes both leased and vacant areas.
3 The rate applied to future cash flows reflecting transactional evidence from similar properties.
4 The rate applied to the market rental over the future cash flow projection.
5 The rate used to assess the terminal value of the property.
44
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
2. PROPERTY (continued)
2.1. Investment properties (continued)
The estimated sensitivity of the fair value of investment property to changes in the market capitalisation rate (under the Direct Capitalisation valuation
approach) and discount rate (under the Discounted Cash Flows valuation approach) is set out in the table below:
ALL VALUES IN $000S
Fair valueMarket capitalisation rate Discount rate
2019+ 0.25%- 0.25%+ 0.25%- 0.25%
Valuation 1,469,285
Change (55,000) 60,000 (43,000) 46,000
Change (%)(4%)5%(3%)3%
ALL VALUES IN $000S
Fair valueMarket capitalisation rate Discount rate
2018+ 0.25%- 0.25%+ 0.25%- 0.25%
Valuation 1,318,655
Change (52,000) 56,000 (40,000) 43,000
Change (%)(4%)4%(3%)3%
Generally, a change in the assumption made for the adopted market capitalisation rate is accompanied by a directionally similar change in the
adopted terminal capitalisation rate. The adopted market capitalisation rate forms part of the direct capitalisation approach and the adopted terminal
capitalisation rate forms part of the discounted cash flow approach. Both valuation methodologies are considered when determining an investment
property’s fair value.
When calculating the direct capitalisation approach, the market rental has a strong interrelationship with the adopted market capitalisation rate given
the methodology involves assessing the total market rental income receivable from the property and capitalising this in perpetuity to derive a capital
value. In theory, an increase in the market rent and an increase in the adopted market capitalisation rate could potentially offset the impact to the fair
value. The same can be said for a decrease in the market rent and a decrease in the adopted market capitalisation rate. A directionally opposite change
in the market rent and the adopted market capitalisation rate could potentially magnify the impact to the fair value.
When assessing a discounted cash flow, the adopted discount rate and adopted terminal capitalisation rate have a strong interrelationship in deriving
a fair value given the discount rate will determine the rate at which the terminal value is discounted to the present value. In theory, an increase in the
adopted discount rate and a decrease in the adopted terminal capitalisation rate could potentially offset the impact to the fair value. The same can
be said for a decrease in the discount rate and an increase in the adopted terminal capitalisation rate. A directionally similar change in the adopted
discount rate and the adopted terminal capitalisation rate could potentially magnify the impact to the fair value.
2.2. Non-current assets classified as held for sale
Key estimates and assumptions: Non-current assets classified as held for sale
Non-current assets classified as held for sale comprises an investment property contracted for sale. The carrying value of the property is the
contracted sale price, net of sale costs, being the lower of carrying value and fair value less costs of disposal.
ALL VALUES IN $000S20192018
50 Parkside Road, Wellington–3,313
2 Pacific Rise, Mt Wellington6,893–
Total non-current assets classified as held for sale6,8933,313
On 18 February 2019, the Group announced its strategy of replacing its non-industrial assets with quality industrial properties in sought-after areas,
either via acquisitions or by value-add strategies within the existing portfolio. As at 31 December 2019, however, the non-industrial properties within
the portfolio – Carlaw Park Gateway Building, Carlaw Park Office Complex and Shed 22, 23 Cable Street - cannot be classified as non-current assets
classified as held for sale as they do not meet the definition under IFRS.
45
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
2. PROPERTY (continued)
2.3. Rental and management fee income
ALL VALUES IN $000S20192018
Gross rental receipts and service charge income recovered from tenants 93,338 87,717
Fixed rental income adjustments 1,701 1,257
Capitalised lease incentive adjustments 350 88
Management fee income 662 648
Total rental and management fee income 96,051 89,710
Recognition and Measurement
Rental income from investment properties is recognised in the Consolidated Statement of Comprehensive Income on a straight line basis over the
term of the lease. Fixed rental income adjustments are accounted for to achieve straight-line income recognition. Lease incentives are capitalised
to investment properties in the Consolidated Statement of Financial Position and amortised on a straight line basis in the Consolidated Statement
of Comprehensive Income over the length of the lease to which they relate, as a reduction to rental income.
Management fee income is recognised in the Consolidated Statement of Comprehensive Income in the period in which the services are rendered.
Income generated from service charges recovered from tenants is included in the gross rental income with the service charge expenses to tenants shown
in Property costs. Such revenue is recognised in the accounting period the underlying expenses are incurred in accordance with the contractual terms.
Future minimum rentals receivable under non-cancellable operating leases are as follows:
ALL VALUES IN $000S20192018
Within one year 78,309 78,477
After one year but not more than five years 242,781 231,606
More than five years 127,114 130,738
Total 448,204 440,821
2.4. Property costs
ALL VALUES IN $000S20192018
Service charge expenses (12,050) (9,961)
Bad and doubtful debts recovery (14) 63
Other non-recoverable property costs (2,786) (2,609)
Total property costs (14,850) (12,507)
Other non-recoverable costs represents property maintenance not recoverable from tenants, property valuation fees and property leasing costs.
2.5. Net rental income
ALL VALUES IN $000S20192018
Gross rental receipts and service charge income recovered from tenants 93,338 87,717
Fixed rental income adjustments 1,701 1,257
Capitalised lease incentive adjustments 350 88
less: Service charge expenses (12,050) (9,961)
Net rental income 83,339 79,101
2.6. Insurance income
On 21 April 2019, 314 Neilson Street, Penrose sustained fire damage. The fire has resulted in a business interruption (loss of rents claim) and
a material damage claim. The insurance income relating to business interruption and to material damage is presented in the Consolidated Statement
of Comprehensive Income. Further insurance proceeds are expected to be received and recognised in subsequent periods.
46
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
3. FUNDING
IN THIS SECTION This section outlines how the Group manages its capital structure, financing costs and exposure to interest rate risk.
3.1. Borrowings
(i) Net borrowings
ALL VALUES IN $000S20192018
Syndicated bank facility drawn down - non-current 215,576 201,050
Fixed rate bonds - non-current 200,000 200,000
Unamortised borrowings establishment costs (2,628) (2,828)
Net borrowings 412,948 398,222
Weighted average interest rate for drawn debt (inclusive of current interest rate swaps, margins and line fees)4.63%4.86%
Weighted average term to maturity (years) 4.14 4.00
Recognition and Measurement
All borrowings are initially measured at fair value, plus directly attributable transaction costs, and subsequently measured at amortised cost using the
effective interest rate method. Under this method, directly attributable fees and costs are capitalised and spread over the expected life of the facility.
All other interest costs and bank fees are expensed in the period they are incurred.
(ii) Composition of borrowings
ALL VALUES IN $000S
As at 31 December 2019Issue DateMaturity DateInterest Rate
Facility drawn /
amount
Undrawn
facilityFair Value
Bank Facility A–4–Nov–22Floating 150,000 – 150,000
Bank Facility B–4–Nov–23Floating 65,576 84,424 65,576
PFI01028–Nov–1728–Nov–244.59% 100,000 – 107,924
PFI0201–Oct–181–Oct–254.25% 100,000 – 106,392
Total borrowings 415,576 84,424 429,892
ALL VALUES IN $000S
As at 31 December 2018Issue DateMaturity DateInterest Rate
Facility drawn /
amount
Undrawn
facilityFair Value
Bank Facility A–4–May–20Floating 50,000 – 50,000
Bank Facility B–4–May–21Floating 151,050 36,450 151,050
Bank Facility C–4–May–22Floating – 37,500 –
PFI01028–Nov–1728–Nov–244.59% 100,000 – 103,127
PFI0201–Oct–181–Oct–254.25% 100,000 – 101,377
Total borrowings 401,050 73,950 405,554
The Group has long-term revolving facilities (A and B) with a banking syndicate comprising ANZ Bank New Zealand Limited (ANZ), Bank of New Zealand
(BNZ), Commonwealth Bank of Australia (CBA) and Westpac New Zealand Limited (Westpac) (each providing $75,000,000), for $300,000,000.
The carrying values of the bank facilities approximate the fair value of the facilities because the loans have floating rates of interest that reset every
30-90 days.
The fair value of the fixed rate bonds is based on their listed market prices at balance date and is classified as Level 1 in the fair value hierarchy
(2018: Level 1). Interest on the PFI010 Bonds is payable quarterly in February, May, August and November in equal instalments, while interest
on the PFI020 Bonds is payable quarterly in January, April, July and October; also in equal instalments. Both Bonds are listed on the NZDX.
(iii) Security
The syndicated bank facility and fixed rate bonds are secured by way of a security trust deed and registered mortgage security which is required to be
provided over Group properties with current valuations of at least $1,000,000,000 (31 December 2018: $950,000,000). In addition to this, the syndicated
bank facility agreement and the fixed rate bond terms also contain a negative pledge. The Company and PFI No. 1 are guarantors to the facility and fixed
rate bonds. As at 31 December 2019, investment properties totalling $1,463,178,000 (31 December 2018: $1,309,968,000) were mortgaged as security
for the Group’s borrowings.
47
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
3.2. Derivative financial instruments
(i) Fair values
ALL VALUES IN $000S20192018
Non-current assets 13,212 4,891
Current liabilities (840) (94)
Non-current liabilities (18,982) (13,982)
Total (6,610) (9,185)
(ii) Notional values, maturities and interest rates
20192018
Notional value of interest rate swaps - fixed rate payer - start dates commenced ($000S) 245,000 220,000
Notional value of interest rate swaps - fixed rate receiver¹ - start dates commenced ($000S) 200,000 200,000
Notional value of interest rate swaps - fixed rate payer - forward starting ($000S) 190,000 210,000
Total ($000S) 635,000 630,000
Percentage of borrowings fixed (%)59%55%
Fixed rate payer swaps:
Average period to expiry - start dates commenced (years) 2.40 2.10
Average period to expiry - forward starting (years from commencement) 3.48 3.53
Average (years) 2.87 2.80
Fixed rate payer swaps:
Average interest rate² - start dates commenced (%)3.75%4.16%
Average interest rate² - forward starting (% during effective period)3.32%3.43%
Average (%)3.55%3.80%
1 The Group has $200 million of fixed rate receiver swaps for the duration of the two $100 million fixed rate bonds, the effect of the fixed rate receiver swaps is to convert the two
$100 million fixed rate bonds to floating interest rates.
2 Excluding margin and fees.
Recognition and Measurement
The Group is exposed to changes in interest rates and uses derivative financial instruments, principally interest rate swaps, to mitigate this risk.
The Group does not apply hedge accounting. Derivative financial instruments are entered into to economically hedge the risk exposure.
Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are
subsequently re-measured to fair value at each reporting date. Transaction costs are expensed on initial recognition and recognised in the
Consolidated Statement of Comprehensive Income. The fair value of derivative financial instruments is based on valuations prepared by independent
treasury advisers and is the estimated amount that the Group would receive or pay to terminate the derivative contract at reporting date, taking into
account current interest rates and creditworthiness of the derivative contract counterparties.
