Argosy Property Stock

Good afternoon, everybody. It's 2:00. And I guess for the benefit of those of us who are online, we should get underway. My name is Jeff Morrison. I'm the current Chair of the Board of Argosy. And on behalf of my fellow directors and the management team, it's my pleasure to welcome you to the 2026 Annual Meeting of Shareholders of Argosy here at the Yacht Squadron. Sorry, this is -- the presentation is very formulaic, but there will be an opportunity for us to engage after -- during question time.

As usual, before we get things underway, there are some housekeeping matters. Firstly, can I remember those shareholders or proxy holders attending in person to have your phones on silent please, Board members included. In the unlikely event of an emergency, please evacuate through the doors behind you. The bathrooms are located through those doors. As in previous years, today's annual meeting is a hybrid meeting. Shareholders who are not attending in person can attend virtually and ask questions and vote through the Computershare online virtual meeting platform, and shareholders can also follow proceedings via the live webcast.

Today's meeting will focus on our recent annual results to 31 March '26, our long-term strategy for growth and progress around our sustainability goals. Before we get to those, there are a few procedural matters we need to run through for our hybrid meeting.

First, for our shareholders participating through the live webcast polling on the 4 resolutions has now opened. If you are eligible to vote at this meeting, you will be able to cast your vote under the vote tab and votes may now be submitted. Votes can be amended up until the time I declare voting closed. Questions can now also be submitted through Computershare's online virtual meeting platform. If you would like to submit a question, the Q&A is always open. So please feel free to submit questions throughout the meeting. These will be addressed at the relevant time. If you experience any technical issues casting your vote or submitting questions, please refer to the instructions provided in the virtual meeting guide that accompanied the Notice of Meeting or type your query into the Q&A tab or you can call Computershare on 09-488-8700.

With those matters explained, I'd like to record the Notice of Meeting was duly given on 22 May. And as there are at least 5 shareholders here today, there is a quorum present. Accordingly, I declare the 2026 Annual Meeting of Argosy Property Limited open.

There is detailed information about the Board in the Annual Report. However, I will briefly reintroduce them to you. To my right is Stuart McLauchlan, representing the South Island. Stuart was appointed to the Board in August 2018, and he is a prominent businessman and company director. He's Chairman of the New Zealand Sports Hall of Fame, Scott Technology. He's Director of Scenic Hotels, and EBOS Group Limited, Dunedin Casinos Limited and several other companies. Stuart is also a past President of the New Zealand Institute of Directors.

Next to Stuart, we have Rachel Winder. Rachel was first appointed to the Board in August 2019. Rachel has been involved in the property sector for over 20 years across a variety of senior roles, including strategy, portfolio management, financial management, development and leadership. Rachel's position as director is up for election, and we'll hear from her later in the meeting.

Next to Rachel, we have Martin Stearne. Martin was first appointed to the Board in 2020. Martin has over 25 years commercial and capital markets experience, primarily in investment banking. Martin currently holds appointments to the NZX NZ RegCo Advisory Panel, the Takeovers Panel, the Investment Committee of the Impact Enterprise Fund. He is a member of INFINZ and IceAngels, and Martin's position as director is also up for election. And again, we'll hear from him during the meeting.

Next to Martin, we have Alex Cutler. Alex was first appointed to the Board in October '24, Alex has extensive global experience, assisting multinational organizations in recognizing the strategic importance of sustainability. Alex is a prominent figure in the property industry and a dedicated sustainability expert. She was previously the CEO and Chief Sustainability Officer at RDT Pacific and the CEO of the New Zealand Green Building Council.

Finally, I've been a director since 2013 and have over 40 years' experience as a property lawyer as well as my role as Chair. I also sit on the Rem and Nom Committee and the Audit and Risk and ESG committees.

Seated next to the Board of Directors is Chief Executive, Peter Mence; and Chief Financial Officer, Dave Fraser. We also have several other members of the management team here today. And I'd like to also welcome our auditors Deloitte, our solicitors Harmos Horton Lusk, our registrar Computershare, and our tax advisers KPMG.

The agenda for this afternoon's meeting will be as follows: as Chair I will deliver a brief review of Argosy's 2020 results and strategy. This will be followed by a much more detailed review of Argosy's performance by Peter. Following that, we'll take questions from shareholders. We will then move to the formal resolutions of the meeting. And finally, we will then attend to any general business. After the meeting has been formally closed, please stay for refreshments where the directors and executives will be available to discuss any queries you still have. Proxies have been received in respect of 440,619,500 shares, and these have been audited by Deloitte. There are 873,970,395 shares on issue.

I'm pleased now to present to you a summary of the company's performance for the year ended 31 March. You will have received the 2026 Annual Report and Financial Statements, either by post or electronically, depending on your preference. The results side. The Board is pleased with the way management and the staff are focused on operational discipline throughout the year, delivering solid outcomes across occupancy, rental growth and leasing activity. Net property income for the period was up 3.3% on the prior year to $120.8 million. The annual revaluation gain was 585 million -- sorry, $58.5 million, 500, that will be nice, primarily driven by modest cap rate firming and market rental growth. This revaluation gain was the main driver for the increase in NTA to $1.60, up from $1.53 last year.

The full year dividend was $0.0665 per share in line with guidance. The Board is very comfortable with the company's capital position and balance sheet strength with debt to total assets at 31 March of 37.2%, comfortably within the target band of 30% to 40%. The sale of 4 Henderson Place, which settled for $40 million in April and 143 Lambton Quay Wellington, which settled for $6 million in May has brought this ratio down to approximately 36% post balance date. Proceeds from these transactions will initially be used to reduce debt and the Board believes the business retains sufficient funding capacity to support new development requirements. Peter will tell us more about the financial performance of the company during his presentation.

Many of you will be familiar with this slide. While the framework remains unchanged. We've updated our vision to resilient buildings for a better future, underpinned by our 3 core pillars: a green resilient and diversified business. Our focus on greening the portfolio remains central with a target of 50% green assets by 2031. During the year, the team completed the development of 224 Neilson Street with both buildings in that development achieving a Green Star Design and Built rating. Building 6 at Mt Richmond also achieved a 6 Star Design rating and is progressing well towards a Built certification. The Board were also pleased to see 224 Neilson Street recognized at the 26 Master Builders Commercial Project Awards receiving a national category award, a gold award and the overall environmental and sustainability award. With green assets now comprising 39.2% of the portfolio, we are well placed to deliver on our 50% target.

In September 25, the government proposed reforms to New Zealand's earthquake-prone building regime, replacing the current newbuilding standard framework with a more targeted system focused on genuine seismic risk with low seismic regions such as Auckland expected to be excluded. These changes are a very positive step for the sector. Peter contributed to this work as a member of the Seismic Review Steering Group and the Board acknowledges his leadership in this area.

Argosy's portfolio remains diversified by sector, location and tenant. We believe this approach will continue to reduce volatility and widen growth opportunities over the long term. Key policy targets include a weighting to industrial of 60% to 70% and a weighting to Auckland of 70% to 80%.

Argosy is well positioned, supported by a strong balance sheet and a high-quality diversified portfolio with a clear focus on sustainability and green assets. The planned progressive increase in industrial weighting through the green development pipeline is expected to enhance the certainty and stability of cash flows and earnings over time.

The Board has reviewed its dividend policy and determined that a funds from operations or FFO based approach provides a more stable and appropriate measure than adjusted funds from operations or AFFO. AFFO can be subject to significant volatility due to movements in maintenance capital, incentive and leasing costs and other items. Adopting an FFO-based framework reduces this variability and supports more consistent outcomes. Under the revised policy, the company is targeting a payout range of 80% to 90% of FFO while remaining committed to ensuring dividends are sustainable over the long term.

Shareholders will be pleased we delivered the dividend in line with guidance of $0.0665 per share for '26. Dividend guidance for '27 is consistent with this at $0.0665 and within the new policy target.

Board and CEO succession. The Board continues to focus on the company's long-term success with succession planning a key strategy priority and well underway. In terms of Board succession, as previously advised, I will step down as Chair at the conclusion of next year's AGM, our ASM at the end of my current 3-year term -- on my present current 3-year term. The board has agreed that Martin Stearne will succeed me as Chairman. Martin, who is standing for reelection today with the board's full endorsement is currently Chair of the Rem and Nom Committee and is leading the CEO succession transition. Rachel, who was appointed in August '29 -- sorry, August '19 is also standing for reelection today with the board's full endorsement. Our CEO, Peter intends to retire by next year's ASM, which allows ample time for a well-managed transition and the Board have commenced a search for his successor.

I'll now hand over to Peter, who will take you through a brief review of the business performance.

Thanks, Jeff. Pleasure to be back with you here today and to present the CEO report. This is the last address, as Jeff has said, that I'll be presenting as Chief Executive to an annual meeting. And it feels way too early to be thanking all the people that I need to thank, and I'm sure I'll get that opportunity later.

We entered 2026 following the Christmas break with a good degree of optimism. However, the global environment has since become somewhat more uncertain, including escalating geopolitical tensions in the Middle East, a resurgence of inflationary pressures and these factors are likely to persist and continue to influence economic conditions in the near term.

Against this backdrop, the portfolio has performed solidly. Property bottom-up fundamentals remain resilient with occupancy and tenant retention holding up particularly well.

