years 1 % 8.55% HIGHLIGHTS. Contents. Significant progress on leasing vacant space and upcoming lease expiries (see page 12)

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2 DHL 7 9 Niall Burgess Rd, Mt Wellington Contents HIGHLIGHTS Net dividend consistent at cents per share Weighted average lease term extended to 4.17years Balance sheet capacity for potential acquisitions and value-add opportunities 1 % uplift in portfolio value, reflecting continued stabilisation of the industrial property market Significant progress on leasing vacant space and upcoming lease expiries (see page 12) Consistent long-term performance: annualised gross shareholder return* of 8.55% over 17 years * Income yield plus change in share price. Assumes dividends are reinvested. Chairman s Letter 2 Board of directors 4 management team 5 manager s report 6 Leasing progress 12 portfolio summary 14 five year performance summary 20 financial statements & notes 21 independent auditor s report 49 Company structure 50 Corporate governance & statutory disclosure 51 shareholder statistics 54 directory 56 CaLendar PFI AnnuAl RePoRt 1

3 Stryker 515 Mt Wellington Highway, Mt Wellington Chairman s letter PFI is one of the longest-established names in New Zealand s listed property sector, and the directors are well aware of the large proportion of shareholders that have supported the company since listing. New manager for PFI During, PFI s manager AMP Capital Investors, which had been in the role since 1999 advised that it had received an unsolicited approach to acquire the management rights for PFI. The proposed transaction was considered carefully by PFI s two independent directors on behalf of shareholders. Following detailed discussions with the intended new manager, PFIM, the assignment of the management contract was approved by the board. The terms and conditions of the management contract remain unchanged. PFIM is a private company owned by interests associated with McDougall Reidy & Co. The key individuals have extensive experience in the ownership, management and development of industrial property. PFI s directors also saw merit in a number of initiatives proposed for PFI s future. A staged transition process was agreed and is now largely complete, with some staff of the former manager retained until the end of March 2012 to ensure a seamless handover. The managing director of McDougall Reidy & Co, Greg Reidy, has joined the PFI board as the representative of the new manager, with shareholders having the opportunity to vote on his appointment at the company s annual meeting in May. Meanwhile, the board has also been fortunate to retain the services of Anthony Beverley, the representative of the previous manager and a PFI director for more than 10 years, Mr Beverley is now an independent director. He retires by rotation this year, in accordance with the company s constitution, and will also be offering himself for re-election at the annual meeting. The board and manager have been working together productively to refine PFI s strategic response to the challenges ahead. It is therefore pleasing to report that the company has been able to maintain a consistent net dividend for, amid some of the toughest operating conditions in the company s history. The outstanding reliability of PFI s performance over the long term is evidenced by the company s average total return (income yield plus change in share price) of 8.55% per annum over the 17 years since listing. As an investment, industrial property continues to deliver. According to the Property Council of New Zealand/IPD New Zealand Commercial Property Index, the total return (income return and capital growth) from industrial property for the year to December was 10.7%. This was up from 8.7% the previous year, in which industrial property also led the index. The combined return for (including office and retail property as well as industrial) was 8.4%. The outset of the current year has seen one new director appointed to the PFI board, a change in the status of an existing director, and a new management team in place. These points are covered in more detail in the accompanying section. Some creditable leasing progress has also been achieved in the early part of These transactions provide an insight into the resilience of the businesses that occupy PFI s properties, and their ability to keep growing through testing times. The new management team also deserves recognition for their role in maintaining momentum. The challenge for the year is to continue to make an impact on remaining vacancy and scheduled lease expiries, in the context of an economic recovery that has frequently been described as sluggish. Whatever the outcome to 2012, shareholders should be secure in the knowledge that they have invested in a company with a strong board, a capable manager and an exceptional track record for delivering a competitive combination of income yield and capital preservation. cents per share PFI Net Dividend and Normalised Earnings Net dividend Normalised earnings Source: Forsyth Barr research. Normalised earnings refers to the removal of one-off and non-cash items excludes prior period tax credits of $1.04 million. Peter Masfen Chairman 2 PFI Annual Report PFI Annual Report 3

4 Board of Directors Management Team Peter Masfen Chairman, Independent director Peter Masfen joined the PFI Board in May 2002 and was appointed chairman in June He is chairman of the Masfen Holdings Limited of Companies, is a director of and has interests in a number of private companies in New Zealand including Mount Linton Station Limited and Greymouth Petroleum Limited. Peter is also a director of the Auckland Regional Chamber of Commerce and Industry. He is a trustee of King s College, Auckland and King s School, Auckland, and Woolf Fisher Trust. Director since Last re-elected May GREG REIDY Director, representing the manager Greg Reidy is managing director of PFIM Limited and also managing director of McDougall Reidy & Co. He has a background in property investment, funds management and development. Greg has more than 15 years experience in the management, ownership and development of industrial, commercial and retail property. Greg is a graduate of Lincoln University, completing a Bachelor of Commerce majoring in property valuation and management. Director since January Humphry Rolleston Independent DIRECTOR Humphry Rolleston is a director of and has interests in a number of private companies in New Zealand. He is chairman of ANZCRO Pty Limited and a director of SKY Network Television Limited, Mercer Limited, Infratil Limited, Asset Management Limited and Matrix Security Limited. Director since Last re-elected May. NICK COBHAM General Manager Before being appointed General Manager of PFI, Nick Cobham spent more than four years as Development Manager for McDougall Reidy & Co, managing industrial and commercial development projects. He also has previous experience in the listed property sector with Capital Properties New Zealand and has a background in property valuation and funds management. Nick is a graduate of Massey University where he completed his Property Valuation degree and Finance qualification. ANTHONY BEVERLEY Independent DIRECTOR Anthony Beverley is a consultant and professional director, following a 20-year career with AMP Capital Investors (New Zealand) Limited. Anthony s other directorships include listed property company AMP NZ Office Limited, its manager, AMP Haumi Management Limited and Marlborough Lines Limited. In 2005, Anthony was presented with the Property Institute of New Zealand s Premier Award in recognition of his contribution to the property industry and the wider economy. Director since Last re-elected May CRAIG PEIRCE Chief Financial Officer and Company Secretary Craig Peirce s property industry experience includes three years as Chief Financial Officer of McDougall Reidy & Co. Craig previously spent six years in London working in property funds management at LaSalle Investment Management and General Electric Real Estate. Craig is a graduate of Auckland University and is a Chartered Accountant, having trained as an auditor at PricewaterhouseCoopers. 4 PFI Annual Report PFI Annual Report 5

5 Healthcare Logistics 58 Richard Pearse Drive, Mangere In, PFI faced the challenges of reduced rentals, higher finance costs and higher taxes. Against this backdrop, the outcomes to the year represent a solid performance. $33,000k $32,000k $31,000k $30,000k $29,000k FINANCIAL RESULTS PFI s rentals for were $1.72 million or 5.3% lower than the previous year, at $30.81 million. The company s property sales were the main contributor to this reduction on a like-for-like basis, rents were steady. Lower portfolio occupancy also played a smaller role. These factors were partially offset by new revenue from completed developments and rent reviews. The graphic below compares PFI s revenue with the previous year, showing the main variances between the two years. Revenue Reconciliation $32,526k $1,620k $640k +$450k +$300k $208k $30,808k Total direct and indirect expenses for the year were $707,000 or 17.8% lower. PFI s bank margins and fees for the year were inevitably expected to increase as a result of the company s new bank debt facility, secured in late However, the full effect of the increase was offset by lower average borrowings following property sales, and the company also continued to benefit from low floating interest rates. Consequently, the increase in PFI s interest costs for the company s largest single expense item, at $8.34 million was limited to $221,000 or 2.7%. Taxation was another cost that was expected to be comparatively higher in, rising by $1.245 million or 55.5% to $3.49 million due to two factors. The first of these was the removal of the company s ability to depreciate building structures with useful lives of more than 50 years for tax purposes, which affected virtually all New Zealand property investors and has been well covered in previous reports. The second was the beneficial effect of prior-year tax adjustments received by PFI in Future tax costs are forecast to continue at broadly similar levels to. PFI s distributable profit after tax for the profit available for distribution to shareholders was $15.78 million, down $2.4 million or 13.3% from This equates to 7.21 cents per share (2010: 8.43 cents per share). PFI s board resolved to maintain the total net dividend for at the same level as the previous year: cents per share, equating to a pay-out ratio of 99.3% (2010: pay-out ratio of 85.2%). $ Revenue Sales Vacancy Developments completed Rent reviews Other Revenue PFI s annual independent portfolio revaluation as at 31 December resulted in an unrealised net increase in portfolio value of $3.65 million. This gain, in combination with NZ IFRS-required non-cash adjustments such as deferred tax and movements in interest rate swaps, meant PFI recorded a net profit after tax for of $16.35 million (2010: $10.01 million). 6 PFI Annual Report PFI Annual Report 7