Key estimates and assumptions: Derivatives
The fair value of derivative financial instruments are determined from valuations prepared by independent treasury advisers using Level 2 valuation
techniques (2018: Level 2). These are based on the present value of estimated future cash flows accounting for the terms and maturity of each
contract and the current market interest rates at reporting date. Fair values also reflect the current creditworthiness of the derivative counterparty.
These values are verified against valuations prepared by the respective counterparties. The valuations were based on market rates at 31 December
2019 of between 1.29% for the 90 day BKBM (31 December 2018: 1.97%) and 1.79% for the 10 year swap rate (31 December 2018: 2.65%). There were
no changes to these valuation techniques during the reporting period.
3. FUNDING (continued)
48
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
4. INVESTOR RETURNS AND INVESTMENT METRICS
IN THIS SECTION This section summarises the earnings per share and net tangible assets per share which are common investment metrics.
4.1. Earnings per share
(i) Basic earnings per share
20192018
Total comprehensive income for the year attributable to the shareholders of the Company ($000) 176,286 110,094
Weighted average number of ordinary shares (shares) 498,723,330 498,723,330
Basic earnings per share (cents) 35.35 22.08
(ii) Diluted earnings per share
The calculation of diluted earnings per share has been based on the profit attributable to ordinary shareholders and weighted-average number of
ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. Weighted average number of shares for the purpose
of diluted earnings per share has been adjusted for 651 (2018: nil) rights issued under the Group’s LTI Plan as at 31 December 2019. This adjustment has
been calculated using the treasury share method. Refer to note 5.9 “Share-based payments” for further details.
20192018
Total comprehensive income for the year attributable to the shareholders of the Company ($000) 176,286 110,094
Weighted average number of shares for purpose of diluted earnings per share (shares) 498,723,981 498,723,330
DIluted earnings per share (cents) 35.35 22.08
4.2. Net tangible assets per share
20192018
Net assets ($000) 1,054,037 915,135
Less: Goodwill ($000) (note 5.5) (29,086) (29,086)
Net tangible assets ($000) 1,024,951 886,049
Closing shares on issue (shares) 498,723,330 498,723,330
Net tangible assets per share (cents) 206 178
49
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
5. OTHER
IN THIS SECTION This section includes additional information that is considered less significant in understanding of the financial performance and
position of the Group, but is disclosed to comply with New Zealand Equivalents to International Financial Reporting Standards.
5.1. Administrative expenses
ALL VALUES IN $000SNOTE20192018
Auditors remuneration:
Audit and review of financial statements (145) (155)
Voting procedures over the annual shareholders’ meeting (3) (3)
Benchmarking of executive remuneration (2) (7)
Employee and independent contractor benefits expense (3,032) (2,626)
Directors’ fees5.8 (337) (597)
Office expenses (523) (411)
Rent
1
– (110)
Depreciation (124) (55)
Other expenses (906) (715)
Total administrative expenses (5,072) (4,679)
1 Following the adoption of NZ IFRS 16 on 1 January 2019, rent expense has been replaced by depreciation expense on the right-of-use asset and interest expense on the lease liability.
50
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
5.2. Taxation
(i) Reconciliation of accounting profit before income tax to income tax (expense) / benefit
ALL VALUES IN $000S20192018
Profit before income tax 190,377 122,296
Prima facie income tax calculated at 28% (53,306) (34,243)
Adjusted for:
Non-tax deductible revenue and expenses (30) (39)
Fair value gain on investment properties 35,054 18,584
Gain on disposal of investment properties 1,155 15
Depreciation 2,598 2,620
Disposal of depreciable assets (729) –
Deductible capital expenditure 991 1,325
Lease incentives, fees and fixed rental income 547 491
Derivative financial instruments 721 570
Impairment allowance 4 18
Current tax prior period adjustment (57) (222)
Current year tax losses utilised – 1,995
Other (54) –
Current taxation expense (13,106) (8,886)
Current year tax losses utilised– (1,995)
Depreciation 224 (242)
Lease incentives, fees and fixed rental income (547) (491)
Derivative financial instruments (721) (570)
Impairment allowance (4) (18)
Other 63 –
Deferred taxation expense (985) (3,316)
Total taxation reported in Consolidated Statement of Comprehensive Income (14,091) (12,202)
5. OTHER (continued)
51
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
(ii) Deferred tax
20172018201820192019
ALL VALUES IN $000S As at
Recognised
in profit As at
Recognised
in profit As at
Deferred tax assets
Losses carried forward (1,995) 1,995 – – –
Derivative financial instruments (3,142) 570 (2,572) 721 (1,851)
Impairment allowance (42) 18 (24) 4 (20)
Other – – – (63) (63)
Gross deferred tax assets (5,179) 2,583 (2,596) 662 (1,934)
Deferred tax liabilities
Investment properties 14,063 733 14,796 323 15,119
Gross deferred tax liabilities 14,063 733 14,796 323 15,119
Net deferred tax liability 8,884 3,316 12,200 985 13,185
(iii) Imputation credit account
The amounts below represent the balance of the imputation credit account as at the end of the reporting period, adjusted for imputation credits that will
arise from the payment of taxation payable represented in the Consolidated Statement of Financial Position.
ALL VALUES IN $000S20192018
Opening balance2,203 38
Taxation paid / payable12,943 8,773
Imputation credits attached to dividends paid(11,149) (6,608)
Closing balance available to shareholders for use in subsequent periods3,997 2,203
5. OTHER (continued)
5.2. Taxation (continued)
52
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
Recognition and Measurement
The Company and Group are a listed Portfolio Investment Entity (PIE) for the purposes of the Income Tax Act 2007. Tax is accounted for on a
consolidated Group basis and the Group is required to pay tax to the Inland Revenue as required by the Income Tax Act 2007. Income tax expense
comprises current and deferred tax and is recognised in the Consolidated Statement of Comprehensive Income for the year.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date,
and any adjustment to tax payable in respect of previous years. Deferred tax is provided for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is recognised on all temporary differences, including:
• The tax liability arising from accumulated depreciation claimed on investment properties, where applicable;
• The tax asset arising from the allowance for impairment;
• The tax liability arising from certain prepayments and other assets; and
• The tax asset / liability arising from the unrealised gains / losses on the revaluation of interest rate swaps.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted by the reporting date. Deferred tax is not recognised for:
• Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects
neither accounting nor taxable profit or loss;
• Temporary differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable
future; and
• Taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income
taxes levied by the same tax authority on the same taxable entity, or on different entities, but they intend to settle current tax assets and liabilities
on a net basis.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences
can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
Additional income tax arising from distribution of dividends is recognised at the same time as the liability to pay the dividend is recognised.
Key estimates and assumptions: Deferred tax
Deferred tax is provided on the accumulated depreciation claimed on the building component of investment properties. Investment properties are
valued each year by independent valuers (as outlined in note 2.1). These values include an allocation of the valuation between the land and building
components. The calculation of deferred tax on depreciation recovered places reliance on the land and building split in the valuation provided by
the valuers.
5. OTHER (continued)
5.2. Taxation (continued)
53
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
5. OTHER (continued)
5.3. Accounts receivable, prepayments and other assets
ALL VALUES IN $000S20192018
Accounts receivable 1,479 952
Provision for doubtful debts (72) (49)
Prepayments and other assets 1,012 336
Total accounts receivable, prepayments and other assets 2,419 1,239
Recognition and Measurement
Accounts receivable are recognised at fair value and subsequently measured at amortised cost using the effective interest rate method. Receivables
are assessed on an ongoing basis for impairment. The group applies the simplified approach to providing for expected credit losses prescribed by
NZ IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables.
5.4. Accounts payable, accruals and other liabilities
ALL VALUES IN $000S20192018
Accounts payable 1,708 1,615
Accrued interest expense and bank fees 2,358 2,589
Accruals and other liabilities in respect of investment properties 1,464 2,996
Accruals and other liabilities 4,067 3,260
Total accounts payable, accruals and other liabilities 9,597 10,460
Recognition and Measurement
Expenses are recognised on an accruals basis and, if not paid at the end of the reporting period, are reflected as a payable in the Consolidated
Statement of Financial Position.
5.5. Goodwill
ALL VALUES IN $000S20192018
Goodwill 29,086 29,086
Recognition and Measurement
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the fair value of the identifiable
net assets acquired.
Goodwill is measured at cost less accumulated impairment losses. It is tested annually for impairment or more frequently if events or changes in
circumstances indicate potential impairment. An impairment loss is recognised if the carrying amount exceeds the estimated recoverable amount.
Impairment losses are recognised in the Consolidated Statement of Comprehensive Income.
Goodwill is allocated to the Group’s cash generating units (CGU) identified according to the lowest level at which the goodwill is monitored.
To assess whether goodwill is impaired, the carrying amount of the CGU is compared to the recoverable amount, determined based on the greater
of its value in use and its fair value less costs of disposal.
Key estimates and assumptions: Goodwill
All goodwill relates to the Property for Industry Limited CGU.
The fair value of the Property for Industry Limited CGU for goodwill impairment testing is determined using Level 3 valuation techniques (2018: Level
3). Fair value less costs of disposal is measured by calculating the fair value of the Property for Industry Limited CGU using a 1 day volume-weighted
average share price at the reporting date, applying a control premium (14.3%, as determined by a third party, 2018: 14.3%) and deducting costs of
disposal. As at 31 December 2019 the estimated fair value less costs of disposal of the Property for Industry Limited CGU exceeded the carrying
value (2018: nil impairment).
54
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
5. OTHER (continued)
5.6. Financial instruments
The following financial assets and liabilities, that potentially subject the Group to financial risk, have been recognised in the financial statements:
ALL VALUES IN $000S20192018
Financial Assets
Financial assets at amortised cost:
Cash at bank 1,185 1,652
Accounts receivable and other assets 1,407 903
Total - Financial assets at amortised cost 2,592 2,555
Financial assets at fair value through profit or loss:
Derivative financial instruments 13,212 4,891
Total - Financial assets at fair value through profit or loss 13,212 4,891
Total Financial Assets 15,804 7,446
Financial Liabilities
Financial liabilities at amortised cost:
Accounts payable, accruals and other liabilities 9,455 10,460
Lease liabilities325–
Borrowings 412,948 398,222
Total - Financial liabilities at amortised cost 422,728 408,682
Financial liabilities at fair value through profit or loss:
Derivative financial instruments 19,822 14,076
Total - Financial liabilities at fair value through profit or loss 19,822 14,076
Total Financial Liabilities 442,550 422,758
5.7. Financial risk management
The Group’s activities expose it to a variety of financial risks, including interest rate risk, credit risk, and liquidity risk. The Group’s overall financial risk
management strategy focuses on minimising the potential negative economic impact of unpredictable events on its financial performance.
(a) Interest rate risk
The Group’s exposure to the risk of changes in interest rates relates primarily to the Group’s borrowings with a floating interest rate. The Group has an
interest rate hedging policy which has been reviewed by an external firm with expertise in this area. The policy calls for a band of the Group’s borrowings
to be at fixed interest rates, with a greater proportion of the near term to be fixed and a lesser percentage of the far dated to be fixed.
