2024 Annual Report

The challenging economic environment has continued over the past twelve months, with New Zealand officially slipping into recession through the September and December 2023 quarters. The higher interest rates targeted at inflation remain a feature in the economy at this time, making it difficult for property owners. Despite the economic backdrop we've continued to progress our key objectives, including:

• Deliver the Munroe Lane development which achieved Practical Completion in July 2023 with rental payable by Auckland Council from 17 May 2023;
• Prudently manage the balance sheet to mitigate
  the impacts of the high interest rate environment; and
• Successfully divest 22 Stoddard Road, Auckland which settled in May 2023.

Achieving Practical Completion on the Munroe Lane development is the culmination of a 4-year journey from project inception to conclusion. The building adds a highly sustainable, well located decentralised office building with a blue-chip tenant covenant, being Auckland Council across two thirds of the property.

Whilst leasing the remainder of the space continues to prove challenging, it is pleasing to see increasing leasing enquiry since completion of the property. There remains a paucity of potential occupiers of significant scale

on the North Shore, post the Covid-19 pandemic and subsequent impacts on occupier demand. However, we are confident that the fundamentals of the building will attract tenant commitment for the balance of the space, over time, however we expect that leasing will likely remain challenging in the near future.

On the back of the Auckland Council lease commencement, income was bolstered to partially offset divestments, and the ongoing vacancy at 35 Graham Street. As a result, we recorded a Adjusted Funds From Operations (AFFO*) loss of $0.67 million. This result for the full year is in line with expectations, driven by the vacancy and unrecovered OPEX on 35 Graham Street, which will continue until settlement occurs in November 2024. The dividend was suspended in March 2022 based on the forecast earnings for the company and is likely to remain on hold until 35 Graham Street settles and the future of the company is determined.

The higher than usual inflationary and interest rate environment has continued to adversely impact the fair value of assets in the period, with our valuers recording a $4.9 million reduction in the fair value of assets of the company. This was driven by the valuation for Munroe Lane reducing over the period, offset by the discount unwind at 35 Graham Street. As a result, NTA has reduced from 40.4 cps as at 31 March 2023 to 38.9 cps as at 31 March 2024.

As part of our disciplined capital management approach, and directly reflecting the cost of the company's debt, Stoddard Road was unconditionally sold for $36.75 million and settled in May 2023. All of the proceeds from that sale were utilised to repay debt. This prudent capital management approach was appropriate given the macroeconomic conditions, and accretive nature of the sale versus the company's cost of debt.

In October 2023, the purchaser of 35 Graham Street exercised their right to defer settlement of the purchase by twelve months. As a result, the purchase price increased by a further $3.0 million to $68.0 million, and the deposit increased to 20% of the total consideration. The additional $7.10 million that was received was also applied as debt repayments, reducing the LVR down to 18.2%.

During the year, upon the practical completion at Munroe Lane, the development finance facility was converted to an investment facility. We have retained sufficient facility headroom of $11.9 million to fund incentives and leasing across the vacant space at Munroe Lane. During the year the lockbox facility was also reduced from $5.0 million to $4.0 million in line with reductions in the company's facility limits and testing in accordance with facility covenants.

Looking forward, the Company's key focus remains on leasing the balance of the Munroe Lane development. Doing so will increase earnings, WALE, and the value of the portfolio and will better position the Company to consider options moving forward. Those options will include a potential divestment of Munroe Lane, subject to market conditions at the time, and obtaining shareholder approval.

Once settlement of 35 Graham Street occurs, we anticipate that the Company will ultimately be in a unique position of having zero debt and cash reserves of approximately $25 million. If a sale of Munroe Lane was to occur it will position the Company to consider its options, including a wind up of the Company, or a pivot into a new direction. As previously indicated any steps to sell Munroe Lane or to subsequently wind up the company will require shareholder approval, and we would likely anticipate asking shareholders to vote on both decisions contemporaneously.

In the meantime, the Management team remains focused on the objectives outlined above. Finally, we thank you again for your continued support and look forward to communicating our progress over the next few months ahead of settlement of 35 Graham Street in late November.

Bruce Cotterill

Chairman

PORTFOLIO VALUE

$180.8

million (reduced from $216.6 million)

PORTFOLIO OCCUPANCY

41.0%

(increased from 37.0%)

Portfolio Summary

NET TANGIBLE ASSETS

38.9

cents per share

(reduced from 40.4 cps in the prior year)

NUMBER OF ASSETS

2 (down from 3 assets)

35 Graham Street unconditionally sold and settling 29 November 2024

Munroe Lane

Munroe Lane, Albany, Auckland

35 Graham Street

Unconditionally sold with deferred settlement

35 Graham Street, Auckland CBD