6 MANAGER s report MANAGER s report OCCUPANCY PFI s portfolio occupancy level has in the past been among the best in the New Zealand listed property sector. Although occupancy at year-end was lower than in past years, a large proportion of the reduction was due to one property, 6a Donnor Place, Mt Wellington, which accounts for 2.7% of PFI s portfolio area and was vacant at 31 December. A new tenant for this property has since been secured, and this lease and other recent transactions are featured on page 12. Notwithstanding this progress, continuing to keep the portfolio fully occupied is a key challenge, and the success of the company s leasing efforts will have a major influence on earnings for the current year and beyond. PFI is already engaged in discussions with tenants whose leases expire as far out as While market conditions have been tough for businesses including PFI s tenants, the majority have clear strategies for their future and consequently continue to make decisions on their requirements for premises. The new leases agreed so far this year provide a snapshot of tenants reasons for seeking out new premises, which include outgrowing existing space, consolidation from multiple buildings into a single location, and business expansion. Although more enquiry is always welcome, PFI currently has steady levels of interest from prospective tenants in its available properties and development projects. Leasing Property Tenant Area (sqm) 44 Mandeville Street, Christchurch Leech & Partners* 399 Peninsula Business Park, Avondale AA Insurance* Lunn Avenue, Mt Wellington ASB Bank c William Pickering Drive, North Harbour So-Pac Marine Rosedale Road, North Harbour Imake 3,870 9 Vestey Drive, Mt Wellington Multispares NZ** 1,600 1 Ron Driver Place, East Tamaki Stewart Scott Cabinetry** 3,857 Seaview Business Park, Wellington Multispares NZ** 800 6a Donnor Place, Mt Wellington Glengarry Hancocks** 5,259 * Secured in early and noted as post-balance date event in previous annual report. ** Secured in early RENT REVIEWS In, PFI reviewed the rent on 33 leases, covering $9.85 million of contract rent. Although market rents appear to be effectively static, fixed or index-linked reviews applied to 70% of the reviews by value, and resulted in an average annualised increase of 4%. The total increase in contract rent was more than $491,000. In 2012, 40 rent reviews are scheduled on $10.93 million of contract rent, with fixed or index-linked reviews applying to 65% by value. Given the swings in market rents recorded in recent years and the challenges of obtaining acceptable market evidence, PFI is finding that tenants negotiating new leases are increasingly receptive to the certainty offered by CPI-linked or fixed reviews. These are often complemented with reviews to market levels midway through the lease term and again at the end, to provide confirmation for both parties. From PFI s perspective, this approach provides more predictable growth in rentals over the term of a lease. This growth is generally found to track the market over time. DIVESTMENTS PFI sold three properties in, for a total of $12.85 million. The combined weighted average lease term was 3.01 years and the overall yield on sale prices was 8.93%. The proceeds have so far been used to reduce the company s borrowing levels, pending reinvestment in higher-quality assets. Divestments Property Sale Price Yield on sale price 956 Great South Road, Penrose* $3.0 million 8.86% 956a Great South Road, Penrose* $2.5 million 8.98% 11 Barnes Street, Wellington $7.35 million 8.95% * Sold in early and noted as post-balance date event in previous annual report. PORTFOLIO REVALUATION As mentioned earlier in this report, PFI s annual independent portfolio revaluation as at 31 December resulted in an unrealised net increase in portfolio value of $3.65 million or 1% over the 12 months. This marked a welcome end to three years of reductions. The company s portfolio of 49 properties has a total value of $355.9 million. Tenant Retentions/Renewals Property Tenant Area (sqm) 7 Vestey Drive, Mt Wellington Wickliffe NZ 4,417 Peninsula Business Park, Avondale Bidvest 3, Vestey Drive, Mt Wellington Undisclosed 3, Seaview Road, Wellington Gough Gough & Hamer Hugo Johnston Drive, Penrose Work Carmont Place, Mt Wellington Packsys 1, Rosedale Road, North Harbour Parkland Products 3,205 The revaluation was carried out by independent registered valuers Colliers International, Jones Lang LaSalle and CB Richard Ellis. Valuation capitalisation rates across the PFI portfolio firmed by 20 basis points (0.2%) to 8.5%. Market rents were assessed as having held their ground during the year, but incentives remain a feature of the market, particularly for the long-term leases preferred by PFI. At the individual property level, valuations continue to be heavily influenced by vacancy or shorter remaining lease terms. A rebound in value can be expected for a number of PFI s properties as the company secures new tenants for vacant properties and new tenants or renewals for upcoming expiries. PFI s net tangible assets per share (NTA) remained steady at $1.08 as the unrealised increase in portfolio value was offset by an increase in interest rate swap liabilities (also unrealised). 8 PFI Annual Report PFI Annual Report 9

7 MANAGER s report MANAGER s report BORROWINGS AND INTEREST RATE MANAGEMENT As at 31 December, PFI had borrowings of $102.5 million (2010: $111.2 million). PFI has a self-imposed maximum gross debt to total assets ratio of 35% and as at balance date, this ratio was 28.6%, down from 30.9% a year earlier. The global events of recent years have resulted in a markedly different financing environment. However, PFI is well placed, with strong relationships with its lenders and a secure long-term bank debt facility. PFI s facility covenants are designed and managed to ensure that the company s facilities can withstand changes in value and earnings. The facility covenants limit the ratio of total liabilities (excluding derivative financial instruments and deferred tax) to total assets to a maximum of 45%. As at 31 December, this ratio was 29.4%. The other key covenant is that the ratio of earnings before interest and tax to interest must exceed 2 times. For the year ended 31 December, this ratio was 3.3 times. Interest costs are PFI s largest single expense item and therefore interest rate risk is carefully managed. PFI s interest rate risk management strategy is designed to protect shareholders from large and/or rapid adverse movements in interest rates so as to minimise adverse effects on distributable earnings. Interest Rate Hedging 31 December 31 December 2010 Average term of swaps* 2.63 years 2.94 years Percentage of debt fixed 71.2% 65.6% Average PFI interest rate (including margin) 7.9% 7.7% * Excluding forward start swaps. DIVIDEND REINVESTMENT SCHEME PFI s dividend reinvestment scheme was introduced in 1999 and gives shareholders the opportunity to reinvest their dividends in the company by purchasing additional shares, currently at a discount to market price of 2.5%. As at PFI s most recent dividend payment in March 2012, 882 investors or approximately 18% of shareholders, holding 18% of shares on issue, were participating in the scheme. Shareholders can join the dividend reinvestment scheme, or alter their participation, at any time. The relevant forms can be downloaded from the Investor Centre section of the PFI website, or obtained from PFI s share registrar. MARKET OVERVIEW Leasing Market Overall Auckland industrial vacancy was 4.2% as at December according to CB Richard Ellis research, down from 4.5% at the end of 2010 and continuing a trend of declining vacancy since mid Market face rents held their ground during. Incentives have been a reality for some time, and can be expected to remain so until market conditions improve. For the long-term leases preferred by PFI, the market expectation has remained steady. Investment Market CB Richard Ellis research shows yields for prime and secondary industrial property firmed during both the first and second halves of, indicating continued improvement in the investment market. Over the course of the year, prime yields firmed by more than 30 basis points (0.3%) and secondary yields by more than 15 basis points (0.15%). As at December, CB Richard Ellis had prime and secondary yields at 8.11% and 9.96% respectively. Continuation of this trend can be expected to flow into PFI s future portfolio valuations. OUTLOOK Shareholders can expect to see PFI continue to do what it does well, with some refinements. PFI s industrial property specialisation has served it well over the years, and the intention of the board and manager is to stay entirely focused on industrial property. Achieving and maintaining high occupancy is a key focus, along with other fundamentals of the property investment business working closely with tenants to ensure that their requirements continue to be met and rent payments are collected in a timely manner. With gearing (gross debt to total assets) relatively low at 28.6%, largely as a result of s asset sales, PFI has debt capacity for acquisitions. The company is on the lookout for high-quality industrial properties that will meet its investment criteria and will improve both earnings, and earnings consistency. Future acquisitions will reflect a return to classic industrial attributes generic industrial properties with long-term appeal to multiple potential occupiers. Further asset sales remain a possibility as the company continues to recycle its capital. In the view of the manager, there are still some properties in the portfolio that are non-core. PFI will also continue to carry out value-add projects on its existing properties as tenant pre-commitment is secured, with the new facility for Multispares NZ at Seaview Business Park in Wellington being a recent example. Challenges will continue to be a reality for PFI. New Zealand s economy is recovering at a slow pace, and the potential for further external shocks remains. Balancing these factors, the start to the year has been encouraging and PFI shareholders should be reassured by the fact that they have invested in one of the most consistent performers in the New Zealand listed property sector, holding assets that have in the past, been at the forefront of economic recovery. Nick Cobham General Manager 10 PFI Annual Report PFI Annual Report 11

8 Leasing progress Since year-end, four new leasing transactions have been secured, lifting portfolio occupancy by 2%. The weighted average lease term (WALT) of these transactions averages more than 10 years. 9 Vestey Drive, Mt Wellington New 8-year lease to Multispares NZ The existing tenant had signalled its intention to vacate the property at the end of its lease. PFI has secured a new tenant, Multispares NZ, on an eight-year lease beginning in early The rent will be reviewed in a combination of stepped, CPI and market mechanisms through the term of the lease. 6a Donnor Place, Mt Wellington New 10-year lease to Glengarry Hancocks This property has been PFI s largest vacancy. Glengarry Hancocks has leased the property for 10 years from completion of capital works, including new internal two-level offices and fencing and yard works. This lease has freed up approximately 4,200 sqm of land on the property that is available for future development for other occupiers. The new lease is expected to improve the value of this property by approximately 10%. Multispares sells truck, trailer and bus parts to fleet operators, independent workshops and owner-drivers. The lease is guaranteed by Multispares ASX-listed parent company. 1 Ron Driver Place, East Tamaki New 12-year lease to Stewart Scott Cabinetry, refurbishment and expansion work Although the existing tenant has chosen to vacate on lease expiry, Stewart Scott Cabinetry has leased the property on a 12-year term from completion of expansion work. As part of the agreement, PFI will refurbish the existing offices and expand the warehouse by a further 500 sqm. This new lease and expansion works are expected to increase the value of the property by about 10%. Seaview Business Park Wellington Design-build development for Multispares NZ PFI s relationship with Multispares has led to a second transaction Multispares has taken an initial eight-year lease on a new 800 sqm design-build office/warehouse facility to be built at PFI s Seaview Business Park, Wellington. Construction of the new facility is scheduled to be complete in the first half of This lease will increase Seaview Business Park s WALT and improve the value, providing a long-term return on existing non-income producing land. As with the Vestey Drive transaction, the lease is guaranteed by Multispares parent company. Stewart Scott Cabinetry supplies flat-pack kitchens to Mitre 10 stores and housing companies, among other activities. 12 PFI Annual Report PFI Annual Report 13

9 CMI Springs 7 Carmont Place, Mt Wellington Top Ten Tenants by Rent Roll Rank Tenant NO. of properties Annual Rent % of total 1 DHL Supply Chain 2 $2,259, % 2 Wickliffe 2 $1,720, % 3 Pharmacy Retailing 2 $1,581, % 4 Brambles 2 $1,376, % 5 Cardinal Freight 1 $1,115, % 6 Electrolux Home Products 1 $1,114, % 7 Fletchers 2 $949, % 8 NZ Comfort 1 $828, % 9 JD Lyons 2 $811, % 10 NZ Window Shades 1 $802, % Subtotal $12,558, % PORTFOLIO TOTAL 49 $30,150,400 Portfolio Liquidity by Property Value Value range No. Of Properties value % of total > $10 million 14 $195.1 m 54.7% $5 10 million 16 $107.4 m 30.2% $2 5 million 17 $50.7 m 14.3% < $2 million 2 $2.7 m 0.8% TOTAL 49 $355.9m 100.0% Lease Expiry Profile by Rent Roll 20% 18% 17.8% 19.1% 16% 14% 12% 13.6% 12.4% 10% 8% 6% 4% 3.8% 7.4% 8.9% 6.3% 9.0% 2% 0% 1.3% 0.4% Vacant Onwards AS AT 31 December Portfolio Rental by Industry Sector Warehousing/Logistics 29% Wholesale Trade 29% Manufacturing 22% Retail 7% Office 3% Finance & Insurance 3% Other 7% Portfolio Value by Location Mt Wellington 46% Avondale 15% Manukau 8% Penrose 5% North Harbour 7% East Tamaki 7% Mangere 3% Wellington 5% Christchurch 4% 14 PFI Annual Report PFI Annual Report 15