The Group uses derivative financial instruments, principally fixed rate payer interest rate swaps, to exchange its floating short-term interest rate
exposure for fixed long-term interest rate exposure in accordance with its policy bands. As the Group holds derivative financial instruments, there is a
risk that their fair value will fluctuate because of underlying changes in market interest rates. This is accepted as a by-product of the Group’s interest
rate hedging policy, however this risk is partially mitigated by the Group’s holding of fixed rate receiver interest rate swaps. The fair value of derivative
financial instruments is disclosed in the Consolidated Statement of Financial Position (refer note 3.2).
The following sensitivity analysis shows the effect on profit before tax and equity if interest rates at balance date had been 50 basis points (0.50%) higher
or lower with all other variables held constant.
20192018
ALL VALUES IN $000S
Gain/(loss) on
increase of
0.50%
Gain/(loss) on
decrease of
0.50%
Gain/(loss) on
increase of
0.50%
Gain/(loss) on
decrease of
0.50%
Impact on profit before tax (158) 158 (1,171) 1,171
Impact on equity (114) 114 (843) 843
55
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
(b) Credit risk
Credit risk represents the risk that the counterparty to a financial instrument will fail to discharge its obligations and the Group will suffer financial loss
as a result. Financial instruments which potentially subject the Group to credit risk consist of cash and cash equivalents, accounts receivable and other
assets and interest rate swap agreements.
With respect to the credit risk arising from cash and cash equivalents, there is limited credit risk as cash is deposited with ANZ Bank New Zealand
Limited, a registered bank in New Zealand with a credit rating of AA– (Standard & Poor’s). The Group considers both historical analysis and forward-
looking information in determining any expected credit loss, and infers from this strong credit rating that no loss allowance is deemed necessary.
With respect to the credit risk arising from accounts receivable, the Group only enters into lease arrangements over its investment properties with
parties whom the Group assesses to be creditworthy. It is the Group’s policy to subject all potential tenants to credit verification procedures and
monitor accounts receivable balances. As the Group has a wide spread of tenants over many industry sectors, it is not exposed to any significant
concentration of credit risk. Credit risk does not arise on property sale proceeds to be settled as title will not transfer until settlement.
With respect to the credit risk arising from interest rate swap agreements, there is limited credit risk as all counterparties are registered banks
in New Zealand. The credit ratings of these banks are all AA– (Standard & Poor’s).
The carrying amount of financial assets as per note 5.6 approximates the Groups maximum exposure to credit risk. For certain receivables the
Group holds bank guarantees, parent company guarantees or personal guarantees.
(c) Liquidity risk
Liquidity risk is the risk that the Group will experience difficulty in either realising assets or otherwise raising sufficient funds to meet its obligations
arising from its financial liabilities.
The Group manages its liquidity risk by ensuring that it has committed funding facilities at a minimum of 105% of the projected peak debt level over
the next twelve months (excluding business acquisitions).
The maturities of the Group’s borrowings based on the remaining period is 4.1 years (2018: 4.0 years), with all borrowings due later than one year
(2018: later than one year). Further details of the Group’s borrowings, including the maturities of the Group’s borrowings, are disclosed in note 3.1.
The table below analyses the contractual undiscounted cash flows of the Group’s financial liabilities (principal and interest) by the relevant maturity
groupings based on the remaining period as at 31 December 2019 and 31 December 2018.
ALL VALUES IN $000S
Carrying
amount
Contractual cash flows
Total 0 - 1 year 1 - 2 years 2 - 5 years > 5 years
Financial liabilities
Accounts payable, accruals and other liabilities 9,455 9,455 – – – 9,455
Lease liabilities3258591149–325
Derivative financial instruments¹ 6,610 2,833 2,156 2,181 419 7,589
Borrowings 412,948 12,089 12,089 340,152 102,078 466,408
Total as at 31 December 2019 429,338 24,462 14,336 342,482 102,497 483,777
Accounts payable, accruals and other liabilities 10,460 10,460 – – – 10,460
Derivative financial instruments
1
9,185 2,765 2,429 3,645 506 9,345
Borrowings 398,222 14,150 63,111 174,724 209,550 461,535
Total as at 31 December 2018 417,867 27,375 65,540 178,369 210,056 481,340
1 The carrying amount of derivative financial instruments shown is the net position of both derivative financial instrument assets and derivative financial instrument liabilities.
(d) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern whilst maximising the return to
shareholders through maintaining an optimal balance of debt and equity to optimise the cost of capital. In order to maintain or adjust the capital
structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to
reduce debt.
The Group’s capital structure includes borrowings and shareholders’ equity. The Group monitors capital on the basis of the loan to value ratio and
borrowing covenant compliance. The loan to value ratio is calculated as borrowings divided by investment properties. The Group’s strategy is to
maintain a loan to value ratio of no more than 40%. The covenants on all borrowings require a loan to value ratio of no more than 50%, and this
was complied with during the year.
The Group operates a Dividend Reinvestment Scheme (DRS) which allows eligible shareholders to reinvest dividends in shares. The Board, at its
sole discretion, may suspend the DRS at any time and/or apply a discount to which shares are issued under the DRS.
5. OTHER (continued)
5.7. Financial risk management (continued)
56
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
5.8. Related party transactions
(i) Key management personnel
ALL VALUES IN $000S20192018
Directors’ fees - annual fees 441 357
Directors’ fees - retirement allowance paid – 135
Directors’ fees - retirement allowance (reversed) / accrued (105) 105
Short-term independent contractors benefits 213 1,518
Leadership Team remuneration 1,365 –
Key management personnel 1,914 2,115
On 8 May 2018, Peter Masfen retired from the Board of Directors of the Company as Chairman and Independent Director. Mr Masfen was first elected
as a Director of the Company on 17 May 2002, and had held office as a Director of the Company since that date. At the 23 May 2008 Annual Meeting,
the Company confirmed that retirement payments (being the total remuneration of the retiring Director, in any three years chosen by the Company)
to eligible Directors (which includes Mr Masfen) will be calculated in respect of that Director’s remuneration prior to the increase approved at the
23 May 2008 meeting. As such, a retirement allowance of $135,000 was payable to Mr Masfen and was paid on his retirement.
At the 23 May 2008 annual meeting, it was also noted that no retirement remuneration will be paid to Directors who are appointed after 1 May 2004. It is
noted that Humphry Rolleston is the only other current Director who was appointed prior to 1 May 2004, however Mr Rolleston has elected to waive this
retirement allowance in the current year.
On 1 January 2019, Simon Woodhams and Craig Peirce ceased to be independent Contractors. On that date, they were appointed as Chief Executive
Officer and Chief Finance and Operating Officer respectively, and they both became full-time employees of the Company. Accordingly their remuneration
was disclosed as short-term independent contractors benefits in 2018 and as leadership team remuneration in 2019.
(ii) Other related party transactions
The Group also has related party relationships with the following parties:
Related partyAbbreviationNature of relationship(s)
McDougall Reidy & Co LtdMRCOGregory Reidy, a senior executive who became an independent contractor with the Company
on 30 June 2017 and then a non-executive director of the Company on 30 June 2019, is also
a Director of MRCO.
The Group had a licence agreement with MRCO enabling MRCO to operate its business from
the Group’s premises, access the Group’s IT and support systems and employees for its
business. This agreement was terminated on 30 June 2019.
Commonwealth Bank of AustraliaCBASusan Peterson, a member of the Board of Directors, is also a Director of ASB Bank Limited
(ASB), a 100% subsidiary of CBA; a lender to PFI.
The Board of DirectorsDirectorsThe Board of Directors.
The following transactions with related parties took place:
ALL VALUES IN $000SRelated party20192018
Licence income receivedMRCO50100
Related party debts written off or forgiven–––
Interest expense and bank fees incurredCBA(2,173)(3,135)
Interest income receivedCBA796657
5. OTHER (continued)
57
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
(ii) Other related party transactions (continued)
The following positions were held with related parties:
ALL VALUES IN $000S UNLESS STATED OTHERWISERelated party31 Dec 201931 Dec 2018
Amounts owingCBA (246) (246)
Amounts owedCBA 79 45
Bank facility providedCBA 75,000 66,825
Bank facility drawnCBA 53,894 48,855
Notional value of interest rate swaps:
Current fixed rate payer swapsCBA 50,000 45,000
Forward starting fixed rate payer swapsCBA 50,000 60,000
Current fixed rate receiver swapsCBA 50,000 50,000
Shares held beneficially in the company (number)Directors 191,371 1,041,371
Shares held non-beneficially in the company (number)Directors 110,825 110,825
5.9. Share-based payments
Long-term incentive plan (Equity settled)
The long-term incentive plan (LTI Plan) was introduced for selected senior executives in the Group on 2 December 2019. Under this plan, Performance
Share Rights (PSRs) were issued to the senior executives which give them the right to receive ordinary shares in the Group after a 1-3 year period. These
are at-risk payments designed to align the reward of certain senior executives with the enhancement of shareholder value over a multi-year period.
The key terms and conditions related to the PSRs under the LTI Plan are as follows:
• The PSRs are granted for nil consideration and have a nil exercise price.
• The participant must remain an employee of the Group as at the relevant vesting date for each tranche of PSRs.
• Each grant under the LTI Plan has three tranches with two separate performance hurdles applying to each tranche. The three tranches enable
a third of the PSRs to vest after one year, two years and three years from the service commencement date of 1 January 2019. For each tranche:
–50% of the PSRs are subject to a performance hurdle of the Company’s rolling three year Funds From Operations (FFO) growth equaling or
exceeding the three year CPI growth to September immediately prior to the vesting date (“Part A”); and
–50% of the PSRs are subject to a performance hurdle of the Company’s Total Shareholder Returns (TSR) outperforming the TSR of a property
peer group (comprising other listed property issuers) over the period from the commencement date to the vesting date for the relevant tranche
(“Part B”).
• At vesting, subject to meeting performance hurdles, each PSR is converted to one ordinary share. The LTI Plan is a dividend protected LTI Plan
and the senior executives will receive additional shares representing the value of dividends paid over the vesting period. The senior executives
are liable for tax on the shares received at this point.
196,023 PSRs were granted in the current period out of which 65,341 have vested at 31 December 2019. 130,682 PSRs were outstanding as at
31 December 2019.
There were no LTI Plans in 2018. The PSRs outstanding at 31 December had a weighted - average contractual life of 1.5 years.
Introduction of the LTI Plan has resulted in the creation of a share-based payment reserve totalling $270,000 as at 31 December 2019 (2018: nil).
5. OTHER (continued)
5.8. Related party transactions (continued)
58
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
Fair value measurement of LTI Plan
The fair value of the PSRs have been measured using the Monte Carlo simulation model. Service and non-market performance conditions were not
taken into account in measuring fair value. The TSR performance metric is a market condition and has been factored into the fair value of the PSRs
at grant date. However, the FFO performance metric is a non-market condition and is not factored into the fair value of the PSRs.
The inputs used in the measurement of the fair values at grant date were as follows.
Performance Share Rights
Part APart B
Weighted average fair value at grant date$2.35$2.04
Share price at grant date$2.35$2.35
Expected volatility (weighted-average)10%10%
Expected life (weighted-average)13 months13 months
Risk-free interest rate1.00%1.00%
The expected volatility and correlation measures are based on the standard deviation and correlation of weekly returns of the property peer group,
over a two year period.
The risk-free rate was based on government bond yields over a period of 1 to 2 years.
