PFI Announces Robust Annual Results
NZX and media
announcement
—
22 February | 2021
Page 1
PFI ANNOUNCES ROBUST ANNUAL RESULTS
The PFI management team will present the results via live webcast from 10am NZT on 22 February
2021. To view and listen to the webcast, please visit https://edge.media-server.com/mmc/p/ykx59fkj.
Anyone wishing to participate in the webcast (for example, to ask a question) must pre-register for the
conference call at http://apac.directeventreg.com/registration/event/6081809. Upon registering,
participants will be provided with participant dial-in numbers, a passcode and a unique registrant ID. In
the 10 minutes prior to the call start time, you will need to use the conference access information
provided in the email received at the point of registering, in addition to opening the webcast (using the
details above).
Highlights
▪ Robust annual result: annual profit after tax of $113.5 million, Funds From Operations (FFO)
1
earnings up 6.6% from the prior year to 9.67 cents per share, Adjusted Funds From Operations
(AFFO) earnings up 3.1% from the prior year to 8.03 cents per share, 2020 cash dividends of 7.70
cents per share
▪ Strong balance sheet: net tangible assets up 7.5% to 220.9 cents per share, additional bank facility
secured, over $110 million of available liquidity, gearing of 30.0%
▪ Portfolio metrics healthy: weighted average lease term of 5.28 years, occupancy of 99.4%, just
3.3% of contract rent is due to expire in 2021
▪ Significant strategic progress: $183 million invested in core industrial property and $158 million
of non-core divestments since the beginning of 2019, including the post balance date divestment of
Carlaw Park for $110 million, portfolio positioned to benefit from trends supporting long-term growth
▪ Increased dividend guidance: robust results, a strong balance sheet, and forecast rental growth
result in a lift in 2021 dividend guidance to 7.85 to 7.90 cents per share
Property for Industry Limited (PFI, the Company) today announced robust results for the year ended 31
December 2020.
“Against a backdrop of testing conditions, the Company performed exceptionally well. Specifically, our
conservative gearing and ability to access liquidity worked to our advantage. We took decisions on the
basis of a well-defined strategy but retained the flexibility to change course. The Board is pleased to
have emerged well placed to respond to opportunities as they arise. At the same time, we have grown
cash returns for our investors while supporting those tenants most in need,” says PFI Chairman, Anthony
Beverley.
Robust annual result
Profit after tax for the year totalled $113.5 million (22.70 cents per share), down from $176.3 million
(35.35 cents per share) in the prior year. A $72.5 million fair value gain on investment properties, as
compared to a $125.2 million fair value gain in the prior year, was the main contributor to this reduction
in profit.
FFO earnings of 9.67 cents per share were 0.60 cents per share or 6.6% ahead of the prior year. AFFO
earnings of 8.03 cents per share were up 0.24 cents per share or 3.1% when compared to the prior year.
That being the case, the PFI Board resolved to pay a fourth quarter cash dividend of 2.2500 cents per
share, up 0.1000 cents per share from the dividend paid in the prior year.
--------
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.
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22 February | 2021
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The dividend will have imputation credits of 0.5141 cents per share attached and a supplementary
dividend of 0.2333 cents per share will be paid to non-resident shareholders. The record date for the
dividend is 1 March 2021, and the payment date is 10 March 2021.
As was the case with the third quarter dividend, the dividend reinvestment scheme (DRS) will operate
with a discount of 2%. The last date for receipt of an application for participation in the DRS is one
business day after the record date, being 2 March 2021. Further details can be found in the DRS Offer
Document, which is available on PFI’s website: https://www.propertyforindustry.co.nz/investor-
centre/dividend-information/dividend-reinvestment/.
The fourth quarter dividend will take cash dividends for the full year to 7.70 cents per share, an increase
from the prior year of 0.10 cents per share, resulting in an FFO dividend pay-out ratio of 80% (2019:
84%) and an AFFO dividend pay-out ratio of 96% (2019: 98%, refer Appendix 2).
Strong balance sheet
Net tangible assets (NTA) per share increased by 15.4 cents per share or 7.5% from 205.5 cents per
share as at the end of 2019 to 220.9 cents per share as at the end of the year.
In response to the risks associated with the COVID-19 pandemic, in March 2020 PFI secured a new $50
million liquidity facility from the Commonwealth Bank of Australia, New Zealand Branch (CBA). In
November 2020, the facility was extended to 19 March 2022 and increased from $50 million to $100
million. The extended and increased facility was in addition to the bonds and syndicated bank facility
PFI already had in place.
“Our portfolio revaluation uplift has made the Company more valuable. At the same time we have shored
up our ability to access cashflow to continue to secure quality industrial properties in line with our
strategy,” says PFI Chief Finance and Operating Officer, Craig Peirce.
The weighted average term to expiry of PFI’s bonds and bank facilities stands at 2.8 years as at the end
of the year, and the Company ended the year with gearing
2
of 30.0% and an interest cover ratio
3
of 4.1
times.
Craig Peirce concludes: “High levels of liquidity from a diverse range of sources, ultra-low interest rates
and headroom to covenant levels provide PFI with a strong funding position, and the contracted
divestment of Carlaw Park will provide further funding flexibility.”
--------
2
That is, total borrowings as a percentage of the most recent independent valuation of the property portfolio. Covenant: 50%.
3
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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22 February | 2021
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Portfolio metrics healthy
Portfolio snapshot as at 31 December 2020 31 December 2019
Book value $1,631.5m $1,476.2m
Number of properties 94 94
Number of tenants 148 144
Contract rent $89.8m $84.9m
Occupancy 99.4% 99.0%
Weighted average lease term 5.28 years 5.38 years
Auckland property 84.6% 84.1%
Industrial property 91.7% 90.0%
Further to the announcement in December 2020, PFI recorded an annual increase in the value of its
property portfolio from independent valuations of $72.5 million or 4.7% to $1,631.5 million. Around one-
third of this valuation outcome was due to rental growth, which in part reflects the successful leasing
outcomes, described below. Low interest rates are contributing to a demand for industrial property
investment that continues to outstrip supply, resulting in movements in yields or cap rates that
contributed the remaining two thirds of the increase in value. As a result of portfolio and valuation activity,
PFI’s passing yield firmed from 5.75% to 5.53%. An independent market rental assessment of the entire
portfolio was completed as part of the valuation process, this assessment estimates that PFI’s portfolio
is around 2.5% under-rented.
Over 90,000 square metres, representing around 14% of PFI’s existing portfolio by rent, was leased
during the year to 37 new and existing tenants for an average increase in term of 7.5 years. Lease
renewals accounted for more than 70% of the contract rent secured. Across these leasing transactions,
low levels of incentives and capital expenditure were required to attract and retain tenants, with average
leasing costs of 0.6 months per year of term.
The leasing market for industrial property remains robust, with vacancy still at historically low levels.
CBRE reports
4
Auckland Prime industrial vacancy is at just 1.2%, with Secondary industrial vacancy at
1.7%.
Rent reviews were completed on 94 leases during the year, resulting in an average annual uplift of 3.4%
on ~$50.7 million of contract rent. 12 market rent reviews on ~$4.2 million of contract rent delivered an
annualised increase of 2.8% over an average review period of 2.5 years. These market rent reviews
were settled at an average of approximately 1.7% above December 2019 market rental assessments.
At the end of the year, the Company’s portfolio was 99.4% occupied and just 3.3% of contract rent is
due to expire in 2021. When combined with rent reviews, around 83% of PFI’s portfolio is subject to
some form of lease event during 2021.
Significant strategic progress
Including the post balance date acquisition of industrial properties located at 670-680 Rosebank Road
in Avondale, Auckland, PFI has invested $183 million in core industrial property since the beginning of
2019.
At the same time, $158 million of non-core property has been divested, including the recently announced
post balance date divestment of the Carlaw Park properties in Parnell, Auckland.
On completion of the Rosebank Road acquisition and the Carlaw Park divestment, PFI’s portfolio will be
--------
4
CBRE “Auckland industrial and office vacancy Hot off the Press”, February 2021
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22 February | 2021
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98% industrial, positioning the Company to benefit from trends supporting long-term growth, such as e-
commerce.
In 2021, we will continue to target acquisitions of core industrial properties, as well as advancing our
plans for some of our strategic sites, such as our Bowden Road site in Mount Wellington, and our Springs
Road site in East Tamaki, where upcoming potential lease expiries may provide PFI with significant
redevelopment opportunities. The divestment of Shed 22 in Wellington following completion of seismic
works will also be a priority, as will the recommencement of the build-to-lease development at 47 Dalgety
Drive in Wiri ($9.0 million).
Increased dividend guidance
Simon Woodhams notes: “PFI has delivered robust results, with an increase in both FFO and AFFO
earnings. The Company has a strong balance sheet, and our industrial property portfolio is in great
shape, with forecast growth in rents.”
Craig Peirce continues: “Our average AFFO dividend pay-out ratio has been 100% since we began
disclosing this metric in 2016
5
. Now that dividends are comfortably AFFO covered, we are pleased to
advise a lift in forecast dividends of 0.15 to 0.20 cents per share to 7.85 to 7.90 cents per share.
“We expect 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. This guidance is subject to
there being no material adverse changes in conditions or unforeseen events, including no material tenant
failures or further significant COVID-19 restrictions.”
Closing
Simon Woodhams concludes: “This year, we took proactive steps to protect our people and core
business. At the same time, we held our course on our strategy and retained the confidence of the
market. The year’s results show that even when the country and the economy as a whole are struck by
unexpected events like the COVID-19 pandemic, our patient, long-term approach remains relevant.”
ENDS
ABOUT PFI & CONTACT
PFI is an NZX listed property vehicle specialising in industrial property. PFI’s nationwide portfolio of 95 properties is leased to
149 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@propertyforindustry.co.nz Email: peirce@propertyforindustry.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
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5
AFFO has been disclosed since the financial year ended 31 December 2016 (refer Appendix 3).
NZX and media
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22 February | 2021
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Attachments
NZX Form – Results Announcement
NZX Form – Distribution Notice
Annual Results Presentation
Annual Report
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
2020
31 December
2019
Profit and total comprehensive income after income
tax attributable to the shareholders of the Company
113,452 176,286
Adjusted for:
Fair value loss / (gain) on investment properties (72,546) (125,193)
Material damage insurance income (5,073) (1,125)
Loss / (gain) on disposal of investment properties 14 (4,126)
Fair value loss / (gain) on derivative financial instruments (643) (2,577)
Amortisation of tenant incentives 2,841 2,656
Straight lining of fixed rental increases (1,882) (1,690)
Deferred taxation 12,175 986
Other 2 12
Funds From Operations (FFO) 48,340 45,229
FFO per share (cents) 9.67 9.07
Maintenance capex (2,977) (3,446)
Incentives and leasing fees given for the year (4,225) (2,955)
Other (incl. reversal of accounting entries for COVID-19 abatement
and deferral deals)
(1,010) -
Adjusted Funds From Operations (AFFO) 40,128 38,828
AFFO per share (cents) 8.03 7.79
Appendix 2 – FFO and AFFO Dividend Pay-out Ratios
2020 2019
Full year dividends per share (cents) 7.70 7.60
FFO dividend pay-out ratio (%) 80% 84%
AFFO dividend pay-out ratio (%) 96% 98%
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Appendix 3 – AFFO Pay-out Ratios (2016 – 2020)
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%
2020 8.03 7.70 95.9%
Total 37.72 37.65 100.0%
---
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 2020
Previous Reporting Period 12 months to 31 December 2019
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$176,053 -23%
Total Revenue $176,053 -23%
Net profit/(loss) from
continuing operations
$113,452 -36%
Total net profit/(loss) $113,452 -36%
Final Dividend
Amount per Quoted Equity
Security
$0.02250000
Imputed amount per Quoted
Equity Security
$0.00514061
Record Date 1 March 2021
Dividend Payment Date 10 March 2021
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$2.209 $2.055
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
2020. 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
22 February 2021
Audited financial statements accompany this announcement.
---
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 X
Record date 1 March 2021
Ex-Date (one business day before the
Record Date)
26 February 2021
Payment date (and allotment date for
DRP)
10 March 2021
Total monies associated with the
distribution
$11,279,315
Source of distribution (for example,
retained earnings)
Retained earnings
Currency NZD
Section 2: Distribution amounts per financial product
Gross distribution $0.02764061
Gross taxable amount $0.01835933
Total cash distribution $0.02250000
Excluded amount (applicable to listed
PIEs)
$0.00928128
Supplementary distribution amount $0.00233272
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
$0.00514061
Resident Withholding Tax per
financial product
N/A
Section 4: Distribution re-investment plan (if applicable)
DRP % discount (if any)
2%
Start date and end date for
determining market price for DRP
1 March 2021 5 March 2021
Date strike price to be announced (if
not available at this time)
8 March 2021
Specify source of financial products to
be issued under DRP programme
(new issue or to be bought on market)
New Issue
DRP strike price per financial product
To be determined
Last date to submit a participation
notice for this distribution in
accordance with DRP participation
terms
2 March 2021
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
22 February 2021
---
Highlights
Annual
Results
Briefing
2020
ROBUST ANNUAL RESULT:
STRONG BALANCE SHEET:
PORTFOLIO METRICS HEALTHY:
INCREASED DIVIDEND GUIDANCE :
Nettangibleassetsup7.5%to220.9centspershare,additional
bankfacilitysecured,over$110millionofavailableliquidity,gearing
of30.0%
Weightedaverageleasetermof5.28years,occupancyof99.4%,
just3.3%ofcontractrentisduetoexpirein2021
Robustresults,astrongbalancesheet,andforecastrentalgrowth
resultinaliftin2021dividendguidanceto7.85to7.90centsper
share
Annualprofitaftertaxof$113.5million,FundsFromOperations(FFO)
1
earningsup6.6%fromtheprioryearto9.67centspershare,Adjusted
FundsFromOperations(AFFO)earningsup3.1%fromtheprioryearto
8.03centspershare,2020cashdividendsof7.70centspershare
SIGNIFICANT STRATEGIC PROGRESS:
$183millioninvestedincoreindustrialpropertyand$158millionof
non-coredivestmentssincethebeginningof2019,includingthe
postbalancedatedivestmentofCarlawParkfor$110million,
portfoliopositionedtobenefitfromtrendssupportinglong-term
growth
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 34 for further details.
4
DECEMBER 2020DECEMBER 2019
BOOK VALUE
$1,631.5m $1,476.2m
NUMBER OF PROPERTIES
9494
NUMBER OF TENANTS
148144
CONTRACT RENT
$89.8m$84.9m
OCCUPANCY
99.4%99.0%
WEIGHTED AVERAGE LEASE TERM
5.28 years5.38 years
AUCKLAND PROPERTY
84.6%84.1%
INDUSTRIAL PROPERTY
91.7%90.0%
Portfolio
Snapshot
▪PFI's portfolio is diversified across 94 properties
and 148 tenants, with 99.4% occupancy and a
weighted average lease term of 5.28 years,
weighted towards Auckland industrial property
6
1
1
4
4
74
4
1
1
4
Annual
Results
Briefing
2020
0
1
2
3
4
5
6
93%
94%
95%
96%
97%
98%
99%
100%
Dec-11Dec-12Dec-13Dec-14Dec-15Dec-16Dec-17Dec-18Dec-19Dec-20
Occupancy (%)WALT (years)
Historical
Operational
Performance
Annual
Results
Briefing
2020
▪Since 2011 PFI has achieved
a year end average
occupancy of 98.5% and a
weighted average lease term
of 5.09 years
7
Valuations
▪Annual increase from independent valuations of $72.5 million or
4.7% to $1,631.5 million, including assets held for sale
−Post balance date, Carlaw Park divestment at $110.0
million, $7.6 million above the year-end valuation
▪Around one-third of valuation outcome was due to rental growth
▪Passing yield firmed from 5.75% to 5.53%
▪Independent market rental assessment estimates PFI’s portfolio
is ~2.6% under rented, consistent with internal estimates of
under-renting of PFI’s Auckland industrial portfolio
▪CBRE estimate
1
Auckland prime industrial yields are 4.38% and
secondary industrial yields are 5.41%, with recent transactions
being completed at levels lower than this, further growth in the
value of PFI’s portfolio expected if current conditions persist
1
CBRE “Auckland Yield & Rent Update”, January 2021.
Annual
Results
Briefing
2020
25 LANGLEY ROAD
8
Leasing
▪37 leases agreed over ~90,500 sqm of space
for an average term of 7.5 years
▪11 new leases and 26 renewals secured
▪Lease renewals accounted for more than 70%
of the contract rent secured
▪Average leasing costs of less than two-thirds
of a month per year of term
▪Six leases where COVID-19 deferrals or
abatements were converted to additional term
ADDRESSTENANTTERMAREA% RENT ROLL
59 DalgetyDriveStore Rite Logistics 12.0 years11,844 sqm1.4%
4-6 Mt Richmond DriveIron Mountain6.0 years7,946 sqm1.0%
Shed 22, 23 Cable StreetShed 22 Hospo20.0 years2,809 sqm1.0%
43 CryersRoadAstron Plastics5.0 years8,468 sqm0.9%
320 Rosebank RoadDoyle Sails NZ12.0 years6,719 sqm0.9%
1 Mayo RoadTransdiesel4.7 years6,361 sqm0.6%
Carlaw Park Gateway BuildingWilson Parking6.0 years250 carparks0.6%
VARIOUS30 Other Transactions5.4 years46,395 sqm7.4%
37 LEASING TRANSACTIONS7.5 years90,541 sqm13.8%
Annual
Results
Briefing
2020
9
Fixed51.2%
CPI21.2%
No Event17.4%
Market6.3%
Expiry3.3%
Vacant0.6%
Rent
Reviews
▪94 rent reviews delivered an average annual uplift of ~3.4% on
~$50.7 million of contract rent
−12 market rent reviews delivered an annualised increase of
2.8% over an average review period of 2.5 years on $4.2
million of contract rent, reviews settled at average of ~1.7%
above December 2019 market rental assessment
▪CBRE predict
1
industrial rental growth over the next five years to
average 2.5% per annum for prime properties and 2.3% per
annum for secondary properties, unchanged from 2.5% and
down from 3.0% respectively in December 2019
▪At the end of the year, the portfolio was 99.4% occupied and just
3.3% of contract rent is due to expire in 2021, when combined
with rent reviews, almost 83% of PFI’s portfolio is subject to
some form of lease event during 2021
1
CBRE “Auckland Property Market Outlook”, December 2020
10
Annual
Results
Briefing
2020
0.6%
3.3%
11.1%
12.2%
22.5%
9.9%
5.2%
10.3%
6.9%
2.1%
15.9%
0%
5%
10%
15%
20%
25%
Vacant202120222023202420252026202720282029Onwards
2021 Lease
Expiries
Annual
Results
Briefing
2020
▪Portfolio is 99.4% occupied (0.6% vacancy) and 3.3% of contract rent is
due to expire in 2021, a total of just 3.9% (graph below), down from
7.5% as at the end of 2019
−127 Waterloo Road has been sold with settlement due to take
place in April 2021 and is excluded from any 2021 expiries analysis
▪No large expiries, largest single expiry is $538,000, just 18.7% of total
(graph on RHS)
▪Vacancy still at historically low levels: CBRE reports
1
Auckland Prime
industrial vacancy at 1.2%, Secondary industrial vacancy at 1.7%
1
CBRE “Auckland Industrial Space Market Trends ”, February 2021
11
+2.2
+1.8
+0.9
+0.4
+0.1
-2.6
-1.3
-0.5
-0.2
83.3
84.2
$80m
$81m
$82m
$83m
$84m
$85m
$86m
$87m
$88m
$89m
$90m
2019 net
rental income
AcquisitionsRent reviewsNew leasesFixed rent
reviews
OtherDisposalsDevelopmentsVacancyCOVID-19
support
2020 net
rental income
Net Rental
Income
▪Net rental income of $84.2
million in line with the prior year
($83.3 million)
▪COVID-19 related support for
tenants included $0.9 million of
abatement and $0.6 million of
deferral, a combined total of
1.7% of annual rent
▪Abatement and deferral deals
resulted in a $1.5 million
decrease in net rental income
when compared to the prior
year, but accounting entries
required resulted in recording
$1.3 million of income not
received, resulting in a change
to reported net rental income of
just $0.2 million
13
Annual
Results
Briefing
2020
+0.61
+0.16
+0.09
-0.02
-0.29
-0.18
-0.13
7.79
8.03
7.2
7.4
7.6
7.8
8.0
8.2
8.4
8.6
8.8
2019 AFFORebase for
shares issued
Current taxationInterest expense
and bank fees
Maintenance
capex
Net rental
income
Non-recoverable
property costs
Administrative
expenses /
Other
2020 AFFO
Adjusted
Funds From
Operations
(cents per share)
▪Profit after tax of $113.5 million
▪FFO earnings of 9.67 cents per
share, 0.60 cents per share or
6.6% ahead of the prior year
▪AFFO earnings of 8.03 cents
per share, 0.24 cents per
share or 3.1% ahead of the
prior year
▪Current tax down $3.0 million,
interest expense and bank
fees down $0.8 million
▪Maintenance capex down $0.5
million to 19 basis points
▪Accounting entries for COVID-
19 of $1.0 million adjusted out
of AFFO earnings
14
Annual
Results
Briefing
2020
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10.00
FY16FY17FY18FY19FY20
FFO (cps)AFFO (cps)DPS (cps)
Earnings,
Dividends,
Guidance
▪2020 cash dividends total 7.70 cents per
share (cps), up 0.10 cps from 2019,
dividend reinvestment scheme in place for
2020 dividends, 2% discount
▪Average AFFO dividend pay-out ratio of
100.0% since PFI began disclosing AFFO
in 2016
▪2021 dividend guidance: now that
dividends are comfortably AFFO covered,
pleased to advise a lift in forecast
dividends of 0.15 to 0.20 cents per share
to 7.85 to 7.90 cents per share, forecast to
equate to 80%-90% of FFO, 95%-100% of
AFFO
EARNINGS2020 CPS2019 CPSCHANGE
FUNDS FROM OPERATIONS
9.679.07+0.60 CPS or +6.6%
ADJUSTED FUNDS FROM OPERATIONS
8.037.79+0.24 CPS or +3.1%
15
Annual
Results
Briefing
2020
1,631.5
+72.5
+65.1
+19.2
+5.3
1,469.3
$1,330m
$1,380m
$1,430m
$1,480m
$1,530m
$1,580m
$1,630m
$1,680m
December 2019
investment properties
& AHFS
Fair value gainAdditionsCapitalised
expenditure & interest
Movement in lease
incentives, fees and
fixed rental income
December 2020
investment properties
& AHFS
Investment
Properties
▪Portfolio value of ~$1.63 billion,
including 127 Waterloo Road,
Christchurch (due to settle April
2021) and the Carlaw Park
properties, which are classified
as held for sale (AHFS)
▪Increase from annual
independent valuations of $72.5
million or 4.7%
▪528-558 Rosebank Road,
Avondale, purchased in
November 2020, $65.1 million
▪Significant capex at 59 Dalgety
Drive (refurbishment) and 314
Neilson Street (development)
16
Annual
Results
Briefing
2020
205.5
220.9
+14.5
+1.0
+0.8+0.1
-1.0
190
195
200
205
210
215
220
225
December 2019
NTA
Rebase for shares
issued
Fair value gain on
investment
properties
Material damage
insurance income
Retained earningsFair value gain on
derivative financial
instruments
December 2020
NTA
Net Tangible
Assets
(cents per share)
▪Net tangible assets (NTA) per
share increased by 15.4 cents
per share or 7.5%
▪Change in NTA per share driven
by the increase in the fair value
of investment properties (+14.5
cps), material damage insurance
income (+1.0 cps), retained
earnings (+0.8 cps), and the
decrease in the net fair value
liability for derivative financial
instruments (+0.1 cps)
17
Annual
Results
Briefing
2020
Five Year
Financial
Summary
Annual
Results
Briefing
2020
▪The last five years has seen strong
growth in earnings and valueswhilst
keeping gearing at conservative levels
and maintaining a high ratio of interest
cover
18
YEAR ENDING 31 DECEMBER ($M, UNLESS NOTED)
20162017201820192020
TOTAL COMPREHENSIVE INCOME AFTER TAX
123.451.7110.1176.3113.5
DISTRIBUTION ADJUSTMENTS
(92.1)(17.3)(72.9)(137.5)(73.4)
ADJUSTED FUNDS FROM OPERATIONS
31.334.437.238.840.1
TOTAL ASSETS
1,121.81,242.11,358.91,522.71,687.3
TOTAL LIABILITIES
365.7399.2443.8468.7550.7
TOTALEQUITY
756.1842.9915.11,054.01,136.6
NET TANGIBLE ASSETS (CENTS PER SHARE)
160.7163.2177.7205.5220.9
LOAN-TO-VALUE RATIO (COVENANT: <50%)
30.1%30.8%30.3%28.2%30.0%
INTEREST COVER RATIO (COVENANT: >2.0X)
3.4x3.7x3.9x4.0x4.1x
Funding,
Covenants,
Interest
Rates
▪$50 million liquidity facility secured from
CBA in March 2020 in response to the risks
associated with the COVID-19 pandemic,
increased to $100 million and extended in
November 2020
▪Large fall in the three-month Bank Bill
Market (or “float”) rate contributed to a
0.88% reduction in PFI’s weighted average
cost of debt during 2020
▪High levels of liquidity from a diverse range
of sources, ultra-low interest rates and
headroom to covenant levels provide PFI
with a strong funding position
DECEMBER 2020DECEMBER 2019
FUNDING
BANK FACILITIES DRAWN
$289.9m $215.6m
BANK FACILITIES LIMIT
$400.0m$300.0m
BANK FACILITIES HEADROOM
$110.1m$84.4m
FIXED RATE BONDS
$200.0m$200.0m
FUNDING TERM (AVERAGE)
2.8 years4.1 years
BANKS
ANZ, BNZ, CBA, WestpacANZ, BNZ, CBA, Westpac
COVENANTS
LOAN-TO-VALUE RATIO (COVENANT: <50%)
30.0%28.2%
INTEREST COVER RATIO (COVENANT: >2.0X)
4.1 times4.0 times
INTEREST RATES
WEIGHTEDAVERAGE COST OF DEBT
3.75%4.63%
INTERESTRATE HEDGING (EXCL. FORWARD STARTING)
$295m/ 3.07% / 3.1 years$245m/ 3.75% / 2.4 years
FORWARD STARTING INTEREST RATE
$110m / 3.09% / 3.7 years$190m / 3.32% / 3.5 years
20
Annual
Results
Briefing
2020
150.0150.0
100.0100.0
100.0
0.0
50.0
100.0
150.0
200.0
250.0
300.0
FY21FY22FY23FY24FY25
Syndicated facilitiesBondsCBA facility
1.5%
1.9%
2.3%
2.7%
3.1%
$0m
$50m
$100m
$150m
$200m
$250m
$300m
$350m
Dec-20Jun-21Dec-21Jun-22Dec-22Jun-23Dec-23Jun-24Dec-24Jun-25Dec-25Jun-26Dec-26
CoverInterest Rate
Debt Facility
Maturity
Profile,
Hedging
▪Average term to expiry of bank
facilities and bonds (top graph)
of 2.8 years, $110.1 million of
unutilised bank facility capacity
▪FY22 expiries: CBA facility
expires 19 March 2022, with the
syndicated facility expiring 4
November 2022
▪Divestment of Carlaw Park will
provide further funding flexibility
▪Fixed rate payer hedging profile
(bottom graph) provides for an
average of ~63% of debt to be
hedged at an average fixed rate
of ~2.91% during 2021, with the
remainder on low float interest
rates
21
Annual
Results
Briefing
2020
200
250
300
350
400
450
500
550
600
Jun-18Dec-18Jun-19Dec-19Jun-20Dec-20
$m
NZ Post Total Online Spend
2
Market
Update
▪Industrial property continues to perform, with trends supporting
long-term growth
▪Shift to online spending (top graph) accelerated by COVID-19
pandemic, boosting tenant demand for well-located industrial
property close to key transport links
▪ANZ Heavy Traffic Index (bottom graph), shows the continuance
of pre-pandemic themes after 2020 lockdown restrictions were
eased
▪Low interest rates
1
are contributing to a demand for industrial
property investment that continues to outstrip supply
−Q4 2021 OCR: 0.25%
−Q4 2021 10-year Bond Rates: 1.75%
23
Annual
Results
Briefing
2020
35
40
45
50
55
60
65
700
900
1100
1300
1500
1700
1900
02040608101214161820
$bn
Index Jan 04 = 1000
ANZ Heavy Traffic Index vs. GDP
3
ANZ heavy traffic indexGDP real $m (RHS)
1
ANZ Economic Research;
2
NZ Post, Forsyth Barr Analysis;
3
ANZ Truckometer January 2021
Market
Update
▪CBRE “Auckland Property Market Outlook”,
December 2020:
−Outlook for vacancy and yields has improved
since December 2019
−Softer outlook for rents, as more generous
incentives are offered to prospective tenants
▪Stable cash flows and a return of depreciation on
building structures are also contributing to increased
investor demand for industrial property
CBREAUCKLAND MARKET OUTLOOKDECEMBER 2020
5-YEAR
FORECAST:
DECEMBER 2020
5-YEAR
FORECAST:
DECEMBER 2019
PRIME INDUSTRIAL
VACANCY1.1%1.1%▼1.4%
RENTS$141+2.5%◄►+2.5%
YIELDS4.46%4.26%▼4.90%
SECONDARY INDUSTRIAL
VACANCY1.6%1.6%▼2.1%
RENTS$112+2.3%▼+3.0%
YIELDS5.48%5.22%▼5.80%
24
Annual
Results
Briefing
2020
OUR PURPOSE
PFIgeneratesincomeforinvestorsasprofessionallandlordsto
theindustrialeconomy,generatingprosperityforNewZealand.