10 Portfolio summary AS AT 31 December ADDRESS TENANT Total contract rent $ valuation $000 Current yield on valuation % Value (ex canopy) $ per sqm cost plus additions $000 yield on cost % Warehouse sqm Office sqm Canopy sqm Other sqm Rentable yard sqm Rentable building area (ex canopy) sqm Site area sqm Site coverage % AVONDALE 320 Rosebank Road Doyle Sails NZ $610,924 $7, % $1,153 $5, % 5, ,286 9,640 65% 326 Rosebank Road Te Ngahere $80,000 $1, % $1,868 $ % ,506 37% 686 Rosebank Road Multiflora/NZ Racing Laboratories/Akzo Nobel/ Roadshow Entertainment/USL Medical/New Zealand Comfort $2,337,343 $27, % $1,430 $26, % 15,704 3,506 1, ,296 40,741 47% Patiki Road Gunnersen/Embroidery Works/Bidvest/Dorma/Itech Plus/Various $1,005,804 $11, % $1,219 $13, % 7,240 1, ,596 17,262 56% 15 Copsey Place Postie Plus/Prestige Services $643,788 $5, % $749 $5, % 5,478 2, ,607 10,426 73% EAST TAMAKI 1 Ron Driver Place LFA $346,220 $3, % $1,035 $2, % 2, ,673 6,896 53% 36 Neales Road Cardinal Freight $1,115,179 $11, % $1,070 $9, % 10, , ,843 19,702 55% 17 Allens Road Caroma/WR Jack/Harvey Norman $952,331 $10, % $1,123 $8, % 8,111 1, ,532 21,486 44% MANGERE 58 Richard Pearse Drive Pharmacy Retailing New Zealand $1,056,037 $11, % $1,180 $8, % 8, ,145 9,404 17,645 53% MANUKAU 212 Cavendish Drive Cardmember Wines/JD Lyons $1,208,624 $14, % $1,128 $8, % 12, , ,820 12,592 41,850 30% 85 Cavendish Drive Big Save Furniture/Reece Plumbing/Greenmark $805,570 $8, % $2,242 $7, % , ,893 11,550 34% 9 Nesdale Avenue Brambles New Zealand $605,000 $6, % $2,603 $4, % 1,650 1, ,236 2,651 16,878 16% MT WELLINGTON 6 Donnor Place Wickliffe NZ $1,260,815 $14, % $1,199 $12, % 10,116 1,979 1,005 3,000 12,095 27,159 45% 7 Vestey Drive Wickliffe NZ $460,000 $5, % $1,325 $4, % 3, ,416 7,704 57% 2 6 Niall Burgess Road NZ Window Shades $802,224 $8, % $1,301 $6, % 5,609 1, ,609 10,537 63% 509 Mt Wellington Highway Eglo/Fletchers/Orica/Tileco/Various $988,954 $11, % $1,998 $6, % 3, ,614 2,378 5,756 14,548 40% 511 Mt Wellington Highway Vero Insurance $480,000 $5, % $1,623 $4, % 1,333 1, ,174 4,762 67% 515 Mt Wellington Highway Stryker $253,490 $3, % $1,815 $3, % 1, ,708 3,709 46% 80 Lunn Avenue Farro Foods/Subway/ASB/ Animates/Westpac/HairFX $902,713 $11, % $3,872 $8, % ,655 2,996 7,715 39% 174b Marua Road Waste Management $136,440 $2, % $2,132 $2, % 938 2, ,753 20% 54 Carbine & 6a Donnor Place Pharmacy Retailing New Zealand/Vacant $525,000 $14, % $1,083 $11, % 11,407 1,796 1,034 13,203 29,853 44% 50 Carbine Road Atlas Copco $190,000 $2, % $2,578 $1, % , ,435 26% 76 Carbine Road Atlas Gentech $420,000 $5, % $1,922 $6, % 1,268 1, ,633 2,731 6,801 40% 36 Vestey Drive Fox Air $147,336 $1, % $1,476 $2, % ,108 2,356 47% 7 Carmont Place Packsys/CMI Springs $535,000 $6, % $1,271 $4, % 4, ,116 15,344 33% 4 6 Mt Richmond Road Brambles New Zealand $771,053 $9, % $1,238 $7, % 6, ,674 14,761 52% 5 Vestey Drive PPG Industries $215,000 $2, % $1,999 $1, % ,268 2,357 54% 9 Vestey Drive Hiab $203,622 $2, % $1,490 $1, % 1, ,597 2,730 58% 11 Vestey Drive Undisclosed $491,727 $5, % $1,631 $3, % 2, ,565 5,760 62% 15a Vestey Drive Skills 4 Work/PMP Maxum $513,317 $6, % $1,867 $4, % 1,488 1, ,214 6,270 51% 1 Niall Burgess Road RL Button & Co $210,541 $2, % $1,644 $1, % 1, ,639 3,938 42% 3 5 Niall Burgess Road Electrolux Home Products $1,114,303 $12, % $1,367 $8, % 7,058 1, ,776 18,679 47% 10 Niall Burgess Road On Site Broadcasting $230,500 $2, % $1,582 $1, % 1, ,685 3,254 52% 7 9 Niall Burgess Road DHL Supply Chain NZ $1,988,664 $22, % $1,353 $22, % 14,918 1,467 3, ,735 16,772 29,712 56% 523 Mt Wellington Highway Steel & Tube $213,740 $2, % $1,510 $1, % 1, ,676 4,000 42% 16 PFI Annual Report PFI Annual Report 17

11 Portfolio summary AS AT 31 December ADDRESS TENANT Total contract rent $ valuation $000 Current yield on valuation % Value (ex canopy) $ per sqm cost plus additions $000 yield on cost % Warehouse sqm Office sqm Canopy sqm Other sqm Rentable yard sqm Rentable building area (ex canopy) sqm Site area sqm Site coverage % NORTH HARBOUR 322 Rosedale Road Parkland Products/Imake/Caprice $862,081 $10, % $1,485 $8, % 5,774 1, ,339 13,700 54% 47 Arrenway Drive Onyx $219,800 $2, % $2,451 $3, % ,163 1,801 65% 41 William Pickering Drive Mayo Hardware/Meridian/So-Pac $405,385 $5, % $1,656 $3, % 2, ,020 5,923 51% 19 Omega Street Just Switchboards/NZAA $201,006 $2, % $2,121 $1, % ,273 2,764 46% 29 Omega Street Club Physical Albany $304,501 $3, % $1,996 $3, % 469 1,034 2,500 1,503 4,360 34% PENROSE 8 Hugo Johnston Drive Argyle Schoolwear/Kings Transport/Tenix/Various $612,279 $7, % $1,631 $6, % 2,228 1, ,292 7,517 57% 12 Hugo Johnston Drive Bowls NZ Inc./Hallmark Cards/Ricoh $315,657 $3, % $1,352 $3, % 1, ,589 3,811 68% 16 Hugo Johnston Drive Modempak $215,000 $3, % $1,298 $2, % 1, ,619 3,866 68% 102 Mays Road Carter Holt Harvey $393,250 $4, % $1,174 $3, % 3, ,500 4,088 11,375 36% WELLINGTON 48 Seaview Road Bridgestone NZ/BP/Gough Gough & Hamer/Hino $442,337 $5, % $3,092 $4, % 1, ,368 1,724 20,216 9% 50 Parkside Road All Brite Industries $334,740 $3, % $733 $4, % 4, ,568 4,899 10,540 46% 8 McCormack Place Information Management $773,808 $8, % $1,581 $8, % 5, ,551 8,338 67% CHRISTCHURCH 44 Mandeville Street PlaceMakers/Tyco Flow/Windflow Technology/LFA/ Leech & Partners $978,915 $10, % $1,182 $8, % 6,598 1, ,854 9,051 22,357 40% 127 Waterloo Road DHL Supply Chain NZ $270,382 $2, % $964 $1, % 2, ,981 6,500 46% TOTAL $30,150,400 $355, % $1,387 $295, % 201,294 42,890 16,886 12,451 50, , ,787 45% 18 PFI Annual Report PFI Annual Report 19

12 FIVE YEAR PERFORMANCE SUMMARY DHL 7 9 Niall Burgess Rd, Mt Wellington ALL in $ Rental income 30,808 32,526 31,428 32,470 30,859 Net distributable profit attributable to shareholders 15,776 18,198 15,920 15,699 14,905 Profit after tax before unrealised revaluations (a) 16,914 13,688 14,712 20,571 15,246 Unrealised revaluations (a) (566) (3,676) (27,226) (52,483) 29,204 Adjusted net surplus (b) 16,087 10,713 (11,957) (31,912) 44,200 Net debt 102, , , , ,300 Investment property 350, , , , ,675 Shareholders' funds (adjusted) (c) 232, , , , ,202 Gross debt to total property and other assets 28.62% 30.95% 33.20% 28.91% 28.72% Gross interest cover 3.30X 3.52X 3.50X 3.20X 3.39X Management expense ratio 0.58% 0.61% 0.59% 0.69% 0.84% Pre tax return on shareholders funds after property revaluations (b)(d) 9.72% 7.58% (3.44%) (8.31%) 15.45% Weighted average cost of capital (c) 6.73% 7.71% 8.08% 8.21% 7.77% Shareholder total gross returns 9.09% 3.10% 16.03% (16.55%) 6.41% Annual gross dividend yield on average share price 7.38% 7.15% 7.93% 7.44% 6.09% Gross dividend cents per share Net dividend cents per share Net tangible assets cents per share (adjusted) (c) Net tangible assets cents per share Basic earnings cents per share before revaluations (a) (b) (e) (f) Basic earnings cents per share after revaluations (a) (b) (e) (f) (5.60) (15.09) Number of properties owned Portfolio gross income yield on valuation 8.47% 8.96% 8.84% 8.64% 7.60% Average unexpired lease term (years) Portfolio occupancy 95.6% 99.5% 99.6% 99.4% 99.6% Closing shares on issue 219,010, ,759, ,543, ,434, ,508,187 Average shares 218,721, ,990, ,455, ,467, ,575,156 Number of shareholders 4,927 4,991 5,152 5,247 5,521 Gross shareholder returns since listing (annualised) 8.55% 8.49% 8.91% 8.42% 10.88% (a) unrealised revaluations includes changes in values of properties and derivative financial instruments and excludes gain/(loss) on vendor finance receivable (b) Excludes gain/(loss) on sale of property (c) Adjusted for final dividend (d) After unrealised changes in value of properties (e) Calculated on weighted average shares for the year (f) Includes taxes 20 PFI Annual Report PFI Annual Report 21

