Asset Plus Limited (APL) Earnings Call Transcript

Good afternoon, everybody. Thank you for joining us. Welcome to the Asset Plus Annual Meeting of Shareholders. My name is Bruce Cotterill. And as most of you probably know, I'm the Chairman of Asset Plus. And on behalf of the Board, I'd like to thank you for attending, those of you who are here in person for attending here at Munroe Lane, our relatively new office building, which is a neat opportunity for you all to see it. Before moving to the formal matters, I'd just like to kick off by introducing you to our Board. On my far left, we -- your right is Allen Bollard, Non-Executive Director; Carol Campbell, who you'll hear from later in the meeting, who's an Independent Director; Stephen Brown-Thomas, to my right is our Asset Manager responsible for the Asset Plus portfolio; Paul Duffy, many of you will know, an Independent Director. And at the far end, there is Mark Francis, the Managing Director of Centuria. Also online with us from Sydney is John McBain, Non-Executive Director and CEO of Centuria in Australia. So that -- we also have other executives from Centuria here in the audience who will be available to answer questions if the questions get too technical for any of us upfront. And our auditors, Grant Thornton, are also present with us today. It's great to welcome you, those of you attending in person, as I mentioned before, at the company's property in Munroe Lane. And also, of course, as we've got used to these days, those who are joining us online. To those online, if you do encounter any issues with your connection, please refer there's a virtual online annual meeting portal guide or you can phone 0800-200-220 for assistance. And if you have any questions, please send them through as soon as you can, which will allow us to answer the questions at the appropriate time in the meeting. In opening the meeting, I can confirm that our share registrar has confirmed that the notice of meeting was duly sent that all shareholders received it or I should say all shareholders who are entitled to receive it received it, and it went out via our share registrar, MUFG Corporate Markets. And we do have a quorum for the meeting being at least 3 shareholders. We've received proxies totaling 55.6% of the total votes. And a copy of our presentation slides and addresses will be posted on the company's website and has been released to the NZX so that all shareholders, including those who aren't present today, can have access to the presentation. Some further information for those of you who are attending virtually. Before we move to the agenda, I'd just like to remind you how you can participate in the meeting. In order to participate, you'll need to have inserted your shareholder number or CSN. And once this has been done, you can click on ask a question to send your questions through. You can also -- for voting, you can click on Get a Voting Card to submit your vote. And as I mentioned, we will address the questions once the presentations have concluded. Shareholders are free to submit their votes at any time during the meeting. Moving to the agenda. Shortly, I will deliver the Chairman's address, providing you an overview of the company's performance for the year and the key highlights. Stephen Brown-Thomas, who's on my right from Centuria, will then provide further detail on the past year's performance and on the outlook. We'll then open the floor to any questions after those 2 presentations. Then the resolutions, you'll have seen there's just 2 very straightforward resolutions will be voted on. And finally, we'll open up the discussion for any general business that anybody may have. So turning now to my address. The year to the 31st of March 2026 continued to reflect a very challenging environment. And as most of us know, the office sector has not been spared with elevated vacancy levels and subdued tenant demand persisting and the North Shore has not escaped that. There's been moments of, I guess, over the last year where we've anticipated seeing some improvement in things. Some of you will recall the first quarter of the year where economically, it felt like we were starting to go okay as a country. But unfortunately, the macroeconomic uncertainty and in particular, the recent events in the Middle East and the corresponding impact on energy prices and supply chains have impacted the momentum of our long hope for recovery. Against this backdrop, we are pleased to report that management has made measurable progress during the year. And some of the key highlights include a significant increase in funds from operations for the year to $3.18 million, up from $0.5 million, a little over $0.5 million in the prior year. The commencement of a new lease, new tenant in this building, being Aderant across half the level. You can -- you probably saw their entrance way when you came in across half of Level 6 here at Munroe Lane. And we've also secured a new tenant, which in the ground floor, Milk Orthodontics, for a 12-year lease, and their tenancy will commit later -- commence later this month. So occupancy is up by 10% for the year to 75.6% overall. On the financial front, for the year ended 31st of March 2026, the company reported a total loss of $3.16 million, an improvement on the $5.7 million loss recorded in the previous year. Unfortunately, the results continue to be hampered by noncash fair value movements. And this