Recognition and Measurement
The PSRs are measured at fair value at grant date and expensed over the period during which the participant becomes unconditionally entitled to
the shares, based on an estimate of shares that will eventually vest. The corresponding entry of the expense is equity. The fair value of the PSRs
which are vested - and the corresponding shares which are issued - are transferred from the share-based payment reserve to share capital on
issue of the shares.
Key estimates and assumptions: Long-term incentive plan
It has been assumed that senior executives will remain employed with the Company on each of the vesting dates and that the non-market
performance conditions will be met.
5. OTHER (continued)
5.9. Share-based payments (continued)
59
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
5.10. Leases
(i) Amounts recognised in the Consolidated Statement of Financial Position
The Consolidated Statement of Financial Position shows the following amounts relating to leases:
ALL VALUES IN $000S20192018
Right-of-use assets
1
Properties 314 –
Total right-of-use assets 314 –
1 Included in the line item ‘Property, plant and equipment’ in the Consolidated Statement of Financial Position.
The Property, plant and equipment balance of $616,000 includes $314,000 relating to the right-of-use asset.
ALL VALUES IN $000S20192018
Lease liabilities
Current
2
85 –
Non-current
3
240 –
Total lease liabilities 325 –
2 Included in the line item ‘Accounts payable, accruals and other liabilities’ in the Consolidated Statement of Financial Position.
3 Included in the line item ‘Lease liabilities’ in the Consolidated Statement of Financial Position.
Additions to the right-of-use assets during the 2019 financial year were $314,000, on adoption of NZ IFRS 16.
(ii) Amounts recognised in the Consolidated Statement of Comprehensive Income
The Consolidated Statement of Comprehensive Income shows the following amounts relating to leases:
ALL VALUES IN $000S20192018
Depreciation charge of right-of-use assets⁴
Properties (90) –
Total depreciation charge of right-of-use assets (90)–
4 Included in the line item ‘Administrative expenses’ in the Consolidated Statement of Comprehensive Income.
ALL VALUES IN $000S20192018
Interest cost⁵ (32)–
5 Included in the line item ‘Interest expense and bank fees’ in the Consolidated Statement of Comprehensive Income.
The total cash outflow for leases in 2019 was $110,000.
5. OTHER (continued)
60
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
NOTES 2019
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
5. OTHER (continued)
5.11. Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating
decision-maker has been identified as the Board of Directors. The Group is internally reported as a single operating segment to the chief operating
decision-maker.
5.12. Capital commitments
As at 31 December 2019, the Group had capital commitments totalling $81,490,000 (31 December 2018: $2,891,000) as follows:
ALL VALUES IN $000S20192018
AddressProject
314 Neilson StreetDesign and build4,677–
47 Dalgety DriveDesign and build8,123–
59 Dalgety DriveRefurbishment6,592–
25 Langley RoadAcquisition of warehouse on completion of construction7,532–
6 Donnor PlaceRefurbishment1,412–
Lot 1, 88 Tidal RoadAcquisition18,984–
Lot 11, 88 Tidal RoadAcquisition34,170–
212 Cavendish DriveDesign and build–2,891
Total capital commitments 81,490 2,891
5.13. Subsequent events
On 17 February 2020, the Directors of the Company approved the payment of a net dividend of $10,723,000 (2.1500 cents per share) to be paid
on 4 March 2020. The gross dividend (2.9515 cents per share) carries imputation credits of 0.8015 cents per share. The payment of this dividend
will not have any tax consequences for the Group and no liability has been recognised in the Consolidated Statement of Financial Position as at
31 December 2019 in respect of this dividend.
61
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2019
Independent auditor’s report
To the shareholders of Property for Industry Limited
We have audited the financial statements which comprise:
• the consolidated statement of financial position as at 31 December 2019;
• the consolidated statement of comprehensive income for the year then ended;
• the consolidated statement of changes in equity for the year then ended;
• the consolidated statement of cash flows for the year then ended; and
• the notes to the financial statements, which include significant accounting policies.
Our opinion
In our opinion, the accompanying financial statements of Property for Industry Limited (the Company), including its subsidiary (together the Group),
present fairly, in all material respects, the financial position of the Group as at 31 December 2019, its financial performance and its cash flows for the
year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and International Financial
Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ)) and International Standards on Auditing (ISAs).
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners (PES 1)
issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ Code of Ethics
for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Our firm carries out other services for the Group in the areas of procedures over the voting at the annual shareholders’ meeting and benchmarking
of executive remuneration. The provision of these other services has not impaired our independence as auditor of the Group.
Our audit approach
Overview
Materiality
Audit scope
Key audit
matters
An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement.
Overall Group materiality: $3,130,000, which represents 5% of profit before tax excluding valuation movements relating to
investment properties and interest rate derivatives.
We applied this benchmark because, in our view, it is most reflective of the metric against which the performance of the Group
is most commonly measured.
We have determined that there is one key audit matter:
• Valuations of investment properties.
62
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
AUDITORS 2019
INDEPENDENT AUDITOR’S REPORT (continued)
Materiality
The scope of our audit was influenced by our application of materiality.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the
financial statements as a whole as set out above. These, together with qualitative considerations, helped us to determine the scope of our audit, the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Audit scope
We designed our audit by assessing the risks of material misstatement in the financial statements and our application of materiality. As in all of our
audits, we also addressed the risk of management override of internal controls including among other matters, consideration of whether there was
evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking
into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current
year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key audit matterHow our audit addressed the key audit matter
Valuation of investment properties
Refer to note 2.1 of the financial statements.
At $1,469 million the Group’s investment properties represent
the majority of the assets held as at 31 December 2019.
The valuation of the Group’s property portfolio is inherently
subjective due to, amongst other factors, the individual nature
of each property, location and the expected future cash flows.
This area is given specific audit focus and attention due to
the existence of significant estimation uncertainty, and only
a small percentage difference in individual property
valuation assumptions, when aggregated, could result
in material misstatement.
The valuations were carried out by independent third party
valuers. The valuers were engaged by the Group, and performed
their work in accordance with the International Valuation
Standards and the Australia and New Zealand Property Institute
Valuation and Property Standards. The valuers are rotated across
the portfolio on a three-yearly cycle.
In determining a property’s valuation, the valuers take into
account property specific information such as the current tenancy
agreements and rental income earned by the asset. They apply
assumptions in relation to capitalisation rates and current market
rent and anticipated growth, based on available market data and
transactions, to arrive at a range of valuation outcomes, from
which they derive a point estimate.
The Group has adopted the assessed values determined by
the valuers.
Given the subjectivity involved in determining valuations for individual properties,
including alternative assumptions and valuation methods, there is a range of
values that could be considered reasonable. In assessing the valuation of the
investment properties, we performed the following procedures:
External valuations
For all properties, the carrying value was agreed to the external valuation reports
and we held discussions with the valuers. Applying a risk-based approach, we read
and evaluated the valuations of specific properties.
The valuers confirmed that the valuation approach for each property was in
accordance with accounting standards and suitable for use in determining the
carrying value of Investment Properties at 31 December 2019.
We assessed the valuers’ qualifications, expertise and their objectivity and we
found no evidence to suggest that the objectivity of any valuer in their performance
of the valuations was compromised.
We also considered whether or not there was bias in determining individual
valuations and found no evidence of bias.
We carried out procedures, on a sample basis, to test whether property-specific
information supplied to the valuers by the Group reflected the underlying property
records held by the Group. For the items tested, the information was consistent.
Assumptions
Our work over the assumptions focused on the largest properties in the portfolio
and those properties where the assumptions used and/or year-on-year fair value
movement suggested a possible outlier versus market data. We engaged our
own in-house valuation specialist to assess the methodologies and critique and
challenge the key assumptions used by the valuers to market evidence and current
market conditions.
We concluded that the assumptions used in the valuations were supportable
in light of available and comparable market evidence.
From the procedures performed, we have no matters to report.
63
INDEPENDENT AUDITOR’S REPORT (continued)
Information other than the financial statements and auditor’s report
The Directors are responsible for the annual report. Our opinion on the financial statements does not cover the other information included in the annual
report and we do not express any form of assurance conclusion on the other information.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude
that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the financial statements
The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of the financial statements in accordance with
NZ IFRS and IFRS, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate
the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (NZ) and ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located at the External Reporting Board’s website at:
https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our auditor’s report.
Who we report to
This report is made solely to the Company’s shareholders, as a body. Our audit work has been undertaken so that we might state those matters which
we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions
we have formed.
The engagement partner on the audit resulting in this independent auditor’s report is Indumin Senaratne (Indy Sena).
For and on behalf of:
Chartered Accountants Auckland
17 February 2020
64
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
AUDITORS 2019
FIVE-YEAR PERFORMANCE SUMMARY
YEAR ENDED 31 DECEMBER 20192018201720162015*
ALL VALUES IN $M UNLESS OTHERWISE NOTED
FINANCIAL PERFORMANCE
Income229.3158.3128.1167.8121.3
Expenses(38.9)(36.0)(78.5)(35.7)(41.7)
Profit before taxation190.4122.349.6132.179.6
Total taxation benefit / (expense)(14.1)(12.2)2.1(8.7)(6.8)
Total comprehensive income after tax176.3110.151.7123.472.8
Weighted average number of ordinary shares ('000 shares)498,723498,723459,600450,079422,275
IFRS earnings per share (cents per share)35.3522.0811.2527.4217.25
DISTRIBUTIONS
Total comprehensive income after tax176.3110.151.7123.472.8
Distribution adjustments(137.5)(72.9)(17.3)(92.1)(41.5)
Adjusted Funds From Operations (AFFO)38.837.234.431.331.3
Weighted average number of ordinary shares ('000 shares)498,723498,723459,600450,079422,275
AFFO per share (cents per share)7.797.467.496.957.01
Gross dividends paid relating to the year reported (cents per share)10.209.337.459.249.06
Net dividends paid relating to the year reported (cents per share)7.607.557.457.357.30
AFFO pay-out ratio (%)97.6%101.2%99.5%105.8%106.1%
* AFFO not disclosed for this period, therefore Distributable Profit is disclosed
FINANCIAL POSITION
Investment properties1,469.31,318.71,210.81,083.3986.6
Goodwill29.129.129.129.129.1
Other assets24.311.22.29.411.5
Total assets1,522.71,358.91,242.11,121.81,027.2
Borrowings412.9398.2370.6332.9330.9
Other liabilities55.845.528.632.738.3
Total liabilities468.7443.8399.2365.7369.2
Total equity1,054.0915.1842.9756.1658.0
Closing shares on issue ('000 shares)498,723498,723498,723452,459447,692
Net tangible (excluding goodwill) assets (cents per share)205.5177.7163.2160.7140.5
Gearing (%)28.2%30.3%30.8%30.1%33.3%
PROPERTY PORTFOLIO METRICS
Number of properties (#)9494928384
Number of tenants (#)144148148143141
Contract rent84.982.079.672.572.3
Occupancy (%)99.0%99.3%99.9%99.6%99.6%
Net lettable area including yard (sqm) 809,183 780,092 756,455 667,441 673,112
Weighted average lease term (years)5.385.395.334.795.18
Portfolio capitalisation rate (%)5.7%6.1%6.4%6.6%7.0%
65
PERFORMANCE
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
66
Property
for
Industry
Limited
Annual
Report
31 December
2019
COMPANY
STRUCTURE
& STATUTORY
INFORMATION.