13 Statement of Comprehensive Income Statement of Changes in Equity For the year ended 31 December GROUP PARENT ALL in $000 Note Revenue Rent 4 30,808 32,526 Management fee income 5 1,865 1,909 Total revenue 30,808 32,526 1,865 1,909 Less: Property operating expenditure 4 (580) (926) (140) (140) Gross profit 30,228 31,600 1,725 1,769 OTHER INCOME Gain/(loss) on disposal of investment property 261 (701) Total other income 261 (701) Expenditure Audit fees Audit of the financial statements (41) (39) (41) (39) Other fees paid to auditors for other assurance services (37) (29) (37) (29) Directors fees 5 (130) (176) (130) (176) Management fees base fee 5 (1,865) (1,909) (1,865) (1,909) Other expenditure 6 (612) (893) (612) (893) Total indirect expenses before interest (2,685) (3,046) (2,685) (3,046) Operating profit/(loss) before net finance costs, fair value changes and taxation 27,804 27,853 (960) (1,277) Finance costs Interest received Finance costs (8,343) (8,122) (8,463) (8,249) Net finance costs 18 (8,277) (8,111) (8,397) (8,238) Non operating income and expenses Unrealised net change in fair value of investment properties 7 3,653 (2,590) Unrealised revaluation gain/(loss) derivative financial instruments (4,219) (1,086) (4,219) (1,086) For the year ended 31 December ALL in $000 Note Share capital Retained earnings Total Share capital PARENT Retained earnings Balance at 1 January ,836 72, , ,836 (105,602) 59,234 Profit/(loss) for the year 10,012 10,012 (6,789) (6,789) Other comprehensive income Total comprehensive profit/(loss) for the year ended 31 December ,012 10,012 (6,789) (6,789) Transactions with owners in their capacity as owners Share issues/dividend reinvestment 19 2,498 2,498 2,498 2,498 Dividends 10 (15,451) (15,451) (15,451) (15,451) 2,498 (15,451) (12,953) 2,498 (15,451) (12,953) Balance at 31 December ,20 167,334 66, , ,334 (127,842) 39,492 Balance at 1 January 167,334 66, , ,334 (127,842) 39,492 Profit/(loss) for the year 16,348 16,348 (9,775) (9,775) Other comprehensive income Total comprehensive profit/(loss) for the year ended 31 December 16,348 16,348 (9,775) (9,775) Transactions with owners in their capacity as owners Share issues/dividend reinvestment 19 2,553 2,553 2,553 2,553 Dividends 10 (15,614) (15,614) (15,614) (15,614) 2,553 (15,614) ( 13,061) 2,553 (15,614) (13,061) Balance at 31 December 19,20 169,887 67, , ,887 (153,231) 16,656 The accompanying notes form part of these financial statements Total Total non operating income and expenses (566) (3,676) (4,219) (1,086) Profit/(loss) for the year before taxation 18,961 16,066 (13,576) (10,601) Tax benefit/(expense) Current taxation (3,490) (2,245) 2,620 2,909 Deferred taxation 877 (3,809) 1, Total tax 8 (2,613) (6,054) 3,801 3,812 Profit/(loss) for the year attributable to the shareholders of the Company 16,348 10,012 (9,775) (6,789) Other comprehensive income Total comprehensive income/(loss) for the year attributable to the shareholders of the Company 16,348 10,012 (9,775) (6,789) Basic and diluted earnings cents per share The accompanying notes form part of these financial statements 22 PFI Annual Report PFI Annual Report 23

14 Statement of Financial Position Statement of Cash Flows as at 31 December GROUP PARENT ALL in $000 NOTE Current assets Accounts receivable Goods and services tax Prepayments and other current assets 14 6,821 5,220 1, Investment properties held for resale 7 5,372 Taxation recoverable Loans to subsidiaries , ,318 Total current assets 7,736 11, , ,335 Non current assets Investment properties 7 350, ,925 Shares in subsidiaries 15 1,750 1,750 Total non current assets 350, ,925 1,750 1,750 Total assets 358, , , ,085 Current liabilities Bank overdraft Accounts payable and accruals 16 1,882 2,319 1,294 1,260 Taxation payable 509 Goods and services tax 285 Derivative financial instruments 17 9,454 5,235 9,454 5,235 Total current liabilities 12,246 7,918 10,864 6,859 Non current liabilities Deferred taxation 8 6,426 7,303 (2,647) (1,466) Borrowings , , , ,200 Total non current liabilities 108, ,503 99, ,734 Owners' equity Share capital , , , ,334 Retained earnings 20 67,454 66,720 (153,231) (127,842) Total equity 237, ,054 16,656 39,492 Total liabilities and equity 358, , , ,085 The accompanying notes form part of these financial statements Authorised on behalf of the Board. For the year ended 31 December GROUP PARENT ALL in $000 NOTE Cash flows from operating activities Cash was provided from: Cash receipts from customers 30,106 31,419 1,865 1,911 Goods and services tax received 330 Interest received Subtotal 30,502 31,430 1,931 1,922 Cash was applied to: Cash paid to suppliers (5,762) (5,079) (3,007) (4,526) Interest on loans paid (7,518) (7,994) (8,343) (8,121) Goods and services tax paid (250) (48) (250) Income tax paid (2,554) (3,600) 2,317 2,257 Subtotal (15,834) (16,923) (9,081) (10,640) Net cash from/(used in) operating activities 21 14,668 14,507 (7,150) (8,718) Cash flows from investing activities Cash was provided from: Sale of investment properties 12,839 15,950 Loans from subsidiaries 29,159 33,183 Vendor finance received 4,700 Subtotal 12,839 20,650 29,159 33,183 Cash was applied to: Purchase and development of investment properties (5,378) (10,564) Capitalisation of interest for development properties (120) (128) Subtotal (5,498) (10,692) Net cash inflows from investing activities 7,341 9,958 29,159 33,183 Cash flows from financing activities Cash was provided from: Contributions from shareholders 2,553 2,498 2,553 2,498 Draw down of term loans 23, ,200 23, ,200 Subtotal 25, ,698 25, ,698 Cash was applied to: Dividends paid 10 (15,614) (15,451) (15,614) (15,451) Repayment of term loans (32,000) (122,000) (32,000) (122,000) Subtotal (47,614) (137,451) (47,614) (137,451) Net cash outflows from financing activities (21,761) (23,753) (21,761) (23,753) Net increase in cash and cash equivalents held Opening cash and cash equivalents brought forward (364) (1,076) (364) (1,076) Peter Masfen Gregory Reidy Director, 15 March 2012 Director, 15 March 2012 Cash and cash equivalents at the end of the year (116) (364) (116) (364) Cash and cash equivalents balances in the Statement of Financial Position Cash balances comprise the following: Bank overdraft 12 (116) (364) (116) (364) Total cash at bank and bank overdrafts (116) (364) (116) (364) The accompanying notes form part of these financial statements 24 PFI Annual Report PFI Annual Report 25

15 Notes to and Forming Part of the Financial Statements Notes to and Forming Part of the Financial Statements For the year ended 31 December 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Reporting Entity The financial statements are those of Property For Industry Limited (the Company, the ) and the consolidated financial statements of the Company and its subsidiaries P.F.I. Property No. 1 Limited, P.F.I. Property No. 2 Limited, P.F.I. Property No. 3 Limited, P.F.I. Property No. 4 Limited, P.F.I. Property No. 5 Limited and PFI Property No. 6 Limited. Property For Industry Limited is the ultimate of the. The Company is incorporated in New Zealand and is registered under the New Zealand Companies Act The registered office of the Company is Shed 24, Prince s Wharf, 147 Quay Street, Auckland The Company is listed on the New Zealand Stock Exchange. The Company is an issuer for the purposes of the Financial Reporting Act The financial statements are prepared in accordance with the Financial Reporting Act The Company s principal activity is property investment and management. The Company is a profit-oriented entity. The financial statements are those of the Company and its subsidiaries as at and for the year ended 31 December. The subsidiaries apply the same accounting policies as the. (a) Measurement basis The financial statements have been prepared on the historical cost basis except for the following: Investment property is measured at fair value. Certain Financial Instruments which are measured at fair value as set out below. (b) Statement of compliance The financial statements have been prepared in accordance with NZ GAAP. The financial statements comply with the New Zealand equivalents to International Financial Reporting Standards ( NZ IFRS ) and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. The financial statements also comply with International Financial Reporting Standards ( IFRS ). Financial statements have been prepared using the New Zealand Dollar functional and presentation currency. Financial statements have been rounded to the nearest thousand dollars ($000). There have been no new standards adopted for the period beginning 1 January, however a number of minor amendments and improvements to NZ IFRS have been adopted but these have not had a significant impact on the s accounting policies. (c) Basis of consolidation Subsidiaries are entities controlled by the. Control exists when the has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable are taken into account. If subsidiaries are acquired during the year, their results are included in the financial statements from the date of acquisition. If subsidiaries are disposed of, they are accounted for up to disposal date. Inter-company accounts and transactions are eliminated on consolidation. Investments in subsidiaries in the Company s separate financial statements are carried at cost, less impairment losses. The financial statements include the financial statements of the Company and its wholly owned subsidiaries, P.F.I. Property No. 1 Limited, P.F.I. Property No. 2 Limited, P.F.I. Property No. 3 Limited, P.F.I. Property No. 4 Limited, P.F.I. Property No. 5 Limited and PFI Property No. 6 Limited. The purchase method of consolidation has been adopted. (d) Investment properties Investment property is property held to earn rental income now or in the future, but not for sale in the ordinary course of business or for use in the production or supply of goods and services, or for administrative purposes. Initially, investment properties are valued at cost including transaction costs. Subsequent to initial recognition investment properties are stated at fair value. Gains or losses arising from changes in the fair values of investment properties are included in Profit or Loss in the Statement of Comprehensive Income in the year in which they arise. Investment properties are revalued annually on the basis of the current market valuation made by independent registered public valuers. The value of capitalised leasing costs is deducted from the valuation to ensure that investment properties and associated leasing costs are recorded at fair value. Where the Directors consider that the independent valuation does not give a true and fair view then adjustments will be made and fully disclosed. For the years ended 31 December and 2010 no adjustments were made. No provision has been made in the financial statements for depreciation or amortisation on investment properties. However, for tax purposes depreciation is claimed on building fit-out and a deferred tax liability is recognised where the building component of the registered valuation exceeds the tax book value of the building. (e) (f) The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of the current market conditions. The fair value also reflects, on a similar basis, the cash outflows that could be expected in respect of the property. Some of these outflows are recognised as a liability, including finance lease liabilities in respect of leasehold land classified as investment property; others, including contingent rent payments, are not recognised in the financial statements. Capital work in progress Fair value measurement on property under construction is only applied if the fair value is considered to be reliably measurable. It may sometimes be difficult to determine reliably the fair value of the investment property under construction. In order to evaluate whether the fair value of an investment property under construction can be determined reliably, management considers the following factors, among others: The provisions of the construction contract. The stage of completion. Whether the project/property is standard (typical for the market) or non-standard. The level of reliability of cash inflows after completion. The development risk specific to the property. Past experience with similar constructions. Status of construction permits. Leasing costs Leasing costs in relation to letting of property, where material, are recognised as prepaid expenses and amortised on a straight line basis over the lease years to which they relate. (g) Revenue recognition Rental income from investment property is recognised in Profit or Loss in the Statement of Comprehensive Income on a straight line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. (h) Management fee income Management fee income is recognised in Profit or Loss in the Statement of Comprehensive Income in the period in which the services are rendered. (i) Taxation The Company and are a listed Portfolio Investment Entity (PIE) for the purposes of the Income Tax Act Tax is accounted for on a consolidated basis and the is required to pay tax to the Inland Revenue as required by the Income Tax Act Income tax expense comprises current and deferred tax. Income tax expense is recognised in Profit or Loss in the Statement of Comprehensive Income for the year, except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is recognised for the following temporary differences: The tax liability arising from accumulated depreciation claimed on investment properties, where applicable. The tax asset/liability arising from the allowance for impairment. The tax asset/liability arising from the unrealised gains/losses on the revaluation of interest rate swaps. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different entities, but they intend to settle current tax assets and liabilities on a net basis. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised. 26 PFI Annual Report PFI Annual Report 27