OUR VISION
PFIwillbeoneofNewZealand’sforemostListedProperty
Vehicles.Ourmeasureswillbeperformance,quality,scaleand
reputation.
SIGNIFICANT PROGRESS
▪Includingpostbalancedateactivity,sincethebeginningof
2019PFIhasinvested$182.9millionincoreindustrial
propertyanddivested$157.8millionofnon-coreproperty
(seenextslide)
▪Oncompletionofpostbalancedateactivity,PFI’sportfoliowill
be98%industrial,positioningtheCompanytobenefitfrom
trendssupportinglong-termgrowth,suchase-commerce
OUR STRATEGIC DIRECTION
▪Transitioningtoapure-playindustrialListedPropertyVehicle
▪IncreasingourAucklandweighting
▪Improvingthepropertyandtenancyfundamentalsofour
portfolio
▪Decreasingtheaverageageofourportfolio
2020
Annual
Results
Briefing
2020
Purpose,
Vision,
Strategic
Direction,
Progress
26
Annual
Results
Briefing
2020
Environmental,
Social and
Governance
(ESG)
27
Created ESG strategic framework
ESG STRATEGIC PILLARS
▪Health, safety and wellbeing
▪Resource efficiency
▪Long-term thinking
ESG STRATEGIC THEMES
▪Taking care of our team
▪Looking after our tenants
▪Responsible property ownership
▪Delivering for our investors
Commenced execution of the ESG strategy
HIGHLIGHTS
▪Formalised a comprehensive Health,
Safety and Wellbeing framework
▪Strengthened ESG governance and
resourcing
▪Increased transparency through:
▪First climate-related (TCFD)
disclosures
▪First response to the Carbon
Disclosure Project (CDP)
▪Expanded carbon footprint
measurement
Continue execution of the ESG strategy
KEY COMMITMENTS
▪$2m investment to reduce emissions and
stop ozone damage from our HVAC
systems
▪Net zero Scope 1, Scope 2 and selected
Scope 3 emissions
▪Ongoing transparency for our stakeholders
▪Sustainable building design
201920202021 onward
Annual
Results
Briefing
2020
Significant
Progress
$182.9M
INVESTED
$157.8M
DIVESTED
28
51-61 Spartan
Road
212 Cavendish
Drive, Wiri
50 Parkside Road,
Wellington
229 Dairy Flat
Highway, Albany
9 Pacific Rise, Mt
Wellington
127 Waterloo
Road,
Christchurch
+$17.2m
+$7.2m
25 Langley
Road, Wiri
6 Donnor Place,
Mt Wellington
+36.0m+$5.6m
LEASED
59 Dalgety
Drive, Wiri
LEASED
314 Neilson
St, Onehunga
+$6.7m
+$5.6m
670-680
Rosebank
Road
$39m
528-558
Rosebank Road
$65.6m
-$3.4m
-$33.0m
-$7.0m
-$4.4m
Q1 2019Q2 2019Q3 2019Q4 2019
Q1 2020Q2 2020Q3 2020Q4 2020
Q1 2021
-$110m
CONTRACTED
Carlaw Park,
Parnell
Positioned
for
Growth
Annual
Results
Briefing
2020
▪After all planned acquisitions and divestments:
−Pro forma LVR of 26.5%;
−Borrowings headroom of $185.5 million;
and
−Portfolio will be 98% industrial
▪Positions PFI to advance areas of focus,
including advancing value add strategies and
responding to acquisition opportunities as they
arise
DECEMBER
2020
670-680
ROSEBANK
ACQUISITION
127
WATERLOO
DIVESTMENT
CARLAW
PARK
DIVESTMENT
PRO FORMA
INVESTMENT PROPERTIES
& AHFS
$1,631.5m +$39.0m-$4.3m-$102.4m$1,563.8m
TOTAL DRAWN
BORROWINGS
$489.9m+$39.0m-$4.4m-$110.0m$414.5m
LOAN-TO-VALUE RATIO
30.0%+1.6%-0.2%-5.0%26.5%
30.0%
26.5%
+1.6%
-0.2%
-5.0%
December 2020 LVR %670-680 Rosebank Road
Acquisition
127 Waterloo Road
Disposal
Carlaw Park DisposalPro forma LVR %
29
DISPOSALS:
2021 focus: advance our plans for some of our strategic sites, such
as our Bowden Road site in Mount Wellington, and our Springs Road
site in East Tamaki, where upcoming potential lease expiries will
provide PFI with significant redevelopment opportunities. The
recommencement of the build-to-lease development at 47 Dalgety
Drive in Wiri ($9.0 million) will also be a priority.
ACQUISITIONS:
2021 focus: continue to target acquisitions of core
industrial properties, like the recent acquisition on
Rosebank Road.
2021 focus:disposal of Shed 22 in Wellington
following completion of seismic works.
ASSET MANAGEMENT:
2021 focus: leasing of vacant and expiring
spaces, monitor and respond to COVID-19
related developments.
VALUE-ADD STRATEGIES:
Annual
Results
Briefing
2020
2021 Focus
30
Review &
Questions
Questions?
32
LOOKING FORWARD:
▪“This year, we took proactive steps to protect
our people and core business. At the same time,
we held our course on our strategy and retained
the confidence of the market. The year’s results
show that even when the country and the
economy as a whole are struck by unexpected
events like the COVID-19 pandemic, our patient,
long-term approach remains relevant.” Simon
Woodhams, Chief Executive Officer
▪Impact from February 2021 COVID-19
restrictions not yet known
HIGHLIGHTS:
▪Robust annual result
▪Strong balance sheet
▪Portfolio metrics healthy
▪Significant strategic progress
▪Increased dividend guidance
Annual
Results
Briefing
2020
Appendix 1:
FFO and
AFFO
(Unaudited, $000, unless noted)YE December 2020YE December 2019
Profit and total comprehensive income after income tax attributable to the shareholders of the Company
113,452176,286
Adjusted for:
Fair value (loss) / gain on investment properties
(72,546)(125,193)
Material damage insurance income
(5073)(1,125)
Loss on disposal of investment properties
14(4,126)
Fair value loss/ (gain) on derivative financial instruments
(643)(2,577)
Amortisation of tenant incentives
2,8412,656
Straight lining of fixed rental increases
(1,882)(1,690)
Deferred taxation
12,175986
Other
212
Funds From Operations (FFO)
48,34045,229
FFO per share (cents)
9.679.07
FFO dividend pay-out ratio (%)
80%84%
Maintenance capex
(2,977)(3,446)
Incentives and leasing fees given for the period
(4,225)(2,955)
Other (incl. reversal of accounting entries for COVID-19 abatement and deferral deals)
(1,010)-
Adjusted Funds From Operations (AFFO)
40,12838,828
AFFO per share (cents)
8.037.79
AFFO dividend pay-out ratio (%)
96%98%
34
Annual
Results
Briefing
2020
Disclaimer
The information included in this presentation is provided as at 22 February 2021 and should be read in conjunction with the NZX results
announcement, NZX Form –Results Announcement, NZX Form –Distribution Notice, and annual report 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.
35
Annual
Results
Briefing
2020
---
Property
for
Industry
Limited
Annual
Report
31 December
2020
THE
STABILITY
ISSUE
2020 REVIEW
A STRONG POSITION IN A DIFFICULT YEAR
LOOKING AHEAD
A DISCIPLINED APPROACH
SUSTAINABILITY
+
STRENGTH
Some of New Zealand’s most successful companies depend on us to
help them connect demand with supply. We are their property partners,
working with them as they tackle changing customer expectations and
needs in a COVID-19-influenced world.
www.propertyforindustry.co.nz
They have our undivided attention.
READ MORE
P.08
THE EPICENTRE
OF CHANGING
DEMANDS
SECTION
3
READ MORE
P.06
A STRONG
POSITION IN A
DIFFICULT YEAR
SECTION
2
READ MORE
P.04
INDUSTRIAL
TO OUR CORE
SECTION
1
READ MORE
P.12
LIFTING OUR
PRESENCE
SECTION
4
READ MORE
P. 14
SEEING THE
POTENTIAL FOR
NEIGHBOURS
SECTION
5
A DISCIPLINED APPROACH
FINDING THE OPPORTUNITIES
2020 reviewBusiness overviewLooking aheadAcquisitionsAcquisitions
PFI is a professional landlord to the industrial sector. Others
may come and go chasing trends, but our track record
extends over many years. We look to generate strong, stable
returns for our investors by focusing on this growing sector.
Our participation in the industrial economy in turn generates
prosperity for New Zealand.
STRONG TODAY. DEPENDABLE TOMORROW
02
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
SUSAN PETERSON
Independent Director
DAVID THOMSON
Independent Director
DEAN BRACEWELL
Independent Director
SIMON WOODHAMS
Chief Executive Officer
CRAIG PEIRCE
Chief Finance and
Operating Officer
GREG REIDY
Non-Executive Director
ANTHONY BEVERLEY
Chairman and Independent
Director
READ MORE
P.20
SUSTAINABILITY
SECTION
8
READ MORE
P.30
STRONG WHERE
IT COUNTS
SECTION
9
Profiles of our team members
can be found on our website at
pfi.co.nz/people
READ MORE
P.16
BUILDING ON
WHATS THERE
SECTION
6
READ MORE
P. 18
FIT FOR
PURPOSE
SECTION
7
Value AddAsset managementWorking towards a
brighter future
Financial statements and
other disclosures
03
THIS YEAR WE continued with our strategy of building
a focused advantage in the industrial property sector.
We secured and leased properties that bolstered our
overall portfolio because vendors and our customers
trust the specialist knowledge we apply to every
purchase and lease.
Our four-part strategy held up very well in its
second year. “The year’s results show that even when
the country and the economy as a whole are struck
by unexpected events like the COVID-19 pandemic, our
patient, long-term approach remains relevant – in fact, it
really comes into its own,” says Chief Executive Officer,
Simon Woodhams. “This year, we took proactive steps to
protect our people and core business. At the same time,
we held our course on our strategy and retained the
confidence of the market.”
Investors will be pleased the dividend has increased
again this year to 7.70 cents per share (cps), up on last
year’s dividend of 7.60 cps.
Other key metrics were also healthy: Funds From
Operations increased by 6.6% to 9.67 cps, while Adjusted
Funds From Operations increased by 3.1% to 8.03 cps.
The revaluation of our portfolio resulted in an increase
in value of $73 million, meaning our portfolio is now
valued at $1.631 billion. 90,500 sqm of space has been
leased this year for an average term of 7.5 years and a
total rent of $12.4 million.
We developed properties at 59 Dalgety Drive and
314 Neilson Street and acquired further properties on
Avondale’s Rosebank Road. Divestments were more
muted given the state of the market, with the sale of
Carlaw Park not secured until after year end. Details of a
selection of transactions are included on pages 12 to 19.
“Our focus has been on ensuring that we acquire
properties that align with what we are looking for long
term. At the same time, while we are committed to
refocusing our portfolio towards wholly industrial,
it’s important our divestments bring us the returns our
shareholders expect. To that end, we waited for the right
market conditions,” says Woodhams.
The PFI team have worked hard this year to
support our tenants through a wide range of challenges.
“Relationships underpin being a successful landlord to
the industrial sector,” says Woodhams. “We recognised
COVID-19 as an opportunity to clearly show the many
companies we work with that our commitment to them
is one of partnership.”
INDUSTRIAL
TO
OUR
The number of tenants, occupancy and Weighted
Average Lease Term have largely held steady, while
contract rent has increased. This contributed to the
Company’s share price rising to $2.93 at the end of the
year, resulting in total shareholders return for the year in
excess of 23%, and Net Tangible Assets (NTA) rising
7.5% on last year to 220.9 cents per share.
Gearing has been maintained at low levels, knowing
this setting works to our advantage in many different
markets. This year, as part of our proactive response
to the COVID-19 situation, we secured an initial
$50 million of liquidity from one of our key banking
partners, the Commonwealth Bank of Australia. Later
in the year, this facility was increased to $100 million.
“Our portfolio revaluation uplift has made the Company
more valuable. At the same time we have shored up our
ability to access cashflow to continue to secure quality
industrial properties in line with our strategy,” says PFI
Chief Finance and Operating Officer, Craig Peirce.
This year, we continued to focus on our strategic
Environmental, Social and Governance (ESG)
framework, delivering tangible progress across an array
of initiatives. We established a Health, Safety and
Wellbeing framework to formalise accountability for
our strong health and safety culture. Greenhouse gas
emissions and climate change mitigation and adaptation
were also an important focal point for us. We have
completed our second carbon footprint, committed
$2 million to emissions reductions initiatives over the
next three years, submitted to the Carbon Disclosure
Project (CDP) for the first time and carried out a
risk assessment in line with the Task force on
Climate-related Financial Disclosures (TCFD)
recommendations. Further information on our
sustainability performance can be found on pages 20-29.
“Against a backdrop of testing conditions, the
Company performed exceptionally well. Specifically,
our conservative gearing and ability to access liquidity
worked to our advantage. We took decisions on the
basis of a well-defined strategy but retained the
flexibility to change course.
“The Board is pleased to have emerged well placed to
respond to opportunities as they arise. At the same time,
we have grown cash returns for our investors while
supporting those tenants most in need,” says PFI
Chairman, Anthony Beverley.
n
01.
04
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
2020 REVIEW
2020 REVIEW
For more information on our annual results, please visit:
https://www.propertyforindustry.co.nz/investor-centre/results-centre/
$
100M
REFINANCING
of additional bank facilities
successfully secured
$
90,500
SQM LEASED
LEASING ACTIVITY
REVALUATION
1.631
$
BILLION
PORTFOLIO
$
73 M
$
ADJUSTED FUNDS
FROM OPERATIONS
8.03 CPS
UP 6.6%
FUNDS
FROM OPERATIONS
9.67 CPS
CONTRACT
RENT UP
89.8
$84.9M
$89.8M
20192020
84.9
cents per share.
7. 7 0
DIVIDEND
7.352016
7.452017
7.552018
7.602019
7.70
2020
220.9
NET TANGIBLE ASSETS
CENTS PER SHARE UP
7.5% ON LAST YEAR
160.72016
163.22017
177.72018
205.52019
220.9
2020
UP 3.1%
$
$
05
10 THINGS YOU SHOULD KNOW ABOUT PFI:
STRONG
02.
5.281 7. 5
AVERAGE
PROPERTY
VALUE
94
PROPERTIES
148
TENANTSAVERAGE
OCCUPANCY
OVER THE LAST 10 YEARS
WEIGHTED AVERAGE
LEASE TERM (WALT)
$
98.5
YEARSMILLION
%
_ 314 Neilson
Street, Penrose
A
POSITION
IN A
DIFFICULT
YEAR
94
2019:
14498.5%5.38 YEARS15.7 MILLION
06
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
BUSINESS OVERVIEW
BUSINESS OVERVIEW
2.93
$
19
NUMBER OF STAFF
AND DIRECTORS
30.0
GEARING
30
NUMBER OF
PROPERTIES OCCUPIED
BY TOP 10 TENANTS
AVERAGE ANNUALISED
TOTAL RETURN SINCE
INCEPTION
SHARE PRICE
11.59
PEOPLE
%
%
_ Etel, 550
Rosebank Road,
Avondale
_ Etel, 550
Rosebank Road,
Avondale
28.2%3011.14%$2.4418 PEOPLE
07
EPICENTRE
03.
BUSINESSES ARE BUILDING new ways of
connecting their inventory to digitally
savvy consumers. At the same time, the
industrial property sector is securing
returns for investors that outperform
the lower returns they get from cash.
From an investor perspective, this puts
PFI at the centre of two thriving sectors.
There is a general consensus that
COVID-19 has accentuated and
accelerated trends which, under more
normal trading conditions, could have
been expected to play out over a number
of years. Instead, these trends have been
contracted to a matter of months.
The increased use of online
shopping has positive flow-on effects
for industrial property because it
creates additional demand for logistics
space. With international supply
chains stressed, many businesses
are also looking to ensure they can
better manage inventory locally.
Generating stable, consistent
income for our investors is
about more than just
acquiring assets.”
SIMON WOODHAMS,
Chief Executive Officer
08
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
LOOkING AHEAD
LOOkING AHEAD
EPICENTRE
OF
CHANGING DEMANDS
THE
09
Industrial land values continue to lift because of
this interest as well as low interest rates, a lack of
attractive investment alternatives and New Zealand’s
relative normality following our success in dealing with
the pandemic and preventing waves of disruption. Other
factors working to the Company’s advantage include the
return of depreciation on building structures,
which has directly benefitted our returns, and is
an acknowledgement from central Government
that infrastructure, like industrial property, is a
national priority.
All of this is helping position the industrial sector as
the most resilient and attractive property type in the
New Zealand market.
A FAST-MOVING
MARKET
RESEARCH BY COMMERCIAL REAL ESTATE SERVICES
FIRM CBRE REVEALS
that while other parts of the
commercial property sector are experiencing
uncertainty, buyers and sellers in the industrial sector
are bidding up logistics prices – a clear indication of how
much the market has reoriented. Overall, vacancies are
sitting at less than 2% for the Auckland industrial sector,
with CBRE forecasting rents for both prime industrial
and secondary industrial properties to increase in
the years ahead.
“The pressure to rethink just-in-time planning has
only increased the positive sentiment towards the sector
that we’ve been seeing in recent years,” says Chief
Executive Officer, Simon Woodhams. “Capital is flowing
into the industrial sector at the same time as market
conditions are changing for the better, but these market
conditions create their own share of challenges.”
DISCIPLINED
APPROACH
A KEY INCENTIVE for many investors is that, as term
deposit rates have dropped, property has become one of
the closest things many people can find to an investment
with bond-like characteristics. This structural shift in
both demand and supply has in turn drawn more
participants to the sector. “We now find ourselves
operating in a very popular market” observes Chief
Finance and Operating Officer, Craig Peirce.
The increased attractiveness of the sector has been
good for our own assets – values are up around 5% this
We need to draw
on our experience,
expertise and
focus to make the
right decisions
for investors”
SIMON WOODHAMS,
Chief Executive Officer
Not everything we are
offered is right for us
... and that’s OK.”
CRAIG PEIRCE,
Chief Finance and
Operating Officer
_ 550 Rosebank Road,
Etel, Avondale
year – but the new environment has
made the search for new properties even
more competitive. “Now, more than ever,
we need to draw on our experience,
expertise and focus to make the right
decisions for investors,” says Woodhams.
“Generating stable, consistent income for
them is about more than just acquiring
assets. It’s also about driving value from
within our current portfolio. Maximising
the portfolio so it works effectively for
investors is something we continue to
focus on going forward.”
LOCATION IS
STILL CRITICAL
CBRE FOUND THAT, in terms of locational
preferences, tenants rated the three most
important factors for industrial property
as being proximity to motorways, labour
and ports. They also indicated that
growth and supply-chain efficiency
improvements were influential factors in
10
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
LOOkING AHEAD
terms of shaping their current and future real estate
strategies. That makes knowing where to invest and
identifying companies with the right strategies to benefit
from partnering with PFI important factors.
We now operate at a scale where we can access
the capital we need to pursue the larger opportunities
in the market. “Competitive activity in the market has
absolutely picked up,” says Woodhams. “There are now a
lot more companies and syndicates operating in the
industrial space. Fortunately for us, the fact that we have
been in the market for so long and the scale of our
portfolio means we are getting access to larger
opportunities. The two acquisitions on Rosebank Road
are examples of larger properties that we were able to
pursue because we now have the portfolio and the
backing to make it happen.”