year, that meant a $7.43 million revaluation loss that had to be recognized during the financial year being the loss of the valuation on this building. The underlying operating performance of the company, however, has improved. Funds from operations increased materially as a result of the increased rental income following the leasing successes and also the absence of any interest costs. You'll recall that in the previous financial year, we were able to clear all of our debt. And so we don't carry the interest costs that we once did. And adjusted funds from operations have reflected in a profit of $170,000 net of all the leasing costs and incentives incurred, which had a cost of $3.01 million. Despite the leasing progress, of course, there are ongoing concerns about the confidence in the economy and in particular, in the office sector. And it continues to be challenging. And that's meant, as I touched on a moment ago, that the value of this property at Munroe Lane was independently assessed at $105.5 million as at the 31st of March 2026. And that was a result of softer capitalization rates being put against the property than was the case the year before. So net tangible assets reduced from $0.324 a share to $0.307 a share. And as I said, the value has handed us a $7.43 million unrealized fair value loss, which is a bit tough to take on the chin when it comes around 31st of March each year when you're putting everything into it that you can, but that's what valuers are there to do, I suppose. Looking forward, leasing the balance of this building remains our priority. As you can see, it's a terrific building. It's something we should be very proud of. And we've done some fit-out works down one end of the floor. If you know of anybody who's a prospective tenant, come and tell us about it because we need to finish the job of leasing the property. We've intentionally done some of the fit-out works to make leasing easier in the future, and we hope that those works will support the turnkey solutions for prospective tenants. And as you can see, it presents pretty well. We continue to have good conversations with potential tenants, and we've just come from a Board meeting this morning where that momentum is continuing. But decision-making is slow. There are tenants. There's not a lot of them, but there's more than we were a year ago. But decision-making is slow. And there's limited demand really from large-scale occupiers in the market, and there is a competitive landscape out there in the form of other vacant space, which in some cases, is closer to town and more appealing. As you know, we have good cash reserves. We believe we've got sufficient cash to cover all future incentives and leasing costs without requiring the company to draw any debt. The Board and management remains committed to continuing our pursuit of leasing outcomes. And that, in turn, will enable us to enhance earnings, increase occupancy and favorably impact the weighted lease average -- the weighted lease term here at Munroe Lane. We expect that doing so will improve the overall value of the property and better position it for eventual divestment. As previously advised, any decision to sell this property at Munroe Lane or to subsequently wind up the company will require shareholder approval, and we will deal with that when that time comes. There's no question that this has been a long road, a longer road than many of us anticipated, and the execution of our strategy has taken longer than we all originally envisaged. As a result, management and the Board have considered a range of alternative strategies that the company could have adopted in the interim whilst we pursue the leasing and maximization, if you like, of this asset. Various scenarios have been explored, including acquiring other assets. We are, of course, debt-free. We could acquire other assets in the short term or we looked at a partial return of capital to shareholders via different mechanisms. And we also looked at a potential merger or takeover arrangement. But ultimately, none of those alternative strategies considered were deemed to deliver any material benefit to the company and to shareholders, especially when weighing up the risks involved for shareholders and the likely financial outcomes. We remain committed to the core strategy, therefore, of leasing the balance of Munroe Lane and divesting the asset when market conditions are supportive of us doing that. Finally, for your information, some of you may have picked this up before the meeting, but we've just announced today a dividend of $0.0025 per share for the first quarter of this financial year FY '27. And as you know, future dividends remain subject to quarterly review at the discretion of the Board. As always, I'd like to thank you, our shareholders, for your continued support and patience through what continues to be a very challenging period. The Board remains committed -- sorry, the Board remains confident that management is dedicated to delivering the best possible outcome for shareholders, and it's challenging to do that in a timely manner in the current circumstances. But we will jointly continue to do everything that we can. Thank you. That concludes the Chairman's report. We will take questions at the conclusion of the next presentation. And so I'd like to welcome Stephen Brown-Thomas to provide further detail on the current portfolio and the outlook for the company.