67
COMPANY STRUCTURE AND
STATUTORY INFORMATION
Property for Industry Limited (the Company, PFI) is a publicly listed company established in 1994. The Board currently has six Directors,
five of whom are independent.
More information on the PFI Board and Management Team is available on the PFI website at https://www.propertyforindustry.co.nz/about-pfi/
our-people-investors/.
PRINCIPAL ACTIVITY
PFI is a listed industrial property investment company. PFI and its subsidiary, P.F.I. Property No. 1 Limited (together, the Group), invest solely
in New Zealand. There has not been any change in the nature of the Company’s or Group’s business in the year ended 31 December 2019,
nor in the classes of business in which the Company has an interest.
GOVERNANCE
The Board of PFI is committed to the highest standards of business behaviour and accountability. The Board regularly reviews and assesses
the Group’s governance structures and processes to ensure they are consistent with best practice standards.
As part of the Board’s ongoing monitoring and review of the Group’s governance framework, the Board has developed a Corporate Governance
Manual (the manual) that forms the Group’s corporate governance framework. It incorporates the NZX Listing Rules relating to corporate
governance and the recommendations of the NZX Corporate Governance Code (the NZX Code), and was last updated on 1 May 2019 when
PFI transitioned to the updated NZX Listing Rules.
A copy of the manual is available on the PFI website at https://www.propertyforindustry.co.nz/about-pfi/governance/ and includes:
1. Code of Ethics;
2. Board Charter;
3. Audit and Risk Committee Charter;
4. Nomination and Remuneration Committee Charter;
5. Remuneration Policy;
6. Financial Products Trading Policy
1
;
7. Continuous Disclosure Policy; and
8. Diversity Policy.
COMPLIANCE WITH NZX REQUIREMENTS
PFI considers that it complies with the NZX Code.
NZX CODE: KEY PRINCIPLES
This section sets out PFI’s corporate governance policies, practices and processes by reference to the NZX Code’s eight key principles
and supporting recommendations.
1 An amendment was also made to the Financial Products Trading Policy on 12 December 2019.
68
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
FUNDAMENTALS
Principle One: Code of Ethical Behaviour
Directors should set high standards of ethical behaviour, model this behaviour and hold management accountable for these standards being
followed throughout the organisation.
Code of Ethics
The Board has developed a Code of Ethics that forms part of the manual. The Code of Ethics provides a framework for PFI’s Directors and
employees by which they are expected to conduct their duties by facilitating behaviour that is consistent with PFI’s business standards.
PFI monitors compliance with the Code of Ethics through its management processes as well as through the whistleblowing procedures set
out in the Code of Ethics itself. All Directors and employees are informed of the content of the Code of Ethics prior to commencing such roles,
and will be informed of any future change to the Code of Ethics.
Financial Products Trading Policy
PFI is committed to transparency and fairness in financial product dealing. The rules for dealing in PFI’s listed securities are contained
in its Financial Products Trading Policy. The policy’s main purpose is to ensure no Director, employee or contractor uses their position or
knowledge of PFI or its business to engage in financial product dealing for personal benefit, or to provide a benefit to any third party.
The Financial Products Dealing Policy applies to Directors, employees and contractors of PFI and its subsidiary, and trusts and companies
controlled by those persons (Restricted Persons).
The key points of the policy are:
§
A prohibition on “insider trading”, meaning persons who hold
non-publicly available price-sensitive information must not pass on
that information, nor acquire or dispose of PFI’s listed securities;
§
Restricted Persons must obtain consent to trade PFI listed
securities at any time; and
§
No trading is permitted by Restricted Persons during “blackout
periods” from the balance date and the half-year balance date
until release of the relevant results to NZX.
Principle Two: Board Composition & Performance
To ensure an effective Board, there should be a balance of independence, skills, knowledge, experience and perspectives.
Board Charter
The Board has developed a charter that sets out its authority, duties and responsibilities. The Board, through a set of formal policies and
procedures:
§
Establishes a clear framework for oversight and management
of PFI’s operations and for defining the respective roles and
responsibilities of the Board;
§
Structures itself to be effective in discharging its responsibilities
and duties;
§
Sets standards of behaviour expected of the Company’s
Management Team and representatives;
§
Safeguards the integrity of the Company’s financial reporting;
§
Ensures timely and balanced disclosure;
§
Respects and facilitates the rights of shareholders;
§
Recognises and manages risk;
§
Encourages Board and Management Team effectiveness;
§
Remunerates fairly and responsibly; and
§
Recognises the legitimate interests of all stakeholders.
The Board has an obligation to protect and enhance the value of the assets of PFI for the benefit of shareholders. It achieves this through
approval of appropriate corporate strategies, with particular attention to capital structure, acquisition and divestment proposals, capital
expenditure and the review of the performance of the Management Team on a regular basis.
The Board delegates implementation of the adopted corporate strategies to the Management Team.
Board Composition, Appointments, Independence & Operation
The constitution allows for between three and eight Directors. As at 31 December 2019, there were six Directors: five of whom are independent.
It is the Company’s policy that there should always be a majority of Independent Directors.
69
The Directors of the Company who held the office during the 12 months to 31 December 2019, their status, date of appointment and meeting
attendances follows:
2 One meeting was held following Dean Bracewell’s appointment.
DIRECTOR STATUS
DATE OF
APPOINTMENT
LAST
RE-ELECTED
DATE CEASED
TO BE A
DIRECTOR
MEETINGS
ATTENDED (EIGHT
MEETINGS HELD)
Anthony BeverleyBoard Chairman
Nomination and Remuneration
Committee Chairman
Independent Director
2 July 200122 June 2017N/A8
David ThomsonIndependent Director12 February 20188 May 2018N/A8
Dean BracewellIndependent Director29 November 2019N/AN/A1
2
Gregory ReidyNon-Executive Director20 January 20128 May 2018N/A7
Humphry RollestonIndependent Director5 July 199422 June 2017N/A8
Susan PetersonAudit and Risk Chair
Independent Director
24 May 20168 May 2019N/A8
A profile of each Director outlining their experience and length of service can be found on the PFI website.
Director independence is determined in accordance with the requirements of the NZX Listing Rules. The Board has determined that, as at
31 December 2019, the following Directors of the Company were independent: Anthony Beverley, David Thomson, Dean Bracewell,
Humphry Rolleston and Susan Peterson. This assessment is based on the fact that these Directors all share the following characteristics:
§
They are all are Non-Executive Directors.
§
They are not currently, or within the last three years have not been, employed in an executive role by the Company, or any of its subsidiaries,
and / or there has been a period of at least three years between ceasing such employment and serving on the Board.
§
They are not currently holding, or within the last 12 months they have not held, a senior role in a provider of material professional services
to the Company or any of its subsidiaries.
§
They do not currently have, or within the last three years they have not had, a material business relationship (e.g. as a supplier or customer)
with the Company or any of its subsidiaries.
§
They are not a substantial product holder of the Company, or a senior manager of, or a person otherwise associated with, a substantial
product holder of the Company.
§
They do not currently have, or within the last three years they have not had a material contractual relationship with the Company or any
of its subsidiaries, other than as a Director.
§
They do not currently have close family ties with anyone in the categories listed above.
§
No Director has been a Director with the Company for a length of time that may compromise independence.
The Board noted Anthony Beverley and Humphry Rolleston’s length of tenure on the Board. The Board concluded that Anthony Beverley
and Humphry Rolleston’s length of tenure on the Board did not and does not influence the capacity for each of those Directors to bring an
independent view to decisions in relation to the Company, act in the best interests of the Company, and represent the interests of the
Company’s financial product holders generally, having regard to the factors described in the NZX Code that may impact Director independence.
The Board noted Gregory Reidy was not considered to be independent by virtue of his role as Managing Director within the last three years
and his material business relationship (shareholder and director of the company that owned the management rights to the Company prior
to internalisation) within the last three years.
70
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
FUNDAMENTALS
Details of Directors’ relevant interests in the Company’s Financial Products as at 31 December 2019 can be found below.
In compliance with Listing Rule 2.7.1, each Director must not hold office without re-election past the third annual meeting following the
Director’s appointment or 3 years, whichever is longer. Any Director appointed by the Board must not hold office (without re-election) past
the next annual meeting following the Director’s appointment.
All current Directors are also Directors of the Company’s subsidiary, P.F.I. Property No. 1 Limited.
Where a Board vacancy arises or the Board otherwise determines a need to appoint a new Director, it is the responsibility of the Nomination
and Remuneration Committee to identify and nominate external candidates to fill Board vacancies as and when they arise (see Principle 3 below
for further information). PFI enters into a formal written agreement with all new Directors, which establishes the terms of their appointment.
Directors are encouraged to undertake continuing education to develop and maintain their skills and knowledge. The Chairperson meets
annually with Directors of the Company to discuss individual performance of Directors. The Board reviews its performance as a whole on
an annual basis.
Under the Board Charter (described in further detail above) any Chief Executive Officer (if also a Director) of PFI is not eligible to be appointed as
the Chair of the Board.
Diversity and Inclusion
The breakdown of the gender composition of PFI’s Directors and Officers as at the end of the previous two financial years is as follows:
FINANCIAL YEAR
MALE FEMALE
DIRECTORSOFFICERSDIRECTORSOFFICERS
Year ending 31 December 20184210
Year ending 31 December 20195210
The Board has established a Diversity Policy in accordance with the NZX Code. The PFI Board believes that a diverse and inclusive work
environment is essential for it to be able to deliver its strategic objectives and continue to meet its responsibilities to its customers,
its employees, the communities in which it works, and its shareholders.
The Board has evaluated the performance of the Company against the Company’s Diversity Policy. The Board considers that the Company
has complied with the policy and that the Board – in conjunction with the Management Team – has fostered a work environment where
diversity and inclusion, together with different skills, abilities and experiences, is recognised and valued, and employees are treated equitably
and fairly in order that talented people who will contribute to the achievement of our strategic objectives are attracted to work for PFI and are
able to be retained.
PFI is a small team, but it is noted that five members of the team of 12 are female (2018: five out of 12).
71
Principle 3: Board Committees
The Board should use committees where this will enhance its effectiveness in key areas, while still retaining Board responsibility.
Audit and Risk Committee
The Board has established an Audit and Risk Committee in accordance with the NZX Code. The Audit and Risk Committee has developed a
written charter that outlines the committee’s authority, duties, responsibilities, relationship with the Board and a policy on audit independence.
The committee develops and monitors procedures to ensure the Board is properly and regularly informed and updated on corporate financial
matters. The Board is required to regularly review the performance of the Audit and Risk Committee.
The Audit and Risk Committee’s functions include:
§
Recommending the appointment and removal of external auditors (see Principle 7 “Auditors” below for further detail);
§
Reviewing PFI’s financial reporting documents with the view to ensuring PFI maintains accurate financial and accounting records; and
§
Reviewing earnings releases and financial reports.
In addition to the committee’s audit and financial reporting related functions, it is also responsible for providing a view on PFI’s business and
financial risk management process, including the adequacy of the overall control environment, independence from management and controls
in selected areas representing significant risk.