NOT EVERY OPPORTUNITY
IS RIGHT FOR US
JUST AS IMPORTANTLY, our track record works in our
favour. People know we make decisions quickly and that
we are good to deal with. Sometimes those factors are as
important, if not more important, than an actual number.
But reputation also matters in the current market
because it means we don’t have to take every deal we’re
offered. “Our focus is on long-term value creation,” says
Peirce. “The business case is much more important to us
than activity for its own sake. That’s been particularly so
this year where we have chosen to walk away from
opportunities because the numbers don’t stack for us. As
a Management Team and Board, we’re very disciplined
about such decisions. Not everything we’re offered is
right for us, not every tender is one we will win, and
that’s OK.”
CHOOSING TENANTS
CAREFULLY
RESILIENCE AND RELATIONSHIPS have become more
important than ever. “We choose our tenants very
carefully,” says Peirce. “We look for companies that are
well established, have a clear strategy and that work in
sectors that will endure. Our investors depend on these
tenants for the rents that come through to them as
income, so it’s important we manage who we work with
as thoroughly as the buildings we invest in.
“That approach really paid off in a year like the
one we’ve just had. Our tenants faced tremendous
99.4
CURRENT
OCCUPANCY
%
84.2
RENTAL
INCOME
$
MILLION
5.53
PORTFOLIO
YIELD
%
uncertainty and real hurdles in terms of
looking after their people and keeping
things going, but in the end most emerged
intact, and continued to meet their
payments, because they are well managed
and well led.”
ESG IS CHANGING
OUR PERSPECTIVE
ONE OTHER NOTEWORTHY development
this year has been the effect that a
stronger environmental, social and
governance (ESG) approach is now
having on our decision-making. Looking
at everything we do through this extra
lens has yielded new insights and enabled
us to take a more sophisticated and
considered approach to factors that in
the longer term will almost certainly
influence value. We expect to apply
this approach more and more in the
years ahead.
WE END THE YEAR
IN GOOD SHAPE
OUR STRATEGY IS ON TRACK: our returns
have increased, our portfolio is in great
shape, and our share price and valuations
reflect a company in good stead. Overall,
while COVID-19 may have slowed us
down in places, it’s also shown that our
long-term approach serves us well.
Increasing our dividend – with the
amount paid out fully covered by AFFO
earnings – is a great reminder of how we
have remained focused on meeting the
needs of our shareholders and future-
proofing the Company to take advantage
of what lies ahead.
COVID-19 will continue to affect
both our market and our sector for some
time to come. We will continue to play to
our core strengths, to pursue our strategy
and to maintain the momentum achieved
this year by actively managing and adding
value to our portfolio. Our low gearing
and access to capital mean we are well
placed to do that.
n
11
FINDING THE OPPORTUNITIES
ACQUISITION
VALUE ADDED
ASSET MANAGEMENT
04.
OUR
PRESENCE
_ Mastip
_ Triquestra
LIFTING
49,841 sqm site with
multiple egress points
onto Rosebank Road and
a secondary egress point
onto Saunders Place.
OUR ROLE
We purchased this industrial estate in
November as an appropriate replacement
for the properties we have recently sold and
the non-core assets we are looking to sell.
ROSEBANK ROAD,
AVONDALE
—
528 – 558
CASE STUDY
NET LETTABLE AREA
Around 26,500 sqm
and 370 carparks
across 8 buildings
PURCHASE PRICE
$65.55M
LocationLocation
16
TRAHERNE TRAHERNE
ISLANDISLAND
SAUNDERSSAUNDERS
RESERVERESERVE
12
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
A DISCIPLINED APPROACH
A DISCIPLINED APPROACH
Our ability to
secure Rosebank
Road demonstrates
the extent to which
PFI can now operate
at scale”
SIMON WOODHAMS,
Chief Executive Officer
N NOVEMBER WE acquired a 4.98 hectare
industrial estate on Rosebank Road. The estate is one
of the largest land holdings on Rosebank Road and
has eight separate buildings leased to five separate
tenants, the largest being Etel Limited, who design
and manufacture transformers for electricity
distribution companies in New Zealand, Australia
and the Pacific Islands.
Etel have been the anchor tenant on the site since
2002 and committed to a further nine years as recently
as 2019. On settlement the passing rent for the whole
property was $3.41 million and the Weighted Average
Lease Term was around six years.
A number of things drew us to the site. It’s located
just 7km from the Auckland CBD, with good transport
links both North and South via the North-Western
Motorway. The site is held in two separate freehold titles,
and the relatively low site coverage means there is
flexibility to extend. Over the medium to long term, for
example, we could add further value by reconfiguration,
redevelopment or by constructing additional lettable
area. Finally, we already had a significant presence in the
area with about $130 million invested across five other
properties, so this acquisition further consolidates our
presence in this area.
“We first looked at this property a number of years
ago, so we’ve known about the site for some time”
says PFI Portfolio Manager Ewan Cameron. “We are
delighted to have acquired this quality industry property,
close to city, with good tenants. The presence of a
long-term core anchor tenant like Etel coupled with
ample opportunity for growth by working with the
other tenants on site, will allow us to add to the site’s
overall value.”
“At $65.5 million, this is a major acquisition for us,
and well above the market average for an industrial
property transaction,” adds PFI Chief Executive Officer
Simon Woodhams. “Our ability to secure Rosebank Road
demonstrates the extent to which PFI can now operate
at scale, and our ability to transact in a highly
competitive environment.”
n
I
_ 528-558
Rosebank Road
13
NEW
FINDING THE OPPORTUNITIES
05.
HE EFFECTS OF COVID-19 have been many
and varied for different sectors. In our case,
the agreements for the properties we had
hoped to purchase at Tidal Road included
sunset dates as part of their market
standard conditions. Delays caused by the
COVID-19 pandemic and associated
New Zealand Government enforced
lockdowns saw those dates reached and
the agreements cancelled late in 2020.
But around the same time, we added to
our presence on Rosebank Road, by
agreeing to purchase properties adjoining
those we already own for $39 million,
settling the purchase after year end on
29 January 2021.
Our purchase of the 2.8 hectare site
in Avondale includes four buildings leased
to two tenants, NZ Comfort Group and
Dunlop Flooring. Combined with the
adjacent properties we already own on
OUR ROLE
Purchase of four industrial buildings
on two freehold titles adjacent to
other PFI-owned properties.
ROSEBANK ROAD,
AVONDALE
—
670-680
CASE STUDY
NET LETTABLE AREA
Around 17,300 sqm
across 4 buildings
PURCHASE PRICE
$39M
ACQUISITION
VALUE ADDED
ASSET MANAGEMENT
T
LocationLocation
16
16
TRAHERNE TRAHERNE
ISLANDISLAND
SAUNDERSSAUNDERS
RESERVERESERVE
ROSEBANKROSEBANK
2.8 hectare site on
Rosebank Road.
14
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
A DISCIPLINED APPROACH
SEEING
EXISTING
The opportunity to
create a substantial
industrial estate in
a central industrial
precinct zoned
Heavy Industrial is
extremely rare.”
SIMON WOODHAMS,
Chief Executive Officer
Rosebank Rd and Patiki Rd, the purchase
creates an industrial property precinct of
8.6 hectares valued at more than
$110 million and just 250 metres from the
North-Western motorway.
“The new acquisition aligns with our
strategy and presents a unique opportunity
to increase returns and value in the long
term by integrating the property with our
existing holdings,” says Chief Executive
Simon Woodhams. “In the short to medium
term, we look forward to generating stable
income from two excellent tenants. At the
same time, we recognise that the
opportunity to create a substantial
industrial estate in a central industrial
precinct zoned Heavy Industrial
is extremely rare.”
The properties are currently fully leased
for $1.7 million annual rent, with a weighted
average lease term of over four years.
“The acquisition of the properties
at 670-680 Rosebank Road in Avondale
enables us to increase our footprint in a
neighbourhood we believe will deliver
increasing returns and value in the long
term,” says Woodhams. “The location of the
site, so close to the North-Western
motorway, aligns with emerging needs in
logistics and trends in e-commerce. We look
forward to exploring how we can maximise
the returns for investors over the medium
term through redevelopment of some of
the site, as well as potentially strategic
leasing opportunities.”
n
15
THE
POTENTIAL
FOR
NEIGHBOURS
LocationLocation
AIRPORTAIRPORT
TAURANGATAURANGA
MATAPIHIMATAPIHI
2
2
2
29A
FINDING THE OPPORTUNITIES
ACQUISITION
VALUE ADDED
ASSET MANAGEMENT
BUILD-
ING ON
WHAT’S
THERE
The right value-
add is a win-win
for all parties.”
EWAN CAMERON
Portfolio Manager
06.
_ 314
Neilson Street,
Penrose
OUR ROLE
We have built a new industrial facility
for IAG at 314 Neilson Street, and we
are creating a new breezeway canopy
for ADM and RMD at 124 Hewletts
Road. In doing so, we add value to
these properties and make them
work more effectively for our tenants.
NEILSON STREET,
PENROSE
—
HEWLETTS ROAD,
TAURANGA
—
314
124
CAPITAL INVESTED
$5.6M
at 314 Neilson
Street, Penrose
ONEHUNGAONEHUNGA
PENROSEPENROSE
ONE
TREE
HILL
ELLERSLIE
1
1
5
5
10
10
20
LocationLocation
$3.5M
at 124 Hewletts
Road, Tauranga
CASE STUDIES
16
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
A DISCIPLINED APPROACH
At 314 Neilson Street, a fire in 2019
meant the building had to be completely
demolished. We have built a new
industrial facility for leading insurer IAG,
with a 2,000sqm high-stud warehouse
and 300sqm of associated offices fronting
Neilson Street. This brand new, best-in-
class property has enabled us to secure a
10-year lease from completion in
Q1 2021.
At our multi-tenanted bulk store
warehouse facility in Tauranga, two of
our tenants, ADM and RMD Bulk Storage
came to us wanting to cover the open yard
between their buildings with an enclosed
canopy. In addition, by adding the
4,000sqm breezeway canopy we were
able to extend our lease agreement with
RMD Bulk Storage to 12 years. The new
AXIMISING OUR PORTFOLIO is
an important way of adding value for our
tenants and our investors, particularly
when quality properties are hard to come
by. We’ve already identified opportunities
to redevelop around $175 million of our
assets over the medium term. Three
other examples this year show how we
are implementing our value-add strategy.
Dormakaba make access systems.
When space near their current premises
became available, we offered to add
180sqm to their existing premises by
linking the two areas with stairs, services
and access doors. The additions enabled
Dormakaba to absorb growth in their
business and to stay where they are.
Equally, we were able to reset a lease that
had 12 months to run out to seven years
on the enlarged footprint.
_ 314
Neilson Street,
Penrose
addition improves the environmental
performance of the site for our tenants,
and improves the property’s income
stream and valuation. We are exploring
repeating the process for other tenants
at the estate.
“The right value-add is a win-win for
all parties,” says PFI Portfolio Manager
Ewan Cameron. “Our tenants benefit
from premises that better suit their
needs, and for the Company and our
investors, value-add allows us to review
lease terms to improve the quality of the
income of our assets.”
n
17
FINDING THE OPPORTUNITIES
ACQUISITION
VALUE-ADDED
ASSET MANAGEMENT
0 7.
EING A DISCIPLINED
property owner is
about procuring the
right properties and
then overlaying
them with the right
tenants and strong
relationships. While
we pay a great deal of
attention to matching
site, amenities and
tenants, we also look
for companies that
have good financial health with the capital to back what
they are doing.
This year, not only did we work closely with a range
of tenants to help them negotiate lockdown, we also
continued to find ways to extend other tenants’ long-
term relationships with us, and we attracted new tenants
to the portfolio.
Multispares specialises in truck and bus parts
and leases two properties from PFI in Wellington and
Auckland. Both leases were due to expire next year,
though each had automatic rights of renewal – the
Auckland site for four years, the Wellington site for six.
Recognising that both PFI and Multispares would
FIT
FOR
PURPOSE
6,896 sqm site on the
corner of Ron Driver
Place and Nandina
Avenue in East Tamaki.
OUR ROLE
Securing a six-year lease
to Glen Dimplex.
RON DRIVER
PLACE
—
1
CASE STUDY
NET LETTABLE AREA
4,025 SQM
VALUATION
$10.35M
1
1
8
8
8
30
30
LocationLocation
EAST TAMAKIEAST TAMAKI
BURSWOODBURSWOOD
OTARAOTARA
PAKURANGAPAKURANGA
18
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
A DISCIPLINED APPROACH
The new site means
we no longer need
to rely on any third-
party logistics.”
MIKE DAISH
Managing Director,
Glen Dimplex
New Zealand Limited
benefit from a longer-term arrangement,
we negotiated an eight-year renewal
for both sites. The new arrangements
provide Multispares with a secure home
for the next eight years, and they provide
PFI with good quality income that has
been re-set to reflect market rents and an
improved lease term.
By actively managing our sites and
the relationship, we have been able to
retain a valued customer.
At 1 Ron Driver Place, we needed to
find a new tenant for our office and
warehouse site in East Tamaki. We
secured a six-year lease with Glen
Dimplex, part of the world’s largest
electrical heating business and the
largest wood-fire manufacturer
in Australasia.
In this particular case, with the
previous tenant departing and uncertain
economic conditions due to COVID-19,
moving quickly to secure a high-quality
tenant on a long lease at an agreeable rent
_ 1 Ron Driver
Place, East
Tamaki
_ 1 Ron Driver
Place, East
Tamaki
was critical to protecting the income
security of the site.
“We were looking for a site that
combined quality office and warehousing
facilities, was the right size and was
positioned close to our factory,” says
Glen Dimplex New Zealand Ltd
Managing Director Mike Daish.
“Our new site gives us an upgraded office
and warehouse, a showroom we can bring
retail customers to, and increased
warehouse capacity. Staff satisfaction has
lifted considerably, and the new site
means we no longer need to rely on any
third-party logistics for our North Island
operations because we can do all our
warehousing ourselves.”
n
19
08.
2020 has highlighted
the importance of
having a strong ESG
framework for a
business to remain
agile and resilient”
SIMON WOODHAMS,
Chief Executive Officer
BRIGHTER
ESG PERFORMANCE
FUTURE
SUSTAINABILITY:
WORKING TOWARDS A
2020 SUSTAINABILITY OVERVIEW
2020 has reminded us of the complexity of the world we
live in, and the delicate balance of our natural, financial
and social systems. We were initially uncertain about the
potential impact of the COVID-19 pandemic on our
operations and responded proactively. Our staff and wider
stakeholders’ health, safety and wellbeing was our top
priority and we regularly reviewed the health and safety
controls across our office and properties. We also
monitored the wider risks of the pandemic to our
business, reduced discretionary expenditure and worked
closely with tenants to come to short-term solutions. As
the impacts of the COVID-19 pandemic began to play out,
the wider industrial property market recovered strongly
and proved itself a preferred investment due to its
resilient nature.
2020 has highlighted the importance of having a
strong ESG framework for a business to remain agile and
resilient. PFI’s ESG framework was developed in 2019,
and during 2020 we introduced initiatives to start making
tangible progress on it. Our focus was on understanding
our climate risks and opportunities, developing
a comprehensive Health, Safety and Wellbeing
framework and strengthening our governance and
oversight of ESG topics. We also welcomed Sarah Beale
to the team in the newly created Sustainability, Risk and
Compliance Manager role, to lead execution of our
ESG strategy.
We still have some way to go to reach our ESG
ambitions. We expect more challenges to face us in the
coming years, some of which will require a collaborative
approach with stakeholders. While we don’t have all the
answers, we are committed to exploring creative
20
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
SUSTAINABILITY
SUSTAINABILITY
ESG PERFORMANCE
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 efficiency
—
Long-term thinking
STRATEGIC THEMES
Taking care of our team
—
Looking after our tenants
—
Responsible
property ownership
—
Delivering for our investors
solutions and see this as an opportunity to strengthen our
business resilience to deliver value to all of our
stakeholders’ needs. We will continue to focus on being
responsive and transparent in communicating our
progress.
The climate crisis continues to be front-of-mind for
us. We acknowledge that our operations have an impact
on the climate, and that, in turn, climate change will have
an impact on us. Globally, there are increasing calls for
the real estate and property sector to take accountability
for its emissions. According to the Global Alliance for
Buildings and Construction 2018 Global Status Report,
the built environment is responsible for 40% of the
world’s emissions. New Zealand’s Ministry of Business,
Innovation and Employment (MBIE) introduced its Building
for Climate Change programme in July 2020, committing
to mitigation and adaptation strategies for the building
and construction sector’s pathway to a low-emissions and
a climate-resilient future. We are monitoring
its developments and how it will impact us. As a listed
company, we will also be subject to the mandatory Task
force on Climate-related Financial Disclosures (TCFD)
reporting announced by the New Zealand Government
this year. TCFD will promote greater transparency and
accuracy of pricing signals in the market, incentivise
low-emissions investment and create a level-playing field
for businesses considering climate change in their
long-term risks.
We are responding to these external trends. 2020 is
our first year providing climate-related disclosures in line
with TCFD recommendations (see pages 89-93). We also
submitted to the Carbon Disclosure Project (CDP) for the
first time this year to provide greater transparency on our
emissions profile. To reduce our emissions, we have
committed $2m to phase out an ozone-damaging gas
from our HVAC systems. We have also chosen to offset
Scope 1, Scope 2, and selected Scope 3 emissions for
2020.
In conjunction with our responses to both the
COVID-19 pandemic and the climate crisis, we have
continued to focus on making tangible progress across all
of our ESG strategic themes: taking care of our team,
looking after our tenants, responsible property ownership
and delivering for our investors.
Performed risk
assessment
in line with TCFD
recommendations
Key risks include
physical damage
and market/policy
changes
THE IMPACT
OF THE CLIMATE
ON US
UNDERSTANDING OUR
CLIMATE IMPACTS
OUR IMPACT
ON THE
CLIMATE
3,927.9 tonnes
of CO
2
e
Investing $2M
to reduce our
greenhouse gas
emissions
21
ESG PERFORMANCE
OUR TEAM
TAKING CARE OF OUR TEAM
A bolder approach to health and safety
with our new framework
The health, safety and wellbeing of our staff, facilities
management partners, and specialist contractors is our
top priority. Our commitment to managing our health
and safety impact extends from our office across our
entire portfolio of 94 properties and the respective
construction and maintenance activities that take place
onsite.
This year, we formalised a comprehensive Health,
Safety and Wellbeing framework that sets out our
objectives, legal obligations, training, hazard
management controls and the roles and responsibilities
for a safe workplace across our operations. The
framework is approved by our Chief Executive Officer and
overseen by our two Health and Safety Committees that
are independently responsible for our head office and the
wider property portfolio. The framework puts us in an
even better position to challenge ourselves on our
practices and improve the strength of our monitoring and
management of incidents.
The framework strengthens our internal health and
safety culture. We have assigned health and safety
responsibilities internally to improve engagement and
accessibility, reducing our reliance on external
consultants. We have also provided our staff with
additional health and safety training.
As a direct result of enacting stronger and more
stringent management and enquiry processes, we
recorded higher incidents this year than previously. This
year, we recorded 15 incidents, up from 6 in 2019. We
view this as a positive indication of the new framework’s
effectiveness and success rather than a reflection of
material underlying issues in our practices, as many of
the incidents recorded were minor and did not result in
injury. We ensure the root cause of each incident is
understood and addressed so we can be confident these
are not an indication of wider problems.
Supporting our staff’s safety
and wellbeing during the COVID-19 pandemic
As with the rest of the world, the COVID-19 pandemic
and the resulting lockdowns changed how we worked
as a team. Our response was agile and focused on the
health and wellbeing of our staff and others. Team
members had frequent check-ins during the lockdowns,
and we took additional steps to ensure that staff had the
right resources for both working from home and visiting
our sites when needed. The COVID-19 pandemic also
heightened awareness of the importance of mental
health, and we have introduced mental health support
for our team this year.
We have always
prided ourselves
on a strong health,
safety and wellbeing
culture. Our new
framework gives us
an opportunity to
continue to push for
the highest standards
in health and safety
governance and
performance.”
SIMON WOODHAMS,
Chief Executive Officer
HEALTH AND SAFETY
INCIDENTS
2020
2019
= Recorded incidents= Minor injuries
15
4
6
5
22
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
ESG PERFORMANCE
Contributing to our community
With the Auckland City Mission facing increased
demand on its services due to the COVID-19
pandemic, our entire team took part in a Volunteer
Day with the Mission to assemble more than 100
food parcels for Auckland-based families in need.
We also donated $10,000 to its HomeGround
Project that will provide homes for more than
2,000 vulnerable Aucklanders, community detox
beds, and health and social services over the next
25 years.
We are also part of Keystone New Zealand
Property Education Trust’s sponsor family. The
trust provides opportunities to students with
financial need or adverse circumstances to pursue
tertiary studies in the property sector.
LOOKING AFTER OUR TENANTS
Supporting our tenants during the COVID-19
pandemic
We sought to balance the health of our tenants
with our obligations to our other stakeholders in
response to the COVID-19 pandemic. We offered
support to our most vulnerable tenants, for
example those in the hospitality industry, who
underwent financial hardship. The total support to
date covers $0.9 million of abatement and $0.6
million of deferral, a combined total of 1.8% of our
annual rental income.
Members of our staff
assembling food parcels
for Auckland City Mission
It was really
rewarding
to be able to take
some time away
from the office
and give back to
our community,
especially given the
increased demand
for the Auckland City
Mission’s services
this year”
NIRALI SHAH,
Financial Accountant
100+
AUCKLAND CITY
MISSION
food parcels
RESPONSIBLE PROPERTY OWNERSHIP
We own 94 industrial properties throughout
New Zealand. In 2020, PFI invested approximately
$19 million to develop or upgrade our properties.
The environmental impacts of the management and
maintenance of our property portfolio largely derive
from the materials used in maintenance and
construction, and the refrigerants used in cooling
systems managed by PFI.
Reducing our impact on the climate
2020 is our second year of measuring our carbon
footprint. Our footprint covers emissions from our head
office, vacant sites and property features within our
operational control (such as HVAC systems).
Measuring our footprint allows us to be transparent
with our stakeholders, and to make informed decisions
on how to manage our emissions reduction.
For the second year in a row, the fugitive emissions
from our HVAC systems are the most significant
emissions source from our direct operations. Fugitive
emissions are released when refrigerant gases,
commonly used in HVAC and refrigeration systems,
leak directly into the atmosphere. While the quantity of
fugitive gases is small, their global warming potential
is potent, meaning refrigerants are our biggest
opportunity to make meaningful reductions on our
footprint. This year, our fugitive emissions from our
HVAC systems were higher due to two major gas
replacements at our properties.
23
ESG PERFORMANCE
We are committing $2m to phase out the use of R22 gas
(a standard industry refrigerant gas) in our portfolio from
2021. R22 not only contributes to climate change but
damages the ozone layer. We will phase out R22 to a more
modern gas, which has a lower climate impact and no impact
on the ozone. To phase out R22 effectively, we will need to
replace some of our existing HVAC systems. We are
conscious we will need to do this in collaboration with our
tenants. We may also acquire additional properties that have
systems that use the R22 gas so the phaseout of R22 will be
an ongoing commitment for PFI.
This year, PFI has chosen to expand the measurement of
our supply chain Scope 3 categories, in particular the indirect
emissions from our Goods and Services expenditure and
Capital Expenditure. We chose to do this for transparency and
this has increased our reported overall footprint. The
emissions from our suppliers’ construction-related activities
across our portfolio are indirect, but represent the most
material emissions of our business. This is in line with the
property industry globally. Reducing these emissions will
require industry-wide collaboration and development of new
technologies. We are therefore focusing our initial emissions-
reduction efforts on our direct emissions as outlined above
and working to improve the sustainability of our building
design.
For the rest of our footprint, we saw decreases in our
business travel from our baseline as a result of travel
restrictions, and reduced electricity consumption due to a
reduction in vacancies at PFI properties.
Our primary ambition is to reduce our emissions through
effective reduction initiatives before we look at offsetting.
However, we are aware that despite our efforts to reduce our
footprint, our operations will inevitably continue to affect the
environment. Therefore we have offset Scope 1, 2 and
selected Scope 3 emissions
(3)
that we have a high level of
control over for 2020, with certified carbon credits. These
certified carbon credits are sourced from projects that grow
and protect forests in Aotearoa and the Pacific Islands and
help to deliver climate resilience, waterways protection,
erosion control, biodiversity conservation and community
economic development. These offsets have enabled us to
achieve Carbon Friendly Business Operations certification
with Ekos for the 2020 financial year. Where we have limited
control and influence over our indirect Scope 3 sources of
emissions, we will work with our suppliers to adopt new
technologies and practices as they become available.