In terms of financial performance, rent review outcomes have exceeded our initial expectations, supported in part by tenant's preference to remain in place. During the financial year of '26, Argosy completed 111 rental reviews across $81 million of rental income, achieving annualized rental growth of 3.5%. Tenant retention remained very strong at 95.1%, and this is certainly one of the highest rates of retention during -- that I've seen during my entire time at Argosy. Government tenants to continue to provide income stability representing 31% of rental income.

Looking at the portfolio. These charts highlight our sector, location and core or value-add weightings. It's a good summary of both our current asset allocation and our stock selection strategies. Our portfolio is 55% weighted to industrial as at 31 March. And following the completion of our green value-add development opportunities at Neilson Street and Mt Richmond we will continue to increase towards our target weighting of 60% to 70% over the medium term. We're currently within our desired location weightings with 72% of the portfolio weighted to the Auckland market.

81% of the portfolio was regarded as been core at 31 March. Core properties are those which are well located with strong long-term generic demand and a leasing profile that provides for rental growth of at least CPI with good structural integrity and a minimal capital maintenance requirements. We are continuing to progress the divestment of noncore assets with the property at the corner of Taniwha and Paora Hapi Street and Taupo, that's the warehouse in Taupo, currently under conditional contract along with 99 Khyber Pass. A further 4 properties have been identified as being noncore and with a combined current book value of $129 million.

While there is no urgency, these properties are expected to be divested over the medium term.

At 224 Neilson Street, we successfully delivered both Warehouse A and Warehouse B during the year with practical completion of Warehouse A achieved in October 2025. Warehouse B is complete and fully leased to Basick Transport reflecting continued demand for quality industrial space and well-located assets. We've also concluded an agreement to lease for Warehouse A for a 16-year term commencing in March 2027. Both warehouses achieved a 6 Green Star Design and Built rating, underscoring our commitment to developing high-quality, sustainable industrial assets. The development incorporates a range of features, including low-carbon concrete, rainwater harvesting, Intelligent Building Systems and a rooftop solar array.

As Jeff mentioned, 224 Neilson Street also received industry recognition with awards at the Master Builders Commercial Projects Function, including a national category award, a gold award and the overall Environmental and Sustainability Award.

At Mt Richmond Industrial Estate, we achieved practical completion of the first stage in May 2026, including Building 6, a 5,800 square meter warehouse and office facility delivered for tenant Viatris, a global pharmaceutical distributor. This stage also delivered building platforms for 2 additional construction buildings, both of which have been leased to existing tenants. That's the building platform only has been leased to tenants. These platforms provide holding income while longer-term development plans have progressed. Mt Richmond reflects our continued focus on delivering high-quality, future-ready industrial assets that meet evolving occupier demands. Building 6 has already achieved a 6-star design rating with a certification for a 6 Green Star Built Rating underway.

Turning to revaluations. Jeff has mentioned some of this, the annual revaluations for the year were performed by CBRE, Colliers International and Jones Lang LaSalle. The total unrealized revaluation gain was $58.5 million, not $500 million, thanks, Jeff. Yes, talk about putting my weights up and -- or a 2.7% increase on book value, which compares to an unrealized revaluation gain for the prior year at $72.7 million.

Gains were due to both modest cap rate firming and market rental growth, and there was a $4.4 million gain on the 2 held-for-sale properties those ones, the assets that have been sold deposit paid but have not yet settled at year-end. They since have settled of 4 Henderson Place and 143 Lambton Quay. It was pleasing to see gains across all sectors, with the portfolio under-rented by 9.3%.

Argosy reported net property income of $120.8 million for the year, an increase on the prior period, and that was supported by positive rent review outcomes and income from recently completed developments. Argosy continues to benefit from the establishment of our insurance captive with favorable market conditions and increased capacity, supporting greater stability in premiums and improved coverage terms.

Interest expense was $39.1 million, down on last year with lower interest rates more than offsetting higher average debt levels. Our weighted average cost of debt reduced to 4.6% from 5.1% last year.

Following the revaluation gain outlined earlier, net profit after tax was $127.7 million for the year compared with $125.9 million from last year.

Distributable income and funds from operations. Net distributable income was $60.9 million for the year up from $55.8 million. This is an increase of 9.1%, reflecting solid underlying earnings performance. Net distributable income per share was $0.0705 per share, up from $0.0658 per share last year.

As Jeff has mentioned, the Board has reviewed Argosy's dividend policy and will move next year to a funds from operations or an FFO approach. FFO and financial year '26 was $0.074 per share, compared to $0.0683 per share last year, an increase of 8.3%. The dividend payout ratio for the year was 90% of FFO compared with 97% in the prior period.

Lease expiry profile. The team has worked hard to deliver solid leasing outcomes and what has been a far more challenging operating environment with longer lead times required to close transactions evident through much of the year and still currently. We have completed 32 leasing transactions across 45,335 square meters of space during the year. Lease transactions were, of course, made up with from new leases, 13 of those, renewals, 13 of those and extensions, 6. The lease expiry profile is balanced and with only 5.3% by income of leases due to expire in financial year '27. The largest expiry in FY '27 is at 17 Mayo Road, and I'm pleased to advise that we're already in advanced discussions on releasing that building.

The largest expiry in FY '28 is actually a break clause for general distributors at Favona Road representing 7.3% of income. The lease term is for 10 years ending in August 2034, but exercise of the break -- and exercise of the break clause is considered unlikely, because it's a rolling period that expiry has already moved to FY '29.

The new lease at 224 Neilson Street will reduce the vacancy and will increase the weighted average lease term and balance that expiry profile still further.

As economic conditions improve, it is expected that the imbalance between new supply and net absorption or demand in the industrial space will abate, reducing vacancy and improving rents. We retain some underrenting in the sector.

Looking at office space, many organizations have now settled into hybrid models and office attendance does vary between cities alongside a general decline in remote working. Government sector actual attendance still lags the average of 3 days per week. The building environment is increasingly in focus and are part of the sustainability initiatives, end-of-trip facilities are becoming more important. Many research houses have now projected that the demand for Green Buildings in both the office and the industrial sectors will exceed supply in coming years.

Looking at retail, Argosy's principal retail exposure is limited to large-format retail, and this is predominantly for us at the Albany Mega Center, we've continued to enjoy high occupancy and solid rental growth following a current project to re-merchandise the center.

Turning to the outlook. Since the interim result, global developments have increased market uncertainty and the duration for current conditions and the potential for further escalation still difficult to predict. While we have not yet observed any direct impact on the business to date, ongoing volatility may continue to influence customer sentiment and inflation expectations. This could negatively impact our tenants. We do acknowledge the possibility that some tenants may find conditions difficult and we will continue to monitor arrears and leasing very closely.

Against this backdrop, leasing inquiries have remained encouragingly strong. Argosy remains well positioned, supported by a strong balance sheet and a high-quality diversified portfolio with a clear focus on sustainability and on green assets. The management team remains focused on progressing leasing activity, addressing vacancy and near-term expiries, maintaining strong tenant retention across the portfolio.

In closing, I'd like to thank Jeff as Chair, the rest of the Board and the fantastic team that make up the Argosy staff family for their dedication and commitment. Thank you, Jeff.

As Peter mentioned, this is expected to be the last meeting where Peter will present as CEO. Peter has been with the company for 32 years and has been CEO since 2009. Over the years, Peter has been instrumental in repositioning the portfolio, improving quality and earnings resilience. He's been a strong advocate of Argosy's investment in sustainability and Green Buildings in particular.

As noted earlier, 39% of portfolio assets by value are now rated as green. Thanks to Peter, we are well on track to reach our 50% Green Buildings by 2031. Peter is also instrumental in pioneering green bond financing in the New Zealand market, Argosy's first green bond in 2019 was the first in the sector and well received. Peter is very highly regarded by his peers. We noted earlier, his recent involvement as a listed Sector representative of the Seismic Review Steering Group. Peter is a past lecturer in Advanced Property Management at the Auckland University, past President of the Property Council. In 2013, Peter was honored with the Stuart McIntosh Award in recognition of his contribution to the University. In '21, Peter was honored as the Property Council in New Zealand Members' Laureate, a lifetime membership awarded once a year to the industry's most respected leaders. In 23, Peter received the Supreme Award from the Property Institute.

Perhaps even more importantly, Peter has built a strong values-based culture at Argosy with a result that the company has a very low staff turnover. He's extremely empathic -- he has an extremely empathetic approach to leadership, believing that positive employee well-being creates a better environment to deliver on corporate goals and strategy.

On behalf of the Board and shareholders, I'd like to congratulate Peter on his career and to wish him very well in his retirement and thank him very much for his enormous contribution to the company. Thank you, Peter.

I will now open the meeting for questions about the company's performance generally. Other issues can be addressed as general business later in the meeting. I would like to remind you that only shareholders, proxy holders or shareholder company representatives have a right to speak. In addressing the chair with questions, would you please clearly state your name and advise whether you are a shareholder or a proxy holder or a shareholder company representative. If you have a question, there are people with mics in the aisles, please use those so we can all hear your question. Do I have any questions from the floor or online? As there are no questions at this time, we will now -- sorry, Alicia, I'm just checking with you.

Yes, we have one question online. Actually, 2 questions from 1 person. This is shareholder Roger Clarke. He -- his first question is, we've had 5 years without a dividend increase despite 5 years of inflation and rental growth. When might we expect a dividend increase?