Thank you, Bruce, and good afternoon, everyone. Great to see you all here in person at Munroe Lane, and thank you to those joining us online via the virtual platform. So I'm Stephen Brown-Thomas. I'm the Fund Manager for Asset Plus from within Centuria. Munroe Lane has been a labor of love for mine from the outset. It wasn't actually until after we got into this project that I found out that Munroe Lane was named after my second cousin. So yes, there's a strong connection and I've poured thousands of hours into my working life into where we sit today. So yes, I'm certainly very proud of what we've created here. And hopefully, shareholders can see that and the value opportunity here as well. Look, we are obviously only a company with one asset. Bruce has already covered a lot of the highlights, so I won't dwell on too much, and I'll run through this pretty quickly. We've obviously got some afternoon tea and refreshments that we can get into after the formalities of the meeting as well. Look, as Bruce has alluded to, the result for FY '26 was in line with expectations, delivering funds from operations of $3.18 million, profit up from $0.53 million in the prior year as a result of that new Aderant lease driving the increase in income. As Bruce has also touched on, those property markets have remained very challenging, particularly the office sector, which saw us with that slight reduction in the valuation, combined with the capital expenditure that we've spent with both the Aderant lease and also on the speculative fit-outs, that's led to that $7.43 million revaluation loss for the year. Key milestone for the year was commencement of that Aderant lease across the atrium there with a 10-year lease from February '26 to an American tech company. Obviously, a very good tenant covenant to have, and they're very, very happy in the space across the way there. In terms of the key metrics for the portfolio, we obviously still just got the one property being Munroe Lane here. As Bruce touched on, the occupancy has increased materially, just over 10% with the addition of that Aderant lease and also the commitment of Milk Orthodontics for that 12-year lease on the ground floor. As a result, our weighted average lease expiry, or WALE, has increased from 9 years up to 9.4 years. We've also still got 0% debt, which is a very strong position to be in. And as a result of that revaluation losses, the NTA has reduced slightly from $0.324 per share down to $0.307. All right. So look, the key activity for the year, again, commencement of that Aderant lease, completion of the fit-out -- partial fit-out works, you can see down the other end of this building here, which for those of you who have joined us and have had an opportunity to walk around in person. If you haven't, certainly do so when we have our refreshments after the meeting, but the space presents exceptionally well. And as Bruce touched on, it's certainly getting a lot more traction and engagement from potential tenants, which is very encouraging for us. All right. So in terms of Munroe Lane, those revaluation losses we've already touched on. The passing annual rental has now increased, obviously, as a result of the commencement of that Aderant lease. You would have seen that with the increase in income, we have been able to increase that dividend that was announced earlier today, which is obviously very encouraging for shareholders as well. And obviously, any future leases and additional income that we can secure is going to play into that as well moving forward. In terms of, the building occupancy, we've still got just over 3,500 square meters of space available, and I'll speak to that in a bit more detail shortly. So again, just touching on the leases that we have secured. Aderant for that 10-year term increased occupancy up to 74.3% then with Milk Orthodontics on a 12-year term downstairs, increased occupancy up to 75.6%. And as Bruce just touched on as well, that lease is expected to commence later this month. It's going to be a great activation of what was a pretty underutilized space down on that ground floor is going to see more activity in the building, which is hopefully going to