Our Key Climate Commitments:
1. $2m investment to reduce emissions from our HVAC
systems
2. Net zero scope 1, scope 2 and selected scope
3 emissions
(3)
3. Transparency for our stakeholders on our climate impacts
$
2M
OUR KEY CLIMATE
COMMITMENTS
investment to reduce emissions
from our HVAC systems
1.
Net Zero
scope 1, scope 2 and selected
scope 3 emissions
(3)
2.
Transparency for our stakeholders
on our climate impacts
3.
(3) Including waste
and business
travel; excluding
goods and
services, capital
expenditure,
energy and fuel,
and employee
commuting.
24
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
SUSTAINABILITY
EMISSIONS SOURCEEMISSIONS
2019 (tCO
2
e)
EMISSIONS
2020 (tCO
2
e)
SCOPE 1
Refrigerants94.5116.8
SCOPE 2
Electricity15.55.4
SCOPE 3
Category 1: Goods and services
(1)
Not measured in 2019215.2
Category 2: Capital expenditure
(1)
Not measured in 20193,565.0
Category 3: Energy and fuelNot measured in 20190.5
Category 5: Waste 0.7 0.5
Category 6: Business travel19.8 9.4
Category 7: Commuting Not measured in 201915.1
TOTAL EMISSIONS (tCO
2
e)130.5
(2)
3,927.9
(1) The emissions per $ spend was calculated using an environmentally-extended input output (EEIO) model. An EEIO model estimates emissions
based on category spend using data from allocating national GHG emissions to final products based on economic flows between sectors. The EEIO
model is accepted by the GHG protocol and is considered comprehensive, but varies in its granularity. Our approach to emissions assessments
may evolve over time as we mature.
(2) This year, we have restated our carbon footprint for FY 19 due to an overstatement of Scope 1 emissions found when improving reporting
processes for 2020. Total emissions were originally reported as 219.2 tCO
2
e. Total emissions have been restated at 130.5 tCO
2
e.
PFI GHG
EMISSIONS
OUR VALUE CHAIN
EMISSIONS
UPSTREAM EMISSIONS
SCOPE 3
CORPORATE EMISSIONS
SCOPE 1&2
DOWNSTREAM EMISSIONS
SCOPE 3
Goods and services
Capital expenditure
Electricity transmission and
distribution losses
Employee commuting
Fugitive emissions from
HVAC systems
Electricity consumption
Operational waste
Business travel
3,927.9
Tonnes of C0
2
e
% TOTAL FOOTPRINT:
EMISSIONS SOURCE:
96.6%
3,795.7 TONNES
3.1%
122.2 TONNES
0.3%
10.0 TONNES
Offset
SCOPE 2:
Electricity consumption
SCOPE 1:
Refrigerants
25
Addressing our seismic risks
We have a programme of work in place to assess (and
where appropriate, improve) the seismic ratings of each
property in our portfolio, to reduce the likelihood of
damage and harm as a result of earthquakes. This is a
substantial programme spanning several years. Seismic
risk is also carefully considered when acquiring new
properties as part of our due-diligence process. When
undertaking seismic upgrade work, we generally aim to
lift the seismic rating of the property to A grade. During
2020, we completed seismic upgrades for seven of our
buildings; raising the ratings of six buildings to A Grade
and one building to B Grade.
Future-proofing our buildings with sustainable design
Our industry’s operational footprint is large. Our
responsibility as building owners is to design, develop
and operate buildings in our portfolio that have a lower
impact across key indicators including waste, emissions
and water. As shown through our 314 Neilson Street
Case Study below, we incorporate sustainable features
into our building design, but recognise there is always
more we can do in this space. To strengthen our expertise
in this area, we became members of the New Zealand
Green Building Council (NZGBC) this year, a network of
property and building businesses working towards
normalising market-based green practices. We are
investigating certification under the NZGBC’s Green Star
programme for future developments. Green Star is an
internationally recognised benchmarking tool that
supports the design, construction and operation of more
sustainable buildings, fitouts and communities.
DELIVERING FOR OUR INVESTORS
Introducing a new management approach
We have strengthened the governance of our ESG
framework execution to enable us to proactively monitor
and manage our opportunities and risks. We have
introduced monthly ESG meetings attended by the Chief
Executive Officer and Chief Finance and Operating Officer
in order to:
^
improve the strategic oversight of, and accountability
for, progress on our ESG framework and strategy;
^
keep key stakeholders up to date on sustainability
trends and legislation; and
^
provide a forum to make decisions on ESG initiatives.
The PFI Board are now receiving quarterly updates on
ESG and sustainability.
ESG PERFORMANCE
26
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
SUSTAINABILITY
ESG PERFORMANCE
314 Neilson Street
demonstrates the
value of sustainable
buildings. Through
smart design and
construction, we have
achieved resource
efficiencies and
created a space
that is healthier and
more conducive for
productivity for our
tenants.”
EWAN CAMERON,
Portfolio Manager
314 NEILSON STREET,
PENROSE
^
Creating a healthy work environment through natural light and natural ventilation,
minimising artificial lighting and ventilation
^
Separating vehicles and people through safety zone design
^
Designing safe lighting levels in all areas
^
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 to the facility reception for public,
pedestrians, and cyclists
^
Investing in a sprinkler system
A healthy and safe
place for people:
^
Re-using an existing industrial site and replacing an older, less efficient building
^
Including durable planting to reduce landscaping maintenance
^
Using durable construction materials and coatings that are 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
^
Incorporating a flexible, adaptable, open-plan-base build warehouse and office, to
readily accommodate repurposing and use by future tenants
^
Using future-proofed structural design to allow for solar panel installation
A sustainable building
with optimal resource use:
27
ESG PERFORMANCE
Improving our climate resilience
We take climate change seriously. We face both physical
impacts on our portfolio from extreme weather events
and disruption from the various societal, legislative and
technological changes needed for climate mitigation and
adaptation. The transition to a lower-carbon economy,
while challenging, is ultimately an opportunity to innovate
and explore new solutions.
This year, we completed our first risk assessment in
line with TCFD recommendations to ascertain our
climate-related risks over our full portfolio, applying a
long-term view with a 20-year horizon.
The assessment highlighted that our overall strategy
of investing in industrial properties in good locations
remains a resilient one and confirmed we don’t have to
fundamentally change how we function as a business.
Our main focus in the short term will be on managing
transition risks by executing a strong ESG strategy. This
includes reducing emissions, improving building design
and setting up appropriate governance infrastructure. We
also acknowledge we still have further work to do to
understand which of our properties are most vulnerable
to the physical impacts of climate change, which we will
be working through from 2021.
To ensure we are providing transparency to our
stakeholders, we have prepared our first Climate-Related
Disclosures report (see pages 89-93). We will build on
these disclosures each year as we work through the
execution of our climate change response.
Increasing our transparency
We also submitted to CDP for the first time this year,
scoring a ‘C’. CDP is a globally recognised disclosure
system that provides investors, companies and cities with
relevant information on climate impacts. Going forward,
annual submissions will hold us accountable for tracking
our emissions and provide us with an independent point
of view on what we should be considering to manage our
carbon and climate-related risks.
Our TCFD risk assessment sets
us up to better inform investors of
our climate-related business risks
and opportunities and to more
effectively evaluate our risks for
strategic management.”
SARAH BEALE,
Sustainability, Risk & Compliance
Manager
28
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
SUSTAINABILITY
APPENDIX
Our 2020 report covers Property for Industry Limited’s
performance for the annual period 1 January to 31
December 2020. We have prepared this ESG report in
accordance with the GRI Standards (core option), globally
recognised as a leading reporting framework. Following
the Standards allows us to report openly, honestly and
responsibly on our most material ESG topics and how we
are managing them.
Material Topics
Our material topics were established through an
independently run materiality and stakeholder
engagement process in 2019. Key stakeholders for PFI,
including shareholders, staff, tenants, partner suppliers,
industry groups and regulators, investors, and financiers
were consulted to ascertain the topics that might have a
significant impact (economically, socially, or
environmentally), or a substantive influence, on PFI
stakeholders’ decisions and assessments. These topics
underpin our strategy framework and inform the content
of this report.
ESG PERFORMANCE
PFI MATERIALITY
MATRIX
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
Community involvement
SIGNIFICANCE OF IMPACTS
STAKEHOLDER IMPORTANCE
HIGH
HIGHMEDIUM
29
30
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2019
Property
for
Industry
Limited
Financial
Statements
31 December
2020
STATEMENTS
FINANCIAL
31
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020
ALL VALUES IN $000SNOTE20202019
INCOME
Rental and management fee income2.3 97,392 96,051
Licence income5.8 – 50
Interest income 3 8
Fair value gain on investment properties2.1 72,546 125,193
Gain on disposal of investment properties – 4,126
Fair value gain on derivative financial instruments 643 2,577
Business interruption insurance income2.6 227 177
Material damage insurance income2.6 5,242 1,125
Total income 176,053 229,307
EXPENSES
Property costs2.4 (16,262) (14,850)
Interest expense and bank fees (18,233) (19,008)
Administrative expenses5.1 (5,851) (5,072)
Loss on disposal of investment properties (14) –
Total expenses (40,360) (38,930)
Profit before taxation 135,693 190,377
Income tax expense5.2 (22,241) (14,091)
Profit and total comprehensive income after income tax attributable
to the shareholders of the Company4.1 113,452 176,286
Basic earnings per share (cents)4.1 22.71 35.35
Diluted earnings per share (cents)4.1 22.70 35.35
32
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
FINANCIALS 2020
The accompanying notes form part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2020
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 2019 – 498,723,330 562,429 – 352,706 915,135
Total comprehensive income – – – – 176,286 176,286
Dividends
Q4 2018 final dividend - 13/3/2019 2.10 – – – (10,474) (10,474)
Q1 2019 interim dividend - 24/5/2019 1.80 – – – (8,977) (8,977)
Q2 2019 interim dividend - 4/9/2019 1.80 – – – (8,977) (8,977)
Q3 2019 interim dividend - 20/11/2019 1.85 – – – (9,226) (9,226)
Long-term incentive plan5.9 – – 270 – 270
Balance as at 31 December 2019 – 498,723,330 562,429 270 491,338 1,054,037
Total comprehensive income – – – – 113,452 113,452
Dividends and reinvestment
Q4 2019 final dividend - 4/3/2020 2.15 – – – (10,724) (10,724)
Q1 2020 interim dividend - 26/5/2020 1.80 – – – (8,978) (8,978)
Q1 2020 dividend reinvestment 1,086,032 2,555 – – 2,555
Q2 2020 interim dividend - 22/9/2020 1.80 – – – (8,998) (8,998)
Q2 2020 dividend reinvestment 740,165 1,990 – – 1,990
Q3 2020 interim dividend - 18/11/2020 1.85 – – – (9,261) (9,261)
Q3 2020 dividend reinvestment 708,009 2,040 – – 2,040
Long-term incentive plan
5.9 45,352 155 345 – 500
Balance as at 31 December 2020– 501,302,888 569,169 615 566,829 1,136,613
33
The accompanying notes form part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
ALL VALUES IN $000SNOTE20202019
CURRENT ASSETS
Cash at bank 1,414 1,185
Accounts receivable, prepayments and other assets5.3 5,397 2,419
Total current assets 6,811 3,604
NON-CURRENT ASSETS
Investment properties2.1 1,524,785 1,469,285
Property, plant and equipment 561 616
Derivative financial instruments3.2 19,415 13,212
Goodwill5.5 29,086 29,086
Total non-current assets 1,573,847 1,512,199
Non-current assets classified as held for sale2.2 106,701 6,893
Total assets 1,687,359 1,522,696
CURRENT LIABILITIES
Derivative financial instruments3.2 340 840
Accounts payable, accruals and other liabilities5.4 9,152 9,597
Taxation payable 3,252 12,867
Total current liabilities 12,744 23,304
NON-CURRENT LIABILITIES
Borrowings3.1 487,649 412,948
Derivative financial instruments3.2 25,041 18,982
Deferred tax liabilities5.2 25,160 13,185
Lease liabilities5.10 152 240
Total non-current liabilities 538,002 445,355
Total liabilities 550,746 468,659
Net assets4.2 1,136,613 1,054,037
EQUITY
Share capital 569,169 562,429
Share-based payments reserve5.9 615 270
Retained earnings 566,829 491,338
Total equity 1,136,613 1,054,037
These Group financial statements are signed on behalf of Property for Industry Limited and were authorised for issue on 22 February 2021.
Anthony Beverley Susan Peterson
Chairman Chair, Audit and Risk Committee
34
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
FINANCIALS 2020
The accompanying notes form part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020
ALL VALUES IN $000SNOTE20202019
CASH FLOWS FROM OPERATING ACTIVITIES
Property and management fee income received 97,502 96,287
Business interruption insurance income2.6 206 177
Licence income5.8 – 50
Net GST received (304) 156
Interest received 3 8
Interest and other finance costs paid (17,971) (19,007)
Payments to suppliers and employees (24,591) (20,256)
Income tax paid (19,681) (9,044)
Net cash flows from operating activities 35,164 48,371
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment properties 6,909 35,458
Acquisition of investment properties2.1 (65,148) (45,734)
Acquisition of property, plant and equipment (29) (241)
Expenditure on investment properties (24,524) (16,073)
Capitalisation of interest on development properties2.1 (199) (135)
Material damage insurance income2.6 5,242 1,125
Net cash flows from investing activities (77,749) (25,600)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayment of) / proceeds from syndicated bank facility (25,699) 14,526
Net proceeds from bilateral CBA bank facility 100,000 –
Principal elements of finance lease payments (111) (110)
Dividends paid to shareholders (31,376) (37,654)
Net cash flows from financing activities 42,814 (23,238)
Net increase / (decrease) in cash and cash equivalents 229 (467)
Cash and cash equivalents at beginning of year 1,185 1,652
Cash and cash equivalents at end of year 1,414 1,185
Cash and cash equivalents at end of year comprises:
ALL VALUES IN $000S20202019
Cash at bank 1,414 1,185
Cash and cash equivalents at end of year 1,414 1,185
35
The accompanying notes form part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2020
RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FLOWS FROM OPERATING ACTIVITIES
ALL VALUES IN $000SNOTE20202019
Profit for the year after income tax 113,452 176,286
Non-cash items:
Fair value gain on investment properties2.1 (72,546) (125,193)
Loss / (gain) on disposal of investment properties 14 (4,126)
Fair value gain on derivative financial instruments (643) (2,577)
Increase in deferred taxation 5.2 12,175 985
Depreciation5.1 173 124
Provision for doubtful debts 378 23
Lease liability interest expense5.10 24 32
Employee benefits expense – share-based payments 300 270
Movements in working capital items:
Increase in accounts receivable, prepayments and other assets (3,070) (977)
(Decrease) / increase in accounts payable, accruals and other liabilities (236) 587
(Decrease) / increase in taxation payable (9,615) 4,062
Other: material damage insurance income (classified as cash flows from investing activities)2.6 (5,242) (1,125)
Net cash flows from operating activities 35,164 48,371
36
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
FINANCIALS 2020
The accompanying notes form part of these financial statements.
1.GENERAL INFORMATION38
1.1.Reporting entity38
1.2.Basis of preparation38
1.3.Group companies38
1.4.Basis of consolidation38
1.5.Critical judgements, estimates and assumptions38
1.6.Accounting policies39
1.7.Significant events and transactions39
2.PROPERTY41
2.1.Investment properties41
2.2.Non-current assets classified as held for sale52
2.3.Rental and management fee income52
2.4.Property costs53
2.5.Net rental income53
2.6.Insurance income53
3.FUNDING54
3.1.Borrowings54
3.2.Derivative financial instruments55
4.INVESTOR RETURNS AND INVESTMENT METRICS56
4.1.Earnings per share56
4.2.Net tangible assets per share56
5.OTHER57
5.1.Administrative expenses57
5.2.Taxation57
5.3.Accounts receivable, prepayments and other assets60
5.4.Accounts payable, accruals and other liabilities60
5.5.Goodwill60
5.6.Financial instruments61
5.7.Financial risk management61
5.8.Related party transactions63
5.9.Share-based payments64
5.10.Leases66
5.11.Operating segments67
5.12.Capital commitments67
5.13.Subsequent events67
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
37
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 the Financial Reporting Act 2013 and these audited
consolidated financial statements have been prepared in accordance with the requirements of the NZX Listing Rules. 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). 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 2020 and 31 December 2019, 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 41
3.2. Derivative financial instruments Page 55
5.2. Taxation Page 57
5.5. Goodwill Page 60
5.9. Share-based payments Page 64
38
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
1. GENERAL INFORMATION (continued)
1.6. Accounting policies
No changes to accounting policies have been made during the year, and policies have been consistently applied to all years presented.
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.
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. 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 13 March 2020, the Group settled the disposal of a non-current asset classified as held for sale located at 2 Pacific Rise, Mount Wellington, for a net
sales price of $6.879 million.
On 7 July 2020, the Group announced the divestment of 127 Waterloo Road, Christchurch for a gross sales price of $4.410 million. Settlement is
expected to take place in April 2021, and this property has been classified as a non-current asset classified as held for sale in these financial statements.
On 5 October 2020, the Group purchased an investment property located at 528-558 Rosebank Road, Avondale, for a net purchase price of $65.550 million.
This acquisition was settled on 9 October 2020.
On 30 October 2020, Colliers International began to actively market Carlaw Gateway Building and Carlaw Park Office Complex for sale and therefore the
Group reclassified these properties as non-current assets classified as held for sale.
On 23 December 2020, the Group announced an agreement to purchase the properties located at 670-680 Rosebank Road, Avondale, for a net purchase
price of $39.000 million. Settlement of this acquisition took place on 29 January 2021.
39
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
Bilateral bank facility
On 19 March 2020, the Group entered into a $50 million 18-month bilateral bank facility provided by Commonwealth Bank of Australia (CBA). A bilateral
bank facility is a facility agreement between a single lender (a bank) and a single borrower (a corporate customer). On 18 November 2020, this facility
was extended out to 19 March 2022 and increased to $100 million.
The COVID-19 pandemic
In March 2020, the World Health Organisation designated COVID-19 to be a ‘Global Pandemic’ (the COVID-19 pandemic), threatening the health and
well-being of large numbers of people across multiple countries. The COVID-19 pandemic has caused varying levels of societal uncertainty. New Zealand
has been subject to two separate restriction periods associated with the pandemic, returning to Government-directed ‘Alert-Level 1’ on 7 October,
marking a significant step towards pre-pandemic normality.
A proportion of the Group’s tenants were impacted by disruptions and uncertainty and the Group has worked with its tenant base, particularly the most
vulnerable businesses, to offer appropriate support. This support has largely come in the form of rent deferrals and rent abatement, with $595,000 in
rent deferrals and $684,000 in rent abatement recorded during the reporting period.
As part of the Group’s immediate response to the COVID-19 pandemic, a review of costs, both capital and operating in nature, was undertaken resulting
in cuts to and deferrals of expenditure where appropriate. The Group also put divestments of non-industrial properties on hold during the period, but the
process of divesting the Carlaw Gateway Building and Carlaw Park Office Complex properties recommenced on 30 October 2020 (as mentioned above).
These properties are treated as non-current assets classified as held for sale at 31 December 2020, with a sale secured and announced on 10 February
2021 (see note 5.13, below).
The COVID-19 pandemic has resulted in impacts to key estimates and judgements used in these audited consolidated financial statements, including:
• Investment property valuations being impacted as at 31 December 2020, as detailed in note 2.1.
• The reintroduction of depreciation allowances for commercial building structures impacting tax expense estimates for future periods, as detailed in
note 5.2.
Neither the Company nor its subsidiary have taken any Government wages or salary subsidies available to companies as a result of the COVID-19
pandemic.
Please also refer to the subsequent events note 5.13.
1. GENERAL INFORMATION (continued)
1.7. Significant events and transactions (continued)
40
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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 $000S20202019
Opening balance 1,469,285 1,318,655
Capital movements:
Additions 65,148 45,734
Disposals– (28,020)
Transfer to non-current assets classified as held for sale (106,701) (6,893)
Capital expenditure 18,976 14,074
Capitalised interest
a
199 135
Movement in lease incentives, fees and fixed rental income 5,332 407
(17,046) 25,437
Unrealised fair value gain 72,546 125,193
As at 31 December 1,524,785 1,469,285
a
The effective interest rate applied to capitalised interest was 4.20% (2019: 4.71%).
41
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
2020202020192020201920202019202020202019202020202020
Avondale:
15 Copsey Place Canterbury 100%100%5.3%5.9% 934 944 7,907 JLL 15,900 209 1,391 17,500
15 Jomac Place Southern Spars 100%100%6.8%6.6% 1,709 1,661 9,378 JLL 25,100 17 (117) 25,000
61-69 Patiki Road Bidvest 100%100%5.3%5.8% 1,263 1,205 9,776 CBRE 20,700 328 2,722 23,750
320 Rosebank Road Doyle Sails 100%100%5.0%5.1% 763 756 6,625 CBRE 14,900 (66) 416 15,250
686 Rosebank Road New Zealand Comfort 100%100%5.6%5.8% 2,729 2,583 21,565 CBRE 44,450 21 4,579 49,050
528-558 Rosebank Road ETEL 100%n/a4.5%n/a 2,973 n/a 26,902 Savills – 65,148 602 65,750
100%100%5.3%5.9% 10,371 7,149 82,153 121,050 65,657 9,593 196,300
East Tamaki:
17 Allens Road TSB Living 100%100%5.4%5.9% 1,124 1,105 11,459 CBRE 18,600 (5) 2,055 20,650
43 Cryers Road Astron Plastics 100%100%5.2%5.1% 811 721 6,068 CBRE 14,100 236 1,314 15,650
6-8 Greenmount Drive Bridon 100%100%5.3%5.6% 704 686 6,590 JLL 12,150 34 1,216 13,400
92-98 Harris Road GrainCorp 100%100%7.2%8.5% 1,354 1,401 10,687 Savills 16,500 (9) 2,259 18,750
36 Neales Road Mainfreight 100%100%5.1%5.1% 1,507 1,470 12,563 Colliers 28,700 63 637 29,400
1 Ron Driver Place Glen Dimplex 100%100%5.1%5.6% 527 473 5,393 JLL 8,500 477 1,373 10,350
78 Springs Road Fisher & Paykel Appliances 100%100%6.6%6.4% 6,289 6,106 41,536 Colliers 95,000 99 (99) 95,000
10c Stonedon Drive Chemical Freight Services 100%100%5.5%6.0% 857 857 8,711 JLL 14,300 52 1,348 15,700
11 Turin Place Thermakraft Industries 100%100%4.9%5.4% 978 978 9,981 Colliers 18,000 105 1,695 19,800
12 Zelanian Drive Central Joinery 100%100%5.3%4.9% 701 582 6,098 JLL 11,950 17 1,283 13,250
23 Zelanian Drive Exclusive Tyre Distributors 100%100%5.4%5.2% 469 438 3,811 CBRE 8,350 1 349 8,700
100%100%5.9%6.0% 15,321 14,817 122,897 246,150 1,070 13,430 260,650
Manukau:
212 Cavendish Drive Mainfreight 100%100%5.0%5.4% 2,030 1,941 25,896 JLL 35,900 443 4,157 40,500
232 Cavendish Drive
a
Fletcher Building Products 100%100%4.5%4.5% 1,132 1,100 16,832 Colliers 24,400 (451) 1,451 25,400
47 Dalgety Drive Peter Hay Kitchens 100%100%5.3%5.5% 941 885 10,155 Colliers 16,000 3,289 (1,589) 17,700
59 Dalgety Drive Store Rite Logistics 100%100%5.3%9.5% 1,220 1,441 11,844 Colliers 15,200 4,806 2,894 22,900
1 Mayo Road Transdiesel 100%100%5.1%5.7% 559 559 6,361 CBRE 9,825 (36) 1,161 10,950
61 McLaughlins Road TIL Logistics 100%100%4.8%5.1% 1,202 1,202 13,347 Savills 23,750 134 1,116 25,000
9 Nesdale Avenue Brambles 100%100%4.9%5.0% 814 790 14,163 Colliers 15,700 56 744 16,500
12 Hautu Drive Kiwi Steel 100%100%4.9%5.0% 726 665 6,492 JLL 13,250 56 1,444 14,750
9 Narek Place Z Energy 100%100%5.0%4.8% 558 547 5,767 CBRE 11,400 (13) (287) 11,100
25 Langley Road Grayson Engineering 100%100%5.0%5.2% 1,648 1,608 21,248 CBRE 30,950 110 2,090 33,150
100%100%5.0%5.5% 10,830 10,738 132,105 196,375 8,394 13,181 217,950
2. PROPERTY (continued)
2.1. Investment properties (continued)
a Excludes development land shown separately below.