That's a good question and well foreshadowed as I understand it, around the country. Obviously, we've also had 5 years of increasing interest rates for a big part of that changes in the tax regime and some vacancy issues. But I don't know, Peter or Dave, do you want to add anything to that?

Yes. Am I on? Sorry, I got to sit down. Yes. I mean that interest comments are quite relevant. You go back 5 years and our floating rate was 0.25% of it and it raced up to 5.5% as everyone knows quite quickly. So obviously, we had some hedging, but our weighted average cost of debt went from 3.6% to 5.6%. So when you've got $800 million worth of debt, that's $16 million you've got to absorb. On top of that, we were getting deductions for building depreciation, that's $3 million, which was taken out. And even though we've got investment boost back it doesn't really recover all the loss from the depreciation on buildings. Rates in Wellington is another hit. They've gone up by $2 million in the last couple of years. And of course, our buildings in Wellington are gross leases. So that's a direct hit to our bottom line. And then finally, insurance, insurance went up by $4 million in that same period. So we've had a whole bunch of negative issues that we had to deal with. So we had sure had some rental growth, but we've had a lot of cost increases, which we had to absorb. Fortunately, a lot of them are going the other way. So we're really hopeful that we can get things moving north again sometime soon.

And the second question is, have you considered a share buyback with the shares trading at such a deep discount to NTA?

Yes. Obviously, the current discount -- the share price discount to NTA is a prominent feature. And we have frequent discussions at Board level about the potential to redeploy capital in buying back shares. But as with all deployments of capital, it depends on availability and the counterfactuals in terms of other investment opportunities or requirements. So yes, it's certainly something we keep under constant review. Peter or Dave, would you like to add anything?

Yes. I think buybacks do look quite attractive at the moment. There's a couple of points to make. One is execution. A couple of property companies tried to do a buyback 3, 4 years ago, a target of 44 million shares and managed to only buy back 4. So just because you want to do a buyback, it's not necessarily going to be successful. The other thing, too, is the earnings -- accretive earnings. We're in a position now where our balance sheet, we've got 37% gearing. So to buy back shares, we kind of got to sell assets and the yield on our assets that we're trying to sell is about 6.7%. So you sell assets at 6.7%, you buy back shares. The accretion is very modest, something like $0.0001. So -- and okay, that's okay. It's accretive, but you've also got to look at other opportunities. So for example, Mt Richmond, we've made $25 million on that asset in the last 4 years. You're going to throw away all those capital gains if you don't go down that track. So it is an option, but there are other options as well.

Thank you. Thanks, Dave. The much more fulsome explanations. Appreciate you being there.

Okay. The resolutions for consideration today. These may only be voted on by shareholders, either in person or virtually or by proxy and proxy holders and shareholder company representatives present. As noted earlier, I've been provided with a record of the valid proxies received. Proxies have been received in respect of 440,619,500 shares, and these have been audited by Deloitte. There are 873,970,395 shares on issue. As I said, this gets a bit formulaic.

Resolution 1 proposes that Martin Stearne be elected as a Director. Martin was appointed by the Board in March 2020 and being eligible offers himself for election. The Board has determined that Martin if elected, will be an independent director. And as you know, the Board has determined that should he be reelected, he will succeed me as Chair. I will now ask Martin to say a few words. Martin?

Thank you, Jeff, and thank you, everyone, for attending the meeting today, both here and online. I am Martin Stearne, been on the Board for 6 years and seeking another 3-year term. My background is in investment banking, particularly equity capital markets. So that's listed companies on the stock exchange. My current roles, I'm a senior adviser at Montarne, a member of the Takeovers Panel and I've recently been appointed the Chair of Mercer NZ Residential Property Fund. At Argosy in addition to the Board role, I'm on the Audit and Risk Committee. And as Jeff mentioned, chairing now the Rem and Noms Committee, so involved with the appointment of the new CEO, alongside the rest of the Board. I really enjoy my role at Argosy. I have the capacity for the role and I believe that my skills are complementary to the rest of the Board overall. A vote for me today, and I suppose Rachel also would ensure a level of Board continuity as we approach Pete's end of his tenure here with 1 year to go and provide continuity into the onboarding of a new CEO. Thanks very much in advance for your support today.

Are there any questions on this resolution from the room or online, please.

Martin, do you think your knowledge about financial derivatives would be helpful for this company? For example, earlier on, it was mentioned geopolitical uncertainty and so on. So do you think, for example, a hedge against downturn, do you think something like that is helpful or maybe you know Black-Scholes formula. And then I'm not too sure whether those things can bring constrained optimization to this company. I mean, that it doesn't look like it's part of the meeting.

Sure. Look, I don't have a background in sort of derivative products, financial and engineering, that sort of thing. I suppose those economic elements come under the guidance of the Audit and Risk Committee. There, we do look at things like interest rate hedging, the things we can control. Beyond those financials, really, there's no other avenues we see for hedging on insurance. But perhaps I'll ask Stuart as Chair of the Committee if there's anything else he'd want to add?

Nope. Nothing to add.

Okay. So there are no further questions. I now put to vote on the resolution that Martin Stearne is elected as a Director of the company. Please mark your voting papers or select your voting option on the screen. Pausing momentarily for people the opportunity to do that, should they wish to.

[Voting]

Okay. Thank you. I now move to the next resolution. Resolution 2 proposes that Rachel Winder be elected as a director. Rachel was appointed by the Board in 2019 and being eligible offers herself for election. The Board has determined that Rachel if elected, will be an independent director. I'll now ask Rachel to say a few words.

Thank you, Jeff. Hello, and good to see you all again today. Thank you for being here. It is a privilege to be standing for reelection, and I have had the opportunity and enjoyment of contributing to Argosy for nearly 7 years and I've greatly enjoyed that. I remain excited for the opportunities ahead for the company. For those who may not know my about ground, just a quick one, my property career started in Sydney in the '90s, and I've built more than 25 years' experience across the property and the infrastructure sectors. My experience spans property development, portfolio and investment strategy, financial management and organizational transformation across a range of leading organizations in construction, telecommunications, and the financial services sector. I hold a Masters of Business Administration from the University of Otago and a Bachelor of Property from Auckland Uni. I'm also a member of Property Council of New Zealand in the New Zealand Institute of Directors. Outside of Argosy, I currently serve as Chair of Te Atiawa Management Holdings, which is the commercial and investment arm of Te Atiawa Iwi. I'm also a Director of Hamilton Airport and Auckland Thoroughbred. These roles continue to broaden my experience in governance, investment stewardship, infrastructure and long-term value creation, which I bring to my role in the Argosy Board. Thank you for your continued support and for those of you that already voted. I look forward to continuing to contribute to Argosy's success alongside my fellow directors and thank Peter, in particular, and Dave as well from management. Thank you.

Thank you, Rachel. Are there any questions on this resolution from the floor or online? No. Okay. I now put to vote the resolution that Rachel is elected as a Director of the company. Please mark your voting papers or select your voting option on the screen.

[Voting]

Thank you. We'll now move to the next resolution. Resolution 3 seeks to revise the directors' remuneration pool following the reduction in board size from 6 to 5 directors. While the overall pool will decrease, the Board is proposing modest increases to individual director fees.

Is there any discussion on this resolution? Okay, if not, please mark your voting papers or select your voting option and I'll pause momentarily for you to do that.

[Voting]

Okay. Resolution 4 seeks to authorize the Board to fix the auditor's fees and expenses.

Is there any discussion on this resolution from the room or online? Okay. Please mark your voting papers or select your voting options.

[Voting]

You've done that, I'll now move on. As this is the final resolution, in a minute, I will close voting. Please ensure that you've cast a vote on all resolutions. The votes will then be counted by Computershare who will now begin collecting the voting papers from within the room. I think we can allow that to happen simultaneously. That completes voting on all resolutions. Online voting will now be closed and Computershare will complete collection of the votes and the box is being circulated. The votes collected from the room and online will be added to the proxies already received and the results will be compiled by Computershare, our registrar and then scrutinized by the auditor. The results once available, will be published on the Argosy website and provided to the NZX.

I now move on to general business of the meeting and open the floor for questions or comments. Again, I ask that in addressing the chair with questions, would you please clearly state your name and advise with you are a shareholder, proxy holder or shareholder company representatives. For those shareholders online, if you wish to ask a question, select the question icon button on your computer, tablet or mobile phone and then type and submit your question. The question will then be sent to the Board to answer. As noted at the beginning of this meeting, we will try to get as many questions as possible, but not all questions may be able to be answered. In this case, questions will be followed up by e-mail after the meeting. I would like to remind you that only shareholders, proxy holders or shareholder company representatives have a right to speak on questions. Do I now have any questions?

Okay. There being no further questions, that completes the formal business of the meeting. Thank you, everyone, for your attendance and participation this afternoon. I formally declare the meeting closed and invite you to join us for refreshments. Thank you.

Thank you for standing by, and welcome to the Argosy Property Limited FY '26 Annual Results Webcast.

[Operator Instructions]

I would now like to hand the conference over to Mr. Peter Mence, CEO. Please go ahead.

Thank you. Good morning, and thanks for joining us for the annual results presentation. It's fair to say that the year has not been without its challenges. We came back from a Christmas break, reasonably positive, and then we ended up with a war and Iran and the return of nonproductive imported inflation and the effects of this are going to be with us for some time. The portfolio has actually performed reasonably well. What we're seeing though in the market is that conversion rates have pushed out by over a month. Uncertainty does reign across the leasing market. And the flip of that is that the retention rate is up to a decade-long high because people are more likely to stay in the premise they're in.