The Audit and Risk Committee meets at least twice a year (or more frequently if required) with the Group’s auditor to review the outcome of
the interim review (30 June) and annual audit (31 December). Employees will only attend Audit and Risk Committee meetings at the invitation
of the committee.
The Audit and Risk Committee must have a minimum of three Directors as members and the majority must be Independent Directors.
No executive or Managing Director may be a member of the Audit and Risk Committee. The Chair of the Board is not eligible to be chair
of the Audit and Risk Committee.
At 31 December 2019, the members of the Audit and Risk Committee were Susan Peterson (Chair of the Audit and Risk Committee),
Anthony Beverley and David Thomson. All were members of the committee at all times during 2019 and attended the five meetings of
the committee held during 2019.
Nomination and Remuneration Committee
The Board has also established a Nomination and Remuneration Committee in accordance with the NZX Code, whose role includes identifying
and recommending individuals for nomination to be members of the Board and its committees and regularly reviewing the remuneration policy
(for further information on remuneration, see Principle 5 “Remuneration” below). The Nomination and Remuneration Committee has developed
a written charter to assist it fulfil this purpose, which outlines the committee’s authority, duties, responsibilities and relationship with the Board.
The Board is required to regularly review the performance of the Nomination and Remuneration Committee and undertakes a formal review
annually of its objectives and activities.
When nominating candidates, the committee takes into account a range of factors as well as perceived needs of the Board at the time. Some of
these factors include qualifications, experience, requirements of the NZX Listing Rules and the ability to exercise and independent perspective
and informed judgment on matters that come before the Board. While the committee has the authority to obtain legal or other independent
professional advice, it may only nominate a person to be a Director of PFI with approval of the Board.
The Nomination and Remuneration Committee must have at least two members, all of whom must be Independent Directors.
At 31 December 2019, the members of the Nomination and Remuneration Committee were Anthony Beverley (Chairman of the Nomination
and Remuneration Committee) and Susan Peterson. Both were members of the committee at all times during 2019 and the committee met
informally on a number of occasions during 2019.
Other Committees
The Board does not consider that any additional Board committees as standing Board committees need to be established at this stage.
72
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
FUNDAMENTALS
Principle Four: Reporting & Disclosure
The Board should demand integrity in non-financial reporting, and in the timeliness and balance of corporate disclosures.
Continuous Disclosure Policy
PFI is committed to its obligation to inform shareholders and market participants of all material information that might affect the price of its
listed securities in accordance with the NZX Listing Rules and the Financial Markets Conduct Act 2013. Accordingly, the Board has adopted a
Continuous Disclosure Policy which applies to PFI, its subsidiary (the Group) and their respective Directors, and all relevant employees of PFI.
The Board has also appointed the Chief Finance and Operating Officer to act as the Group Disclosure Officer. The Group Disclosure Officer is
responsible for ensuring policy compliance and for investigating any alleged breaches.
Corporate Governance Documents
PFI’s Board and committee charters, annual and interim reports, company announcements, the policies recommended in the NZX Code and
other investor-related material are available on PFI’s website.
Financial / Non-Financial Disclosure
PFI is committed to responsible financial and non-financial reporting. Oversight of the Company’s financial reporting is applied through
the Audit and Risk Committee. PFI is also committed to non-financial reporting and disclosure. You can find out more information on PFI’s
approach to the disclosure of environmental, social and governance matters on pages 20 – 25, and you can find out more information about
PFI’s approach to risk management on pages 80 – 81.
Principle Five: Remuneration
The remuneration of Directors and executives should be transparent, fair and reasonable.
Directors
As noted previously under Principle 3, the Board, in setting the Directors’ remuneration, is to be guided by the Remuneration Policy that forms
part of the manual. The table below sets out the remuneration that was approved at the 2019 PFI annual meeting.
ROLE $
Board Chair160,000
Independent Director 82,500
Non-Executive Director82,500
Audit and Risk Committee Chair15,000
Nomination and Remuneration Committee Chairman10,000
Hourly rates for abnormal and particularly time intensive projects or transactions outside the scope of typical Board work350 per hour
Other than noted in this report, neither the Company nor its subsidiary have provided any other benefits to a Director for services as a Director
or in any other capacity.
Neither the Company nor its subsidiary have made loans to a Director.
Neither the Company nor its subsidiary have guaranteed any debts incurred by a Director.
73
The table below sets out the total remuneration received by the Company’s Directors during the year to 31 December 2019 and the prior
year comparative.
DIRECTOR ROLE
FEES PAID
2019
$000
FEES PAID
2018
$000
Anthony BeverleyBoard Chairman 81 32
Deputy Board Chairman – –
Audit and Risk Committee Chairman – 4
Nomination and Remuneration Committee Chairman – –
Independent Director 65 70
David Thomson
(1)
Independent Director 78 62
Dean Bracewell
(2)
Independent Director 7 –
Gregory ReidyNon-Executive Director
(3)
41 –
Humphry RollestonIndependent Director 78 70
Susan PetersonAudit and Risk Committee Chair 13 6
Independent Director 78 70
Peter MasfenBoard Chairman– 18
Independent Director– 25
Retirement allowance
(4)
– 135
Total 441 492
1. David Thomson was appointed to the Board on 12 of February 2018.
2. Dean Bracewell was appointed to the Board on 29 November 2019.
3. Fees were payable to Gregory Reidy in his role as Non-Executive Director from 1 July 2019.
4. On 8 May 2018, Peter Masfen retired from the Board of Directors of the Company as Chairman and Independent Director. Mr Masfen was first elected
as a Director of the Company on 17 May 2002, and had held office as a Director of the Company since that date. At the 23 May 2008 Annual Meeting,
the Company confirmed that retirement payments (being the total remuneration of the retiring Director, in any three years chosen by the Company)
to eligible Directors (which includes Mr Masfen) will be calculated in respect of that Director’s remuneration prior to the increase approved at the
23 May 2008 meeting. The rationale for this was that the fees paid to Directors at that time did not reflect market rates, as they had remained
unchanged since the incorporation of the Company over 14 years prior to that meeting. As such, a retirement allowance of $135,000 was payable to
Mr Masfen and was paid on his retirement. At the 23 May 2008 meeting, it was also noted that no retirement remuneration will be paid to Directors
who are appointed after 1 May 2004. It is noted that Humphry Rolleston is the only other current Director who was appointed prior to 1 May 2004
and is entitled to this form of payment.
Directors’ Relevant Interests
Details of Directors’ dealings in the Company’s financial products since 1 January 2019 are as follows:
DIRECTOR NO. OF SHARES (DISPOSED) CONSIDERATION PER SHARE DATE
Gregory Reidy (beneficial holder) 850,000$2.3019 August 2019
74
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
FUNDAMENTALS
Details of Directors’ relevant interests in the Company’s financial products as at 31 December 2019 are as follows:
DIRECTOR NATURE OF RELEVANT INTEREST NUMBER OF SHARES
Humphry RollestonBeneficial holder 17,875
Legal, but not-beneficial, holder 110,825
Susan PetersonBeneficial holder17,788
Gregory ReidyBeneficial holder155,708
Please note that no Director had a relevant interest in the Company’s bonds.
Executives
Remuneration Strategy
The Board supports a remuneration strategy that is aligned to our investors’ interests and encourages the achievement of our strategic
objectives. The remuneration of the Chief Executive Officer and other employees is designed to attract and retain the most talented and
effective individuals. Packages include a base salary, together with short-term and (potentially) a long-term incentive (LTI) component.
Chief Executive Officer Remuneration
On 1 January 2019, Simon Woodhams ceased to be an Independent Contractor. On that date, he was appointed as Chief Executive Officer and
became a full-time employee of the Company. His remuneration as Chief Executive Officer since that appointment is set out below:
YEAR ENDING
SALARY
$
BENEFITS
3
$
SUBTOTAL
$
PAY FOR PERFORMANCE
TOTAL
REMUNERATION
$
STI
$
LT I
4
$
SUBTOTAL
$
31 December 2019$450,000$31,711$481,711$200,000$39,148$239,148$720,859
Simon Woodhams’ participation in PFI’s LTI plan is as follows:
YEAR ENDING
SHARE RIGHTS
GRANTED
(SHARES)
SHARE RIGHTS
VESTED DURING
THE YEAR
(SHARES)
SHARE RIGHTS
LAPSED DURING
THE YEAR
(SHARES)
SHARE RIGHTS
OUTSTANDING AT
THE END OF THE
YEAR (SHARES)
31 December 201985,22728,409–56,818
Employee Remuneration
During the years ended 31 December 2019 and 31 December 2018, the number of employees who received remuneration with a combined total
value exceeding $100,000
5
is set out below (please note that this table excludes the Independent Contractor remuneration detailed elsewhere
in this report):
REMUNERATION RANGE
NUMBER OF EMPLOYEES
20192018
$720,000 – $730,0001–
$640,001 – $650,0001–
$300,001 – $310,0001–
$250,001 – $260,000–1
$180,001 – $190,0001–
$150,001 – $160,00011
$100,001 – $110,0001–
3 Benefits include KiwiSaver and insurance.
4 The LTI is based on the fair value of the awards recognised in the financial statements.
5 Includes LTI vested during the year based on the fair value of the awards recognised in the financial statements.
75
Long Term Incentive Plan
Long-term incentives (LTIs) are at-risk payments designed to align the reward of certain executives with the enhancement of shareholder value
over a multi-year period.
The new LTI plan commencing in the year ended 31 December 2019 is a dividend protected share rights plan. Under the plan, invited executives
are granted a number of share rights determined by dividing the face value of the grant by the value of one PFI share at the date of the grant. At
vesting, subject to meeting performance hurdles, each share right is converted to one ordinary share. The executive may also receive additional
shares representing the value of dividends paid over the vesting period. The executive is liable for tax on the shares received at this point.
Each grant under the LTI Plan has three tranches with two separate performance hurdles applying to each tranche. The three tranches enable
a third of the share rights to vest after one year, two years and three years from the commencement date of 1 January 2019. For each tranche:
§
50% of the share rights are subject to a performance hurdle of the Company’s rolling three year Funds From Operation growth equalling
or exceeding the three year CPI growth to the September immediately prior to the vesting date; and
§
50% of the share rights are subject to a performance hurdle of the Company’s Total Shareholder Returns (TSR) outperforming the
TSR of a property peer group (comprising other listed property issuers) over the period from the commencement date to the vesting date
for the relevant tranche.
Grants are intended to continue to be made annually with performance measured over a three-year period.
The total share rights granted, vested, and lapsed during 2019, and the share rights outstanding at the end of 31 December 2019 are as follows:
SHARE RIGHTS
GRANTED
(SHARES)
SHARE RIGHTS VESTED
DURING THE YEAR
(SHARES)
SHARE RIGHTS
LAPSED DURING
THE YEAR
(SHARES)
SHARE RIGHTS
OUTSTANDING AT THE
END OF THE YEAR
(SHARES)
FY2019196,02365,341–130,682
Independent Contractor Remuneration
On 30 June 2017, the management of the Company and its subsidiary was internalised. Following the internalisation, Gregory Reidy, Simon
Woodhams and Craig Peirce became Independent Contractors to the Company. Their remuneration is set out in accordance with the terms of
those contracts, which the Board and Nomination and Remuneration Committee oversaw. Their remuneration package comprised of a base
amount as well as a performance bonus, which was measured quarterly and based on shareholder return. A discretionary bonus was also paid
to Simon Woodhams and Craig Peirce during the year ended 31 December 2018.