42
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
2020202020192020201920202019202020202019202020202020
Avondale:
15 Copsey Place Canterbury 100%100%5.3%5.9% 934 944 7,907 JLL 15,900 209 1,391 17,500
15 Jomac Place Southern Spars 100%100%6.8%6.6% 1,709 1,661 9,378 JLL 25,100 17 (117) 25,000
61-69 Patiki Road Bidvest 100%100%5.3%5.8% 1,263 1,205 9,776 CBRE 20,700 328 2,722 23,750
320 Rosebank Road Doyle Sails 100%100%5.0%5.1% 763 756 6,625 CBRE 14,900 (66) 416 15,250
686 Rosebank Road New Zealand Comfort 100%100%5.6%5.8% 2,729 2,583 21,565 CBRE 44,450 21 4,579 49,050
528-558 Rosebank Road ETEL 100%n/a4.5%n/a 2,973 n/a 26,902 Savills – 65,148 602 65,750
100%100%5.3%5.9% 10,371 7,149 82,153 121,050 65,657 9,593 196,300
East Tamaki:
17 Allens Road TSB Living 100%100%5.4%5.9% 1,124 1,105 11,459 CBRE 18,600 (5) 2,055 20,650
43 Cryers Road Astron Plastics 100%100%5.2%5.1% 811 721 6,068 CBRE 14,100 236 1,314 15,650
6-8 Greenmount Drive Bridon 100%100%5.3%5.6% 704 686 6,590 JLL 12,150 34 1,216 13,400
92-98 Harris Road GrainCorp 100%100%7.2%8.5% 1,354 1,401 10,687 Savills 16,500 (9) 2,259 18,750
36 Neales Road Mainfreight 100%100%5.1%5.1% 1,507 1,470 12,563 Colliers 28,700 63 637 29,400
1 Ron Driver Place Glen Dimplex 100%100%5.1%5.6% 527 473 5,393 JLL 8,500 477 1,373 10,350
78 Springs Road Fisher & Paykel Appliances 100%100%6.6%6.4% 6,289 6,106 41,536 Colliers 95,000 99 (99) 95,000
10c Stonedon Drive Chemical Freight Services 100%100%5.5%6.0% 857 857 8,711 JLL 14,300 52 1,348 15,700
11 Turin Place Thermakraft Industries 100%100%4.9%5.4% 978 978 9,981 Colliers 18,000 105 1,695 19,800
12 Zelanian Drive Central Joinery 100%100%5.3%4.9% 701 582 6,098 JLL 11,950 17 1,283 13,250
23 Zelanian Drive Exclusive Tyre Distributors 100%100%5.4%5.2% 469 438 3,811 CBRE 8,350 1 349 8,700
100%100%5.9%6.0% 15,321 14,817 122,897 246,150 1,070 13,430 260,650
Manukau:
212 Cavendish Drive Mainfreight 100%100%5.0%5.4% 2,030 1,941 25,896 JLL 35,900 443 4,157 40,500
232 Cavendish Drive
a
Fletcher Building Products 100%100%4.5%4.5% 1,132 1,100 16,832 Colliers 24,400 (451) 1,451 25,400
47 Dalgety Drive Peter Hay Kitchens 100%100%5.3%5.5% 941 885 10,155 Colliers 16,000 3,289 (1,589) 17,700
59 Dalgety Drive Store Rite Logistics 100%100%5.3%9.5% 1,220 1,441 11,844 Colliers 15,200 4,806 2,894 22,900
1 Mayo Road Transdiesel 100%100%5.1%5.7% 559 559 6,361 CBRE 9,825 (36) 1,161 10,950
61 McLaughlins Road TIL Logistics 100%100%4.8%5.1% 1,202 1,202 13,347 Savills 23,750 134 1,116 25,000
9 Nesdale Avenue Brambles 100%100%4.9%5.0% 814 790 14,163 Colliers 15,700 56 744 16,500
12 Hautu Drive Kiwi Steel 100%100%4.9%5.0% 726 665 6,492 JLL 13,250 56 1,444 14,750
9 Narek Place Z Energy 100%100%5.0%4.8% 558 547 5,767 CBRE 11,400 (13) (287) 11,100
25 Langley Road Grayson Engineering 100%100%5.0%5.2% 1,648 1,608 21,248 CBRE 30,950 110 2,090 33,150
100%100%5.0%5.5% 10,830 10,738 132,105 196,375 8,394 13,181 217,950
43
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
2020202020192020201920202019202020202019202020202020
Mt Wellington:
30-32 Bowden Road Altus 100%100%6.1%6.3% 1,761 1,761 17,047 JLL 27,750 (71) 1,321 29,000
50 Carbine Road Fletcher Building Products 100%100%4.3%4.5% 190 190 2,592 CBRE 4,225 (2) 152 4,375
54 Carbine Road & 6a Donnor Place Hancocks 100%100%5.6%6.1% 2,062 2,008 17,015 Savills 33,000 26 3,474 36,500
76 Carbine Road Atlas Gentech 100%100%5.1%5.1% 514 461 5,080 JLL 9,000 19 981 10,000
7 Carmont Place CMI 100%100%4.6%4.8% 625 625 6,086 JLL 13,000 23 527 13,550
6 Donnor Place Coca–Cola 100%100%5.4%5.8% 1,501 1,446 15,534 CBRE 24,800 2,056 1,144 28,000
4-6 Mt Richmond Drive Iron Mountain 100%100%4.1%4.5% 835 835 7,946 Colliers 18,600 (19) 1,919 20,500
509 Mt Wellington Highway Fletcher Building Products 100%100%5.4%5.5% 1,046 1,036 8,744 Colliers 18,700 112 588 19,400
511 Mt Wellington Highway Stryker 100%100%5.1%5.2% 485 461 3,054 Savills 8,800 638 62 9,500
515 Mt Wellington Highway Vacant 0%100%5.5%4.8% 311 266 1,681 Savills 5,600 607 (507) 5,700
523 Mt Wellington Highway BGH Group 100%100%4.7%5.0% 263 228 1,677 Colliers 4,600 168 832 5,600
1 Niall Burgess Road Bremca Industries 100%100%4.6%5.1% 253 253 1,742 JLL 5,000 73 377 5,450
2-6 Niall Burgess Road McAlpine Hussmann 100%100%6.0%5.9% 1,060 928 6,874 JLL 15,700 (52) 2,152 17,800
3-5 Niall Burgess Road Electrolux 100%100%5.3%5.1% 1,115 1,072 9,373 JLL 21,000 (43) 43 21,000
7-9 Niall Burgess Road DHL Supply Chain 100%100%5.1%5.0% 2,416 2,180 23,565 Colliers 43,500 1,247 2,653 47,400
10 Niall Burgess Road Outside Broadcasting 100%100%4.8%4.9% 264 257 1,725 Savills 5,200 4 296 5,500
5 Vestey Drive PPG Industries 100%100%4.9%5.5% 236 236 1,269 Colliers 4,300 7 493 4,800
7 Vestey Drive True North 100%100%5.2%4.1% 663 516 4,598 CBRE 12,650 39 61 12,750
9 Vestey Drive Multispares 100%100%4.6%4.9% 220 220 1,600 Colliers 4,500 (14) 264 4,750
11 Vestey Drive N & Z 100%100%4.7%4.8% 464 452 3,470 Colliers 9,400 (33) 433 9,800
15a Vestey Drive Hills 100%100%6.0%5.7% 591 581 3,261 Colliers 10,250 (54) (396) 9,800
36 Vestey Drive Hose Supplies 100%100%4.6%4.8% 172 168 1,120 JLL 3,500 3 197 3,700
98%100%5.2%5.7% 17,047 16,180 145,053 303,075 4,734 17,066 324,875
North Shore:
2-4 Argus Place Pharmapac 100%100%4.8%4.9% 451 440 3,560 JLL 9,000 (9) 409 9,400
47 Arrenway Drive Device Technologies 100%100%5.1%5.3% 251 245 1,245 JLL 4,600 32 268 4,900
51 Arrenway Drive Pacific Hygiene 100%100%5.0%5.1% 398 391 2,680 JLL 7,650 (15) 365 8,000
15 Omega Street Wesfarmers 100%100%5.0%5.0% 513 498 3,498 JLL 10,000 26 324 10,350
322 Rosedale Road BSGi NZ Limited 95%100%5.5%5.6% 1,144 1,122 7,936 Colliers 20,100 685 (85) 20,700
41 William Pickering Drive Innopak Global 100%100%5.1%4.9% 479 450 3,027 CBRE 9,250 (4) 154 9,400
98%100%5.2%5.2% 3,236 3,146 21,946 60,600 715 1,435 62,750
2. PROPERTY (continued)
2.1. Investment properties (continued)
44
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
2020202020192020201920202019202020202019202020202020
Mt Wellington:
30-32 Bowden Road Altus 100%100%6.1%6.3% 1,761 1,761 17,047 JLL 27,750 (71) 1,321 29,000
50 Carbine Road Fletcher Building Products 100%100%4.3%4.5% 190 190 2,592 CBRE 4,225 (2) 152 4,375
54 Carbine Road & 6a Donnor Place Hancocks 100%100%5.6%6.1% 2,062 2,008 17,015 Savills 33,000 26 3,474 36,500
76 Carbine Road Atlas Gentech 100%100%5.1%5.1% 514 461 5,080 JLL 9,000 19 981 10,000
7 Carmont Place CMI 100%100%4.6%4.8% 625 625 6,086 JLL 13,000 23 527 13,550
6 Donnor Place Coca–Cola 100%100%5.4%5.8% 1,501 1,446 15,534 CBRE 24,800 2,056 1,144 28,000
4-6 Mt Richmond Drive Iron Mountain 100%100%4.1%4.5% 835 835 7,946 Colliers 18,600 (19) 1,919 20,500
509 Mt Wellington Highway Fletcher Building Products 100%100%5.4%5.5% 1,046 1,036 8,744 Colliers 18,700 112 588 19,400
511 Mt Wellington Highway Stryker 100%100%5.1%5.2% 485 461 3,054 Savills 8,800 638 62 9,500
515 Mt Wellington Highway Vacant 0%100%5.5%4.8% 311 266 1,681 Savills 5,600 607 (507) 5,700
523 Mt Wellington Highway BGH Group 100%100%4.7%5.0% 263 228 1,677 Colliers 4,600 168 832 5,600
1 Niall Burgess Road Bremca Industries 100%100%4.6%5.1% 253 253 1,742 JLL 5,000 73 377 5,450
2-6 Niall Burgess Road McAlpine Hussmann 100%100%6.0%5.9% 1,060 928 6,874 JLL 15,700 (52) 2,152 17,800
3-5 Niall Burgess Road Electrolux 100%100%5.3%5.1% 1,115 1,072 9,373 JLL 21,000 (43) 43 21,000
7-9 Niall Burgess Road DHL Supply Chain 100%100%5.1%5.0% 2,416 2,180 23,565 Colliers 43,500 1,247 2,653 47,400
10 Niall Burgess Road Outside Broadcasting 100%100%4.8%4.9% 264 257 1,725 Savills 5,200 4 296 5,500
5 Vestey Drive PPG Industries 100%100%4.9%5.5% 236 236 1,269 Colliers 4,300 7 493 4,800
7 Vestey Drive True North 100%100%5.2%4.1% 663 516 4,598 CBRE 12,650 39 61 12,750
9 Vestey Drive Multispares 100%100%4.6%4.9% 220 220 1,600 Colliers 4,500 (14) 264 4,750
11 Vestey Drive N & Z 100%100%4.7%4.8% 464 452 3,470 Colliers 9,400 (33) 433 9,800
15a Vestey Drive Hills 100%100%6.0%5.7% 591 581 3,261 Colliers 10,250 (54) (396) 9,800
36 Vestey Drive Hose Supplies 100%100%4.6%4.8% 172 168 1,120 JLL 3,500 3 197 3,700
98%100%5.2%5.7% 17,047 16,180 145,053 303,075 4,734 17,066 324,875
North Shore:
2-4 Argus Place Pharmapac 100%100%4.8%4.9% 451 440 3,560 JLL 9,000 (9) 409 9,400
47 Arrenway Drive Device Technologies 100%100%5.1%5.3% 251 245 1,245 JLL 4,600 32 268 4,900
51 Arrenway Drive Pacific Hygiene 100%100%5.0%5.1% 398 391 2,680 JLL 7,650 (15) 365 8,000
15 Omega Street Wesfarmers 100%100%5.0%5.0% 513 498 3,498 JLL 10,000 26 324 10,350
322 Rosedale Road BSGi NZ Limited 95%100%5.5%5.6% 1,144 1,122 7,936 Colliers 20,100 685 (85) 20,700
41 William Pickering Drive Innopak Global 100%100%5.1%4.9% 479 450 3,027 CBRE 9,250 (4) 154 9,400
98%100%5.2%5.2% 3,236 3,146 21,946 60,600 715 1,435 62,750
45
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
2020202020192020201920202019202020202019202020202020
Penrose:
4 Autumn Place Ryco Hydraulics 100%100%4.5%4.7% 161 157 1,210 Savills 3,325 (1) 276 3,600
6 Autumn Place MOTAT 100%100%4.6%4.6% 178 174 1,718 Savills 3,800 – 100 3,900
10 Autumn Place MOTAT 100%100%4.8%5.0% 693 679 7,646 Savills 13,650 (13) 763 14,400
122 Captain Springs Road New Zealand Crane Group 100%100%4.8%5.1% 521 521 7,431 CBRE 10,200 (7) 707 10,900
8 Hugo Johnston Drive Argyle Schoolwear 100%100%6.3%6.0% 738 733 4,359 Colliers 12,300 55 (655) 11,700
12 Hugo Johnston Drive W H Worrall 100%100%5.4%5.6% 382 372 2,639 Colliers 6,700 50 350 7,100
16 Hugo Johnston Drive Newflor Industries 100%100%5.0%5.1% 404 385 2,619 JLL 7,500 171 429 8,100
80 Hugo Johnston Drive Boxkraft 100%100%5.2%5.1% 493 481 3,872 CBRE 9,450 (26) 101 9,525
102 Mays Road Go Logistics 100%100%5.5%5.5% 538 538 7,588 Savills 9,775 (82) 107 9,800
304 Neilson Street Fletcher Building Products 100%100%5.6%5.7% 755 738 13,438 Savills 13,000 2 498 13,500
306 Neilson Street Trade Depot 100%100%5.4%5.5% 919 900 6,301 Savills 16,250 55 695 17,000
312 Neilson Street Transport Trailer Services 100%100%5.4%5.1% 407 362 3,862 JLL 7,050 42 458 7,550
314 Neilson Street IAG 100%100%4.6%5.5% 817 383 6,603 Savills 6,995 8,722 2,033 17,750
12 Southpark Place Storepro Solutions 100%100%4.6%4.8% 520 510 5,477 JLL 10,600 (35) 635 11,200
100%100%5.2%5.3% 7,526 6,933 74,763 130,595 8,933 6,497 146,025
Other Auckland:
58 Richard Pearse Drive, Mangere EBOS 100%100%4.6%4.7% 1,215 1,215 12,708 Colliers 25,700 (47) 1,047 26,700
Carlaw Park Gateway Building, Parnell Quest 100%85%7.5%6.9% 2,245 2,425 2,369 CBRE 35,400 (28,317) (7,083) –
Carlaw Park Office Complex, Parnell Jacobs 96%95%6.5%6.4% 4,677 4,586 11,126 CBRE 72,000 (71,343) (657) –
170 Swanson Road, Swanson Transportation Auckland 100%100%4.9%5.1% 1,068 1,068 37,601 JLL 20,750 (19) 1,169 21,900
51-61 Spartan Road, Takanini MaxiTRANS 100%100%4.8%5.0% 945 920 13,519 JLL 18,350 149 1,301 19,800
98%94%5.9%5.9% 10,150 10,214 77,323 172,200 (99,577) (4,223) 68,400
2. PROPERTY (continued)
2.1. Investment properties (continued)
46
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
2020202020192020201920202019202020202019202020202020
Penrose:
4 Autumn Place Ryco Hydraulics 100%100%4.5%4.7% 161 157 1,210 Savills 3,325 (1) 276 3,600
6 Autumn Place MOTAT 100%100%4.6%4.6% 178 174 1,718 Savills 3,800 – 100 3,900
10 Autumn Place MOTAT 100%100%4.8%5.0% 693 679 7,646 Savills 13,650 (13) 763 14,400
122 Captain Springs Road New Zealand Crane Group 100%100%4.8%5.1% 521 521 7,431 CBRE 10,200 (7) 707 10,900
8 Hugo Johnston Drive Argyle Schoolwear 100%100%6.3%6.0% 738 733 4,359 Colliers 12,300 55 (655) 11,700
12 Hugo Johnston Drive W H Worrall 100%100%5.4%5.6% 382 372 2,639 Colliers 6,700 50 350 7,100
16 Hugo Johnston Drive Newflor Industries 100%100%5.0%5.1% 404 385 2,619 JLL 7,500 171 429 8,100
80 Hugo Johnston Drive Boxkraft 100%100%5.2%5.1% 493 481 3,872 CBRE 9,450 (26) 101 9,525
102 Mays Road Go Logistics 100%100%5.5%5.5% 538 538 7,588 Savills 9,775 (82) 107 9,800
304 Neilson Street Fletcher Building Products 100%100%5.6%5.7% 755 738 13,438 Savills 13,000 2 498 13,500
306 Neilson Street Trade Depot 100%100%5.4%5.5% 919 900 6,301 Savills 16,250 55 695 17,000
312 Neilson Street Transport Trailer Services 100%100%5.4%5.1% 407 362 3,862 JLL 7,050 42 458 7,550
314 Neilson Street IAG 100%100%4.6%5.5% 817 383 6,603 Savills 6,995 8,722 2,033 17,750
12 Southpark Place Storepro Solutions 100%100%4.6%4.8% 520 510 5,477 JLL 10,600 (35) 635 11,200
100%100%5.2%5.3% 7,526 6,933 74,763 130,595 8,933 6,497 146,025
Other Auckland:
58 Richard Pearse Drive, Mangere EBOS 100%100%4.6%4.7% 1,215 1,215 12,708 Colliers 25,700 (47) 1,047 26,700
Carlaw Park Gateway Building, Parnell Quest 100%85%7.5%6.9% 2,245 2,425 2,369 CBRE 35,400 (28,317) (7,083) –
Carlaw Park Office Complex, Parnell Jacobs 96%95%6.5%6.4% 4,677 4,586 11,126 CBRE 72,000 (71,343) (657) –
170 Swanson Road, Swanson Transportation Auckland 100%100%4.9%5.1% 1,068 1,068 37,601 JLL 20,750 (19) 1,169 21,900
51-61 Spartan Road, Takanini MaxiTRANS 100%100%4.8%5.0% 945 920 13,519 JLL 18,350 149 1,301 19,800
98%94%5.9%5.9% 10,150 10,214 77,323 172,200 (99,577) (4,223) 68,400
47
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
2020202020192020201920202019202020202019202020202020
North Island (outside Auckland):
124 Hewletts Road, Mt Maunganui RMD Bulk Storage 100%100%5.2%5.8% 2,986 2,926 29,169 Colliers 50,500 179 6,321 57,000
124a Hewletts Road, Mt Maunganui Ballance Agri–Nutrients 100%100%4.9%5.4% 1,059 1,059 10,497 Colliers 19,700 70 1,630 21,400
124b Hewletts Road, Mt Maunganui Ballance Agri–Nutrients 100%100%5.0%5.4% 921 898 8,867 Colliers 16,700 – 1,600 18,300
3 Hocking Street, Mt Maunganui BR & SL Porter 100%100%5.9%5.6% 165 162 1,250 Colliers 2,900 20 (120) 2,800
558 Te Rapa Road, Hamilton DEC Manufacturing 100%100%6.8%6.8% 480 461 4,606 Colliers 6,800 13 287 7,100
39 Edmundson Street, Napier TIL Logistics 100%100%6.6%6.6% 230 230 8,540 Savills 3,500 32 (32) 3,500
20 Constance Street, New Plymouth Aviagen 100%100%13.4%12.2% 409 401 1,366 Savills 3,300 – (240) 3,060
330 Devon Street East, New Plymouth TIL Logistics 100%100%7.0%7.0% 117 117 482 Savills 1,675 15 (15) 1,675
28 Paraite Road, New Plymouth TIL Logistics 100%100%7.6%7.6% 1,249 1,249 15,636 Savills 16,500 145 (145) 16,500
2 Smart Road, New Plymouth New Zealand Post 100%100%7.4%7.1% 334 320 2,359 Savills 4,500 – – 4,500
Shed 22, 23 Cable Street, Wellington
b
Shed 22 Hospo 100%100%7.1%7.3% 894 873 2,809 CBRE 11,950 427 173 12,550
143 Hutt Park Road, Wellington EBOS 100%100%5.6%6.7% 1,256 1,200 11,372 CBRE 18,000 11 4,439 22,450
8 McCormack Place, Wellington Fletcher Building Products 100%100%5.7%6.2% 733 725 6,686 CBRE 11,750 (61) 1,111 12,800
48 Seaview Road, Wellington Bridgestone 100%100%6.8%11.5% 537 587 8,996 CBRE 5,100 2,064 761 7,925
100%100%5.9%6.5% 11,370 11,208 112,635 172,875 2,915 15,770 191,560
South Island:
11 Sheffield Street, Blenheim TIL Logistics 100%100%7.4%7.6% 512 512 10,823 Savills 6,700 90 110 6,900
15 Artillery Place, Nelson TIL Logistics 100%100%6.8%6.8% 565 565 18,052 Savills 8,300 69 (69) 8,300
8a & 8b Canada Crescent, Christchurch Polarcold Stores 100%100%7.4%7.2% 1,206 1,172 9,500 Savills 16,250 10 (10) 16,250
41 & 55 Foremans Road, Christchurch TIL Logistics 100%100%6.3%6.8% 767 767 14,710 Savills 11,250 96 904 12,250
44 Mandeville Street, Christchurch Fletcher Building Products 100%83%9.0%8.7% 1,060 1,086 12,388 CBRE 12,550 373 (1,098) 11,825
127 Waterloo Road, Christchurch DHL Supply Chain 100%100%8.2%7.5% 352 328 4,055 CBRE 4,350 (4,310) (40) –
100%95%7.5%7.5% 4,462 4,430 69,528 59,400 (3,672) (203) 55,525
Investment properties - subtotal99%99%5.5%5.9% 90,313 84,815 838,403 1,462,320 (10,831) 72,546 1,524,035
Development land:
232 Cavendish Drive, Manukau Colliers – 750 – 750
47 Dalgety Drive, Manukau Colliers 1,400 (1,400) – –
48 Seaview Road, Wellington CBRE 1,960 (1,960) – –
314 Neilson Street, Penrose Savills 3,605 (3,605) – –
Development land - subtotal 6,965 (6,215) – 750
Investment properties - total 1,469,285 (17,046) 72,546 1,524,785
b
Included in the 2020 balance is a right-of-use asset of $4.0 million (2019: $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)
48
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
2020202020192020201920202019202020202019202020202020
North Island (outside Auckland):
124 Hewletts Road, Mt Maunganui RMD Bulk Storage 100%100%5.2%5.8% 2,986 2,926 29,169 Colliers 50,500 179 6,321 57,000
124a Hewletts Road, Mt Maunganui Ballance Agri–Nutrients 100%100%4.9%5.4% 1,059 1,059 10,497 Colliers 19,700 70 1,630 21,400
124b Hewletts Road, Mt Maunganui Ballance Agri–Nutrients 100%100%5.0%5.4% 921 898 8,867 Colliers 16,700 – 1,600 18,300
3 Hocking Street, Mt Maunganui BR & SL Porter 100%100%5.9%5.6% 165 162 1,250 Colliers 2,900 20 (120) 2,800
558 Te Rapa Road, Hamilton DEC Manufacturing 100%100%6.8%6.8% 480 461 4,606 Colliers 6,800 13 287 7,100
39 Edmundson Street, Napier TIL Logistics 100%100%6.6%6.6% 230 230 8,540 Savills 3,500 32 (32) 3,500
20 Constance Street, New Plymouth Aviagen 100%100%13.4%12.2% 409 401 1,366 Savills 3,300 – (240) 3,060
330 Devon Street East, New Plymouth TIL Logistics 100%100%7.0%7.0% 117 117 482 Savills 1,675 15 (15) 1,675
28 Paraite Road, New Plymouth TIL Logistics 100%100%7.6%7.6% 1,249 1,249 15,636 Savills 16,500 145 (145) 16,500
2 Smart Road, New Plymouth New Zealand Post 100%100%7.4%7.1% 334 320 2,359 Savills 4,500 – – 4,500
Shed 22, 23 Cable Street, Wellington
b
Shed 22 Hospo 100%100%7.1%7.3% 894 873 2,809 CBRE 11,950 427 173 12,550
143 Hutt Park Road, Wellington EBOS 100%100%5.6%6.7% 1,256 1,200 11,372 CBRE 18,000 11 4,439 22,450
8 McCormack Place, Wellington Fletcher Building Products 100%100%5.7%6.2% 733 725 6,686 CBRE 11,750 (61) 1,111 12,800
48 Seaview Road, Wellington Bridgestone 100%100%6.8%11.5% 537 587 8,996 CBRE 5,100 2,064 761 7,925
100%100%5.9%6.5% 11,370 11,208 112,635 172,875 2,915 15,770 191,560
South Island:
11 Sheffield Street, Blenheim TIL Logistics 100%100%7.4%7.6% 512 512 10,823 Savills 6,700 90 110 6,900
15 Artillery Place, Nelson TIL Logistics 100%100%6.8%6.8% 565 565 18,052 Savills 8,300 69 (69) 8,300
8a & 8b Canada Crescent, Christchurch Polarcold Stores 100%100%7.4%7.2% 1,206 1,172 9,500 Savills 16,250 10 (10) 16,250
41 & 55 Foremans Road, Christchurch TIL Logistics 100%100%6.3%6.8% 767 767 14,710 Savills 11,250 96 904 12,250
44 Mandeville Street, Christchurch Fletcher Building Products 100%83%9.0%8.7% 1,060 1,086 12,388 CBRE 12,550 373 (1,098) 11,825
127 Waterloo Road, Christchurch DHL Supply Chain 100%100%8.2%7.5% 352 328 4,055 CBRE 4,350 (4,310) (40) –
100%95%7.5%7.5% 4,462 4,430 69,528 59,400 (3,672) (203) 55,525
Investment properties - subtotal99%99%5.5%5.9% 90,313 84,815 838,403 1,462,320 (10,831) 72,546 1,524,035
Development land:
232 Cavendish Drive, Manukau Colliers – 750 – 750
47 Dalgety Drive, Manukau Colliers 1,400 (1,400) – –
48 Seaview Road, Wellington CBRE 1,960 (1,960) – –
314 Neilson Street, Penrose Savills 3,605 (3,605) – –
Development land - subtotal 6,965 (6,215) – 750
Investment properties - total 1,469,285 (17,046) 72,546 1,524,785
b
Included in the 2020 balance is a right-of-use asset of $4.0 million (2019: $3.75 million) primarily in relation to a ground lease, representing the value of the land,
with an associated immaterial lease liability.