The green part of the portfolio is performing really well. We do expect to see continued growth in demand, particularly in the industrial space. And the surprise performer at the present in terms of inquiry levels is really the office area. We're getting relatively better inquiry there. Industrially, no surprise, relatively less so. And with retail, large-format retail, principally for us, that's Albany. It's very much a site-specific issue. The rich getting richer, the better location is doing better. And it really is, in a lot of ways, dependent on the base from which each of those sectors have started.

When we look at the results, the rent reviews have actually been a little bit better than we had expected and projected. Some of that has to do with tenants wanting to stay put. Net property income overall has been up 3.3%. The revaluation gain was a welcome positive piece of news. And all of the valuers did mention the conflict in Iran, but they haven't qualified the valuations accordingly. So what we're seeing is rental growth is surprising on the upside in a couple of locations, particularly the Albany Mega Centre, a little bit of cap rate firming and overall, a fairly tidy result for the year.

Turning to the portfolio highlights. The -- obviously, the vacancy rate is a bit higher than we would have liked. That is going to change significantly when we get this Neilson Street lease through, which I'll talk about shortly. And in a lot of ways, that tenant retention rate is a comfortable payback for what has been a reasonably quiet leasing market. Overall, the data is still looking reasonably secure. Looking at the revaluations. The -- we're still seeing reasonably good investment demand for domestic -- from domestic buyers. If you're talking internationally, far less so, they're far more concerned about geopolitical events and so on.

Domestic buyers surprisingly firm, noting that there is some reasonable degree of appetite for a level of risk. And so it's not only the vanilla assets that we're seeing interest and across the market. We've completed some sales during the year. Obviously, the Henderson Place sale was really positive. 143 Lambton Quay, nice to have the plug and the bar, if I guess, but that one sold a little under book, but not a lot of money when you consider that it was effectively a redevelopment site, and the end value was much higher. So a proportion of in value wasn't as much as it looked. And since then we've got interest, in fact, under a conditional agreement for the warehouse in Taupo, again, well over book value. So it's kind of illustrating that there is a level of risk appetite and domestic buyers remain reasonably active.

And we look at what's happening in the development space. Development activity going forward is likely to be minimal, really. We're expecting cost increases in the construction sector of 10% to 15% based on the oil price. And that's a double whammy, one, because the construction industry is quite a big user of oil products with plastics and so on. And then, of course, there is the transport and delivery impact of the fuel cost itself. So there is some pressure in that space, and of course, we're looking at a situation where economically, it could be quite challenging and discretionary spend is already very constrained.

Turning to 224 Neilson Street on the really good side in the building awards last week, we picked up in the industrial sector, gold and best in category for this building, and took out the overall sustainability awards. So that was really positive. The -- we do have a conditional agreement to lease out at the moment. That agreement is with the tenant for signing. We were hoping to have it back by now. It hasn't appeared yet. Feeling fairly positive about it. That's not our only tenant. We do have 2 others who are already at an advanced stage of negotiations.

So sorry, we can't deliver a confirmed deal, but it's looking fairly close. 8-14 Mt Richmond Drive, not a lot to talk about in development that actually achieved all its targets. We have a very happy tenant with position with the premises, everything has gone very, very well. And the 6 Green Star rating has been confirmed on that asset.

So I'll move on to get Dave to talk about the financials.

Thanks, Peter, and hello, everyone. So the first slide from me is the gross property income waterfall. Gross profit income was $137.5 million compared to $132.7 million last year, up by 3.6%. Rent reviews contributed strongly to the increase. There were 111 reviews in the period on existing rent of $81 million, 72% were fixed with an annualized increase of 3.1%. 25% were market with an annualized increase of 4.8% and 3% were CPI with an annualized increase of 2.8%. The amount being reviewed in FY '27 is even higher at $109 million with 60% of those fixed.

There was a solid contribution too from the acquisition of 291 East Tamaki Road in the completed and leased Warehouse B development at 224 Neilson Street. Offsetting this somewhat was the lost income from the sale of 8 Forge Way in March 2025. So on to the next slide, net profit for the year. Net property income was up by 3.3% on the prior period to $120.8 million. Net property expenses were up by $900,000 as nonrecoverable rates increases in Wellington and OpEx on vacancy more than offset insurance savings. Our insurance capital has been a great initiative, allowing us to market directly to reinsurers, and there's a lot more information on this in our sustainability report, which was issued today.

Expenses were flat. Management expense to NPI improved to 9.4% from 9.8% last year, and the management expense ratio was 50 basis points, down from 56 basis points last year. Net interest expense was $2.3 million, down on last year. The rate savings are more than compensated for higher average debt this year. So Peter has covered off the revaluation gain, which included a $4.4 million gain on the 2 held-for-sale properties 4 Henderson Place and 143 Lambton Quay in Wellington. We'll talk about tax on the next slide. Net profit after tax was $127.7 million compared to $125.9 million last year.

The next slide from me is net distributable income. After the usual fair value adjustments, gross distributable income was $70.4 million, up by 9.8% on the prior year. Current tax expense was $9.5 million compared to $8.3 million last year. This was mainly due to higher taxable income. We did receive an investment boost tax benefit this year of $1.6 million related to the completion of Warehouse A at Neilson Street, offsetting this was lower deductions on development leasing incentives, lower depreciation and lower deductions for fees and maintenance and fit out disposals.

On a per share basis, net distributable income was $0.0705 per share compared to $0.0658 per share last year, up by 7.1%. The next slide covers adjusted funds from operations or FO. FO adjustments are reasonably consistent with last year. Amortization is up due to the write-off of incentives and leasing costs from a terminated lease in the earlier half of this year. Maintenance expense is up by $1.4 million on last year, mainly due to more tenant fit-outs and HVAC replacement at Favona Road. So FO was $59.1 million compared to $54.6 million last year, an increase of 8.3%.

On a per share basis, FO was $0.0685 per share compared to $0.0643 per share last year. Our dividend payout ratio was 97% of AFO and 90% of FFO. The next slide covers the movement in investment property. The value of investment properties increased by $94 million over the year. Again, we've talked about the revaluation gain. We acquired 291 East Tamaki Road during the second half of the year and divested 2 assets, as I mentioned, capital spending was mainly on Mt Richmond and the completion of 224 Neilson Street.

So the portfolio after deducting the right-of-use asset in respect of 39 Market Place, was valued at $2.2 billion at 31 March. The next slide looks at debt to total assets. So the balance sheet is in pretty good shape. Debt to total assets was 37.2% at 31 March, but this has since fallen to just over 36% following the settlement of held-for-sale assets in April and May. We have another noncore property and the conditional contract currently. As Peter mentioned, that's the property on the corner of Taniwha and Paora Hapi Street and Taupo, and that probably is expected to settle in October this year.

On top of the Taupo property, there are 3 of the 5 properties regarded as noncore, with a combined book value of $129 million, which we expect to divest over the medium term. Next slide covers interest rate management. And great to see rates continue to fall over the period. Our weighted average cost of debt was 4.6% at 31 March compared to 5.1% in the prior year. Interest cover ratio has also improved to 2.7x from 2.5x last year and the bank covenant is 2x. The level of fixed rate capital was 74% compared to 57% at the half year, and 63% last year. So we've added $265 million in swaps since September, and we continue to add cover as appropriate to stay within policy. There's a lot more information on our hedging profile in the appendix.

Next slide looks at our debt profile. We refinanced our bank debt twice in FY '26, pushing out tenor to 3.1 years and introducing a new tranche to pay back ARG010 bondholders. Bank margins remain very competitive, as you'll see from the appendix. Our second green bond matures in October this year, and this will be refinanced with either bank debt or a new bond depending on circumstances at the time. And a final slide from me is on dividends. We announced this morning a fourth quarter dividend of $0.016625 per share, bringing the full year dividend to $0.0665 per share in line with guidance. As noted previously, the balance sheet is in good shape, with further cash to come from divestments.

As such, the DRP has been suspended for this dividend. The Board has looked at our dividend policy as they do annually. It's very clear that FO is a much more volatile basis for dividends than a commonly used alternative funds from operations or FFO for short. As such, the Board has changed the policy to maintain dividends between 80% to 95% of FFO, and the Board is fully committed to paying sustainable dividends. Given current market uncertainty, guidance for FY '27 is unchanged at $0.0665 per share within our target -- new target policy range.

So I'll now pass you over to Peter for a leasing update.

Thanks, Dave. Leasing has obviously been challenging, particularly since Christmas working through the beginning part of the year was dominated by lack of activity, very low inquiry rates started to pick up just before the end of the year. And then, of course, we've been affected by geopolitical events since then. Overall, though, commercial offices have surprised a little on the upside. We're seeing pretty good inquiry through there. And whilst the time conversion is taking a while, has certainly pushed out, we're not getting any pushback on rental rates and reasonably positive in terms of how that's looking.