16 Notes to and Forming Part of the Financial Statements Notes to and Forming Part of the Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued (j) Goods and services tax The financial statements have been prepared on a goods and services tax exclusive basis except for accounts payable and receivable which are stated inclusive of GST where invoiced. (k) Financial instruments Non derivative financial instruments Non derivative financial instruments comprise non-derivative financial assets and non-derivative financial liabilities. Non derivative financial assets are classified as cash and cash equivalents, trade and other receivables, and advances to subsidiaries. i) Cash and cash equivalents include cash at bank and short term money market investments which are readily convertible to cash. Only items that have an original maturity of three months or less are classified as cash and cash equivalents. ii) trade and other receivables are recognised and carried initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost less allowance for impairment, if any. iii) Advances to subsidiaries are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost less allowance for impairment, if any. Non derivative financial liabilities are classified as trade and other payables and secured bank loans i) trade and other payables are classified as other financial liabilities and arise directly from the s operations. Trade and other payables are recognised initially at fair value plus directly attributable transaction costs, and subsequently at amortised cost. ii) Secured bank loans are recognised initially at fair value plus directly attributable transaction costs. Subsequently to initial recognition, interest bearing liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in Profit or Loss in the Statement of Comprehensive Income over the period of the liability on an effective interest basis. Borrowing costs are recognised as an expense when incurred, except where they are in relation to qualifying assets as defined in NZ IAS 23 and then are included in the cost of properties under development. Where borrowing costs are specific to a particular property under development, the rate at which borrowing costs are capitalised is determined by reference to the actual borrowing costs incurred. (m) Impairment financial assets The assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets are impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. All individually significant financial assets are assessed for specific impairment. All individually significant financial assets found not to be significantly impaired are collectively assessed for any impairment that has been incurred but not yet identified. In assessing collective impairment the uses objective evidence such as tenants in receivership or liquidation, tenants in default and other such information. This is adjusted for management s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historic trends. All impairment losses are recognised in Profit or Loss in the Statement of Comprehensive Income. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. This reversal is recognised in Profit or Loss in the Statement of Comprehensive Income. (n) Statement of Cash Flows The following is the definition of terms used in the Statement of Cash Flows. i) Cash means coins, notes, demand deposits and other highly liquid investments in which the Company has invested as part of its day to day cash management. Cash includes current liabilities such as negative cash balances in the form of overnight bank overdrafts. Cash does not include receivables or payables or any borrowing that forms part of a term facility. ii) Investing activities include those relating to the addition, acquisition and disposal of investment properties and any addition or reduction of subsidiary investments and loans. iii) Financing activities are those activities that result in changes in the size and composition of the capital structure of the Company. Dividends paid in relation to the capital structure are included in financing activities. iv) operating activities include all transactions and other events that are neither investing nor financing activities. Derivative financial instruments i) The is exposed to changes in interest rates and uses interest rate derivatives to mitigate these risks. ii) Such derivative instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re measured to fair value each reporting date. Transaction costs are expensed on initial recognition and recognised in Profit or Loss in the Statement of Comprehensive Income. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. The fair value of derivative financial instruments is based on valuations prepared by the counterparty, based on prevailing interest rates. iii) the fair value of interest rate swaps is the estimated amount that the would receive or pay to terminate the swap at reporting date, taking into account current interest rates and creditworthiness of the swap counterparties. Derecognition of derivative financial instruments The derecognises a financial asset only when the contractual rights to the cash flows from the assets expire or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. The derecognises financial liabilities when, and only when, the s obligations are discharged, cancelled or they expire. (l) Impairment non financial assets Assets other than investment properties and deferred tax assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Impairment losses are recognised in Profit or Loss in the Statement of Comprehensive Income when incurred. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. The reversal is recognised in Profit or Loss in the Statement of Comprehensive Income. Impairment losses are reversed only to the extent that an asset s carrying amount does not exceed the carrying amount that would have been determined if no impairment had been recognised. 28 PFI Annual Report PFI Annual Report 29

17 Notes to and Forming Part of the Financial Statements Notes to and Forming Part of the Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued (o) Standards and interpretations not yet effective The new standards, amendments to published standards and interpretations that are mandatory for the s financial periods beginning on or after 1 January 2012 or later periods, but which the has not early adopted, are as follows: Standard/Interpretation FRS 44 Financial Reporting Standard No.44 New Zealand Additional Disclosures Effective date Annual periods commencing on or after 1 July Harmonisation Amendments Amendments to NZ IFRS Annual periods commencing on or after 1 July NZ IAS 1 (amendment) Presentation of Items of Other Comprehensive Income Annual periods commencing on or after 1 July 2012 NZ IAS 27 Separate Financial Statements Annual periods commencing on or after 1 January 2013 NZ IAS 28 NZ IAS 32 NZ IFRS 7 NZ IFRS 7 NZ IFRS 7 Investments in Associates and Joint Ventures Financial Instruments: Presentation Amendment - Offsetting Amendments to NZ IFRS 7 Financial Instruments: Disclosure (Transfers of Financial Assets) Amendments to Appendix E - New Zealand specific additional disclosure requirements applicable to deposit takers Amendments - Offsetting Financial Assets and Financial Liabilities Annual periods commencing on or after 1 January 2013 Annual periods commencing on or after 1 January 2014 Annual periods commencing on or after 1 July 2014 Annual periods commencing on or after 1 April Annual periods commencing on or after 1 January 2013 NZ IFRS 7 Amendment - Transition Disclosures Annual periods commencing on or after 1 January 2015 NZ IFRS 9 Financial Instruments Annual periods commencing on or after 1 January 2013 NZ IFRS 9 Amendment - Mandatory Effective Date Annual periods commencing on or after 1 January 2015 NZ IFRS 10 Consolidated Financial Statements Annual periods commencing on or after 1 January 2013 NZ IFRS 11 Joint Arrangements Annual periods commencing on or after 1 January 2013 NZ IFRS 12 Disclosure of Interest in Other Entities Annual periods commencing on or after 1 January 2013 NZ IFRS 13 Fair Value Measurement Annual periods commencing on or after 1 January 2013 All standards and interpretations will be adopted at their effective date (except for those that are not applicable to the ). The Directors are of the opinion that the impact of the application of these standards and interpretations will be minor or not currently quantifiable. 2. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS In applying the s and Company s accounting policies, management continually evaluates judgements, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the and Company. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgements, estimates and assumptions made by management. The significant judgements, estimates and assumptions made in the preparation of these financial statements are outlined below: Capitalisation rates ranged from 6.5% to 10.25% excluding vacant property (2010: 6.83% to 11.05%) across the portfolio. Discounted cash flow projections are based on estimates of future cash flows, supported by the terms of any existing lease and other contracts and by external evidence such as current (at the date of the Statement of Financial Position) market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. Independent registered valuers took into account occupancy* on individual properties (portfolio average is 95.6%, 2010: 99.5%), average lease term (weighted average lease term at balance date was 4.17 years, 2010: 4.08 years), and discount rates (range from 8% to 11.25%, 2010: 9.50% to 12.0%). The fair value of work in progress cannot be reliably determined therefore it has been recognised and measured at cost in accordance with NZ IAS 40 Investment Properties. *Leased floor area as a proportion of total floor area Deferred taxes Deferred tax is provided on the accumulated depreciation claimed on the building component of investment properties. From 1 January, depreciation can only be claimed on the fit-out component of building costs. Investment properties are valued each year by independent valuers (as outlined in note 7). These values include an allocation of the valuation between the land and building components. The calculation of deferred tax on the building components places reliance on the land and building split provided by the valuers. Derivative financial instruments Derivative financial instruments are represented at valuation prepared by the counterparty, which is based on a calculation of the present value of estimated future cash flows based on the applicable market interest yield rates at reporting date. The interest rates used in performing the valuations range from 2.66% to 4.09% (2010: 3.68% to 5.64%). 3. FINANCIAL RISK MANAGEMENT Strategy in using financial instruments The s activities expose it to a variety of financial risks: market risk (such as interest rate risk) and credit risk. The s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the s financial performance. The uses derivative financial instruments to moderate certain risk exposures. The s principal financial instruments, other than derivatives, comprise bank loans. The main purpose of these financial instruments is to raise finance for the. The also enters into derivative transactions, principally interest rate swaps. The purpose of entering into derivative transactions is to manage the interest rate risk arising from the s operations and its sources of finance. The has various other financial assets and liabilities such as accounts receivable and accounts payable, which arise directly from its operations. The main risks arising from the s financial instruments are interest rate risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks as summarised below. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 1 to the financial statements. Investment properties (also refer note 7) Management have used independent registered valuers estimates to determine fair value. For these properties with a carrying amount of $350,734,000 (2010: $348,724,000), the valuation was determined using a combination of both direct capitalisation and discounted cash flow approaches. Using a direct capitalisation approach the subject property rental is divided by a market derived capitalisation rate to assess the market value of the asset. Further adjustments are then made to the market value to reflect under/over renting, additional revenue and required capital expenditure. 30 PFI Annual Report PFI Annual Report 31