be positive for further leasing interest as well, and we'll add another dimension into the building in terms of that service retail offering, which will be great. In terms of leasing of the balance of the space, so we have completed the partial fit-out to the northern end of this Level 6 tenancy. And we've also created a staircase between the vacant Level 1 space and Level 2 space and completed a partial fit-out down there as well. As I say, these spaces now present extremely well compared to just being a bare shell, which for prospective tenants, when there is space that's otherwise turnkey and available for someone to walk into, it is very compelling to have that fit-out in place rather than trying to visualize what a blank space could become. And it also means that we can also potentially slot someone in effectively almost straight away, which is obviously beneficial for a number of businesses as well. We've also got flexibility maintained. So the balance of this Level 6, we can split into 2 tenancies, one down this side that we are at the moment and then one down the northern side. Likewise, on Level 2, we can split that tenancy into a further 2 tenants as well. So we've got some options. We've got some flexibility that we can push and pull and cater to individual tenant demands, which is going to be quite helpful moving forward. And look, as Bruce noted, look, it does remain a challenging sector, particularly outside of prime CBD space. It's been quite a while now since COVID, but unfortunately, those impacts are still lingering with the work-from-home phenomenon. Prior to COVID, it was a hub-and-spoke model where you had a CBD office and then a suburban office. Now it's a hub in town and the spoke is now unfortunately work from home rather than suburban offices. But we're seeing more and more people come back to the office and a lot of companies getting back into suburban offices as well so that they are closer to their workforce and catering to modern employee demands. Encouragingly, office occupancy is increasing. And you've probably seen over the last 12 months or so, there's been a lot more mandates of forcing people back into the office rather than working from home, which from a landlord point of view is obviously very encouraging to see. And we've also got the amenity here that encourages employees to come in as well. We've got the end of trip facilities downstairs. There's ample bike parking, charging stations for e-scooters, e-bikes. We've got the cafe on site. We've got end-of-trip facilities downstairs with basically hotel-grade showers and toilet facilities. We've got great green space. And for those of you who are in the room, you can see brilliant natural light in the building here, and it's a great place to work from and great outlook as well. So we've always liked this site and the fundamentals of it. And the potential tenants are starting to see that. And all going well, we will get some more wins on that front as well. In terms of moving forward, look, not too much has changed here. As Bruce has touched on, execution of that strategy is taking a little bit longer than we all originally anticipated and hoped for. There's certainly been a few bumps in the road that none of us really saw coming, but we continue to do our best in terms of responding to that and putting our best foot forward to prospective tenants. And as I say, we're hoping for the conversion of some more of that interest in the near term. In terms of -- yes, that outlook and strategy, it remains on course in terms of leasing the balance of the space. Once we have got sufficient leasing, looking to sell the property and ultimately wind the company up, subject to receiving shareholder approval at the appropriate time. In terms of the shorter-term outlook, as we've just noted, a dividend of $0.0025 per share for the quarter ending 30 June has just been announced, which is an increase from previous quarterly dividends of $0.002 per share. All future dividends remain subject to quarterly review as well. So that's it from me in terms of a property and fund level update. So I'll hand back to Bruce to carry on with meeting proceedings. Thank you.