Industrial by contrast, activity is there. It does remain slow. Rentals have remained resilient. So we're not getting any pushback with any of the main lease negotiations we've got for these new high-quality 6-star buildings. And they've still got face rents at $245 a square meter for the Warehouse, $360 for the office and around $150 for the Breezeway depending on the immunity in there. Incentive rates, though, have pushed slightly, and we're looking at incentive rates around that 12%-ish type area depending on the tenant and the use. So industrially, we do expect that, that is going to remain reasonably slow over the next 12 months. And as a consequence, we probably won't be pushing development buttons, particularly not until we've got leases in place. As I mentioned earlier, construction costs are likely to increase 10% to 15%. And so we'll see some constrained activity in that space.

Looking at retail, for us, as I mentioned, the story is very much about the Albany Mega Centre, and we have some very good inquiry over there continuing. Predominantly from international rather than domestic tenants. Rentals, certainly for Albany Mega Centre are illustrating some upside. Incentives are minimal, but certainly unchanged in that space. But we do look at that center as having some short-term potential for rental lift and that's being one of the strongest performers in the revaluation round as we start to see some of that come through. We look at the lease expiry profile, let's assume that I do get this agreement to lease through for Neilson Street, then the occupancy by rental improves to 97.2% and the weighted average lease term pushes out to around 5.3%.

So that's an improvement from what we were looking at, at year-end by a reasonable margin just with one significant lease. The largest expiry we've got for the year ahead is the warehouse and 17 Mayo Road. Now we do know that they will be vacating that building. And we are already in advanced negotiations with a very good quality tenant domestically based who will take that over, we believe. So that one's looking okay. And the expiry for the March '28 year that is actually a break clause and the Favona Road general distributors lease. And we don't believe and they have conceded that they need a miracle to be able to enact that. So we do expect that, that one will remain. It's around 9%. So that brings your total expiry back down to around that favored 10%. Assume we do get that lease at Neilson Street, this chart does change significantly with obviously a long lease pushing the expiries out.

Across the sectors. I've covered a lot of this, so I'll try not to repeat myself too much. But in the industrial sector, we are looking at a bit of an oversupply, and we expect that, that will take a year or 2 to absorb. The big change there is the sustainability and the big gap between the current market stock and tenant demand for green buildings. So we are seeing some really good inquiry levels for 5- and 6-star green buildings. And I think the statistics would benefit if we could actually draw a line between the two and look at them independently.

In the commercial office space, we've got really good inquiry continuing in the Wellington office market. That is principally from a commercial business rather than from central government. But not exclusively interestingly, and it's kind of hard to square that with what we're reading in the newspaper at the moment. There is a possibility that Wellington office has been over discounted accordingly. The large format retail, retail in general, we would still expect to see struggle. And the retailers, we've got on the ground floor of the Citibank building would be an illustration of that. So we expect that discretionary spend will be under a lot of pressure, and particularly so in Auckland and Wellington.

We're obviously aware that increase in interest rates has a greater effect in the cities. In terms of where the number of big mortgages are. And the reality is that many of those areas have not really recovered from the COVID lockdown in the Auckland market. Looking at retail for us, it's very much a case of the rich getting richer, and that's a locational gravity story. The sector is slimmer than it has been. We're seeing some good product. And we need to understand that, that is coming from a relatively low base. Sustainability remains a key focus of tenants, and it's really only the retail sector where we don't have strong demand for specifically green space. It's very interesting when you run the surveys through top of the list is usually energy conservation. But when you go through and ask the actual occupiers, i.e., the staff, their favored benefit of a green building at the end of trip facilities and the air conditioning quality. So it might be that there's some change coming through there.

Turning to the outlook. Obviously, we're expecting some continued uncertainty. And even if the Strait of Hormuz was opened today, which is clearly unlikely, there's likely to be a gap in our view of at least 12 months, probably longer before we see any form of equilibrium returning to New Zealand market. We do expect, therefore, there will be little development activity. The sector of stagflation is very real. Fuel costs, interest rates are not positive for the market, and we do expect to see some flow-through from that. So the reality is it's prepared for the worst and hope for the best. The portfolio is extremely well positioned. It is nicely resilient. We've got a terrific tenant base and retention rates are expected to remain very strong. So that's it from me. We're happy to take any questions.

[Operator Instructions]

Your first question today comes from Bianca Murphy with UBS.

Firstly, just on your new DPS policy. So in terms of moving to FFO away from FO. Could you provide some color on maintenance CapEx going forward? Are you expecting that to lift significantly driving part of that decision?

I don't think it's driving that decision, and we'll continue to provide the maintenance CapEx numbers. So the FFO will be available. You will be able to determine that. It's just the measure by which we're determining the dividend has changed. Dave might have further comments.

Yes. I mean it's no secret really that -- we moved to an FO 85% to 100% of FO 4 years ago, and it's no secret, we've really struggled with the volatility of the FO adjustments. I mean, all the below-the-line adjustments for FO are very volatile. And so we've struggled with it a bit. And when we look back to the last 10 years and compared FFO and FO. It's quite clear that FFO is more stable. So the Board is quite keen to move to something. It's a little bit more stable. So that's why we've moved.

And so in terms of your likely maintenance CapEx, are you expecting that to be broadly flat?

CapEx? Yes.

Okay. All right. And then for FY '27, could you just provide a little bit of guidance around where you expect to be in that 80% to 95% FFO rate.

We haven't provided that guidance. But we're going to be safely in the upper middle is how I describe it.

And then with the portfolio 9% on the rented. How much of that do you expect to capture over the next 2 to 3 years under current market conditions?

I expect we'll get some of it, not all of it. We're going to have to be careful about affordability ratios, how that fits together. There will be an opportunity to renegotiate lease terms as a result of that. But we're going to have to watch that very carefully, Bianca, to make sure that we don't over gild the lily on the way through.

But a fair chunk of that is contained with solid reviews. So it will be interesting to see what happens going ahead. We had a presentation from Zoltan Moricz from CBRE just yesterday. He's not expecting to see any rental declines. But the market remains really uncertain. So I wouldn't want to be too dogmatic on how it fits together.

Your next question comes from Vishal Bhula with Jarden.

Just quickly on the guidance. What sort of level of investment have you kind of assumed for '27? You did say that you've got 1.6 the Neilson Street on Warehouse. So I was just curious how much you're expecting to get from Mt Richmond?

We expect the deduction to be just under $8 million. So tax effective, that's about $2.2 million.

That's awesome. And then just could I get an update on 101 Carlton Gore Road. It just seems like the NLA went up a little bit, but the vacancy they're almost doubled.

Yes, that was the -- you might recall, we had a lease over the computer part of the floor that has rolled out. So that's effectively now vacant.

Perfect. And then just last one on me. In terms of the high-level Neilson lease, you did talk to the phase rent was being about $245, which is kind of in line with that basic lease was. But the rental terms on that agreement seemed pretty good, 3.5% of the lots market reviews. So is that based kind of where you wanted it to get? Or were you kind of expecting higher, but giving up to get better terms?

I would have liked -- I would always like better, of course, but the rental rate, the incentive percentage, they all look fine. It's the gap between now and start that I'm working on. So it's roughly where we would expect it to be, but it's not as strong as we would really have liked.

Your next question comes from Nick Mar with Macquarie.

Just in terms of divestments, have you got anything else on the market at the moment, obviously, outside of the initial contract you've got on Taupo.

So we've got some interest in the 3 little Wellington industrials, but no real interest in the commercial office buildings around that Nugent Street area. And we don't expect that for a while. So we've got some work to do there in terms of getting some longer-term leases, and they're not sale at any cost type scenario. But the ones in Wellington, like a reasonably small and a reasonably tightly held market. So I would expect those to move reasonably soon.

Just remind me, have the sort of noncore assets changed between the last sort of results in here. So I don't think you're actively looking to get out of the Wellington industrial.

Yes. No. The Wellington industrials aren't regarded as noncore, just as there's been considerable interest in them. So it's been a no change from the half year in terms of what we've designated as noncore. But they don't include the Wellington industrials.

Right. So anything noncore that is interesting?

The noncore that there's interest in. Not that's what I call, qualified interest. No.

And then just on Neilson Street. Is it the same discussion as you previously talked about with the July commencement on it? Or is it something different?

No, it's a different tenant and the commencement date is 1 March of next year, whereas previously, we were looking at a July this year start. So the commencement date has been pushed out from July to March.

Right. And you guys sort of happy with wearing 1.5 years of vacancy in that?

Not happy about it.

We're definitely not happy about it. No. It remains a bone of contention, so we may get some improvement out of it, but that's not worth sitting at the moment.

Yes. And there's other 2 tenants you're in discussion with sort of in those sooner than that?

Yes. Yes. One of those is quite a bit earlier. So it's a case of making sure we get the best deal.

Okay. And then just on the dividend policy change based on your sort of historic analysis and view and on a go-forward basis, what do you see the differential between FFO and AFFO payout ratio being. Obviously, you as with a 5 percentage point difference between...

We looked at it based on our 10-year plan, and we looked at what our projected dividend -- what the projected midpoint of our earnings would be and we looked at what the buffer was left for predicted maintenance CapEx incentives and so on, and there's quite a clear buffer. I bet 85% to 90% range. So -- sorry, sorry, 80% to 95% range. So that's how we modeled it.

Yes. But I guess what I'm just trying to understand is, on a go-forward basis, is maintenance and incentives more than 5 percentage points of difference. Therefore, the payout ratios or the payout policies got easier to sustain the dividend?

Have a 10-year planned stuff.

We were within the old policy as well in terms of our 10-year planning numbers.

So I guess that means that it should be around that same, just volatile.