18 Notes to and Forming Part of the Financial Statements Notes to and Forming Part of the Financial Statements 3. FINANCIAL RISK MANAGEMENT Continued Summary of financial instruments by category ALL in $000 Loans and receivables Liabilities at amortised cost Fair value through profit and loss Total carrying amount 1 Loans and receivables Liabilities at amortised cost Fair value through profit and loss Total carrying amount 1 Financial Assets Loans to subsidiaries 124, ,159 Accounts receivable Prepayments and other current assets 6,821 6,821 1,033 1,033 Total 7,736 7, , ,192 Financial Liabilities Bank overdraft (116) (116) (116) (116) Accounts payable and accruals (1,882) (1,882) (1,294) (1,294) Derivative financial instruments (9,454) (9,454) (9,454) (9,454) Borrowings (102,500) (102,500) (102,500) (102,500) Total (104,498) (9,454) (113,952) (103,910) (9,454) (113,364) ALL in $000 Loans and receivables Liabilities at amortised cost Fair value through profit and loss Total carrying amount 1 Loans and receivables Liabilities at amortised cost Fair value through profit and loss Total carrying amount Financial Assets Loans to subsidiaries 153, ,318 Accounts receivable Prepayments and other current assets 5,220 5, Total 5,706 5, , ,255 Financial Liabilities Bank overdraft (364) ( 364) (364) (364) Accounts payable and accruals (2,319) ( 2,319) (1,260) (1,260) Derivative financial instruments (5,235) ( 5,235) (5,235) (5,235) Borrowings (111,200) (111,200) (111,200) (111,200) Total (113,883) (5,235) (119,118) (112,824) ( 5,235) (118,059) 1. The carrying amount approximates fair value for all financial instruments excluding loans to subsidiaries as they are on demand. Interest risk Interest risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The s exposure to the risk of changes in market interest rates relates primarily to the s long-term debt obligations with a floating interest rate. The s policy is to manage its interest cost using a mix of fixed and variable rate debt. The enters into interest rate swaps in which the agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designed to economically hedge underlying debt obligations. As the holds interest rate swaps there is a risk that their economic value will fluctuate because of changes in market interest rates. The value of interest rate swaps is disclosed in note 18 and it is acknowledged that this risk is a by-product of the s attempt to manage its cash flow interest rate risk. The sensitivity analysis following has been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the year end. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the year end was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management s assessment of the reasonably possible change in interest rates. 12 months $000 Profit/(loss) on increase of +0.5% Profit/(loss) on decrease of -0.5% 12 months $000 Profit/(loss) on increase of +0.5% Profit/(loss) on decrease of -0.5% Financial Assets Cash and cash equivalents Accounts receivable 915 TOTAL 915 Financial Liabilities Bank overdraft 116 (1) (1) 1 Financial liability at fair value through Statement of Comprehensive Income 9,454 1,369 (1,369) 9,454 1,369 (1,369) Accounts payable and accruals 1,882 1,294 Term loans 102,500 (513) ,500 (513) 513 TOTAL 113, (855) 1 113, (855) 1 1. The impact on equity of the +/-0.5% movement would be +/- $855,000 less 28% tax = +/- $615, months 2010 $000 Profit/(loss) on increase of +0.5% Profit/(loss) on decrease of -0.5% 12 months 2010 $000 Profit/(loss) on increase of +0.5% Profit/(loss) on decrease of -0.5% Financial Assets Cash and cash equivalents Vendor finance receivable Accounts receivable 486 TOTAL 486 Financial Liabilities Bank overdraft 364 (2) (2) 2 Financial liability at fair value through Statement of Comprehensive Income 5,235 1,780 (1,780) 5,235 1,780 (1,780) Accounts payable and accruals 2,319 1,260 Term loans 111,200 (556) ,200 (556) 556 TOTAL 119,118 1,222 1 (1,222) 1 118,059 1,222 1 (1,222) 1 1. The impact on equity of the +/-0.5% movement would be +/- $1,222,000 less 30% tax = +/- $879, PFI Annual Report PFI Annual Report 33

19 Notes to and Forming Part of the Financial Statements Notes to and Forming Part of the Financial Statements 3. FINANCIAL RISK MANAGEMENT Continued Credit Risk Credit risk represents the risk that the counterparty to the financial instrument will fail to discharge an obligation and cause the to incur a financial loss. Financial Instruments which potentially subject the to credit risk principally consist of bank balances, accounts receivable, loans to subsidiaries, call accounts and interest rate swap agreements. There is limited credit risk for the because the has no investments or deposits with any bank or other entity. With respect to credit risk arising from the financial assets of the, its exposure to credit risk arises from default of the counterparty, with the current exposure equal to the fair value of these instruments as disclosed in the table below. The only enters into lease agreements with recognised, creditworthy third parties. It is the s policy that all tenants are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the s exposure to bad debts is not significant. As the has a wide spread of tenants over many industry sectors it is not exposed to any significant concentration of credit risk. Amounts which are past due are not considered individually impaired as the majority are due from tenants with strong credit ratings. Analysis of credit risk is based on the possibility that if 10% of total accounts receivable were impaired, it would have an adverse impact on current year earnings by approximately $92,000 (2010: $49,000). Management do not consider this exposure to have a material impact on the financial position of the. A credit risk also arises in the company from loans to subsidiaries. These amounts are not interest bearing, and have no fixed repayment terms. ALL in $ Accounts Receivable Carrying amount (note 13) Not individually impaired on the reporting date: less than 30 days between 31 days and 60 days between 61 days and 90 days between 91 days and 360 days This amount includes a collective impairment allowance of $175,000 (2010: $275,000) included in the carrying amount Liquidity Risk Liquidity risk is the risk that the will experience difficulty in either realising assets or otherwise raising sufficient funds to satisfy commitments associated with financial instruments. The table below analyses the s financial liabilities into relevant maturity groupings based on the remaining period as at 31 December. ALL in $ Accounts Payable Due or due not later than one month 1,882 1,293 2,319 1,260 Due later than one month but not later than three months Due later than three months but not later than one year Due later than one year but not later than five years Total 1,882 1,293 2,319 1,260 ALL in $ Borrowings (note 18) Due or due not later than one month Due later than one month but not later than three months Due later than three months but not later than one year Due later than one year but not later than five years 102, ,500 Due later than five years 111, ,200 Total 102, , , ,200 Analysis of liquidity risk is based on the s ability to adhere to banking covenants and negative pledge. The has $47.5 million in unutilised funding facilities as at 31 December (2010: $38.8 million). Management have frameworks in place to monitor the s liquidity and ensure that banking covenants are complied with. The table below analyses the s financial assets and liabilities (principal and interest) into the relevant contracted maturity groupings based on the remaining period as at 31 December and 31 December ALL in $000 Carrying amount Total contractual cash flows 0 1 month 1 month to 1 year 1 2 years 2 5 years > 5 years Financial liabilities Accounts payable and accruals 1,882 1,882 1,882 Borrowings 102, , ,720 5, ,054 Derivative financial instruments 9,454 14,987 2,918 3,361 8, Total group 113, ,309 2,355 7,638 8, , Accounts payable and accruals 1,294 1,294 1,294 Borrowings 102, , ,720 5, ,054 Derivative financial instruments 9,454 14,987 2,918 3,361 8, Total parent 113, ,721 1,767 7,638 8, , ALL in $000 Carrying amount Total contractual cash flows 0 1 month 1 month to 1 year 1 2 years 2 5 years > 5 years Financial liabilities Accounts payable and accruals 2,319 2,319 2,319 Borrowings 111, ,596 5,315 5,315 15, ,020 Derivative financial instruments 5,235 17,908 2,511 2,504 9,662 3,231 Total group 118, ,823 2,319 7,826 7,819 25, ,251 Accounts payable and accruals 1,260 1,260 1,260 Borrowings 111, ,596 5,315 5,315 15, ,020 Derivative financial instruments 5,235 17,908 2,511 2,504 9,662 3,231 Total parent 117, ,764 1,260 7,826 7,819 25, , PFI Annual Report PFI Annual Report 35

20 Notes to and Forming Part of the Financial Statements Notes to and Forming Part of the Financial Statements 3. FINANCIAL RISK MANAGEMENT Continued Fair value estimation NZ IFRS 7 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities. level 2 Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3 Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). Interest rate swaps mark to market valuation Interest rate cover expiry 0 1 year Interest rate cover expiry between 1 3 years 1, , Interest rate cover expiry between 3 5 years 5,523 3,734 4,372 3,734 Interest rate cover expiry >5 years 2, Total 9,454 5,235 9,454 5,235 The carries its interest rate swaps (derivative financial instruments) at fair value. The fair value of these instruments are determined using valuation techniques as disclosed in note 2. These instruments with a total fair value of $9,454,000 (2010: $ 5,235,000) are included in level 2. Liabilities Level 1 Level 2 Interest rate swaps (derivative financial instruments) 9,454 5,235 9,454 5,235 Level 3 Total 9,454 5,235 9,454 5, Property Income and Expenditure These expenses include building maintenance and operating expenses not recoverable from tenants, property valuation fees and property leasing and investigation costs. ALL in $ Gross rental income Rental income from investment property 30,808 32,526 Total 30,808 32,526 Property operating expenditure Direct operating expenses arising from property that generated rental income during the year (780) (926) Reversal of allowance for impairment 200 Total (580) (926) 5. Directors fees and Related Party Transactions Directors fees were as follows: Peter Masfen Humphry Rolleston Michael Cashin Anthony Beverley Total No Directors fees were paid to Michael Cashin in due to his death in November No other benefits have been provided by the Company and to a Director for services as a Director or in any other capacity. No loans have been made by the Company and to a Director nor has the Company or subsidiaries guaranteed any debts incurred by a Director. The Company has Directors and Officers liability insurance cover for $10,000,000 with QBE Insurance International Limited. The Company paid management fees to AMP Capital Investors (New Zealand) Limited for the provision of management and administrative services. AMP Capital Investors (New Zealand) Limited completed the assignment of the management and administrative services contract to PFIM Limited on 20 January Management fee income is recognised in Profit or Loss in the Statement of Comprehensive Income of the Company based on amounts invoiced for services received. Management fees were on-charged as follows: ALL in $ P.F.I. Property No. 1 Limited 974 1,034 P.F.I. Property No. 2 Limited P.F.I. Property No. 3 Limited P.F.I. Property No. 4 Limited P.F.I. Property No. 5 Limited PFI Property No. 6 Limited 7 7 Total 1,865 1,909 Other than these management fees and movements in the loans accounts (see note 15), there have been no transactions between the Company and its subsidiaries. The loans are repayable on demand and are interest free and unsecured. No related party debts have been written off or forgiven during the year (2010: nil). 6. Other Expenditure Compliance costs Shareholder registry and reporting costs Public relations Other Total PFI Annual Report PFI Annual Report 37