Thank you, Stephen. We'll now move to shareholder questions. For those of you online, instructions should be appearing on your screens now showing you how you can ask any questions. So -- but we will turn firstly to any questions that have come in, in advance. There were none as of the last time I checked, but Matt, we've got one.

We do have one, Bruce.

Thank you.

And it's from Grant Diggle at the Shareholders' Association. And he says, if the company continues after the sale of Munroe Lane, will the Board consider a refresh and renewal given Carol has served since 2015 and Bruce, Allen and Paul have served since 2017.

So the decision around selling Munroe Lane, what we've telegraphed to the market right from the start, will also be accompanied by a decision to wind up the company. If indeed, we decide to wind up the company and sell Munroe Lane, those 2 proposals would be put out together. And that would also be, I would imagine, a logical time for directors to choose whether or not they wish to put themselves forward for reelection in the event that the company continued. Thanks for your question, Grant. Did you say Grant? Thank you. No other questions have come through. Are there any questions from the floor? Yes. There's a microphone right behind you.

It's [ Shae Howard. ] I'm a shareholder. I was somewhat surprised to come into a building that has got quite a low occupancy to be asked to park elsewhere. Is there no parking available in this building?

I didn't know that you're asked to park elsewhere. There is parking in the building.

Yes. Look, there is parking available within the building. A lot of it is leased, obviously, at Auckland Council Aderant. And in the short term, we've also got contractors on site undertaking works that are also using those car parks. In the Notice of Meeting, the recommended car parking option was next door at the Wilson site. Car parking within the building wasn't offered up. But yes, there is sufficient car parking available within the building for tenants.

Because that was my question was, are these car parks being leased elsewhere? There's so much -- obviously, you've got a paid parking around here everywhere.

You've got yellow lines everywhere, haven't you?

Everywhere. And it was just -- are then these vacant car parks being leased out and at least generating some money?

I think one of the observations I'd make is the people who are in the building might have fallen into the habit of parking in the available car parks because those -- not all of the car parks have been let. And because I was fully expecting to be able to drive in and find a car park easily too, but it wasn't to be. It was a little bit more complicated than I thought it was going to be. Are there any other questions from the floor? Yes.

Kevin [indiscernible], I'm a shareholder. I was very delighted to come out today to look at the building in a nice sunny day. And I think you've done a fantastic job in delivering this development. My only issue at this stage is the expenses that occurred in the building. I mean, I said this at the last AGM with regard to the directors' fees of $300,000, the Centuria fee of $541,000, the directors' insurance of $235,000. Is there any way that you can get some of these costs down, bearing in mind that you're only looking after one building.

Yes. That's a fair question.

It's not a complicated thing to me. My second question, sorry, what is Centuria doing to communicate with potential tenants? How are you communicating with them? Is it online? Is it overseas? Is it -- can you elaborate on that?

Well, how about I answer your first question? And then Stephen perhaps can talk about the tenant market and the agency market. But coming back to your first question, we have 4 directors, as you know, those directors comprise a set of skills, audit, finance, property, real estate, I guess, between the 4 of us. The director pool of $300,000, that's -- it hasn't been changed since 2018. And I think prior to 2018, it was actually higher than that. So we have 5 directors, including Centuria's nominated director being John. But the pool -- the funding pool for which the directors are paid hasn't changed. So the directors haven't had any more remuneration this year than they had 8 years ago or 7 years ago. Could we get by with less directors? I think that time comes when the leasing is more complete and we're left with established -- we're left with running an established, largely tenanted, fully tenanted property. In the meantime, we still need all the obligations that you have as a public company fulfilled audit and risk, for example. And in Carol and Allen, we have a couple of well-qualified people to lead that for us. Paul Duffy, through his connections throughout the real estate -- commercial real estate sector continues to offer terrific value to the business, frankly. And so for the challenges that we have in the market we have, every one of those 4 people pull their weight and every -- I guess, every set of relationships that each of those people have are important for all of us. But I think the logical time to review the number of directors could well be once the leasing is more complete. And even if we get to a point where we decide not to sell the business and not to wind the company up and you've just got a well-leased profitable, debt-free entity sitting here, in that instance, I don't think you'll need the extent of the director team that we currently have. But I would say 4 directors is not a lot. And the flip side of what the shareholder sees is the fact that directors as they stand here, take liability too. And you don't want to be doing that on your own. And having capable people sitting around the table with you as part of a team with a good mix of skills is actually very beneficial in any director's life. So there's just -- there is that balance that you seek to have around the table and that mix of skills. And with this group of people, I know it's been a really tough haul for shareholders. I'm not pretending it hasn't. But with this group of people, we do have a good group of people with good skills who work well together. The rest of the costs that you referred to, the Centuria fee, well, that's a contracted fee that we appointed Centuria in 2018 to take over the management of the business. When that happened, I can't remember the exact numbers. Simon, you might be able to remind me, but I think our salary cost alone was about $1.8 million for the business. And when we handed the business over to Centuria to manage all of those costs went. We don't have any employees. And the cost base that we have with Centuria is a direct function of that contract. That contract can, of course, be wound up, of course, there's some steps you got to go through. Centuria paid to take over the management. From memory, they paid 3.8x the fees -- 3.8x the rental. Sorry, what was it? 3.8x sorry, 3.8x what the annual fee would have been. And they -- we would have to pay them that to get them out of the contract. So -- and the contracts there, it's available for people to look at. But it's -- what we pay Centuria is still less than a couple of salaries in the overall scheme of things. And if we -- even running this building, running the facilities management and the property management on this building as a stand-alone with our own staff, I don't think we'd do it for the price that we pay to Centuria. Your final point about insurance costs, insurance costs are what they are. We have to have insurance. We have to have directors' insurance. We have to have liability cover and insurance costs have -- as we all know, have gone up in the last few years. And that's one of those things. I know that the Centuria team pushed back pretty hard on the annual broke around. And I think we're holding that as best we can. Was that all 3 of your questions? There's one about the leasing, which will come. I'm just making sure I've done my bit. Right. Stephen?