So I was just -- it was comfortably contained within both FO and FFO, our projected dividend profile.

Were there any years that were out of the old policy.

No.

Your next question comes from Rohan Koreman-Smit with Forsyth Barr.

Just trying to square away, again, this policy and the kind of go forward and the potential for payout above 100% of AFFO, which was the top end of your target. If you talk to the upper middle of the FFO range this year and you've got some tax deductions that are one-off because dependent on your developing. It feels like this coming year, you're suggesting that you would probably be above the old policy on an underlying basis without some of these kind of things that don't really repeat.

And then when you look at your historical maintenance CapEx, you've been 15% of FO, and I know there's been some big years in there or maintenance CapEx and the tenant incentives. It's got quite a big range and there's some very lumpy numbers, so I understand that. But even most recent years have been, call it, 6% to 7%. And when you, I guess, look under the hood, you probably under on maintenance CapEx versus your historical run rates and tenant incentives because those years were quite -- or periods of quite strong tent demand and you're obviously low tenant incentive. So I'm just I'm just curious around the potential for over-distributing under the new policy range. I know you've just said you're within the old policy range as well, but it feels like that must be pretty tight.

I think near to impossibly, but we obviously modeled this right out, and we feel that there's sufficient buffer at the midpoint of the new policy range to cover any maintenance CapEx or incentives in any year going forward. So we feel like there will be -- we'll be providing sustainable dividends to shareholders going forward with the new policy. Well, I mean we've modeled it. There's plenty of buffer there for the normal below-the-line line FO adjustments.

When you look at your capital stack, your debt has come up because you've been spending some money on some projects. You've had the DRP on and you've been selling non-core assets. Is it trading at a much wider discount now. you've got some interest in maybe not noncore assets, but some core assets. Do you think that you could be buying back stock given the discount that you're at the moment? And if you do get some of those other noncore assets away, is a buyback on the cards?

It's possible. It's only modestly -- if you're selling assets to buy back stock, it's only modestly accretive really. So yes, certainly, if developments get stalled and we do sell these assets, and we have a lazy balance sheet, then we would definitely look at a buyback as an option.

The first cap off the rank, of course, Rohan, is turning the DRP off, which is effectively raising equity at a discount at the moment. So kick that one off. And then I mean, we debated at every board meeting as to what the opportunities are and how we could fulfill those.

I guess that the difference from having a discounted DRP to fund development, which is what you're effectively doing before hand was not very value accretive versus selling assets in buying back your selling assets at book, which you've done for a few things and buying back here on stock if you believe in the rest of the portfolio? And I mean your NTA has been growing for the last 3 years. So it suggests that you believe in TA. Just wondering kind of that switch seems good for shareholders. And I wonder if it's something you are going to enact.

I guess I can't go any further than say that when we see the opportunities there, then that would be evaluated against all the other options, but it's always on the agenda, just more so when we're looking at a position where we don't need the capital.

And my last question was just on construction costs. You talked to a 10% to 15% increase. Materials are about 40% of the cost of a new build depends on the asset that you're building though. But like that kind of implied materials price increase is 25% to 40% given the rest of the market is pretty soft. Are you seeing that sort of uplift in materials pricing in the market across the board?

Not yet. But we did quite a bit of work with one of the contractors that we don't work with as to what the impacts would be. And it's not just materials, of course, it's the consumables in terms of the transport costs and operation costs on site. And when you follow that through, you can't help, but land at sort of 10% and possibly even 15%.

Your next question is from [indiscernible] with ANZ.

My question is '27 will be the fifth year of [ $0.0665 ]. And when we look at your peers in the industrial, they've been over the period, growing their dividends. So my question is, when can we expect dividend growth again? I know you like sustainable. But obviously, it's been cut out of CPI over that period as well. So I think shareholders see dilution in that DPS. So when can we see growth again?

Probably depends on whether you want to take a lead from our CFO or from the Board of Directors. But as soon as we can, look, I think the reality is it's time to be prudent when you look at what the economy is likely to be or potentially going to be over the next 24 months and how that fits together. We don't want to overpay. We want to make sure we've got a sustainable dividend. We want to make sure that we've got sufficient buffer that we're not having to fiddle with things to get there. But equally, the level of uncertainty that we're dealing with right across the market at the moment suggests that we should be a little more prudent.

[Operator Instructions]

You have a follow-up question from Rohan Koreman-Smit Colmensmit with Forsyth Barr.

Sorry, I was just kind of a follow-up for Francois, right? Like your net income over that same period divided is been flat is up kind of 15%, 20%. And I guess, the loss has all been in share count and net debt to fund developments, given you've kind of got this brownfield development strategy kind of going forward. Have you rethought that because it doesn't seem to have added value over the last 4 or 5 years?

Well, I think what you got to appreciate is the rapid and unprecedented increase in interest rates that happened. Our weighted average cost went up by 2%. And when you're borrowing $800 million, that $16 million of cost, you've got a chew through. And that's something that we've had to struggle with over the last 3 or 4 years, and that's why the dividend has been flat.

There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.

Thank you for standing by, and welcome to the Argosy Property Limited FY '26 Interim Results Conference Call and webcast. [Operator Instructions] I would now like to hand the conference over to Mr. Peter Mence, CEO. Please go ahead.

Thank you, and welcome. Thanks for joining us for this presentation for the F '26 half year results. The results, with due respect to Sean Fitzpatrick, very much looked like a game of 2 halves. The first few months were very much characterized by a lack of activity and very little lease inquiry. This gave way quite abruptly in the end to a significant increase in inquiry levels and more recently, to significantly improved activity.

Moving through to the results summary on Slide 5. The revaluation at $31.3 million was principally driven by the extended lease of 9 years to MBIE at the Stout Street development. Now you'd be aware that I've been talking about that for some time. It actually took just over 5 years to negotiate, but it includes a reasonably exciting decarbonization project, which is jointly conceived between Argosy and MBIE, and we'll be starting work on that fairly shortly.

The NTA lifts slightly on the strength of that revaluation to $1.56 and the gearing sitting just above the midpoint in the target range. We're pretty comfortable at this point in the market to be at the upper end of that range with some sales still to come. We've reached agreement to sell 143 Lambton Quay, usually known as TPK at book value and that will remove the vacancy from that building.

The sale is to a private buyer. It is expected to be unconditional prior to the Christmas break, not much time left for that. And it's expected to settle before the end of the financial year. Vacancy is obviously a little higher than we would have liked, but with the significant increase in inquiry levels that we're now fielding, there is cause for optimism in the year ahead.

We have still been realizing some rental growth on the way through and the 9-year extension to MBIE has obviously had a good positive impact on the weighted average lease term being the largest lease in the portfolio. The tenant retention rate remains solid, but we often see that in a quieter market where tenants are more likely to stay put than to look at a change.

On Slide 7, the weightings are showing actually little change since I last spoke to you. They remain target -- close to the target levels with current activity in terms of sales and development moving us closer to those targets. The revaluations were characterized by a lack of evidence with respect to both sales and leasing. But post balance date activity is suggesting a market in line with the valuations with some evidence of the expected firming in the cap rates driven by the lower interest rates, albeit that that's relatively modest at this point.

The economy in general remains relatively weak in both Auckland and Wellington, and there remains a risk that there will be tenant failures, although thus far, these have been significantly fewer than we had expected. Of note, there is that the cap rate comparable for the last year excludes the Marketplace building as this was only valued on a discounted cash flow basis at that time being largely vacant. This building has seen some significant change.

You will have been aware of the change in the earthquake-prone building announcement that the government is working through. That has resulted more quickly than we had expected in a change to the tenant interest in NBS ratings. Obviously, that is a big positive for this building. And as a result, we've seen a significant increase in lease inquiry and recently signed 2 additional tenants into the building.

The value-add and green developments, Mt Richmond is progressing as planned with no orange lights so far. Both the building platforms have been completed and leased to existing tenants elsewhere in the portfolio. But of the rest of the list in that value-add schedule, there is nothing that is pending out of those properties over the next 12 months.

Forward inquiry for the Mt Richmond site has improved in line with the market, but there's nothing to announce at this point. Looking at 224 Neilson Street, both buildings have been completed on budget, on program, and we're very pleased with the quality of the construction, thanks to Haydn & Rollett on those sites. The first building, obviously, was leased when we last announced. The second building, we've just moved to agreement to lease stage with a very good quality logistics operator on a new 10-year lease, and we have a backup negotiation still current. So pretty positive news on that one.

It is fair to say that prior to October, leasing inquiries were sparse, and that was concerning at that time. It has been much welcomed to see the increase in inquiry levels coming through. With 8-14 Mt Richmond, the project is literally smack on target. It's progressing well. There is now no further leasing activity required for this development on site with both the platforms and the building that's under construction all committed.

We did well with value increase on the land prior to the development, and we expect to make solid profits on the remainder of the development, thanks principally to a very strong location. I'll hand over to Dave to take us through the financials.

Thanks, Peter, and hello, everyone. So the first slide from me, as usual, is the gross property income waterfall. So gross property income was $69.4 million compared to $66.6 million last year, up by 4.1%. There were some strong rent reviews in the period, and there's more detail on that in the appendix as usual.

Most reviews were fixed with an annualized increase of 2.6%. 29% by rent were market reviews with an annualized increase of 7.7%. Income from developments offset the effect of the disposal of Forge Way in March of this year.

