Property For Industry Ltd (NZSE:PFI) (FY 2026) Earnings Call Highlights: Double-Digit FFO ...

Q: Regarding the two significant lease expiries (Rosebank Road and Neil Burgess), is the long lease-up time due to the refurbishment period or are you adding extra caution given the tougher leasing backdrop? A: Simon Woodham (CEO): For the Rosebank Road expiry, we get the property back at the end of August and have a three-and-a-half-month refurbishment period, which takes us close to the Christmas period, so there is conservatism in leasing through that time. The Neil Burgess lease doesn't expire until the end of April. For FY27, we are assuming no income from either property, also factoring in potential leasing incentives.

Q: The portfolio valuation in the second half looked a bit soft, especially with the uplift from the Spedding Road land. Can you discuss the movements, given that 1.6% market rent growth would arguably support more than a 0.7% uplift? A: Craig Pierce (Chief Finance and Operating Officer): Coming into calendar 2026, there was momentum in the market, but the Middle East conflict impacted leasing decisions and dampened that momentum. While transactions are still occurring at good prices (e.g., a $25 million sale at a 5.4% yield and a $39 million sale at a 5.35% yield), the last six months have not translated into additional valuation uplift, which is reflected in our numbers.

Q: Can you give us an idea of the benefit of the investment boost to the current tax year and help us understand the absolute underlying earnings without the tax benefits and the surrender payment? A: Craig Pierce (Chief Finance and Operating Officer): The most significant part of the investment boost is booked when we complete a development, such as Stage 2 of Springs Road, which provided a benefit of a couple of million dollars in H2. For normalization, the early lease surrender at Harris Road contributed roughly $2.5 million of additional income in FY26, which will unwind at around $1.2 to $1.3 million in future periods.

Q: You mentioned higher incentives for new builds and vacant space. Can you give us an idea of where those incentives sit currently? A: Simon Woodham (CEO): It's common now to see a minimum of one month per year of the proposed term. For a 10-year lease, that's 10 to 12 months of rent-free period or equivalent. This is markedly different from renewals with existing tenants, where we give away very little, maybe one or two months to secure an early renewal. While face rents on new builds are holding around $240 to $255 per square meter, the net effective rents are tracking back slightly due to these incentives.

Q: Was the Neil Burgess vacancy surprising? Can you walk us through what happened there? A: Simon Woodham (CEO): Neil Burgess is occupied by DHL, a large international occupier. We had been in active discussions with them for two to three years regarding their stay. They had a nine-month notice period, and right up until that point, there was a chance they would stay. However, they have decided to reduce their footprint around Auckland, so they gave notice to leave at the end of the lease.

Q: You mentioned that vacancy is below the level associated with a materially weaker market. At what level of vacancy do market rents weaken materially? A: Simon Woodham (CEO): You would need to see vacancy up around 5% to 6%, which we saw in the early 2000s. However, I don't think we'll see a material weakening in face rents this time because the developers in Auckland are mainly institutional and high net worth owners who are taking advantage of lower construction costs but holding onto face rents. Craig Pierce (CFO) added that with market cap rates around 5.5%, dropping face rates would make the economics of building worse than simply buying assets.

Q: Can you provide more color on FY28 and FY29 expiries and whether they will come with big rent review cycles? A: Simon Woodham (CEO): Tenants are less engaged in securing renewals early compared to a couple of years ago, with many asking for another 6-12 months before committing. There are a couple of reasonable-sized expiries in 2028, but none are causing concern. We are talking to the majority of tenants for the seven or eight leases over $400,000-$500,000, and there is no indication anyone is planning to leave. Craig Pierce (CFO) added that the FY28 expiries are heavily weighted to the second half, with the bigger ones in June 2028, giving us plenty of time.

Q: Given the strong rent review catch-up, do you see a material portion of the portfolio moving to over-rented territory over the next two to three years? A: Simon Woodham (CEO): We expect it to balance out. A few years ago, we were 20% under-rented, and we've captured that growth. CBRE anticipates market rent growth of 3% plus from 2028. The main leases we've done recently, including developments, have been at or around market rents, so we expect a balance to play out over the next two to three years, without being materially under or over-rented.

Q: Can you give an update on what you're seeing at Totara Creek Estate and whether anyone else is developing speculatively out there? A: Simon Woodham (CEO): No one else is building speculatively out there. It's quieter than we expected 12 months ago. Our building is designed to be broken into up to four units targeting 1,500 to 2,500 square meter tenants, who

For the complete transcript of the earnings call, please refer to the full earnings call transcript .