Investment and management philosophy statement

The Trust’s objectives are to optimise earnings and provide attractive long-term sustainable returns to investors through the strategic acquisition, intensive management and ongoing development of office, retail and industrial property assets.

These objectives are achieved by:

investing in a high-quality diversified property portfolio throughout New Zealand, with a broad range of tenants and lease maturities,
fostering long-term tenant relationships as a means of enhancing investment performance,
adopting an active management philosophy encompassing asset and financial management, strategic investments, acquisitions and divestments and the judicious development of new and existing assets,
maintaining a strong balance sheet with conservative borrowing levels. The Trust Deed requires the level of borrowings to be maintained at no more than 40% of the gross value of the Trust, and
accessing the resources of the Manager's parent, Colonial First State Property Limited, and ultimate parent, Commonwealth Bank of Australia (CBA). CBA is one of the leading providers of financial services in Australasia and is best known in New Zealand for its ownership of ASB Bank and Sovereign Assurance. The ability of the Manager to access the skills and experience of one of Australasia’s leading fund managers assists the Trust to achieve its investment objectives.

Active management

The Manager seeks to optimise earnings and capital growth through strategic added-value remixes and refurbishments, negotiation of new leases and rent reviews and the application of best practice in all property management activities.

This involves:

ensuring that tenants are satisfied with their accommodation, and working with existing and prospective tenants to create solutions that add value for both parties;
negotiating and managing leases and rent reviews with each tenant, and monitoring compliance with all lease obligations;
managing capital expenditure requirements for upgrades or refurbishment of each asset so as to optimise overall investment returns; and
minimising vacant space in each asset and effectively marketing space if it becomes available.

Strategic acquisitions and divestments

The Manager will consider strategic acquisitions that have the potential to enhance investor returns and/or provide superior growth opportunities. Existing assets are continually reviewed to ensure that they fit within the Trust’s investment criteria, and are divested if necessary. With every existing asset or potential acquisition the Manager looks at:

maximising returns from rental income and achieving long-term capital growth;
minimising risk by investing in high-quality, strategically located assets;
the potential for superior growth and added-value opportunities;
the further diversification of the Trust’s portfolio by tenant, sector and geographical location; and
maintaining the Trust’s strong income profile through long-term leases to prime tenants.

Development activity

The ongoing refurbishment and/or redevelopment of the Trust’s existing assets, and the judicious development of new assets, are essential to the Trust’s continued performance. Existing shopping centre assets typically require periodic redevelopment to ensure competitiveness and the achievement of investment performance objectives. The Manager may also develop new assets where opportunities arise to enhance long-term sustainable returns to investors, acknowledging that it is often not possible or feasible to purchase these assets directly.

There are a variety of development activities the Trust may undertake and every project is different and has varying risk characteristics. For example, the refurbishment of an existing shopping centre will have a lower risk profile than the potential development of an asset on bare land which is not currently zoned for that activity. In some cases the refurbishment of an existing asset will have a lower risk profile than not undertaking that refurbishment and risking the deterioration of that asset.

While every project has a different risk profile, the types of risks may include securing control and ownership of the land, obtaining planning permissions and consents, construction procurement, cost escalation, resources, leasing, funding and ultimately delivery of the completed asset. Before undertaking any refurbishment, expansion or development proposal, the Manager evaluates identified risks associated with that particular project, and then plans and implements mitigation measures designed to manage those risks within acceptable levels.

The quantum of development undertaken by the Trust at any one time will depend on numerous factors, including, but not limited to, the risks associated with the particular development, the rate of return on the investment, the availability of resources and funding capacity.

The Trust Deed requires that any investment exceeding $1 million must first be approved by the Trustee. In considering any proposals, the Trustee does so having due regard to the best interests of investors.

The Manager does not as a general guiding principle intend to have more than approximately 15% of the gross value of the Trust fund held as development properties at any point in time. The Manager may exceed this guideline if a unique opportunity presents itself which fits the Trust’s investment criteria and is adequately de-risked, or where to not undertake a refurbishment or expansion of an existing asset would result in its deterioration.

Active financial and capital management

Active financial and capital management is undertaken with the objective of ensuring that the Trust’s income, expenses and financial position are managed so as to optimise long-term sustainable returns to investors. This includes:

ensuring that cash flows from rentals are efficiently utilised as they become available. This may be by way of capital expenditure for refurbishment or upgrade programs, or simply by debt repayments or by ensuring that cash balances are earning competitive interest rates;
actively managing the Trust’s debt and exposure to interest rate volatility through a disciplined debt and hedging strategy that ensures an ongoing spread of maturities, maximises the term of renewal, and achieves an appropriate mix of fixed-rate and short-term floating-rate debt to meet the Trust’s cash flow requirements;
ensuring that borrowings are used prudently, minimising interest costs, while at the same time making appropriate decisions about the trade-off between the cost of borrowing and the potential return from investment opportunities; and
careful consideration of any requirement for new equity, balancing the potential return from investment opportunities. The Trust’s debt and its exposure to interest rate volatility is actively managed by a dedicated treasury team who report to a Capital Management Committee which operates in accordance with a Board-approved debt and hedging policy.