So on to the next slide, net profit for the half year. Net property income was up by 4.9% on the prior period at $61.2 million. The property expenses were slightly lower as rates increases were offset by lower insurance charges. Our insurance captive has been a very successful initiative and allowing us to market to reinsurers directly. In particular, we've seen some reasonable reductions in premiums for the Wellington market, which you'll know as gross.

Expenses were flat in the period. Management expense to NPI improved to 9.2% from 9.8% in March and the management expense ratio improved to 51 basis points from 56 basis points at March. Net interest expense was down on the prior period. Lower rates and higher capitalized interest more than offset a negative volume variance in the period. Peter's covered the revaluation gain, and we sold a small sliver of land at Ti Rakau Drive for $230,000 in the period.

We'll cover off tax in the next slide, but net profit after tax was $61.1 million compared to $33 million in the prior period.

The next slide covers net distributable income. After the usual fair value adjustments, gross distributable income was $36.8 million compared to $31.6 million last year. That's up by 16.4%. Current tax expense was $6.1 million compared to $4.1 million last year. This is mainly due to higher taxable profit. There's been a lot of information published about the government's investment boost program.

There was little impact from this at the half year, but we'll receive a $5.7 million deduction in the second half of this financial year as a result of the practical completion of Warehouse A at 224 Neilson Street. So last year, we were complaining about the removal of depreciation deductions on buildings, but we're obviously a lot happier this time around. So on a per share basis, net distributable income was $0.0358 per share compared to $0.0325 per share last year, up by 10%.

And this slide covers adjusted funds from operations or AFFO. The AFFO adjustments were reasonably consistent with the prior year. Maintenance CapEx is up by $1.1 million, mainly due to a number of smaller office fitouts across the portfolio. So AFFO was $29.6 million compared to $26.8 million last year, an increase of 10.4%. On a per share basis, AFFO was $0.0345 per share compared to $0.0317 per share last year.

The next slide covers the movement in investment properties. Investment properties increased by $70 million compared to March '25. As Peter already talked about the reval gain of $31 million. The balance was mainly spending on developments, principally Neilson Street and Mt Richmond. The portfolio after deducting the right-of-use asset in respect of the ground lease at 39 Marketplace was valued at $2.2 billion at 30 September.

The next slide covers debt to total assets. The balance sheet remains in good shape, and we have capacity to complete developments and acquire assets as evidenced by the recent acquisition of 291 East Tamaki Road, which is a very exciting future development opportunity, and this property settled in October. The debt to total asset ratio was 35.9% at 30 September compared to 35.7% at March and 37.2% at 30 September last year.

As at 30 September, 7 properties were regarded as noncore with a book value of $148 million, and we'll sell these properties as conditions allow. And Pete's already mentioned one sale that we hope to complete this year. The next slide covers interest rate management. It's been great to see rates continue to decline during the period. Our weighted average cost of debt reduced to 4.8% compared to 5.1% at March.

The interest cover ratio improved slightly to 2.6x, well above the bank covenant of 2x. The level of fixed rate cover was 57%, down from 63% in March. And we continue to add cover as appropriate, and we've added 3 swaps in October to a value of $80 million at around the 2.5% mark. So we'll provide a lot more color on our hedging profile in the appendix.

The next slide looks at our debt profile. We refinanced our bank debt during the period, pushing out tenor, including a new 7-year tranche of $100 million. The nearest bank expiry is now October 2028. Bank margins remain extremely competitive, as you'll see from the appendix. The nearest green bond matures next March, and we'll refinance that later this financial year.

And the final slide for me is on dividends. We announced this morning a second quarter dividend of $0.016625 per share with imputation credits of $0.002633 per share attached. The record date is 3 December and the payment date will be 17 December. There's no change at this stage to the full year guidance of $0.0665 per share. The DRP remains open for shareholders to participate in.

I'll now pass you back to Pete for a leasing update.

Thanks, Dave. I guess most importantly is the leasing environment has been challenging, but has recently improved, is looking a lot more promising for the year ahead. A couple of the ones that really stand out that we did achieve. Obviously, the MBIE lease extension dominates this half year result. And there was also a 6-year extension of the New Zealand Post lease at 7WQ. So we've got quite a bit of activity still coming through in that space.

And what is really notable if we look at the forward demand is the deficit of certified green space that is going to be evident in the market over the next 3 to 4 years. This is particularly so in the industrial space, but also with commercial offices in both Auckland and in Wellington. It's really only large-format retail where we're seeing virtually no demand for sustainably rated space.

Looking at the lease expiry profile. Clearly, this has changed a lot with the MBIE lease dominating this chart for the last 6 years. So pushing that out by the 9 years has made a big difference to that. And obviously, it leaves the March '27 year with modest expiries. The year through to March '28, the largest expiry there is General Distributors or Woolworths at the 80 Favona Road property in Mangere.

Now -- we've obviously been working with general distributors on the way through that. And the reality is that we are not expecting them to be able to leave during that time. So they will still ultimately depart the site. It will still ultimately be a redevelopment, but the expectation is that, that expiry will be pushed out into later years. So it's certainly not on the current site.

Once that is taken into account, then we're sort of looking at that 10% or less for the next 5 years. So not a big leasing demand coming forward. Looking at the 3 principal sectors, as I mentioned, overall, the expectation is a deficit of supply of certified green space for both industrial and office. Large-format retail is actually performing relatively well at this stage. For us, that is principally the Albany Mega Centre, where we're going through some remerchandising.

We've recently opened the new JD Sports facility over there. That is trading extremely well and has provided some additional gravity to the site. In addition, we are in the process of -- in fact, we have conditional lease agreement for food operators over there, and we have managed to re-lease pending vacancies with a trade up on the site. So that site is going pretty well.

Turning back to the industrial space. We are looking at a period where demand is returning. That activity is now evident, and it is interesting that it is dominated by international tenants. And as a result of that, we're seeing that increased demand for green-rated space coming through. So we do expect to see '26 being a busier space in industrial leasing.

In the office space, the trends that we've been looking at over the last few announcements continue in terms of organizations looking to adjust the workplace to encourage office workers back in. I don't know any CEOs in the portfolio who don't want all their staff back in the office 5 days a week. We are conscious that we'll be moving into an election year when we come back from Christmas. That characteristically in Wellington gives us a quieter period, particularly with Crown tenants, but we've had very little activity from Crown tenants in Wellington over the last year in any event.

Wellington potentially is overdiscounted at the moment. We do have excellent inquiry levels for our building at 147 Lambton Quay with around 5,000 meters of space available in that building. There's only one 500-meter floor that we don't have negotiations on currently. So qualified inquiry is very strong for that building. Obviously, that is from nongovernmental tenants.

So turning to what we're looking at for the period ahead. The domestic economy is expected to gradually improve. And the reality is that it is still relatively challenged in both Auckland and in Wellington at the present, but inquiry levels and activity levels are improving. The interest rate situation is obviously positive, and the expectation is that we will ultimately see cap rate compression as a net result of that. Certainly, we're starting to see just in the last 2 months, increased levels of inquiry, particularly from offshore.

Dave's mentioned insurance levels. But as premiums fall, that is also a positive for the market, and we're seeing that start to come through in the interest levels. So we're still dealing with relatively strong bottom-up fundamentals with the industrial sector. And with both industrial and commercial in Auckland and in Wellington, we've been dealing with a period of relatively modest supply levels, and that should be positive for us over the year ahead. So looking forward, the calendar year for 2026 should see a gentle return to business for the sector.

And it's fair to say that Dave and I and the Board are reasonably comfortable with the way this business has weathered the last recession. Happy to take questions.

[Operator Instructions] your first question comes from Vishal Bhula from Jarden.

A couple of quick ones for me. Just with your NPI coming in at $61.2 million, I mean, it's up 5% on the PCP as well as second half '25. There was no acquisition activity in the half, and you did lose the rental from Forge Way as well as maybe some rental on the Mt Richmond development. So the growth here just seems really strong. Is there anything specific to call out? Like was there any one-off income from 4 Henderson Place or anything like that?

Yes. There's 2 things to call out. One is a significant rental uplift from one of our tenants in terms of a rent review, which flowed through into this year. And also, we did receive a surrender payment in respect of an industrial tenant. So in terms of the NPI line impact was $1.1 million. But the good news for that particular property was that we were able to re-lease the property within a month. So it's something of a bonus, I guess.

No, perfect. And then just on your office occupancy, you've put it in the presentation at 91.6% by income when at FY '25, that was 88%. But on a vacant space on a square meter basis, you've got 25,000 vacant space versus 15,000 at '25. So on an occupancy basis, you're down to 83% from 88%. So I just don't quite get how those percentages can be up on an income basis.

I think, Vishal, that will be principally down to the 143 Lambton Quay building, where it was effectively over-rented.

No, thanks. That clears that up. And then maybe could we just get a bit more color over 143 Lambton and that sale process that you know that is currently conditional?

Yes. I'm not -- I'm pretty tight. So I can't tell you a hell of a lot more, but we do have an agreement for sale sitting there around book value. It is a very short due diligence period. And the domestic private buyer knows the building very well.

I won't push more on that then. And then just a couple of short ones for me. Just East Tamaki, are those capital works now finished? And is it still 58% occupied?