49
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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 value 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
building structure. Deferred tax is recognised to the extent that tax depreciation recovery gain or loss on disposal is calculated on the fit-out and
building structure components separately. See section 5.2 for more details.
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 and the impact of the COVID-19 pandemic
The fair value of investment properties are determined from valuations prepared by independent valuers.
All investment properties were valued as at 31 December 2020 (with the exception of 528-558 Rosebank Road, which was independently valued
as at 23 October 2020 as part of the acquisition. This valuation remains the best estimate of fair value as at 31 December 2020) and 2019 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 valuers.
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.
Below are the significant inputs used in the valuations, together with the impact on the fair value of a change in the inputs:
RANGE OF SIGNIFICANT
UNOBSERVABLE INPUTS MEASUREMENT SENSITIVITY
20202019Increase in inputDecrease in input
Market capitalisation rate (%)
1
4.50 – 8.00 4.75 – 7.75 Decrease Increase
Market rental ($ per sqm)
2
28 – 407 28 – 408 Increase Decrease
Discount rate (%)
3
5.50 – 9.50 6.50 – 9.50 Decrease Increase
Rental growth rate (%)4 1.66 – 2.42 1.78 – 3.13 Increase Decrease
Terminal capitalisation rate (%)
5
4.75 – 8.25 5.00 – 8.25 Decrease Increase
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 valuer’s 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.
50
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
2020+ 0.25%- 0.25%+ 0.25%- 0.25%
Valuation 1,524,785
Change (67,000) 73,000 (53,000) 56,000
Change (%)(5%)6%(4%)4%
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%
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.
The impact of the COVID-19 pandemic
As at 30 June 2020, the real estate markets to which the Group’s investment properties belong were still being impacted by the effects of the
significant market uncertainty caused by the COVID-19 pandemic.
When completing the valuations, the independent registered valuers included a ‘material valuation uncertainty’ clause in their 30 June 2020 valuation
reports, indicating that less weight could be attached to previous market evidence for comparison purposes, to inform value at 30 June 2020, and that
less certainty and a higher degree of caution should be attached to the valuations than would normally be the case.
As at 31 December 2020, while the valuers have highlighted that there is still heightened uncertainty due to the COVID-19 pandemic, the ‘material
valuation uncertainty’ for fair market value assessments of investment property no longer applies and the independent valuations are no longer
reported on this basis (aside from in the valuation report of Carlaw Park Gateway). The valuers also note the uncertainty due to the COVID-19
pandemic is lower in the industrial property sector than other property sectors.
51
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
2. PROPERTY (continued)
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 investment properties actively marketed for sale. The carrying value of the property is either
the contracted sale price, net of sale costs, being the lower of carrying value and fair value less costs of disposal, or the most recent valuation if the
investment property is not contracted for sale.
ALL VALUES IN $000S20202019
2 Pacific Rise, Mt Wellington– 6,893
127 Waterloo Road, Christchurch 4,301 –
Carlaw Park Office Complex 72,300 –
Carlaw Park Gateway Building 30,100 –
Total non-current assets classified as held for sale 106,701 6,893
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 2020, however, the non-industrial property within
investment properties – Shed 22, 23 Cable Street – cannot be classified as a non-current asset classified as held for sale as it does not meet the defined
requirements. These requirements are that the asset is available for immediate sale in its present condition, the appropriate level of management are
committed to a plan to sell the asset, an active programme to locate a buyer has been initiated, the asset must be actively marketed for sale at a
reasonable price, and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.
2.3. Rental and management fee income
ALL VALUES IN $000S20202019
Gross rental receipts 80,029 81,288
Service charge income recovered from tenants 12,587 12,050
Fixed rental income adjustments 1,882 1,701
Capitalised lease incentive adjustments 970 350
Impact of rental income deferred and abated due to the COVID-10 pandemic 1,279 –
Management fee income 645 662
Total rental and management fee income 97,392 96,051
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.
Rental abatements may at times be offered by a landlord as an incentive for tenants to sign longer lease terms. However in this period rental abatements
have also been offered to assist tenants struggling due to the impact of the COVID-19 pandemic. Rental abatements are accounted for as a lease
modification under NZ IFRS 16 ‘Leases’ and the expense is spread over the remaining life of the lease, effectively accounted for as a lease incentive.
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 are 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.
52
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
2. PROPERTY (continued)
2.3. Rental and management fee income (continued)
Future minimum rentals receivable under non-cancellable operating leases are as follows:
ALL VALUES IN $000S20202019
Within one year 80,605 78,309
After one year but not more than five years 222,486 242,781
More than five years 117,881 127,114
Total 420,972 448,204
2.4. Property costs
ALL VALUES IN $000S20202019
Service charge expenses (12,587) (12,050)
Bad and doubtful debts expense
1
(378) (14)
Other non-recoverable property costs (3,297) (2,786)
Total property costs (16,262) (14,850)
1. Included in the 2020 balance is $90,000 specifically relating to COVID-19 rent deferrals provided and a further $288,000 relating to tenants adversely affected by the COVID-19
pandemic.
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 $000S20202019
Gross rental receipts 80,029 81,288
Service charge income recovered from tenants 12,587 12,050
Fixed rental income adjustments 1,882 1,701
Capitalised lease incentive adjustments 970 350
Impact of rental income deferred and abated due to the COVID-19 pandemic 1,279 –
less: Service charge expenses (12,587) (12,050)
Net rental income 84,160 83,339
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.
53
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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 $000S20202019
Bilateral CBA bank facility drawn down - non-current 100,000 –
Syndicated bank facility drawn down - non-current 189,877 215,576
Fixed rate bonds - non-current 200,000 200,000
Unamortised borrowings establishment costs (2,228) (2,628)
Net borrowings 487,649 412,948
Weighted average interest rate for drawn debt (inclusive of current interest rate swaps, margins and line fees)3.75%4.63%
Weighted average term to maturity (years) 2.82 4.14
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 2020Issue DateMaturity DateInterest Rate
Facility drawn /
amount
Undrawn
facilityFair Value
Bilateral CBA Bank Facility–19-Mar-22Floating 100,000 – 100,000
Syndicated Bank Facility A–4-Nov-22Floating 150,000 – 150,000
Syndicated Bank Facility B–4-Nov-23Floating 39,877 110,123 39,877
PFI01028-Nov-1728-Nov-244.59% 100,000 – 111,015
PFI0201-Oct-181-Oct-254.25% 100,000 – 110,486
Total borrowings 489,877 110,123 511,378
ALL VALUES IN $000S
As at 31 December 2019Issue DateMaturity DateInterest Rate
Facility drawn /
amount
Undrawn
facilityFair Value
Syndicated Bank Facility A–4-Nov-22Floating 150,000 – 150,000
Syndicated 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
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. In
addition, a bilateral facility with CBA for $100,000,000 was established during the year. 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 (2019:
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.
54
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
(iii) Security
The bank facilities 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 $1,200,000,000 (31 December 2019: $1,000,000,000). In addition to this, the bank facility
agreements 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 2020, investment properties totalling $1,617,936,000 (31 December 2019: $1,463,178,000) were mortgaged as security for the
Group’s borrowings.
3.2. Derivative financial instruments
(i) Fair values
ALL VALUES IN $000S20202019
Non-current assets 19,415 13,212
Current liabilities (340) (840)
Non-current liabilities (25,041) (18,982)
Total (5,966) (6,610)
(ii) Notional values, maturities and interest rates
20202019
Notional value of interest rate swaps - fixed rate payer - start dates commenced ($000S) 295,000 245,000
Notional value of interest rate swaps - fixed rate receiver
1
- start dates commenced ($000S) 200,000 200,000
Notional value of interest rate swaps - fixed rate payer - forward starting ($000S) 110,000 190,000
Total ($000S) 605,000 635,000
Percentage of borrowings fixed (%)60%59%
Fixed rate payer swaps:
Average period to expiry - start dates commenced (years) 3.06 2.40
Average period to expiry - forward starting (years from commencement) 3.73 3.48
Average (years) 3.24 2.87
Fixed rate payer swaps:
Average interest rate
2
- start dates commenced (%)3.07%3.75%
Average interest rate
2
- forward starting (% during effective period)3.09%3.32%
Average (%)3.07%3.55%
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.
3. FUNDING (continued)
3.1. Borrowings (continued)
55
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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 (2019: 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 2020 of between
0.27% for the 90 day BKBM (31 December 2019: 1.29%) and 0.99% for the 10 year swap rate (31 December 2019: 1.79%). There were no changes to
these valuation techniques during the reporting period.
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
20202019
Total comprehensive income for the year attributable to the shareholders of the Company ($000s) 113,452 176,286
Weighted average number of ordinary shares (shares) 499,649,574 498,723,330
Basic earnings per share (cents) 22.71 35.35
(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 38,957 (2019: 651) rights issued under the Group’s LTI Plan as at 31 December 2020. This adjustment
has been calculated using the treasury share method. Refer to note 5.9 “Share-based payments” for further details.
20202019
Total comprehensive income for the year attributable to the shareholders of the Company ($000s) 113,452 176,286
Weighted average number of shares for purpose of diluted earnings per share (shares) 499,688,531 498,723,981
Diluted earnings per share (cents) 22.70 35.35
4.2. Net tangible assets per share
20202019
Net assets ($000s) 1,136,613 1,054,037
Less: Goodwill ($000s) (note 5.5) (29,086) (29,086)
Net tangible assets ($000s) 1,107,527 1,024,951
Closing shares on issue (shares) 501,302,888 498,723,330
Net tangible assets per share (cents) 221 206
3. FUNDING (continued)
3.2. Derivative financial instruments (continued)
56
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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 $000SNOTE20202019
Auditors remuneration:
Audit and review of financial statements (156) (148)
Benchmarking of executive remuneration– (2)
Employee and independent contractor benefits expense (3,511) (3,032)
Directors' fees5.8 (548) (337)
Office expenses (671) (523)
Depreciation (173) (124)
Other expenses (792) (906)
Total administrative expenses (5,851) (5,072)
5.2. Taxation
(i) Reconciliation of accounting profit before income tax to income tax expense
ALL VALUES IN $000S20202019
Profit before income tax 135,693 190,377
Prima facie income tax calculated at 28% (37,994) (53,306)
Adjusted for:
Non-tax deductible revenue and expenses 1,229 (30)
Fair value gain on investment properties 20,313 35,054
(Loss) / gain on disposal of investment properties (4) 1,155
Depreciation
1
4,439 2,598
Disposal of depreciable assets– (729)
Deductible capital expenditure889 991
Lease incentives, fees and fixed rental income 879 547
Derivative financial instruments 180 721
Impairment (allowance) / gains (106) 4
Current tax prior period adjustment 9 (57)
Other 100 (54)
Current taxation expense (10,066) (13,106)
Depreciation (11,019) 224
Lease incentives, fees and fixed rental income (879) (547)
Derivative financial instruments (180) (721)
Impairment allowance 106 (4)
Other (203) 63
Deferred taxation expense (12,175) (985)
Total taxation reported in Consolidated Statement of Comprehensive Income (22,241) (14,091)
1. As part of the assistance package offered by the Government on 25 March 2020 due to the impact of the COVID-19 pandemic, depreciation allowances were re-introduced for
commercial building structure effective from 1 April 2020, backdated to 1 January 2020, and this has been reflected in the table above.
57
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
(ii) Deferred tax
20182019201920202020
ALL VALUES IN $000S As at
Recognised
in profit As at
Recognised
in profit As at
Deferred tax assets
Derivative financial instruments (2,572) 721 (1,851) 180 (1,671)
Impairment allowance (24) 4 (20) (106) (126)
Other – (63) (63) 3 (60)
Gross deferred tax assets (2,596) 662 (1,934) 77 (1,857)
Deferred tax liabilities
Investment properties 14,796 323 15,119 11,898 27,017
Gross deferred tax liabilities 14,796 323 15,119 11,898 27,017
Share-based payment reserve – – – 200 –
Net deferred tax liability 12,200 985 13,185 12,175 25,160
(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 $000S20202019
Opening balance 3,997 2,203
Taxation paid / payable 9,971 12,943
Imputation credits attached to dividends paid (11,391) (11,149)
Closing balance available to shareholders for use in subsequent periods 2,577 3,997
5. OTHER (continued)
5.2. Taxation (continued)
58
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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
Given changes to purchase price allocations rules, which will apply to agreements for the disposal and acquisition of property entered into on or
after 1 April 2021, and following the reintroduction of depreciation allowances for commercial building structures, the Group completed a review
of its deferred tax methodology. As a result of that review, deferred tax has now been provided on the accumulated depreciation claimed on both
the structure and fit-out components of investment properties (2019: deferred tax was provided on the accumulated depreciation claimed only on
the structure component). This has resulted in an increase in the deferred tax liability of $9.6 million. 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.
The building value is then split between fit-out and structure based on the proportion of the tax book values of each.
5. OTHER (continued)
5.2. Taxation (continued)
(ii) Deferred tax (continued)
59
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
5. OTHER (continued)
5.3. Accounts receivable, prepayments and other assets
ALL VALUES IN $000S20202019
Accounts receivable 2,311 1,479
Provision for doubtful debts (450) (72)
Prepayments and other assets 1,536 1,012
Deposit paid for acquisition of 670-680 Rosebank Road 2,000 –
Total accounts receivable, prepayments and other assets 5,397 2,419
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 ‘Financial Instruments’, which permits the use of lifetime expected loss provision for all trade receivables.
5.4. Accounts payable, accruals and other liabilities
ALL VALUES IN $000S20202019
Accounts payable 1,008 1,708
Accrued interest expense and bank fees 2,196 2,358
Accruals and other liabilities in respect of investment properties 1,247 1,464
Accruals and other liabilities 4,701 4,067
Total accounts payable, accruals and other liabilities 9,152 9,597
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 $000S20202019
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 (2019: 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 (15.8%, as determined by a third party, 2019: 14.3%) and deducting costs of disposal.
As at 31 December 2020 the estimated fair value less costs of disposal of the Property for Industry Limited CGU exceeded the carrying value
(2019: nil impairment).
60
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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 $000S20202019
Financial Assets
Financial assets at amortised cost:
Cash at bank 1,414 1,185
Accounts receivable and other assets 1,861 1,407
Total - Financial assets at amortised cost 3,275 2,592
Financial assets at fair value through profit or loss:
Derivative financial instruments 19,415 13,212
Total - Financial assets at fair value through profit or loss 19,415 13,212
Total Financial Assets 22,690 15,804
Financial Liabilities
Financial liabilities at amortised cost:
Accounts payable, accruals and other liabilities 8,986 9,455
Lease liabilities 245 325
Borrowings 487,649 412,948
Total - Financial liabilities at amortised cost 496,880 422,728
Financial liabilities at fair value through profit or loss:
Derivative financial instruments 25,381 19,822
Total - Financial liabilities at fair value through profit or loss 25,381 19,822
Total Financial Liabilities 522,261 442,550
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 to 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.
20202019
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 420 (1,139) (158) 158
Impact on equity 302 (820) (114) 114
61
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
(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 2.8 years (2019: 4.1 years), with all borrowings due later than one year
(2019: 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 2020 and 31 December 2019.
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 8,986 8,986 – – – 8,986
Lease liabilities 245 93 100 52 – 245
Derivative financial instruments
1
5,966 2,987 2,512 966 636 7,101
Borrowings 487,649 9,593 257,907 250,084 – 517,584
Total as at 31 December 2020 502,846 21,659 260,519 251,102 636 533,916
Accounts payable, accruals and other liabilities 9,455 9,455 – – – 9,455
Lease liabilities 325 85 91 149 – 325
Derivative financial instruments
1
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
1. The carrying amount of derivative financial instruments shown is the net position of both derivative financial instrument assets and derivative financial instrument liabilities.
5. OTHER (continued)
5.7. Financial risk management (continued)
62
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
(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. Having been non-operational during the
year ended 31 December 2019, the DRS was used for the Q1 2020 dividend and remained operational for the rest of the year ended 31 December 2020.
5.8. Related party transactions
(i) Key management personnel
ALL VALUES IN $000S20202019
Directors' fees - annual fees 548 441
Directors' fees - retirement allowance reversed
1
– (105)
Short-term independent contractors benefits – 213
Leadership Team remuneration
2
2,032 1,365
Key management personnel 2,580 1,914
1 In 2019, former Director Humphry Rolleston elected to waive his retirement allowance. This retirement allowance had been accrued in 2018.
2 In 2020, Leadership Team remuneration comprises remuneration for the Senior Leadership Team of the Company. If this definition had been used in 2019, Leadership Team remuneration
would have totalled $1,844,000.
(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, was also a Director of ASB Bank Limited
(ASB), a 100% subsidiary of CBA, however she resigned from this position effective 30 June 2020.
The Board of DirectorsDirectorsThe Board of Directors.
The following transactions with related parties took place:
ALL VALUES IN $000SRelated party20202019
Licence income receivedMRCO – 50
Related party debts written off or forgiven– – –
Interest expense and bank fees incurred
3
CBA (1,082) (2,173)
Interest income received
3
CBA 482 796
3. All transactions and positions held with CBA are as at 30 June 2020 as that was the date that CBA ceased to be a related party of the Group.
5. OTHER (continued)
5.7. Financial risk management (continued)
63
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
(ii) Other related party transactions (continued)
The following positions were held with related parties:
ALL VALUES IN $000S UNLESS STATED OTHERWISERelated party30 June 202031 Dec 2019
Amounts owing
3
CBA (274) (246)
Amounts owed
3
CBA 116 79
Bank facility provided
3
CBA 125,000 75,000
Bank facility drawn
3
CBA 93,070 53,894
Notional value of interest rate swaps:
Current fixed rate payer swaps
3
CBA 60,000 50,000
Forward starting fixed rate payer swaps
3
CBA 50,000 50,000
Current fixed rate receiver swaps
3
CBA 50,000 50,000
3. All transactions and positions held with CBA are as at 30 June 2020 as that was the date that CBA ceased to be a related party of the Group.
ALL VALUES IN $000S UNLESS STATED OTHERWISERelated party31 Dec 202031 Dec 2019
Shares held beneficially in the companyDirectors 309,361 191,371
Shares held non-beneficially in the companyDirectors– 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 (“2019 Grant”). Under this plan,
Performance Share Rights (PSRs) were issued to these senior executives which give them the right to receive ordinary shares in the Group after a 1-3
year period, subject to achieving the performance hurdles outlined below. These are at-risk payments designed to align the reward of these senior
executives with the enhancement of shareholder value over a multi-year period. On 17 February 2020, a second grant of PSRs were issued to these
senior executives (“2020 Grant”) under equivalent conditions to the 2019 Grant.
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 dates of 1 January 2019 and 1 January 2020.
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 equalling 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.
165,279 PSRs (2020 Grant) were granted in the current period (2019: 196,023 in the 2019 Grant) out of which 55,093 have vested at 31 December 2020
(31 December 2019: 65,341). A further 65,341 PSRs relating to the 2019 Grant vested during the year ended 31 December 2020. 175,527 PSRs were
outstanding as at 31 December 2020; 65,341 relating to the 2019 Grant and 110,186 relating to the 2020 Grant (31 December 2019: 130,682 PSRs, all
relating to the 2019 Grant).
The PSRs outstanding at 31 December 2020 had a weighted - average contractual life of 1.31 years (31 December 2019: 1.50 years).
The LTI Plan has resulted in a share-based payment reserve totalling $615,000 as at 31 December 2020 (2019: $270,000).
5. OTHER (continued)
5.8. Related party transactions (continued)
64
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
Fair value measurement of LTI Plan
The fair value of the PSRs have been measured using a 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
2020 Grant2019 Grant
Part APart BPart APart B
Weighted average fair value at grant date$2.49$1.18$2.35$2.04
Share price at grant date$2.49$2.49$2.35$2.35
Expected volatility (weighted-average)10.3%10.3%10.0%10.0%
Expected life (weighted-average)22 months22 months13 months13 months
Risk-free interest rate1.22%1.22%1.00%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 the selected 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)
65
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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 $000S20202019
Right-of-use assets
1
Properties 229 314
Total right-of-use assets 229 314
1. Included in the line item ‘Property, plant and equipment’ in the Consolidated Statement of Financial Position.
Additions to the right-of-use assets during the 2020 financial year were $6,000 (2019: $314,000).
ALL VALUES IN $000S20202019
Lease liabilities
Current
2
93 85
Non-current
3
152 240
Total lease liabilities 245 325
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.
(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 $000S20202019
Depreciation charge of right-of-use assets
4
Properties (91) (90)
Total depreciation charge of right-of-use assets (91) (90)
4. Included in the line item ‘Administrative expenses’ in the Consolidated Statement of Comprehensive Income.
ALL VALUES IN $000S20202019
Interest cost⁵ (24) (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 2020 was $111,000.
5. OTHER (continued)
66
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
NOTES 2020
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
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 2020, the Group had capital commitments totalling $58,754,000 (31 December 2019: $81,490,000) as follows:
ALL VALUES IN $000S20202019
AddressProject
314 Neilson StreetDesign and build 334 4,677
47 Dalgety DriveDesign and build 6,311 8,123
59 Dalgety DriveRefurbishment 1,993 6,592
25 Langley RoadAcquisition of warehouse on completion of construction 7,532 7,532
6 Donnor PlaceRefurbishment – 1,412
124 Hewletts RoadRefurbishment 3,318 –
Shed 22, 23 Cable StreetSeismic works 2,266 –
670-680 Rosebank RoadAcquisition (net of deposit paid) 37,000 –
Lot 1, 88 Tidal Road
6
Acquisition – 18,984
Lot 11, 88 Tidal Road
6
Acquisition – 34,170
Total capital commitments 58,754 81,490
6. On 14 August 2019 and 17 December 2019 the Group announced agreements to purchase industrial properties to be developed at Tidal Road in Mangere, Auckland, for a total of
$54.400 million. The agreements to acquire these properties were subject to market standard conditions, including sunset dates. Following delays caused by the COVID-19 pandemic
and associated New Zealand Government enforced lockdowns, these sunset dates have now been reached and the agreements have been cancelled.
5.13. Subsequent events
Following the Group’s announcement on 23 December 2020 of an agreement to purchase the properties located at 670-680 Rosebank Road, Avondale,
for a net purchase price of $39.0 million, settlement of this acquisition took place on 29 January 2021.