On 1 January 2019, Simon Woodhams and Craig Peirce ceased to be Independent Contractors. On that date, they were appointed as Chief
Executive Officer and Chief Finance and Operating Officer respectively, and they both became full-time employees of the Company.
On 1 July 2019, Gregory Reidy ceased to be an Independent Contractor. On that date, he was appointed as a Non-Executive Director and his
remuneration for this role is set out earlier in this report.
During the years ended 31 December 2018 and 31 December 2019, Independent Contractor remuneration was as follows:
NAMEPOSITIONYEAR
BASE
AMOUNT
$000
BONUSES
$000
TOTAL
$000
Gregory ReidyManaging Director201842511436
2019213–213
Simon WoodhamsChief Executive Officer2018425116541
2019–––
Craig PeirceChief Finance and Operating Officer2018425116541
2019–––
TOTAL20181,2752431,518
2019213–213
76
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2019
FUNDAMENTALS
Principle Six: Risk Management
Directors should have a sound understanding of the material risks faced by the issuer and how to manage them. The Board should regularly
verify that the issuer has appropriate processes that identify and manage potential and material risks.
You can find more information on PFI’s approach to risk management on pages 80 – 81 of this annual report.
Principle Seven: Auditors
The Board should ensure the quality and independence of the external audit process.
Together with the Audit and Risk Committee (see Principle 3), the Board is responsible for establishing the Company’s audit framework and
that communication is maintained with external auditors or accountants. Annexed to the Audit and Risk Committee Charter is a separate
Policy on Audit Independence, which covers the provision of services by external auditors.
Under the policy, it is the Audit and Risk Committee’s role to approve the appointment of PFI’s external auditors and assessing PFI’s internal
controls and systems the support external financial reporting.
PFI’s external auditors are subject to a rotation system, which requires the external auditor or lead audit partner to change every five years.
There is also a mandatory stand down period before those partners can next be engaged by PFI. Neither will a former Independent Contractor
or employee of PFI be engaged in an external audit role within two years of ceasing to be employed by PFI.
The external auditor attends PFI’s Annual Meeting each year to answer any questions relating to the audit.
The Audit and Risk Committee must pre-approve all audit services, as well as all non-audit services provided by the auditor. The Policy on Audit
Independence sets out a number of principles to guide the committee in assessing whether the services could be perceived as conflicting with
the independent role of the auditor. To illustrate, approval will not be granted to produce financial statements (such that they might be perceived
as auditing their own work), implement financial systems, or perform any function of management. This ensures that there is a clear separation
between internal and external audit roles. The Audit and Risk Committee monitors, and may limit, the amount of non-audit related work being
undertaken by the firm holding office as auditor, if that work may, in its opinion, impair the independence of the external auditor.
Principle Eight: Shareholder Rights & Relations
The Board should respect the rights of shareholders and foster constructive relationships with shareholders that encourage them to engage
with the issuer.
PFI encourages an open dialogue with its shareholders and stakeholders. The manual, annual report, financial information, and all NZX
announcements are available on the Company’s website. PFI shareholders are encouraged to receive shareholder communications electronically.
In respect of voting rights, PFI shareholders have one vote per share they hold in PFI, and will have the right to vote on major decisions which
may change the nature of PFI in accordance with the NZX Listing Rules.
In order for shareholders to fully participate in meetings, the Board endeavours to post the annual shareholders’ notice of meeting on PFI’s
website as soon as possible and at least 20 working days prior to the meeting.
OTHER MATTERS
Directors’ Interests Register
During the year, the Board authorised the renewal of the Directors’ and Officers’ insurance cover as at 30 June 2019 for a period of 12 months
and has certified, in terms of section 162 of the Companies Act 1993, that this cover is fair to the Company.
As permitted by the Company’s constitution and the Companies Act 1993, the Company has also executed a deed indemnifying its Directors
against potential liabilities and costs they may incur for acts or omissions in their capacity as Directors of the Company and its subsidiary.
Please refer to the Directors’ Relevant Interests section above for information regarding the acquisition and disposition of relevant interests
in the Company’s financial products by its Directors.
No Director has sought authorisation to use Company information.
77
Section 140(1) of the Companies Act 1993 requires a director of a company to disclose certain interests. Under subsection (2) a director can
make disclosure by giving a general notice in writing to the company of a position held by a director in another named company or entity. The
following are details of Directors’ general disclosures entered in the Interests Register for the Company as at 31 December 2019. Any entry
added by notices given by the Directors during the year ended 31 December 2019 is denoted with a *.
DIRECTOR POSITION COMPANY
Anthony BeverleyDirector; Chair of Audit and Risk CommitteeArvida Group Limited
Director; Chair of Audit and Risk Committee Ngai Tahu Property Limited
Dean BracewellDirectorTainui Group Holdings Limited *
Executive Board MemberHalberg Foundation *
DirectorAra Street Investments Limited *
Gregory ReidyDirectorMcDougall Reidy & Co Limited
DirectorMRC LP Limited
DirectorResidentiae Group Limited
DirectorThirty Enfield Limited
DirectorDMD (GP) Limited (as General Partner of DMD Limited Partnership)
DirectorMRC2 Limited
DirectorRWP LP Limited
DirectorResidentiae (Edwin Street) GP Limited (as General Partner of
Residentiae (Edwin Street) Limited Partnership)
DirectorH&R MRC Limited *
DirectorResident Properties Limited *
DirectorArea Management Limited *
TrusteeGrammar Rugby Incorporated
Humphry RollestonDirectorAsset Management Limited
DirectorMatrix Security Group Limited
DirectorSpaceships Limited
DirectorStray Limited
DirectorAIS Tourism Limited
TrusteeJL Hall Children’s Trust
Susan PetersonDirector; Chair of Nomination and
Remuneration Committee
Vista Group International Limited *
Director, Chair of Remuneration CommitteeXero Limited *
DirectorASB Bank Limited
Director, Chair of Nominations and
Governance Committee
Trustpower Limited *
Director, Co-Chair of the BoardOrganic Initiative Limited
Board MemberGlobal Women
MemberNZX Markets Disciplinary Tribunal *
Other than noted in this report, there were no other interest register entries recorded for the Company or its subsidiary for the year ended
31 December 2019.
78
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
FUNDAMENTALS
Donations
The Company made a $30,000 donation to The Christchurch Foundation to support the families and community impacted by the tragic events
of the 15 March 2019 Christchurch terror attacks.
The Company is a sponsor of the Keystone New Zealand Property Education Trust and paid the Trust $10,000 by way of sponsorship during
the year.
The subsidiary did not make any donations during the year.
Substantial Productholders as at 31 December 2019
As at 31 December 2019, the total number of ordinary shares on issue was 498,723,330. The Company has only ordinary shares on issue.
The persons, who, for the purposes of section 293 of the Financial Markets Conduct Act 2013, were substantial productholders as at
31 December 2019 are:
SECURITY HOLDER NO. OF SHARES
% WHEN NOTICE
WAS FILED
ANZ New Zealand Investments Limited 36,194,7167.257%
Accident Compensation Corporation26,579,2575.329%
Details of Dividends Paid
DIVIDENDS DATE PAID
CENTS
PER SHARE
TOTAL PAID
2019
$000
TOTAL PAID
2018
$000
Q4 2017 final dividend7 March 20182.15–10,723
Q1 2018 interim dividend31 May 20181.80–8,977
Q2 2018 interim dividend31 August 20181.80–8,977
Q3 2018 interim dividend28 November 20181.85–9,225
Q4 2018 final dividend13 March 20192.1010,474–
Q1 2019 interim dividend24 May 20191.808,977–
Q2 2019 interim dividend4 September 20191.808,977–
Q3 2019 interim dividend20 November 20191.859,225–
Total dividends per statement of changes in equity 37,653 37,902
NZX Waivers
The Company transitioned to the new NZX Listing Rules dated 1 January 2019 on 1 May 2019 and relied on the class waivers and rulings
granted by NZX Regulation on 19 November 2018 in relation to the transition.
79
80
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2019
FUNDAMENTALS
RISK MANAGEMENT
POLICIES, PROCEDURES, CONTROLS, CULTURE, SYSTEMS
RISK APPETITE
Strategy
Oversight
Risk Assessment
Identification
Risk Tolerance
Monitoring
Risk Management
Reporting
During 2019, PFI instigated a project to review and strengthen its Risk Management Framework. The purpose of this project was to ensure
PFI continued to mature its approach to risk management in line with the expectations of stakeholders. “Strengthening our approach to risk
management helps us to deliver on our promises to our tenants, our team, and our investors” says Susan Peterson, Chair of PFI’s Audit and
Risk Committee.
RISK GOVERNANCE
PFI’s Risk Management Framework establishes the following framework for risk governance:
ROLERESPONSIBILITY
BoardThe Board sets the risk appetite, risk tolerances and desired risk culture. It oversees the
assessment, management and reporting of key business risks.
Audit and Risk Committee (A&RC) The A&RC supports the Board by providing a specific focus on risk and compliance
matters. The A&RC is also responsible for PFI’s external audit arrangements.
Senior Management Team The Senior Management Team implements the risk management framework and
operates within the boundaries set through the risk appetite statement, ensuring the risk
management framework is operating effectively and reflects current business practice.
StaffAll staff at PFI have responsibility for identifying and managing risk. Business
parameters are set through policies, procedures, systems, processes and controls.
AssuranceThe Board and management obtain periodic feedback on how well the business is
managing risk and meeting its regulatory obligations.
RISK MANAGEMENT FRAMEWORK
The diagram below illustrates the key components
of PFI’s risk management framework:
MANAGING RISK
81
KEY BUSINESS RISKS
The table below outlines some of our key business risks, how we manage those risks, and a commentary on the current state of those risks to
our business.
RISK CATEGORYRISK DESCRIPTIONHOW WE MANAGE THE RISKCOMMENTARY ON THE RISK
STRATEGIC
Economy/market:
Risk arises from adverse
changes in the New Zealand
economic environment, regulatory
environment and the broader
investment market. Changes
may result in an impact on
property values and the amount
of income generated from them.
We monitor both wider economic
conditions and the industrial
property market through
research and relationships
with market participants.
Both prime and secondary industrial
yields have continued to compress
(values increase), and rents continue
to increase. While the trend is
positive, the rate of industrial rental
growth has moderated compared
to the growth rates in recent years.
Economic indicators are mixed.
Anecdotal evidence suggests a
cooling in some key areas of the
economy, yet other indicators
(for instance, the latest CPI result)
point to an improvement on
previous quarters.
STRATEGIC
Failure to implement strategy:
Failure to implement our strategy
and achieve the desired outcomes,
leads to the destruction of
shareholder value.
Strategy is reviewed regularly by
the Board and management team.
Key shareholder metrics, such as
PFI’s share price and NTA are
monitored in order to determine
whether the implementation of
strategy is being well received
by the investment market.