21 Notes to and Forming Part of the Financial Statements Notes to and Forming Part of the Financial Statements 7. Investment Properties ALL in $ Investment properties Valuer Fair value Unrealised revaluation Additions/ (disposals) Carrying value 6 Donnor Place CB Richard Ellis 14,097 (1,078) 95 15, Rosebank Road CB Richard Ellis 26, ,445 18, Cavendish Drive Colliers International 14,134 (97) 3 14, Carbine Road Jones Lang LaSalle 14,122 (986) , Richard Pearse Drive Jones Lang LaSalle 11,100 11, Neales Road Jones Lang LaSalle 11,596 (6) 5 11, Mt Wellington Highway Colliers International 11, , Niall Burgess Road Colliers International 12, , Allens Road Colliers International 10,453 (214) , Mandeville Street Colliers International 10, , Mt Richmond Drive Jones Lang LaSalle 9,500 (5) 105 9, Cavendish Drive CB Richard Ellis 8, , Niall Burgess Road Colliers International 8, , Lunn Avenue Colliers International 11, ,620 8 McCormack Place CB Richard Ellis 8, , Rosedale Road Colliers International 10, , Patiki Road CB Richard Ellis 11, , Copsey Place Jones Lang LaSalle 5,684 (483) 89 6, Rosebank Road Jones Lang LaSalle 7, ,828 7 Carmont Place Colliers International 6, ,200 9 Nesdale Avenue Jones Lang LaSalle 6, ,699 7 Vestey Drive Colliers International 5, ,679 8 Hugo Johnston Drive Colliers International 6, ,531 15a Vestey Drive Jones Lang LaSalle 5, , Mt Wellington Highway Jones Lang LaSalle 5,149 (349) 5, Parkside Road CB Richard Ellis 3,559 (469) 2 4, Vestey Drive CB Richard Ellis 5, , William Pickering Drive Jones Lang LaSalle 4, , Mays Road Jones Lang LaSalle 4, ,496 1 Ron Driver Place Colliers International 3, , Carbine Road Colliers International 4,933 (139) 110 4, Seaview Road Jones Lang LaSalle 5, (939) 5, Omega Street Jones Lang LaSalle 2,999 (355) 5 3, Hugo Johnston Drive Colliers International 3, , Waterloo Road CB Richard Ellis 2,875 (1) 2 2, Mt Wellington Highway Jones Lang LaSalle 3, , Hugo Johnston Drive Colliers International 3, , Arrenway Drive Colliers International 2, , Niall Burgess Road CB Richard Ellis 2, , Mt Wellington Highway CB Richard Ellis 2, , Omega Street Jones Lang LaSalle 2, ,573 1 Niall Burgess Road CB Richard Ellis 2, ,516 5 Vestey Drive CB Richard Ellis 2, ,383 ALL in $ Investment properties Valuer Fair value Unrealised revaluation Additions/ (disposals) Carrying value 50 Carbine Road Jones Lang LaSalle 2, ,263 9 Vestey Drive CB Richard Ellis 2, , b Marua Road Colliers International 2,000 2, Vestey Drive CB Richard Ellis 1,634 (34) 1, Rosebank Road Jones Lang LaSalle Niall Burgess Road Jones Lang LaSalle 22, ,100 Investment properties held long term total 350,734 3,653 8, , Great South Road ( 3,040) 3, a Great South Road ( 2,332) 2, Barnes Street ( 5,020) 5,020 Investment properties sold total ( 10,392) 10,392 Investment properties (excluding capital work in progress) 350,734 3,653 ( 1,643) 348,724 Capital work in progress 43 5,573 Investment properties total 350, , All additions are due to subsequent expenditure. 2. These properties were classified as held for sale in The properties have been valued by independent registered valuers who are members of the ANZIV. The total net current value of properties by valuer, is as follows: ALL in $ CB Richard Ellis 95,743 97,739 Jones Lang LaSalle 126, ,523 Colliers International 128, ,035 Total 350, ,297 All valuations were dated 31 December. The valuations undertaken were based on fair value. The fair value represents the amount at which the assets could be exchanged between a knowledgeable willing buyer and knowledgeable willing seller in an arms-length transaction at the date of valuation, in accordance with New Zealand Valuation Standards. Investment properties to the value of $318,655,000 at reporting date (2010: $300,292,000) are mortgage security for the borrowings in note 18. Further details of the valuation methodologies used by independent registered valuers are contained in note 2. ALL in $ Capital work in progress Balance at the beginning of the year 5, Additions (capitalised costs, including capitalised interest and finance charges) 4,635 9,570 Transfer to investment property (10,165) (4,172) Balance completed at the end of the year 43 5,573 Capital work in progress is valued at cost, because fair value cannot be estimated reliably. 38 PFI Annual Report PFI Annual Report 39

22 Notes to and Forming Part of the Financial Statements Notes to and Forming Part of the Financial Statements 8. Taxation PARENT ALL in $000 Balance 1 January Recognised in profit or loss Balance 31 December Balance 1 January Recognised in profit or loss Balance 31 December Major components of income tax expense are: Current tax (3,490) (2,245) 2,620 2,909 Deferred tax 877 (3,809) 1, Total taxation (2,613) (6,054) 3,801 3,812 A reconciliation of income tax expense applicable to accounting profit before income tax at statutory income tax rates and to the Company's effective tax rate is as follows: Operating income/(loss) for the year before taxation 18,961 16,066 (13,576) (10,601) At the statutory rate of 28% (2010: 30%) (5,309) (4,820) 3,801 3,180 Non deductible/(assessable) losses/(gains) on property devaluations/(revaluations) 1,023 (777) Fair value changes in interest rate derivatives and other financial instruments (1,181) (326) (1,181) (326) Non deductible gain/(loss) on sale 73 (210) Depreciation 922 2,034 Repairs and maintenance Capitalised interest Leasing costs and incentives Provision for impairment 70 Prior period adjustments 1,036 Other (27) 55 Current tax (expense)/benefit for the year (3,490) (2,245) 2,620 2,909 Depreciation 108 (845) Building component of investment property valuation (3,487) Effect of change in tax rate 521 Fair value change in interest rate derivatives and other financial instruments 1, , Leasing costs and incentives (342) (375) Allowance for impairment (70) Deferred tax expense 877 (3,809) 1, Tax (expense)/benefit for the year (2,613) (6,054) 3,801 3,812 Effective tax rate 13.8% 37.7% Statement of Financial Position Deferred taxes Derivative financial instruments (2,647) (1,466) (2,647) (1,466) Investment properties 9,157 8,923 Allowance for impairment (84) (154) Total 6,426 7,303 (2,647) (1,466) Deferred tax movement Deferred tax movements are attributable to the following: Change in value of property investments 8, ,157 Derivative financial instruments (1,466) (1,181) (2,647) ( 1,466) ( 1,181) ( 2,647) Allowance for Impairment (154) 70 (84) Total 7,303 (877) 6,426 ( 1,466) ( 1,181) ( 2,647) 2010 ALL in $000 Balance 1 January 2010 Recognised in profit or loss Balance 31 December 2010 Balance 1 January 2010 PARENT Recognised in profit or loss Balance 31 December 2010 Deferred tax movements are attributable to the following: Change in value of property investments 4,056 4,867 8,923 Derivative financial instruments (398) (1,068) (1,466) (398) (1,068) (1,466) Allowance for impairment (165) 11 (154) Total 3,493 3,810 7,303 (398) (1,068) (1,466) 9. Basic and diluted earnings/(loss) per share ALL in $ Basic and diluted earnings per share Profit attributable to ordinary shareholders 16,348 10,012 Weighted average number of ordinary shares for the period 218,721, ,990,485 Profit cents per share There are no instruments that could potentially dilute basic earnings per share in the future. The calculation of distributable earnings per share for the period was based on the distributable profit attributable to ordinary shareholders of $15,776,000 (2010: $18,198,000) and a weighted average number of shares outstanding of 218,721,123 (2010: 215,990,485) calculated as follows: ALL in $ Distributable earnings per share Total comprehensive income for the period 16,348 10,012 add back: deferred tax (877) 3,809 add: unrealised devaluation losses 566 3,676 add: (gain)/loss on disposal of investment property (261) 701 Net distributable profit attributable to shareholders* 15,776 18,198 Weighted average number of ordinary shares for the period 218,721, ,990,485 Distributable earnings - cents per share Weighted average number of ordinary shares Issued ordinary shares at 1 January 216,759, ,543,507 Dividend reinvestments 2,251,235 2,215,923 Issued ordinary shares at 31 December 219,010, ,759,430 All profits were derived from continuing operations. There are no preference shares. *The 2010 net distributable profit attributable to shareholders includes one-off prior period tax adjustments of $1,036, PFI Annual Report PFI Annual Report 41

23 Notes to and Forming Part of the Financial Statements Notes to and Forming Part of the Financial Statements 10. Dividend paid during the year and and $000 Date paid $000 Date paid Q4 prior year net dividend of cps (2009: cps) 5,256 17/03/ 5,203 18/03/2010 Q1 net dividend of 1.55 cps (2010: 1.55 cps) 3,372 16/05/ 3,336 13/05/2010 Q2 net dividend of 1.55 cps (2010: 1.55 cps) 3,380 31/08/ 3,344 26/08/2010 Q3 net dividend of 1.65 cps (2010: 1.65 cps) 3,606 23/11/ 3,568 25/11/2010 Total paid during year 15,614 15, Subsequent events Proposed dividend: On 20 February 2012, the Directors of the Company approved the payment of a dividend of $5,311,009 (2.425 cents per share) to be paid on 14 March The gross dividend of cents carries imputation credits of cps. The payment of this dividend will not have any tax consequences for the. No such liability has been recognised in the Statement of Financial Position for 31 December. Other There are no other material subsequent events. 12. Cash and cash equivalents Bank overdraft (116) (364) (116) (364) Total (116) (364) (116) (364) Bank overdraft terms are repayable on demand, and interest rates applicable the NZ Interbank settlement 90 day benchmark borrowing rate plus a margin. 13. Accounts receivable Accounts receivable 1, Allowance for impairment (175) (275) Total The average credit term on invoiced amounts is 30 days, and is interest free. Movements on the collective allowance for impairment of trade receivables are as follows: ALL in $ At 1 January Additional allowance for receivables impairment Unused amounts reversed (100) (100) At 31 December The Directors have assessed the credit profile of receivables at period end and determined there are no individually impaired assets (2010: $nil). However, the Directors have considered that a collective allowance of $175,000 (2010: $275,000) is appropriate based on the s past experience. 14. Prepayments and other current assets ALL in $ Prepaid leasing costs 1,670 1,828 Tenancy incentives 3,451 2,071 Other prepayments 1,825 1,596 1, Allowance for impairment (125) (275) Total 6,821 5,220 1, breakdown has been split out to reclassify prepaid leasing cost, tenancy incentives and other prepayments. Movements on the allowance for impairment of prepaid leasing costs and tenancy incentives are as follows: ALL in $ At 1 January Allowance for prepayments impairment 100 Amounts written off during the year as uncollectible (50) Unused amounts reversed (100) At 31 December The creation and release of impaired prepaid leasing costs and tenancy incentives have been included in property operating expenditure in the Statement of Comprehensive Income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The does not hold any collateral as security. The Directors have assessed the credit profile of prepaid leasing costs and tenancy incentives at period end and determined that there are no individually impaired assets (2010: $nil). However, the Directors have considered that a collective allowance of $125,000 (2010: $275,000) is appropriate based on the s past experience with respect to recoveries of debtors. 15. Companies Companies are all 100% owned with reporting dates of 31 December. All six subsidiary companies participate in the property investment industry. All subsidiaries are incorporated in New Zealand. ALL in $000 Investment in subsidiary 2010 and Subsidiary loans Subsidiary loans 2010 Percentage ownership 2010 and Reporting date of company These comprise: P.F.I. Property No. 1 Limited 101, , % 31 December P.F.I. Property No. 2 Limited 1,750 26, % 31 December P.F.I. Property No. 3 Limited 19,617 21, % 31 December P.F.I. Property No. 4 Limited (17,762) 7, % 31 December P.F.I. Property No. 5 Limited (6,998) 14, % 31 December PFI Property No. 6 Limited 1,282 2, % 31 December Total 1, , ,318 The creation and release of impaired receivables have been included in property operating expenditure in the Statement of Comprehensive Income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The does not hold any collateral as security. 42 PFI Annual Report PFI Annual Report 43