All right. Thanks. Yes. Look, in terms of the leasing, it really is a multifaceted approach. So we've got direct relationships with all of the agencies. We've got agency agreements with CBRE, Colliers, Bayleys, Barfoot's, JLL, Harcourts and some of the other smaller agencies, more bespoke ones as well. We've been doing direct targeted approaches to a number of tenants as well. So we've literally -- we have driven around all of the northern suburbs and identified potential tenants that we have then gone and targeted either directly or via agents as well. The agents all have their own databases of tenants lease expiries. We're trying to engage with them 2 years out. We are talking to tenants and approaching tenants that don't have lease renewals until 2028, 2029. So we are engaging with them very early. We have also made direct contact with all of the tenant representatives. So there's a number of those companies throughout Australasia as well. We regularly provide marketing information and our information memorandum to both the agents and those tenant representatives. We actually have on-site agency days as well where we basically put on a morning or afternoon tea and coffee and get everyone here to get them reinvigorated. We had one of those in June to showcase the newly filled out spaces. As a result of that, we have managed to get a couple of leads off the back of that, which is positive and encouraging. Additionally, we're marketing across all the typical mediums. We've been engaged with local business associations trying to get in front of people there as well. All of the agents have been incentivized to do leasing deals at this site versus other sites. So we're offering more than normal real estate commission. So that in theory, we're more attractive than doing deals on other sites. So look, there is literally, I'll say, no stone unturned in terms of what we're doing in terms of trying to get in front of potential tenants and doing what we can. So -- but as Bruce said, all it takes is one relationship or one phone call. So certainly, if you know of anyone or know someone who we should be speaking to, we'd absolutely encourage you to make contact. But yes, we think we're doing absolutely everything that we can to unearth those opportunities.

Can I ask just one more question? How did you manage to get in contact Aderant?

Right. Aderant was -- that's all right. Yes, so for those online who didn't hear the question, the question was how did we get in contact with Aderant. There's a young broker up on the North Shore here from Barfoot & Thompson. He literally went door knocking on Aderant for 2 years. Being a tech company post-COVID, they are working from home a lot and literally no one was there to answer, but he just kept going back and back and back. And eventually, he broke the walls that he needed to and got in there and made contact. And from there, it was just a good hard work getting in front of them and then getting them on site and selling the dream for one of a better term. So every potential tenant that we have, we do a site visit with them, and we do a full tour of the property with Centuria and the agent and give them the full background about how the building originated, how it's been designed, all of the features that obviously make it a lot more appealing than some of the competing stock. And that certainly goes a long way to getting people interested and committed as well. And obviously, the features of the building help sell it as well.

Thanks for your questions, Kevin. Are there any other questions from the floor? Do we have any other questions online? Two more have come in online.

A couple more. So they're both from [ Shaun Ashby. ] So the first one relates to cash reserves going forward in the company. So he's just asked if there could be a minimum and maximum level of cash holdings identified.