Yes. The works are now finished. It did take a lot longer, and you'd be aware that we struggle with a delayed settlement from the vendor unable to meet their obligations. But -- so we've got that through now. Leasing activity is pretty good on that site. Inquiry levels are good and strong. So we're not expecting that to cause any particular issues for us. Obviously, they tend to be shorter-term leases because it's a development site for us and because it's secondary quality buildings that are sitting on the site, obviously. So we tend to get shorter-term leases from that, and that is having a negative impact on the weighted average lease term as it currently sits.

And then just a last one on me. Your guidance, there's no mention of the payout range this time around, whereas previously, you were expecting to be towards the top end of your policy range. Are you still kind of targeting that or the investment, those benefits coming through kind of see you push down to the middle of that range?

Well, I think it will be in the top end of the range, but below 100%.

Your next question comes from Nick Mar from Macquarie.

Just on Stout Street, can you just talk through what the potential rental step-up is at the market review that's coming up next year?

So we've got a rental review pending. I can't go into too much detail, obviously, on that at the moment, but the expectation is for a good solid lift out of that. But we've treated that completely separately to the renewal documentation.

No, that makes sense. And then in terms of the CapEx that you're spending, how did you look to, I guess, rentalize that as part of the process?

That's been a 5-year project working with MBIE in terms of what they wanted to achieve with the building and how we were able to add value. It really is the total being greater than sum of the parts. So it's been full disclosure with them on the way through with the work that we wanted to do, the results they wanted to see and how we rentalize that on the way through. So very much part of the negotiation over the 5-year period to make sure that it's stacked up.

Can you give us an indication of what rentalization rate you effectively achieved on the $13 million?

I'm looking at Dave, and he's not looking at me.

Well, I mean, the reversion that Pete is talking about is about $1 million is what we're expecting in July next year, and the capital spend is about $13 million. So you're looking at it...

But did Pete just say that that's a separate impact versus the renewal in itself because [indiscernible] market view?

Yes. So it's both, Nick. Obviously, the market rental has to be landed out of the reversion rental for the upgrade to the building.

So you're saying that, that $1 million is on top of the market rental?

Yes, that's right. Obviously, you're looking at -- just so we're clear, we're obviously looking at a situation in Wellington where market rentals have actually declined marginally over the last 12 months.

Yes, but it comes down to the time between the last reviews...

You're all over it, Mate. Well done.

Yes. Okay. And then on divestments, you've taken a few other assets to market, particularly some of those new market assets. Can you just talk us through what's happened there, whether they're still in train or whether you've pulled them given lack of demand or anything else?

Yes. It's fair to say that we didn't get a great response. The numbers that we got were less than book value, looked at it and said, hey, there's no urgency to move these assets at the moment. They're still yielding quite well and the risk wasn't there. So we -- they remain on the sales list. We've pulled them from active marketing. If the market looks the way I expect it to look when we come back, we'll probably relaunch those to the market in February. So the intent is still to move them on, but not at any cost.

Did your updated book values reflect the feedback from the market on them?

Yes, yes. As I think I mentioned earlier -- I hope I mentioned earlier, the valuers have really been dealing with a paucity of evidence as at September. It's only really since September that we've seen any improvement in the activity levels.

Okay. And then just on valuations, have you got any initial indication of the amount of seismic allowances that are sitting in the portfolio, which may be removed as the sort of new earthquake legislation moves through?

Yes, that's a slightly tricky one to address. Obviously, as far as this building is concerned, then you're dealing with a straight removal because there's no requirement to do that. But with the change in the seismic rules, it's important that we all remember that, that doesn't actually change the NBS rating at all. It changes the obligation to do anything about it. So what has been surprising, I think, is the degree to which the leasing market has stopped focusing on that in the Auckland market.

So the requirement to actually do it commercially is probably less. But where you have a situation where you've got a building that is less than 50% NBS, that doesn't actually change its NBS rating. And in circumstances, tenants may still require that upgrade to go through. So it's very much a case-by-case analysis. It is this building principally where you're simply drawing a line through it because it's a ground leased asset. And therefore, it is only the building with a lease expiring in 2039, it is cash flow management. So there is no requirement to spend any money on the building at all.

And as context, what kind of delta is sitting in that building?

This building -- the pure seismic upgrade was expected to be around $18 million.

Your next question comes from Bianca Murphy from UBS.

So first question is just around your comments around inquiry levels picking up significantly so far over the last couple of months. And I know it's still early days, but could you just talk about how much of that interest is actually turning into signed leases?

Yes. Good question, Bianca. At the moment, we've had some really good results, but I don't know whether that's generally reflective of the market. We've had Intrepid Travel moving downstairs in this building. We've recently signed an architectural practice for the other end of the building. So there was a lot of improvement in inquiry levels, but it's only relatively recently that we've actually seen that lock away. It's only relatively recently that we actually signed the first lease up at 147 Lambton Quay. So it's -- inquiry levels obviously have to come first. We had the improved inquiry levels for, say, 8 weeks before we actually started to get results, but the conversion rate looks like it's improving over the current period.

Okay. That's helpful. And then just on your interest expenses. So yes, pleasing to see that drop, of course, as a result of lower rates and higher capitalized interest. Can you give us a sense of where you expect interest expenses to land for the full year?

Well, it's going to come down further because -- if you look at our most recent rollover of our -- of the 90-day rate we rolled over in September, the base rate was sort of 3.1%. When you look at the base rate now, it's under 2.5%. So -- and we've got over $300 million of floating debt at the moment. So rate is going to keep coming down, actually, which is obviously a huge positive for the business.

[Operator Instructions] Your next question comes from Rohan Koreman-Smit Forsyth Barr.

Just going back to that AFFO, you said you'd be at the top end of the policy range. Are you not taking the investment boost deductions through AFFO? Is that how we should read that?

No, no, we are. We are.

[indiscernible] down further, what's the other moving part there to offset $6 million of deductions?

Well, there's -- the offset is things that are going to really going to move into next year. So we've got lower repairs and maintenance deductions than normal because the lease to Neilson Street, the incentives to that lease may move into next year. There's a number of other things that impact the tax line, which effectively will flow through into next year as opposed to this year.

And you mentioned Mt Richmond, I guess, the first building plus Stage 2. You said it was committed. I think what's the comment there, but there's 2 pad sites, right? You haven't committed to building sheds on those pads yet, have you?

No, no. So what is committed is the first building Viatris that is obviously leased. Then we created the building platforms for 2 further buildings, and we said at the full year result that we wanted to get those completed and leased. So those have been leased as hardstands, not as buildings.

Okay. Okay. So they're leased as hardstand. So that suggests that development leasing is a bit slower contrary to other comments around pickup in leasing inquiries if you're prepared to lease those as hardstands because unless you've got some development break clause, I was just wondering about inquiry and when the, I guess, CapEx -- the balance of the CapEx at Mt Richmond because there's a reasonable chunk there may kick off.

Yes, there is -- look, Mt Richmond is going exactly as per the plan. Obviously, it's a progressive development that we've been looking at pulling those buildings in. And it's probably fair to say that current inquiry is stronger than we would have expected, but we still don't see that we'll be moving ahead faster than we planned on that site. So the reality is that things like the DRP are going to pay for that development pipeline as it comes through.

Okay. And on that, you're talking to cap rates improving, leasing seems to be going well. There's good tenant demand. You expect to be able to sell noncore assets. Do you think the DRP is being overly conservative at this point in time? It's just a very expensive way to raise money where your share price is?

Well, it's not expensive actually. I mean the current share price, very, very limited discount. You're applying that to brand developments, it's accretive. So I would argue that it's not an expensive way of raising capital at all.

Okay. We'll have to agree to disagree on that one. And then just last one, Marketplace. The previous strategy was to sell it to a -- or potentially turn it into a hotel, I believe. But now you're leasing it up. Has the earthquake rules materially changed, I guess, how you view the exit on that building?

The earthquake rules have materially changed the way we view the exit on the building, yes. So obviously, it's going to be a lot more feasible to manage the cash flow into a positive situation through until 2039. But we looked for a hotel conversion on this. We had really good demand for it, and then it went completely flat. And the same happened in 143 Lambton Quay, where that building we felt was going to make a very good hotel. All the designs came through looking really positive.

And then the hotel market, especially in Wellington, went completely flat. I think government travel -- government-related travel in Wellington was down 54%, I heard yesterday. So that market simply got removed from us. The -- obviously, the -- we did put quite a bit of work into the seismic review situation to try and get a more rational risk-based approach, and that's been extremely positive as far as this building is concerned.

And then last one, just on 147 Lambton Quay, I believe that's in that noncore pipeline, but has a decent amount of vacancy. You talked to some potential inquiry. Kind of how do you see that one progressing given it is kind of probably a net drag on the earnings at the moment?

Yes, I expect it will turn into being a positive very shortly with the solid lease inquiry that we're fielding at the present. So expect that will be fine, but it remains on the sale list. It's just not in the immediate future.

There are no further questions at this time. I'll now hand back to Mr. Mence for any closing remarks.

Very good. Well, just to say thank you very much for joining us. We've put these results together, as I said, very much a game of 2 halves, and we're expecting that the period ahead will be quite remunerative. Obviously, with the interest rates coming down, the expectation is that cap rates will firm and recent research suggests that, that is already happening. So it will be a case of seeing what sort of evidence we've got by the time we start doing the 31 March valuations, but the indications are positive at this point. Thanks very much.

Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.