On 10 February 2021, the Group announced the sale of Carlaw Gateway Building and Carlaw Park Office Complex, for a gross sales price of $110.0
million. Settlement is scheduled to take place in Q4 2021. The properties have been separately classified as non-current assets classified as held for sale
in the 2020 financial statements.
On 14 February, all regions in New Zealand, except for the Auckland region, moved to Government-directed Alert Level 2 (Auckland region: Alert Level 3)
in response to several cases of community transmission of COVID-19, following an extended period with no cases. On 17 February 2021 all regions in
New Zealand moved to Level 1 (Auckland region Alert Level 2). These alert levels remain at the date of signing the financial statements and these events
are not expected to have a significant impact on the business.
On 22 February 2021, the Directors of the Company approved the payment of a net dividend of $10,493,000 (2.250000 cents per share) to be paid on
10 March 2021. The gross dividend (2.764061 cents per share) carries imputation credits of 0.514061 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 2020 in respect of this dividend.
67
NOTES TO THE FINANCIAL STATEMENTS
(
continued
)
FOR THE YEAR ENDED 31 DECEMBER 2020
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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.
Description of the key audit matterHow our audit addressed the key audit matter
Valuation of investment properties
Refer to note 2.1 of the financial statements.
At $1,525 million, the Group’s investment properties represent
the majority of assets held as at 31 December 2020.
The valuation of the Group’s property portfolio is inherently
subjective and is given specific audit focus and attention due to
the existence of significant estimation uncertainty. A small
percentage difference in a single or multiple input assumption
could result in material misstatement of the valuation.
The valuations were carried out by independent third-party
valuers who 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. 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
We held discussions with management to understand:
• movements in the Group’s investment property portfolio,
• changes in the condition of each property,
• the controls in place over the valuation process.
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.
Independent auditor’s report
To the shareholders of Property for Industry Limited
Our opinion
In our opinion, the accompanying financial statements of Property for Industry Limited (the Company), including its subsidiary (the Group), present fairly,
in all material respects, the financial position of the Group as at 31 December 2020, 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).
What we have audited
The Group’s financial statements comprise:
• the consolidated statement of financial position as at 31 December 2020;
• 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 and other explanatory information.
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.
Independence
We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners
(including International Independence Standards) (New Zealand) (PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the
International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics
Standards Board for Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Other than in our capacity as auditor we have no relationship with, or interests in, the Group.
68
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
AUDITORS 2020
INDEPENDENT AUDITOR’S REPORT (continued)
Key audit matters–continued
Description of the key audit matterHow our audit addressed the key audit matter
In determining a property’s valuation, two approaches are
generally used to determine the fair value of an investment
property: the income capitalisation approach and the discounted
cash flow approach, to arrive at a range of valuation outcomes
from which the valuers derive a point estimate.
The valuers take into account property specific information such
as the contracted tenancy agreements and rental income earned
by the asset. They apply assumptions in relation to capitalisation
rates, discount rates and market rent and the anticipated growth,
based on market data and transactions where available.
As at 31 December 2020, the valuers have drawn attention to the
fact that heightened uncertainty due to the COVID-19
environment remains, however the ‘material valuation
uncertainty’ that was present in the interim valuations no longer
applies, and all of the independent valuations, except Carlaw Park
Gateway, are no longer reported on that basis.
Management verifies all major inputs to the valuations, assesses
property valuation movements since prior year, holds discussions
with the independent valuers to assess the reasonableness of the
valuations, and communicates the results of the process with the
Directors.
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 2020.
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 the 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 used in the valuations focused on 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 market
assumptions used by the valuers to market evidence and current market
conditions.
We concluded that the assumptions used in the valuations, including adjustments
made for the impact of COVID-19, were supportable in light of available and
comparable market evidence.
From the procedures performed, we have no matters to report.
Our audit approach
Overview
Materiality
Audit scope
Key audit
matters
Overall group materiality: $3,125,000, which represents approximately 5% of profit before tax excluding valuation movements
relating to investment properties and interest rate derivatives.
We chose this benchmark because, in our view, it is most reflective of the metric against which the performance of the Group is
most commonly measured by users.
Following our assessment of the risk of material misstatement, a full scope audit was performed over the consolidated Group
balances.
As reported above, we have one key audit matter, being:
• Valuation of investment properties.
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we
considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. 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.
69
INDEPENDENT AUDITOR’S REPORT (continued)
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance about whether the financial
statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
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.
How we tailored our group audit scope
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.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the Annual report, but does not
include the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of audit opinion or assurance conclusion
thereon.
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/assurance-standards/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
22 February 2021
70
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
AUDITORS 2020
FIVE-YEAR PERFORMANCE SUMMARY
YEAR ENDED 31 DECEMBER 20202019201820172016
ALL VALUES IN $M UNLESS OTHERWISE NOTED
FINANCIAL PERFORMANCE
Income176.1229.3158.3128.1167.8
Expenses(40.4)(38.9)(36.0)(78.5)(35.7)
Profit before taxation135.7190.4122.349.6132.1
Total taxation (expense) / benefit(22.2)(14.1)(12.2)2.1(8.7)
Total comprehensive income after tax113.5176.3110.151.7123.4
Weighted average number of ordinary shares ('000 shares)499,650498,723498,723459,600450,079
IFRS basic earnings per share (cents per share)22.7135.3522.0811.2527.42
DISTRIBUTIONS
Total comprehensive income after tax113.5176.3110.151.7123.4
Distribution adjustments(73.4)(137.5)(72.9)(17.3)(92.1)
Adjusted Funds From Operations (AFFO)40.138.837.234.431.3
Weighted average number of ordinary shares ('000 shares)499,650498,723498,723459,600450,079
AFFO per share (cents per share)8.037.797.467.496.95
Gross dividends paid relating to the year reported (cents per share)9.7310.209.337.459.24
Net dividends paid relating to the year reported (cents per share)7.707.607.557.457.35
AFFO pay-out ratio (%)95.9%97.6%101.2%99.5%105.8%
FINANCIAL POSITION
Investment properties1,524.81,469.31,318.71,210.81,083.3
Goodwill29.129.129.129.129.1
Other assets133.524.311.22.29.4
Total assets1,687.41,522.71,358.91,242.11,121.8
Borrowings487.6412.9398.2370.6332.9
Other liabilities63.255.845.5
28.632.7
Total liabilities550.8468.7443.8399.2365.7
Total equity1,136.61,054.0915.1842.9756.1
Closing shares on issue ('000 shares)501,303498,723498,723498,723452,459
Net tangible (excluding goodwill) assets (cents per share)220.9205.5177.7163.2160.7
Gearing (%)30.0%28.2%30.3%30.8%30.1%
PROPERTY PORTFOLIO METRICS
Number of properties (#)9494949283
Number of tenants (#)148144148148143
Contract rent89.884.982.079.672.5
Occupancy (%)99.4%99.0%99.3%99.9%99.6%
Net lettable area including yard (sqm) 838,403 809,183 780,092 756,455 667,441
Weighted average lease term (years)5.285.385.395.334.79
Portfolio capitalisation rate (%)5.5%5.7%6.1%6.4%6.6%
71
PERFORMANCE
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
72
Property
for
Industry
Limited
Annual
Report
31 December
2020
DISCLOSURES
OTHER
73
COMPANY STRUCTURE AND
STATUTORY INFORMATION
Property for Industry Limited (the Company, PFI) is a publicly listed company established in 1994. The Board currently has five Directors, four 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 2020, 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 in September 2020.
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 Product Trading Policy;
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.
74
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
OTHER DISCLOSURES
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 Product 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 Product 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 Product Trading 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
at any time;
§
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 the day following the 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;
§
Ensures remuneration of Directors, employees and contractors
is fair and responsible; 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.
75
Board Composition, Appointments, Independence & Operation
The Company’s constitution requires the Company to comply with the minimum board composition requirements under the NZX Listing Rules
(being at least three directors). As at 31 December 2020, there were five Directors: four of whom are independent. The NZX Listing Rules
requires at least two Independent Directors, and it is the Company’s policy that there should always be a majority of Independent Directors.
The Directors of the Company who held the office during the 12 months to 31 December 2020, their status, date of appointment and meeting
attendances follows:
DIRECTOR STATUS
DATE OF
APPOINTMENT
LAST
RE-ELECTED
DATE CEASED
TO BE A
DIRECTOR
MEETINGS
ATTENDED (TWELVE
MEETINGS HELD)
Anthony BeverleyIndependent Director
Board Chair
Nomination and Remuneration
Committee Chair
1
2 July 20013 June 2020N/A12
David ThomsonIndependent Director12 February 20188 May 2018N/A12
Dean BracewellIndependent Director
Nomination and Remuneration
Committee Chair
2
29 November 20193 June 2020N/A12
Gregory ReidyNon-Executive Director 20 January 20128 May 2018N/A12
Humphry RollestonIndependent Director5 July 199422 June 20173 June 20207
3
Susan PetersonIndependent Director
Audit and Risk Committee Chair
24 May 20168 May 2019N/A12
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 2020, the following Directors of the Company were independent: Anthony Beverley, David Thomson, Dean Bracewell and
Susan Peterson. This assessment is based on the fact that these Directors all share the following characteristics:
§
They are all 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 acknowledges Anthony Beverley’s length of tenure on the Board and notes that any change in Board composition needs to be
balanced with ensuring that necessary skills are retained on the Board.
1. Anthony Beverley was the Nomination and Remuneration Committee Chairman until 1 March 2020.
2. Dean Bracewell was the Nomination and Remuneration Committee Chairman from 1 March 2020.
3. Seven meetings were held prior to Humphry Rolleston’s retirement.
76
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
OTHER DISCLOSURES
The Board has concluded that Anthony Beverley’s length of tenure on the Board did not, and does not, influence the capacity for Anthony
Beverley 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 is not considered to be independent by virtue of his role as Managing Director within the last three years.
Details of Directors’ relevant interests in the Company’s Financial Products as at 31 December 2020 can be found in the section entitled
Principle 4 “Reporting and Disclosure”.
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 three 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 Board reviews its
performance as a whole as well as the performance of individual members and each committee.
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 20195210
Year ending 31 December 20204210
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 it, 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 seven members of the team of 14 are female (2019: five out of 12).
77
Principle Three: 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 Board has approved 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” 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 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 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 2020, 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 2020 and attended the five meetings of the committee
held during 2020.
Nomination and Remuneration Committee
The Board has also established a Nomination and Remuneration Committee in accordance with the NZX Code. The committee’s 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”). The Board has approved a written charter to
assist the committee to 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 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 an 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 2020, the members of the Nomination and Remuneration Committee were Dean Bracewell (Chairman of the Nomination and
Remuneration Committee), Anthony Beverley and Susan Peterson. All three members attended three meetings after 1 March 2020.
Prior to 1 March 2020, Anthony Beverley chaired the Nomination and Remuneration Committee, and Susan Peterson was a member. There was
one meeting held prior to 1 March 2020, which both members attended.
Other Committees
The Board does not consider that any additional Board committees as standing Board committees need to be established at this stage.
78
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
OTHER DISCLOSURES
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 appropriate 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 20-29. You can find out more information about PFI’s approach to risk management in
the section entitled Principle Six: Risk Management.
Directors’ Relevant Interests
Details of Directors’ dealings in the Company’s financial products in the year ended 31 December 2020 are as follows:
DIRECTOR
NO. OF SHARES
(ACQUIRED)
CONSIDERATION
PER SHARE DATE
Dean Bracewell (via Ara Street Investments Limited)20,000$2.319610 March 2020
Susan Peterson
4
136$2.354326 May 2020
Susan Peterson
5
120$2.688622 September 2020
Susan Peterson
6
116$2.877718 November 2020
Details of Directors’ relevant interests in the Company’s financial products as at 31 December 2020 are as follows:
DIRECTOR NATURE OF RELEVANT INTEREST NUMBER OF SHARES
Susan PetersonBeneficial holder18,160
Gregory ReidyBeneficial holder155,708
Dean BracewellBeneficial holder20,000
Please note that no Director had a relevant interest in the Company’s bonds.
4. As a result of participation in PFI’s Dividend Reinvestment Scheme
5. As a result of participation in PFI’s Dividend Reinvestment Scheme
6. As a result of participation in PFI’s Dividend Reinvestment Scheme
79
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 by shareholders at the 2019 PFI annual meeting.
ROLE
$ PLUS GST
(IF ANY)
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 as 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.
The table below sets out the total remuneration received by the Company’s Directors during the year to 31 December 2020 and the prior
year comparative. Due to rounding, the fee of ‘$82,500’ above is shown as ‘$83’ in the table below.
DIRECTOR ROLE
FEES PAID
2020
$000
FEES PAID
2019
$000
Anthony BeverleyBoard Chairman7768
Nomination and Remuneration Committee Chairman––
Independent Director8378
David ThomsonIndependent Director83 78
Dean Bracewell
7
Nomination and Remuneration Committee Chairman7–
Independent Director837
Gregory Reidy
8
Non-Executive Director 8341
Humphry Rolleston
9
Independent Director35 78
Susan PetersonAudit and Risk Committee Chair15 13
Independent Director83 78
Total 548441
7. Dean Bracewell was appointed to the Board on 29 November 2019.
8. On 30 June 2017, the management of the Company and its subsidiary was internalised. Following the internalisation, Gregory Reidy became an Independent Contractor to the
Company and during the year ended 31 December 2019, remuneration for his role as an Independent Contractor was $212,500. This was payable for the period from 1 January
to 30 June 2019. On 1 July 2019, he ceased to be an Independent Contractor and, on that date, he was appointed as a Non-Executive Director. Fees payable for this role are set
out in the table above.
9. Humphry Rolleston ceased to be a Director on 3 June 2020.
80
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
OTHER DISCLOSURES
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, experienced
and effective individuals. Packages include a base salary, together with short-term and (potentially) a long-term incentive (LTI) component.
Chief Executive Officer Remuneration
Simon Woodhams’ remuneration as Chief Executive Officer is set out below:
YEAR ENDING
SALARY
$
BENEFITS
10
$
SUBTOTAL
$
PAY FOR PERFORMANCE
TOTAL
REMUNERATION
$
STI
$
LT I
11
$
SUBTOTAL
$
31 December 2019$450,000$31,711$481,711$200,000$39,148$239,148$720,859
31 December 2020$500,000$30,824$530,824$225,000$52,376$277,376$808,200
Simon Woodhams’ participation in PFI’s LTI plan is as follows:
YEAR ENDING
SHARE RIGHTS
GRANTED
(SHARES)
SHARE RIGHTS
VESTED DURING
THE YEAR
(SHARES)
12
SHARE RIGHTS
LAPSED DURING
THE YEAR
(SHARES)
SHARE RIGHTS
OUTSTANDING AT
THE END OF THE
YEAR (SHARES)
31 December 201985,22728,409–56,818
31 December 202073,22452,817–77,225
Employee Remuneration
During the years ended 31 December 2020 and 31 December 2019, the number of employees who received remuneration with a combined total
value exceeding $100,000
13
is set out below:
REMUNERATION RANGE
NUMBER OF EMPLOYEES
20202019
$800,001 – $810,0001–
$720,001 – $730,000–1
$680,001 – $690,0001–
$640,001 – $650,000–1
$330,001 – $340,0001–
$300,001 – $310,000–1
$190,001 – $200,0001–
$180,001 – $190,000–1
$150,001 – $160,000–1
$130,001 – $140,0003–
$110,001 – $120,00021
10. Benefits include KiwiSaver and health insurance.
11. The LTI is based on the fair value of the vested awards recognised in the financial statements.
12. The share rights vested does not include shares vesting as a result of dividend protection.
13. Includes LTI vested during the year based on the fair value of the vested awards recognised in the financial statements
81
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. For each tranche:
§
50% of the share rights are subject to a performance hurdle of the Company’s rolling three year Funds From Operations 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 2020 and 2019, and the share rights outstanding at the end of 31 December 2020 and
31 December 2019 are as follows:
SHARE RIGHTS
GRANTED
(SHARES)
SHARE RIGHTS VESTED
DURING THE YEAR
(SHARES)
14
SHARE RIGHTS
LAPSED DURING
THE YEAR
(SHARES)
SHARE RIGHTS
OUTSTANDING AT THE
END OF THE YEAR
(SHARES)
31 December 2019196,02365,341–130,682
31 December 2020165,279120,434–175,527
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.
Risk Governance
PFI has established a Risk Management Framework to ensure that risks are managed within PFI’s Board-approved risk appetite. The Risk
Management Framework was last reviewed and approved by PFI’s Board in September 2020. The 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 Leadership Team The Senior Leadership Team are responsible for promoting good risk practices within their team.
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.
14. The share rights vested does not include shares vesting as a result of dividend protection.
82
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT 2020
OTHER DISCLOSURES
Key Risks
PFI has a robust risk assessment process. Risk assessments are carried out by the management team at least annually in accordance with PFI’s
Risk Management Framework. A risk assessment includes: identification of material risks; assessment of the consequences and likelihood of the
risk; and development of controls to achieve a level of residual risk that is within PFI’s Board-approved risk appetite.
The risks associated with the COVID-19 pandemic were identified, recorded and closely monitored throughout the year. Management regularly
reviewed these risks and adapted their response to the latest developments. This will continue to be a focus during 2021.
During 2020, PFI hired a dedicated risk manager, and completed a refresh of its risk register. The table below outlines some of our key business
risks, how we manage those risks, and a commentary on these risks for 2020:
RISK DESCRIPTIONHOW WE MANAGE THE RISK2020 COMMENTARY
Economy / market risk:
The risk of adverse changes in the
NZ economic environment, political
environment or the broader investment
market, impacting property values
and income.
We monitor both wider economic conditions
and the industrial property market through
research and relationships with market
participants. Quarterly reporting on market
conditions is provided to the Board.
PFI has carefully monitored the impacts
of the COVID-19 pandemic during 2020,
responded early to address the changing
market conditions, and achieved
resilient results.
Strategic risk:
The risk of failing to execute or adapt PFI’s
strategy (for example, tailoring the
strategy to ensure portfolio optimisation
and minimise concentration risk).
PFI’s strategy is reviewed regularly by the
Board and management team. Quarterly
reporting on strategy implementation is
provided to the Board.
Good progress has been made during 2020
on the implementation of PFI’s strategy.
In particular PFI has:
§
divested the non-core property at
2 Pacific Rise, Mt Wellington;
§
acquired a quality industrial estate
located at 528-558 Rosebank Road in
Avondale, Auckland;
§
secured a second quality industrial estate
located at 670-680 Rosebank Road in
Avondale, Auckland, which settled on
29 January 2021; and
§
marketed the non-core Carlaw Park
property for sale, which was sold in
February 2021.
Health and safety risk:
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.
Continuous improvement of PFI’s Health
& Safety Framework has been a key focus
during 2020. PFI continues to experience a
low level of incidents. Further information
on health and safety can be found in the
Sustainability section of this annual report.
Financial performance risk:
The risk of financial performance not
being managed to expectations.
PFI has a wide suite of controls for this risk,
including a delegations policy, analytical
reviews, forecasting, budgeting, and
proactive management.
PFI took several steps to ensure that this
risk continued to be well-managed in
response to the COVID-19 pandemic.
This included securing additional funding
and making cuts or deferrals of expenditure
where appropriate.
Technology and cybersecurity risk:
The risk of PFI’s systems or data
becoming compromised, for example
due to a cyberattack or an outage.
PFI’s systems are managed by a competent
third party, and protected by a range of
cybersecurity controls.
During 2020, PFI worked with suppliers
to increase the level of cybersecurity for
its systems, and engaged an independent
specialist to review its cybersecurity.
PFI also completed its first climate change risk assessment during 2020. The risks identified through this assessment are embedded in a range
of risks on our risk register, including economy / market risks, emerging regulation risk and physical damage risk. Further information on PFI’s
climate-related risks can be found in the Climate-Related Disclosures section of this annual report (pages 89 – 93).
83
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
ensuring 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 assess PFI’s internal
controls and systems that 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.
PFI does not have an internal audit function. The process it employs for evaluating and continually improving the effectiveness of its risk
management and internal processes can be found in the section entitled Principle Six: Risk Management.
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 2020 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 disposal of relevant interests
in the Company’s financial products by its Directors.
No Director has sought authorisation to use Company information.
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.
84
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
OTHER DISCLOSURES
The following are details of Directors’ general disclosures entered in the Interests Register for the Company during the 12 months ending
31 December 2020. Any entry added by notices given by the Directors during the year ended 31 December 2020 is denoted with a *. Any entry
removed by notices given by the Directors during the year ended 31 December 2020 is denoted with a ~.
DIRECTOR POSITION COMPANY
Anthony BeverleyDirector; Chair of Audit and Risk CommitteeArvida Group Limited
Director; Chair of Audit and Risk CommitteeNgai Tahu Property Limited ~
Dean BracewellDirectorTainui Group Holdings Limited
Executive Board MemberHalberg Foundation
DirectorAra Street Investments Limited
DirectorAir New Zealand 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
DirectorReidy & Co Limited *
DirectorMSR GP Limited (as General Partner of MSR Limited
Partnership) *
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,
Chair of People and Remuneration Committee *
Trustpower Limited
Director, Co-Chair of the BoardOrganic Initiative Limited
Board MemberGlobal Women
MemberNZX Markets Disciplinary Tribunal
DirectorArvida Group Limited *
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 2020.
85
Donations
The Company made a $10,000 donation to the Auckland City Mission’s HomeGround project, which will provide a purpose-built, safe space
to stand against homelessness, hunger and poor health. 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 2020
As at 31 December 2020, the total number of ordinary shares on issue was 501,302,888. 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 2020 are:
SECURITY HOLDER
NO. OF SHARES WHEN
NOTICE WAS FILED
% WHEN
NOTICE WAS FILED
ANZ New Zealand Investments Limited 36,194,7167.257%
Accident Compensation Corporation26,579,2575.329%
Details of Dividends Paid
The following dividends have been paid by the Company in the past two financial years:
DIVIDENDS DATE PAID
CENTS PER
SHARE
TOTAL PAID
2020
$000
TOTAL PAID
2019
$000
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
Q4 2019 final dividend4 March 20202.1510,723
Q1 2020 interim dividend26 May 20201.808,978
Q2 2020 interim dividend22 September 20201.808,997
Q3 2020 interim dividend18 November 20201.859,261
Total dividends per statement of changes in equity 37,959 37,653
NZX Waivers
The Company released its results for the six months ended 30 June 2020 to the NZX on 4 September 2020. In doing so, PFI relied on the class
waiver from Rule 3.5.1 granted by NZX on 3 April 2020.