Significant progress has been made
during 2019 on the implementation
of PFI’s strategy. PFI’s share price
continues to perform well compared
to our peers (3rd for the 2019 year)
and PFI’s share price is in excess
of NTA.
FINANCIAL
“Balance Sheet” risk:
An increase in gearing levels outside
suitable industry standards results
in a risk of breaching financing
covenants and a potential increase
in borrowing costs.
PFI’s gearing – both actual and
projected – is reported to the
Board regularly and these
calculations are stress-tested.
PFI’s metrics have improved
during the year and are in line
with the Listed Property Vehicle
sector. The RBNZ reform of bank
capital requirements provides
additional risk.
HEALTH &
SAFETY
Health and safety risks:
The risk of a health and safety
incident at a PFI property.
Health and safety is actively
managed by PFI’s health and safety
committee. A wide variety of risk
mitigants are in place, including
monitoring visits and proactive
responses to the identification
of potential hazards.
PFI has experienced a low level
of incidents. The Company has
also carried out extensive proactive
monitoring visits (more than
100 visits during 2019). Further
information on health and safety
can be found in the ESG section
of this annual report.
SHAREHOLDER STATISTICS
20 LARGEST REGISTERED SHAREHOLDERS
AS AT 31 JANUARY 2020
HOLDER HOLDING
HOLDING
%
1Forsyth Barr Custodians Limited 29,449,540 5.90%
2Accident Compensation Corporation - NZCSD 25,512,597 5.12%
3BNP Paribas Nominees (NZ) Limited - NZCSD 24,707,631 4.95%
4ANZ Wholesale Trans-Tasman Property Securities Fund - NZCSD 22,661,554 4.54%
5FNZ Custodians Limited 19,912,496 3.99%
6Citibank Nominees (New Zealand) Limited - NZCSD 15,900,942 3.19%
7Custodial Services Limited (A/c 3) 14,597,581 2.93%
8Custodial Services Limited (A/c 4) 13,055,764 2.62%
9HSBC Nominees (New Zealand) Limited - NZCSD 8,986,078 1.80%
10ANZ Wholesale Property Securities - NZCSD 8,387,586 1.68%
11Custodial Services Limited (A/c 2) 7,905,856 1.59%
12Investment Custodial Services Limited (A/c C) 7,713,728 1.55%
13Messrs. Wildermoth, Wilson and Young and Ms Wildermoth 7,331,480 1.47%
14MFL Mutual Fund Limited - NZCSD 6,790,448 1.36%
15New Zealand Depository Nominee Limited <A/C 1> 5,908,067 1.18%
16Mr. Mckee and Ms. Mckee 5,566,373 1.12%
17FNZ Custodians Limited 4,937,088 0.99%
18Masfen Securities Limited 4,767,744 0.96%
19JBWere (NZ) Nominees Limted 4,545,473 0.91%
20Custodial Services Limited (A/c 18) 4,454,338 0.89%
Shares held by top 20 shareholders 243,092,364 48.74%
Balance of shares 255,630,966 51.26%
Total of issued shares 498,723,330 100.00%
SHAREHOLDER SPREAD
AS AT 31 JANUARY 2020
ORDINARY SHARES
NUMBER OF
HOLDERS HOLDING
HOLDING
%
Up to 4,999 1,015 2,590,303 0.52%
5,000 - 9,999 1,064 7,682,092 1.54%
10,000 - 49,999 2,387 51,325,339 10.29%
50,000 - 99,999 384 25,880,507 5.19%
100,000 - 499,999 292 57,834,077 11.60%
500,000 and above 92 353,411,012 70.86%
5,234 498,723,330 100.00%
GEOGRAPHICAL SPREAD
AS AT 31 JANUARY 2020
ORDINARY SHARES HOLDING
HOLDING
%
Auckland & Northern Region 274,158,141 54.97%
Hamilton & Surrounding Districts 100,141,026 20.08%
Wellington & Central Districts 63,245,971 12.68%
Dunedin & Southland 43,871,495 8.80%
Nelson, Marlborough & Christchurch 15,322,472 3.07%
Overseas 1,984,225 0.40%
Total 498,723,330 100.00%
82
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
FUNDAMENTALS
BONDHOLDER STATISTICS
BONDHOLDER SPREAD: PFI010
AS AT 31 JANUARY 2020
BONDS
NUMBER OF
HOLDERS HOLDING
HOLDING
%
5,000 - 9,999 66 348,000 0.35%
10,000 - 49,999 447 8,850,000 8.85%
50,000 - 99,999 63 3,789,000 3.79%
100,000 - 499,999 40 5,506,000 5.51%
500,000 - 999,999 2 1,434,000 1.43%
1,000,000 and above 11 80,073,000 80.07%
Total 629 100,000,000 100.00%
BONDHOLDER SPREAD: PFI020
AS AT 31 JANUARY 2020
BONDS
NUMBER OF
HOLDERS HOLDING
HOLDING
%
5,000 - 9,999 41 235,000 0.24%
10,000 - 49,999 225 4,715,000 4.72%
50,000 - 99,999 30 1,709,000 1.71%
100,000 - 499,999 35 5,386,000 5.39%
500,000 - 999,999 3 1,897,000 1.90%
1,000,000 and above 10 86,058,000 86.04%
Total 344 100,000,000 100.00%
83
GENERAL DISCLOSURES
DISCLOSURE TITLEGRILOCATION OR REFERENCE
Name of the organisation102 - 1Property for Industry Limited
Activities, brands, products and services102 - 2https://www.propertyforindustry.co.nz/about-pfi/
Location of headquarters102 - 3https://www.propertyforindustry.co.nz/contact-us-investors/
Location of operations102 - 4https://www.propertyforindustry.co.nz/about-pfi/property-portfolio/
Ownership and legal form102 - 5https://www.propertyforindustry.co.nz/about-pfi/
Markets served102 - 6New Zealand
Scale of the organisation102 - 7https://www.propertyforindustry.co.nz/about-pfi/
Information on employees and other workers102 - 8Pages 22-23
Supply chain102 - 9https://www.propertyforindustry.co.nz/about-pfi/
Significant changes to the organisation and its supply chain102 - 10None
Precautionary principle approach102 - 11PFI applies the precautionary approach through its day-to-day
decision-making
External initiatives102 - 12None
Membership of associations102 - 13Property Council New Zealand
Statements from senior decision-maker102 - 14Page 4 and pages 20-21
Values, principles, standards, and norms of behaviour102 - 16https://www.propertyforindustry.co.nz/about-pfi/governance/
Governance and structure102 - 18https://www.propertyforindustry.co.nz/about-pfi/governance/
List of stakeholder groups102 - 40Page 22
Collective bargaining agreements102 - 41None
Identifying and selecting stakeholders102 - 42Page 22
Approach to stakeholder engagement102 - 43Pages 21-22
Key topics and concerns raised102 - 44Pages 21-22
Entities included in the consolidated financial statements102 - 45Page 34
Defining content and topic Boundaries102 - 46Page 22
List of material topics102 - 47Page 22
Restatements of information102 - 48None
Changes in reporting102 - 49None
Reporting period102 - 50January 1, 2019 – December 31, 2019
Date of most recent report102 - 51February 2019 (2018 Annual Report)
Reporting cycle102 - 52Annual
Contact point for questions regarding the report102 - 53info@pfi.co.nz
Claims of reporting in accordance with the GRI standards102 - 54Page 22
GRI content index102 - 55Pages 84-85
External assurance102 - 56None
GRI INDEX
84
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
FUNDAMENTALS
TOPIC SPECIFIC DISCLOSURES
DISCLOSURE TITLEGRILOCATION
Emissions
Disclosure on management approach103Page 24
GHG emissions scope 1305-1Page 24
GHG emissions scope 2305-2Page 24
GHG emissions scope 3305-3Page 24
Employment
Disclosure on management approach103Pages 22-23
New employee hires and employee turnover401-11 new hire. 0 turnover
Occupational health & safety
Disclosure on management approach103Pages 22-23
Types of injury and rates of injury403-2Page 23
Diversity and equal opportunity
Disclosure on management approach103Page 71
Diversity of governance bodies and employees405-1Pages 23 and 71
Sustainable design
Disclosure on management approach103Page 25
85
2020
FEBRUARY
§
2019 Full-year announcement
§
2019 Annual report released
MARCH
§
2019 Final dividend payment
MAY
§
2020 First-quarter announcement
§
Annual meeting
JUNE
§
2020 First-quarter dividend payment
AUGUST
§
2020 Half-year announcement
§
2020 Interim report released
SEPTEMBER
§
2020 Half-year dividend payment
NOVEMBER
§
2020 Third-quarter announcement
§
2020 Third-quarter dividend payment
2021
FEBRUARY
§
2020 Full-year announcement
§
2020 Annual report released
MARCH
§
2020 Final dividend payment
ISSUER OF SHARES AND BONDS
Property for Industry Limited
Shed 24, Prince’s Wharf
147 Quay Street
PO Box 1147
Auckland 1140
Tel: +64 9 303 9450
Fax: +64 9 303 9657
propertyforindustry.co.nz
info@propertyforindustry.co.nz
DIRECTORS
Anthony Beverley (Chairman)
David Thomson
Dean Bracewell
Gregory Reidy
Humphry Rolleston
Susan Peterson
CHIEF EXECUTIVE OFFICER
Simon Woodhams
Tel: +64 9 303 9652
woodhams@propertyforindustry.co.nz
CHIEF FINANCE AND
OPERATING OFFICER
Craig Peirce
Tel: +64 9 303 9651
peirce@propertyforindustry.co.nz
AUDITOR
PricewaterhouseCoopers
188 Quay Street
Private Bag 92162
Auckland 1142
Tel: +64 9 355 8000
Fax: +64 9 355 8001
CORPORATE LEGAL ADVISOR
Chapman Tripp
23 Albert Street
PO Box 2206
Auckland 1140
Tel: +64 9 357 9000
Fax: +64 9 357 9099
VALUATION PANEL
CBRE Limited
Colliers International New Zealand
Limited
Jones Lang LaSalle Limited
Savills (NZ) Limited
BANKERS
ANZ Bank New Zealand Limited
Bank of New Zealand
Commonwealth Bank of Australia
Westpac New Zealand Limited
SECURITY TRUSTEE
New Zealand Permanent Trustees
Limited
34 Shortland Street
PO Box 1598
Auckland 1140
Tel: 0800 371 471
BOND SUPERVISOR
Public Trust
34 Shortland Street
PO Box 1598
Auckland 1140
Tel: 64 9 985 5300
REGISTRAR
Computershare Investor Services
159 Hurstmere Road
Private Bag 92119
Auckland 1142
Tel: +64 9 488 8777
Fax: +64 9 488 8787
investorcentre.com/nz
This Annual Report is dated 17 February 2020 and signed
on behalf of the board by:
Anthony Beverley Susan Peterson
Chairman Chair, Audit and Risk Committee
DIRECTORYCALENDAR
insight
creative.co.nz
PFI150
86
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
FUNDAMENTALS
PFI generates income for
investors by clearly focusing
on New Zealand’s industrial
economy. We look to generate
strong, stable returns for
our investors, which in turn
generates prosperity for
New Zealand.
87
www.propertyforindustry.co.nz
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.