SHAREHOLDER STATISTICS
SHAREHOLDER SPREAD AS AT 31 JANUARY 2021
ORDINARY SHARES
NUMBER OF
HOLDERS HOLDING
HOLDING
%
Up to 4,999 1,245 3,096,397 0.62%
5,000 - 9,999 1,105 7,942,111 1.58%
10,000 - 49,999 2,362 50,496,802 10.07%
50,000 - 99,999 362 24,345,618 4.86%
100,000 - 499,999 277 54,516,082 10.87%
500,000 and above 89 360,905,878 72.00%
5,440 501,302,888 100.00%
GEOGRAPHICAL SPREAD AS AT 31 JANUARY 2021
ORDINARY SHARES HOLDING
HOLDING
%
Auckland & Northern Region 262,338,859 52.34%
Hamilton & Surrounding Districts 105,930,351 21.13%
Wellington & Central Districts 71,078,803 14.18%
Dunedin & Southland 44,884,534 8.95%
Nelson, Marlborough & Christchurch 14,646,661 2.92%
Overseas 2,423,680 0.48%
Total 501,302,888 100.00%
86
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
OTHER DISCLOSURES
SHAREHOLDER STATISTICS (continued)
20 LARGEST REGISTERED SHAREHOLDERS
AS AT 31 JANUARY 2021
HOLDER HOLDING
HOLDING
%
1Accident Compensation Corporation - NZCSD 30,001,036 5.98%
2Forsyth Barr Custodians Limited 29,936,460 5.97%
3ANZ Wholesale Trans-Tasman Property Securities Fund - NZCSD 22,366,236 4.46%
4FNZ Custodians Limited 20,195,852 4.03%
5BNP Paribas Nominees (NZ) Limited - NZCSD 18,550,351 3.70%
6Custodial Services Limited (A/C 4) 16,534,242 3.30%
7Citibank Nominees (New Zealand) Limited - NZCSD 15,424,476 3.08%
8Custodial Services Limited (A/C 3) 14,493,063 2.89%
9New Zealand Depository Nominee Limited (A/C 1) 14,482,856 2.89%
10Custodial Services Limited (A/C 2) 9,421,169 1.88%
11ANZ Wholesale Property Securities - NZCSD 8,606,803 1.72%
12HSBC Nominees (New Zealand) Limited - NZCSD 8,170,122 1.63%
13Messrs. Wildermoth, Wilson and Young and Ms Wildermoth 7,331,480 1.46%
14Investment Custodial Services Limited (A/C C) 6,987,177 1.39%
15MFL Mutual Fund Limited - NZCSD 6,840,398 1.36%
16JBWere (NZ) Nominees Limited 5,568,849 1.11%
17Mr. Mckee and Ms. Mckee 5,566,373 1.11%
18Custodial Services Limited (A/C 18) 5,173,394 1.03%
19FNZ Custodians Limited 4,820,515 0.96%
20Custodial Services Limited (A/C 1) 4,774,338 0.95%
Shares held by top 20 shareholders 255,245,190 50.92%
Balance of shares 246,057,698 49.08%
Total of issued shares 501,302,888 100.00%
BONDHOLDER STATISTICS
BONDHOLDER SPREAD: PFI010 AS AT 31 JANUARY 2021
BONDS
NUMBER OF
HOLDERS HOLDING
HOLDING
%
5,000 - 9,999 65 343,000 0.34%
10,000 - 49,999 418 8,122,000 8.12%
50,000 - 99,999 51 3,133,000 3.13%
100,000 - 499,999 39 5,623,000 5.62%
500,000 - 999,999 1 920,000 0.92%
1,000,000 and
above
13 81,859,000 81.87%
Total 587 100,000,000 100.00%
BONDHOLDER SPREAD: PFI020 AS AT 31 JANUARY 2021
BONDS
NUMBER OF
HOLDERS HOLDING
HOLDING
%
5,000 - 9,999 40 230,000 0.23%
10,000 - 49,999 216 4,432,000 4.43%
50,000 - 99,999 29 1,663,000 1.66%
100,000 - 499,999 30 4,684,000 4.68%
500,000 - 999,999 5 3,453,000 3.45%
1,000,000 and
above
10 85,538,000 85.55%
Total 330 100,000,000 100.00%
87
BONDHOLDER STATISTICS (continued)
20 LARGEST REGISTERED BONDHOLDERS
AS AT 31 JANUARY 2021
HOLDER
PFI 010
HOLDING
PFI010 %
HOLDING
PFI 020
HOLDING
PFI020 %
HOLDING
Forsyth Barr Custodians Limited 23,705,000 23.71% 19,424,000 19.42%
FNZ Custodians Limited 10,054,000 10.05% 11,252,000 11.25%
Citibank Nominees (New Zealand) Limited - NZCSD–0.00% 10,037,000 10.04%
Custodial Services Limited (A/C 4) 6,849,000 6.85% 10,028,000 10.03%
National Nominees Limited 8,557,000 8.56%–0.00%
Custodial Services Limited (A/C 3) 4,781,000 4.78% 6,933,000 6.93%
Custodial Services Limited (A/C 2) 4,335,000 4.34% 5,633,000 5.63%
NZPT Custodians (Grosvenor) Limited 4,300,000 4.30% 1,300,000 1.30%
HSBC Nominees (New Zealand) Limited - NZCSD 4,075,000 4.08% 3,900,000 3.90%
Generate Kiwisaver Public Trust Nominees Limited 1,589,000 1.59% 4,013,000 4.01%
Tea Custodians Limited Client Property Trust Account 3,392,000 3.39% 3,260,000 3.26%
Custodial Services Limited (A/C 1) 1,910,000 1.91% 2,961,000 2.96%
Custodial Services Limited (A/C 18) 1,983,000 1.98% 2,947,000 2.95%
Investment Custodial Services Limited (A/C C) 2,571,000 2.57% 2,020,000 2.02%
Hobson Wealth Custodians Limited (Resident Cash Account) 2,024,000 2.02% 935,000 0.94%
BNP Paribas Nominees (NZ) Limited - NZCSD–0.00% 1,935,000 1.94%
JBWere (NZ) Nominees Limited 1,904,000 1.90%–0.00%
Custodial Services Limited (A/C 16) 1,049,000 1.05% 1,403,000 1.40%
JML Capital Limited–0.00% 600,000 0.60%
Sterling Holdings Limited–0.00% 500,000 0.50%
Investment Custodial Services Limited (990042052) 350,000 0.35%–0.00%
Custodial Services Limited (A/C 15) 206,000 0.21% 325,000 0.33%
Custodial Services Limited (A/C 23)–0.00% 323,000 0.32%
Custodial Services Limited (A/C 28)–0.00% 312,000 0.31%
Dunedin Diocesan Tourist Board–0.00% 250,000 0.25%
Hobson Wealth Custodians Limited (AIL Cash Account) 233,000 0.23%–0.00%
John Collingwood King and Pravir Atindra Tesiram (King Family A/C) 200,000 0.20%–0.00%
Bonds held by top 20 Bondholders 84,067,000 84.07% 90,291,000 90.29%
Total Remaining Holders Balance 15,933,000 15.93% 9,709,000 9.71%
Total of issued Bonds 100,000,000 100.00% 100,000,000 100.00%
88
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
OTHER DISCLOSURES
CLIMATE-RELATED DISCLOSURES
2020 has been a challenging year globally, and provided an insight to the scale of effort that will be required to respond to climate change.
PFI recognises that we need to proactively manage the risks and opportunities that arise from climate change, just like we manage all other
risks and opportunities facing our business.
This report provides information about the actions that we are taking to identify and manage climate change risks and opportunities. The
following disclosures have been prepared in accordance with the recommendations of the Task force on Climate-related Financial Disclosures
(TCFD) which provides a framework for climate-related financial disclosures across four core elements: governance, strategy, risk management
and metrics and targets.
This is PFI’s first report in line with the TCFD recommended disclosures. We are pleased with the progress that we have made during 2020 to
strengthen our understanding of, and response to, our climate-related risks and opportunities. However, we acknowledge that we have further
work to do, in particular:
§
understanding the resilience of individual assets in PFI’s portfolio to climate change in different climate change transition pathways; and
§
introducing additional metrics and targets to provide a more complete measure of our performance.
We are also cognisant that we are still in the early stages of understanding how these risks will develop over time. We intend to evolve and
expand on our TCFD disclosures as our depth of understanding and management of these risks matures.
We are committed to continue progressing our response to climate change during 2021 and beyond, and to report our progress to our
stakeholders each year.
GOVERNANCE
Describe the Board’s oversight of climate-related risks and opportunities.
PFI’s Board has responsibility for our strategic direction along with oversight of our operations and risk management. PFI’s Board receives
quarterly reporting on sustainability and risk management, which includes PFI’s response to climate change risks and opportunities. During
2021, we intend to strengthen this reporting with the use of metrics and targets.
The PFI Board’s Audit and Risk Committee assists the Board in discharging its responsibilities with respect to risk management. Management’s
first assessment of PFI’s climate-related risks and opportunities in line with TCFD guidance was presented to the Board’s Audit and Risk
Committee in a dedicated session during August 2020 (attended by all directors). We plan to update this assessment and present it to the
Board’s Audit and Risk Committee at least annually.
Describe management’s role in assessing and managing climate-related risks and opportunities.
Under PFI’s Risk Management Framework, the Chief Executive Officer and Chief Finance and Operating Officer are responsible for management
of climate risk, along with all other risks. PFI has a dedicated Sustainability, Risk & Compliance Manager who leads the assessment of climate-
related risks and opportunities, and coordinates our response as part of PFI’s wider ESG programme.
A monthly ESG management meeting has been established that monitors sustainability market trends and regulatory change and makes
decisions on our responses to climate-related risks. This is attended by the Chief Executive Officer and Chief Finance and Operating Officer.
During 2020, the Chief Executive Officer and Chief Finance and Operating Officer oversaw PFI’s first risk assessment in line with the TCFD
recommendations through this forum.
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STRATEGY
Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term.
A climate-related risk and opportunity assessment exercise was undertaken during 2020 with reference to PFI’s Risk Management Framework
and the time horizons below:
HORIZONPERIODDESCRIPTION
Short term1-5 yearsWithin our weighted average lease term
Medium term6-20 yearsThe period within which most buildings will require major capital works
Long termGreater than 20 yearsThe life of a building
This produced a list of 18 possible risks and opportunities across all of the TCFD categories. Most of the risks are expected to materialise in the
medium to long term. However, as our real estate assets are typically long term investments we are taking steps now to ensure that our
organisation is resilient to these future challenges.
A summary of the top five risks is provided below, along with a summary of how PFI is responding to them, and the related opportunities:
RISKS
EXPECTED TIME
HORIZONRISK RESPONSERELATED OPPORTUNITIES
Transition - Policy (regulatory) risk:
The introduction of new regulations,
for example on building materials and
design, disclosure and governance,
land use, and electricity or water use
could lead to increased compliance
risk, and a potential reduction in
profitability.
This is a risk in
the short term
for PFI and is
expected to
remain a risk
into the medium
term.
PFI is closely monitoring climate-
related regulatory change, and is
working with industry bodies to
provide feedback on proposed
regulations where appropriate.
We are also working to ensure that
we are ready to respond to incoming
legislative changes when they arise.
Our Board receives quarterly
reporting on how we are responding
to upcoming regulatory change.
There may be an opportunity for us to
work with tenants and create value,
for example on renewable energy or
water efficiency initiatives.
Transition - Market (property) risk:
With increasing scrutiny of
organisations’ impact on the climate,
we may experience increased tenant
or purchaser demand for sustainable
buildings. In the long term, this could
result in difficulty re-letting buildings,
devaluation of properties, or
increased expenditure to bring
properties up to higher sustainability
standards.
This is a medium
to long term risk
for PFI, but we
are taking steps
in the short term
to prepare for it.
Green buildings have not traditionally
been a focus for industrial properties.
However, as outlined in the
Sustainability section (pages 20-29),
PFI incorporates sustainable design
features in new developments, and
has joined the New Zealand Green
Building Council during 2020 to build
on our sustainable building capability.
While this is a longer term risk,
shifting tenant demand may present
us with near term opportunities to:
§
work with our tenants to help
them meet their climate or
environmental commitments; or
§
create value by developing
green-certified buildings.
We will be further investigating these
opportunities during 2021.
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PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
OTHER DISCLOSURES
RISKS
EXPECTED TIME
HORIZONRISK RESPONSERELATED OPPORTUNITIES
Transition - Market (capital
availability) risk:
We could experience difficulty in
obtaining capital from:
§
Shareholders due to increasing
preference to invest in
demonstrably sustainable
companies; or
§
Funders due to increased scrutiny
over climate risks and their
management.
This is expected
to materialise in
the short term
and remain a
risk through all
time horizons.
PFI sees execution of its ESG
programme as being critical to
managing this risk. PFI has used the
climate-related risk assessment
exercise to ensure that its ESG
programme is set up to address
our material risks and opportunities.
This includes:
§
reducing our greenhouse gas
emissions;
§
improving the sustainable design
of our buildings; and
§
investigating the resilience of
individual assets in our portfolio
to climate-related events.
Transparency will also be important,
so our progress will be disclosed
through PFI’s annual report, and
through CDP (Carbon Disclosure
Project).
Strong ESG performance could
present an opportunity for PFI to
increase our capital availability (for
example, through green financing)
and promote our reputation.
Physical – Acute (damage) risk:
We may experience damage or loss
of access to PFI properties from
climate-related events, such as
storms or flooding.
These risks
are expected
to become
heightened
in the medium
and long term.
We will be undertaking an exercise
during 2021 to investigate which of
PFI’s properties may be most
vulnerable to physical impacts from
climate change. This will help us to
develop a resilience strategy. Due to
the time that it will take to prepare
resilience plans for these physical
climate risks, we will need to start
planning and taking action in the
short term, although our response
may stretch beyond the first five
years.
During 2020, PFI started completing
climate risk assessments as part of
our due diligence checks for new
property purchases. We will continue
to expand on this during 2021.
To ensure that we are well-placed to
respond to a major climate event, we
will continue to retain a strong
balance sheet.
We will also closely manage our
insurance programme which provides
cover in the event of damage from
weather events.
A robust resilience strategy is not
only a risk mitigation approach, but
may deliver longer-term efficiencies
by enabling us to appropriately plan
and deliver changes at the most
effective times.
We also have an opportunity to
embed resilience to climate impacts
(rain, wind, heat) into the design of
new buildings.
91
RISKS
EXPECTED TIME
HORIZONRISK RESPONSERELATED OPPORTUNITIES
Physical – Acute (insurance) risk:
Due to increasing climate-related
claims, insurance for climate events
may become more difficult to obtain
or increasingly expensive.
This is
considered a
medium to long
term risk.
As PFI relies on insurance to
remediate damage to its properties,
changes in insurer preferences will
be carefully monitored. PFI reviews
its insurance strategy annually, and is
working to increase its sophistication
in insurance management to ensure
that we are best placed to address
this risk should it arise.
–
Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial
planning.
Recognising the challenges and opportunities presented by sustainability and climate change, PFI created a new Sustainability, Risk &
Compliance Manager role in 2020. In a team of only 14 people, this new position plays an important role in ensuring that sustainability and
risk management are embodied in the strategic direction of our business.
During 2020, we have worked to ensure that our ESG programme is set up to address our most critical climate risks. Going forward, our ESG
programme will include completing a climate change resilience assessment of individual assets in our portfolio, which will inform a resilience
strategy. This may in turn impact capital expenditure and portfolio decisions made in future years. In addition, in order to reduce our greenhouse
gas emissions, PFI has already committed $2m to reducing the emissions from its refrigerants over the next three years.
Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios,
including a 2°C or lower scenario.
Through our initial qualitative assessment, we have determined that PFI’s high level strategy of investing in quality industrial property remains
robust in either a warming scenario of lower than 2°C, or a more extreme warming scenario. PFI has a diversified portfolio, with a good spread of
geographical locations and tenants in various industries. This reduces the impact of a single event, and the concentration risk from exposure to
a particularly impacted industry. We also already maintain a strong balance sheet which, as demonstrated through the COVID-19 pandemic,
helps us to remain resilient in difficult times. However, it is critical that we remain responsive to climate risks as they evolve (how we will do this
is outlined in the Risk Management section below).
We also need to gain a more in-depth understanding of the potential physical impacts of climate change to individual assets in our portfolio in
different climate-related scenarios, which will commence in 2021. While we don’t expect our high level strategy to change, the findings of this
exercise this could, for example, lead to a shift in our appetite for concentration in certain locations, divestment of selected properties or capital
expenditure to improve building resilience.
RISK MANAGEMENT
Describe the organisation’s processes for identifying and assessing climate-related risks.
Identification and assessment of climate-related risks has been led by PFI’s Sustainability, Risk & Compliance Manager, with contribution
from senior management. Key risks were assessed and prioritised against a risk matrix of consequence and likelihood in line with PFI’s Risk
Management Framework.
In line with TCFD guidance, PFI considered both the risks associated with the transition to a lower carbon economy (such as changes
in regulation) and the risks associated with the physical impacts of climate change (such as damage to buildings). For the 2020 risk
assessment, the physical risk to the portfolio as a whole has been assessed (rather than asset-level assessments), however we plan to
refine this during 2021.
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PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
OTHER DISCLOSURES
Describe the organisation’s processes for managing climate-related risks.
As described in the Governance section, a monthly ESG management meeting attended by the Chief Executive Officer and Chief Finance and
Operating Officer has been established. This structure gives us flexibility to review and adapt our response to climate-related risks over time
as there are new developments and the climate change trajectory becomes clearer.
PFI’s most material risks have been identified based on the likely consequences of those risks materialising, and are set out in the Strategy
section above. Actions being taken to respond to the most material climate-related risks include:
§
completing a study of properties that are most vulnerable to climate impacts;
§
increasing our capabilities in sustainable building design;
§
disclosure to stakeholders on our ESG progress;
§
annual reviews of our insurance strategy; and
§
maintaining a strong balance sheet.
Many of these activities form part of PFI’s ESG framework, which is overseen by the monthly ESG meetings. Quarterly reporting on sustainability
and risk management is provided to the Board.
Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s
overall risk management.
Due to its complexity, PFI completed a standalone climate risk assessment during 2020, adopting methodology from our Risk Management
Framework. The findings were incorporated into PFI’s risk register to provide a single view of risk for PFI. In most cases, climate risks are an
extension of our existing risks (for example, physical damage to buildings), but we are updating our controls for those risks (such as acquisition
due diligence and our insurance programme monitoring) to account for climate impacts. Assessment and management of climate risk is
managed in the same way as our other risks, with oversight by senior management and the Board.
METRICS AND TARGETS
Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and
risk management process.
PFI assesses its impact on the climate by measuring its Scope 1, 2 and 3 greenhouse gas emissions. PFI has expanded the range of Scope 3
emissions categories assessed during 2020.
We also use our CDP (Carbon Disclosure Project) score to understand how our climate performance compares to other corporations globally.
PFI submitted to CDP for the first time during 2020 and achieved a score of C which is in the Awareness band. This is in line with the Oceania
regional average of C.
During 2021, further metrics will be developed in order to monitor our progress on strategic climate-related initiatives such as replacing our
refrigerant gases and assessing the climate resilience of our portfolio.
Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.
Please refer to pages 23-25 of our Sustainability report for details of PFI’s 2020 GHG emissions. We recognise the importance of reducing our
emissions and have committed $2m to emissions reduction initiatives over the next three years. While PFI has a relatively small carbon
footprint, we are conscious that there are reputational and market risks associated with our GHG emissions if we do not take meaningful
steps to decrease them.
Describe the targets used by the organisation to manage climate-related risks and opportunities and performance
against targets.
PFI is targeting an improvement in our CDP score from C to B by 2023. We are also targeting replacement of all HVAC systems currently in our
portfolio and within our operational control that use R22 refrigerant gas by 2023.
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GENERAL DISCLOSURES
DISCLOSURE TITLEGRILOCATION OR REFERENCE
Name of the organisation 102 - 1 Property for Industry Limited
Activities, brands, products and services 102 - 2 https://www.propertyforindustry.co.nz/about-pfi/
Location of headquarters 102 - 3 https://www.propertyforindustry.co.nz/contact-us-investors/
Location of operations 102 - 4 https://www.propertyforindustry.co.nz/investor-centre/portfolio-
summary/
Ownership and legal form 102 - 5 https://www.propertyforindustry.co.nz/about-pfi/
Markets served 102 - 6 New Zealand
Scale of the organisation 102 - 7 https://www.propertyforindustry.co.nz/about-pfi/
Information on employees and other workers 102 - 8 We have a team of 14 permanent staff based in Auckland (7 male
and 7 female). We also have one female temporary fixed term
employee. Staff movements in 2020 included three new hires and
two resignations.
PFI also relies on third-party providers for a number of its activities,
most notably facilities management and development activities.
There are no seasonal variances in these numbers.
Supply chain 102 - 9We have a number of partners and suppliers, most notably our
facilities manager and construction partners.
Significant changes to the organisation and its
supply chain
102 - 10 None
Precautionary principle approach 102 - 11 PFI applies the precautionary approach through its day-to-day
decision-making.
External initiatives 102 - 12 CDP; TCFD
Membership of associations 102 - 13 Property Council New Zealand, New Zealand Green Building Council
Statements from senior decision-maker 102 - 14 Page 4 and page 20
Values, principles, standards, and norms of behaviour 102 - 16 https://www.propertyforindustry.co.nz/about-pfi/governance/
Governance and structure 102 - 18 https://www.propertyforindustry.co.nz/about-pfi/governance/
List of stakeholder groups 102 - 40 Appendix ‘Material topics’, page 29
Collective bargaining agreements 102 - 41 None
Identifying and selecting stakeholders 102 - 42 Appendix ‘Material topics’, page 29
Approach to stakeholder engagement 102 - 43 Appendix ‘Material topics’, page 29
Key topics and concerns raised 102 - 44 Appendix ‘Material topics’, page 29
Entities included in the consolidated financial statements 102 - 45 Page 38
Defining content and topic boundaries 102 - 46 Appendix ‘Material topics’, page 29
List of material topics 102 - 47 Appendix ‘Material topics’, page 29
GRI INDEX
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PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
OTHER DISCLOSURES
DISCLOSURE TITLEGRILOCATION OR REFERENCE
Restatements of information 102 - 48 PFI has restated its carbon footprint for FY19 due to an
overstatement of Scope 1 emissions found when improving
reporting processes for 2020. Total emissions were originally
reported as 219.2 tCO2e. Total emissions have been restated at
130.5 tCO
2
e.
Changes in reporting 102 - 49 None
Reporting period 102 - 50 January 1, 2020 – December 31, 2020
Date of most recent report 102 - 51 February 2020 (2019 Annual Report)
Reporting cycle 102 - 52 Annual
Contact point for questions regarding the report 102 - 53 info@pfi.co.nz
Claims of reporting in accordance with the GRI standards 102 - 54 Appendix, page 29
GRI content index 102 - 55 Pages 94-96
External assurance 102 - 56 Our sustainability related reporting has not been externally assured
for 2020, however we did receive external certification of our carbon
footprint from Ekos. See page 24 for more detail.
TOPIC SPECIFIC DISCLOSURES
DISCLOSURE TITLEGRILOCATION OR REFERENCE
Emissions
Topic boundaries103-1Reducing our impact on the climate, pages 23-25
Management approach103-2Reducing our impact on the climate, pages 23-25; Improving our
climate resilience, page 28; Climate-Related Disclosures,
pages 89-93
Evaluation of management approach103-3Reducing our impact on the climate, pages 23-25; Improving our
climate resilience, page 28; Climate-Related Disclosures,
pages 89-93
GHG emissions scope 1305-1 Reducing our impact on the climate, pages 23-25
GHG emissions scope 2305-2 Reducing our impact on the climate, pages 23-25
GHG emissions scope 3305-3 Reducing our impact on the climate, pages 23-25
Employment
Topic boundaries 103-1Supporting our staff’s safety and wellbeing during the COVID-19
pandemic, page 22
Management approach103-2Supporting our staff’s safety and wellbeing during the COVID-19
pandemic, page 22
Evaluation of management approach103-3Supporting our staff’s safety and wellbeing during the COVID-19
pandemic, page 22
New employee hires and employee turnover 401-1 Three new hires; two resignations
95
DISCLOSURE TITLEGRILOCATION OR REFERENCE
Occupational health & safety
Topic boundaries 103-1 A bolder approach to health and safety with our new framework,
page 22
Management approach103-2A bolder approach to health and safety with our new framework,
page 22
Evaluation of management approach103-3A bolder approach to health and safety with our new framework,
page 22
Types of injury and rates of injury403-2 A bolder approach to health and safety with our new framework,
page 22
Diversity and equal opportunity
Topic boundaries 103-1PFI Diversity Policy
Management approach103-2PFI Diversity Policy
Evaluation of management approach103-3PFI Diversity Policy
Diversity of governance bodies and employees 405-1 Diversity and Inclusion page 77; GRI Index 102-8 Information on
employees and other workers, page 94
Sustainable design
Topic boundaries 103-1 Future-proofing our buildings with sustainable design, pages 26-27
Management approach103-2Addressing our seismic risks, page 26; Future-proofing our buildings
with sustainable design, pages 26-27
Evaluation of management approach103-3
Addressing our seismic risks, page 26; Future-proofing our buildings
with sustainable design, pages 26-27
96
PROPERTY FOR INDUSTRY LIMITED ANNUAL REPORT — 2020
OTHER DISCLOSURES
2021
FEBRUARY
§
2020 Full-year announcement
§
2020 Annual report released
MARCH
§
2020 Final dividend payment
MAY
§
2021 First-quarter announcement
§
Annual meeting
§
2021 First-quarter dividend payment
AUGUST
§
2021 Half-year announcement
§
2021 Interim financial statements
released
SEPTEMBER
§
2021 Half-year dividend payment
NOVEMBER
§
2021 Third-quarter announcement
§
2021 Third-quarter dividend payment
2022
FEBRUARY
§
2021 Full-year announcement
§
2021 Annual report released
MARCH
§
2021 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
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
Level 27, PwC Tower
15 Customs Street West
Private Bag 92162
Auckland 1142
Tel: +64 9 355 8000
Fax: +64 9 355 8001
CORPORATE LEGAL ADVISOR
Chapman Tripp
Level 34, PwC Tower
15 Customs Street West
PO Box 2206
Auckland 1140
Tel: +64 9 357 9000
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
Level 9
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, including the Corporate Governance statement, is dated
22 February 2021 and signed on behalf of the board by:
Anthony Beverley Susan Peterson
Chairman Chair, Audit and Risk Committee
DIRECTORYCALENDAR
insight
creative.co.nz
PFI169
97
www.propertyforindustry.co.nz
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