24 Notes to and Forming Part of the Financial Statements Notes to and Forming Part of the Financial Statements 16. Accounts payable and accruals Accounts payable and accruals 1,781 1,260 1,294 1,260 Property capital expenditure accruals 101 1,059 Total 1,882 2,319 1,294 1,260 The average credit period on purchases of goods and services is 30 days. No interest is charged on accounts payable. The has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. 17. Derivative financial instruments Current liabilities Interest rate swaps 9,454 5,235 9,454 5,235 Net interest rate swaps (9,454) (5,235) (9,454) (5,235) 18. Borrowings The s bank debt facility is provided by a 50:50 syndicate comprising ANZ National Bank Limited and Commonwealth Bank of Australia, New Zealand branch. The s bank debt facility totals $150,000,000 (undrawn $47,500,000) as at 31 December (2010: $150,000,000, undrawn $38,800,000). The current bank facility expires on 31 January The has drawn down $102,500,000 (31 December 2010: $111,200,000) of the available term bank loan facility of $150,000,000. After taking into account the impact of interest rate swaps, the effective interest rate at 31 December for the drawn down term loan is 7.9% (31 December 2010: 7.7%). All borrowings are interest only. Although global market conditions continue to affect market confidence, the remains well positioned in respect of its banking requirements. The has sufficient headroom to enable it to comply with covenants on its existing borrowings. Covenants consist of a loan to value ratio, earnings before interest and tax ratio, mortgage security ratio and negative pledge on the balance of mortgage properties. The bank debt facility is secured by way of registered mortgage security, which is required to be provided over properties with current valuations of at least $300,000,000. In addition the bank debt facility includes a negative pledge obligation. The negative pledge provides that the guaranteeing (The Company, P.F.I. Property No. 1 Limited, P.F.I. Property No. 2 Limited, P.F.I. Property No. 3 Limited, P.F.I. Property No. 4 Limited, P.F.I. Property No. 5 Limited and PFI Property No. 6 Limited) will not create any security over the whole or part of the guaranteeing s assets, subject to certain exceptions. The has sufficient working capital and undrawn financing facilities to service its operating activities and ongoing investment in its property portfolio. The complied with all bank covenants during the financial year ended 31 December. The bank covenants provide requirements on the to remedy certain breaches within a timeframe. Failure to remedy breaches and occurrence of certain other events may result in either cancellation of the bank facility or payment of all drawn borrowings on demand by the bank. Borrowing costs capitalised to the investment properties this year were $120,000 at a rate of 7.70% (2010: $128,000 at a rate of 6.67%). Facilities maturing ANZ National/CBA Committed Cash Facility 31 January , , , ,200 Total borrowings 102, , , ,200 Undrawn facilities available ANZ National/CBA Committed Cash Facility 31 January ,500 38,800 47,500 38,800 Total facilities 150, , , ,000 Interest rates charged are at the NZ interbank settlement 90 day benchmark borrowing rate plus a bank margin and a line fee. As at 31 December, the weighted average interest rate applied to these funds was 5.05% (2010: 5.53%). Through the use of interest rate swap agreements, the Company has as at 31 December effectively fixed the interest rate on $73,000,000 (2010: $73,000,000), or 71% (2010: 66%) of its term debt, for a weighted average term of 2.63 years (2010: 2.94 years) and weighted average interest rate excluding margin of 6.64% (2010: 6.64%). Refer note 17. Net finance costs Interest received on financial assets categorised as: Loans and receivables Total Finance cost Interest paid on financial liabilities categorised as: Liabilities at amortised cost 5,691 5,417 5,811 5,544 Fair value movements Fair value movement instruments at fair value through Profit or Loss 2,652 2,705 2,652 2,705 Total 8,343 8,122 8,463 8,249 Net finance costs 8,277 8,111 8,397 8,238 $000 and 2010 $000 and Schedule of swap and fixed maturities with start dates that have commenced Interest rate cover 0 1 year 10,000 25, Interest rate cover 1 3 years 25,000 10, Interest rate cover 3 5 years 25,000 25, Interest rate cover > 5 years 13,000 13, TOTAL 73,000 73, $000 and 2010 $000 % and Schedule of swap and fixed maturities with start dates to commence Interest rate cover 0-1 year Interest rate cover 1-3 years Interest rate cover 3-5 years 25, Interest rate cover > 5 years 10,000 35, % 2010 % 2010 % TOTAL 35,000 35, PFI Annual Report PFI Annual Report 45

25 Notes to and Forming Part of the Financial Statements Notes to and Forming Part of the Financial Statements 19. Share capital Fully paid Fully paid ordinary shares carry equal voting rights and share equally in dividends and any surplus on wind up, and have no par value. Shareholder capital at the beginning of the year 216,759,430 (2010: 214,543,507) ordinary shares at 1 January 167, , , ,836 Dividend reinvestments 2,251,235 (2010: 2,215,923) ordinary shares 2,553 2,498 2,553 2,498 Shareholder capital at the end of the year 219,010,665 (2010: 216,759,430) ordinary shares at 31 December 169, , , ,334 Ordinary share capital Ordinary share capital comprises issued shares that are fully paid. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. 20. Movement in Reserves I) Retained earnings Balance at the beginning of the year 66,720 72,159 (127,842) (105,602) Net profit/(loss) attributable to ordinary equity holders of the Company 16,348 10,012 (9,775) (6,789) Dividends distributed (15,614) (15,451) (15,614) (15,451) Balance at the end of the year 67,454 66,720 (153,231) (127,842) Retained earnings Retained earnings comprises accumulated profits of the and Company. 21. Reconciliation of Profit after Tax with Net Cash from Operating Activities Profit/(loss) after tax 16,348 10,012 (9,775) (6,789) Add/(less) non-cash items and non-operating items Unrealised (gain)/loss on investment properties (3,653) 2,590 Unrealised loss on swaps 4,219 1,086 4,219 1,086 Reversal of allowance for impairment (200) Loss on disposal of investment property (261) 701 Deferred taxation (877) 3,809 (1,181) (903) Add/(less) movements in working capital items (Increase) in accounts receivable, prepayments and other current assets (2,279) (2,527) (399) (498) Increase/(decrease) in accounts payable, accruals and other payables 1,041 (914) 34 (1,364) Increase/(decrease) in GST payable 330 (250) (48) (250) Net cash inflows/(outflows) from operating activities 14,668 14,507 (7,150) (8,718) 22. CAPITAL COMMITMENTS The Company s capital commitments were $181,000 as at 31 December (2010: $2.558 million). These comprise development works being undertaken in respect of existing properties. The Company had no unconditional purchase contracts at 31 December (2010: nil). The had no capital commitments at 31 December (2010: nil). Operating lease commitments as lessor The has entered into commercial property leases on its investment portfolio. These non-cancellable leases have remaining non-cancellable lease terms of between 1 and 13 years. Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows: ALL in $ Within one year 28,750 30,949 After one year but not more than five years 73,509 83,382 More than five years 20,225 26,088 Note: the above rental numbers are based on contract rates as at 31 December. Actual rental amounts in future will differ due to rent review provisions within the lease agreements. 23. Contingent Liabilities There are no contingent liabilities at 31 December (2010: nil). 24. Operating Segments Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board of Directors that makes strategic decisions. The and Company are internally reported as a single operating segment to the chief operating decision maker hence segmental information is as disclosed in the s Statement of Financial Position, Statement of Comprehensive Income and Statement of Cash Flows. 46 PFI Annual Report PFI Annual Report 47

26 Notes to and Forming Part of the Financial Statements INDEPENDENT Auditor s report 25. Imputation Credit Account Opening credit balance 672 (245) 672 (245) Taxation paid 3,053 3,600 3,053 3,600 Refunds Imputation credits attached to dividends paid (3,078) (2,683) (3,078) (2,683) Closing credit balance available to shareholders Capital risk management The manages its capital to ensure that entities in the will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the consists of debt, which includes the borrowings disclosed in note 18, cash and cash equivalents and equity attributable to equity holders of the, comprising issued capital, reserves and retained earnings as disclosed in notes 12, 20 and 21 respectively. The has a self imposed maximum bank debt to total assets ratio of 35% and at reporting date this ratio was 28.6% (2010: 30.9%). Debt to equity ratio The s management reviews the capital structure on a monthly basis. As part of this review, management considers the cost of capital and the risks associated with each class of capital. The debt to equity ratio at the year end was as follows: Debt 1 102, , , ,200 Cash and cash equivalents Total debt 102, , , ,564 Equity 2 237, ,054 16,656 39,492 Net debt to equity ratio 43% 48% 616% 282% 1. Debt is defined as long and short term borrowings as disclosed in note Equity includes all capital and reserves of the INDEPENDENT AUDITOR S REPORT TO THE SHAREHOLDERS OF PROPERTY FOR INDUSTRY LIMITED Report on the Financial Statements We have audited the financial statements of Property For Industry Limited and group on pages 22 to 48, which comprise the consolidated and separate statements of financial position of Property For Industry Limited as at 31 December, the consolidated and separate statements of changes in equity, statements of comprehensive income and statements of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Directors Responsibility for the Financial Statements The directors are responsible for the preparation of these financial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of financial statements that give a true and fair view of the matters to which they relate in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Other than in our capacity as auditor we have no relationship with, or interests in, Property For Industry Limited or any of its subsidiaries. Opinion In our opinion, the financial statements on pages 22 to 48: > comply with generally accepted accounting practice in New Zealand; > comply with International Financial Reporting Standards; and > give a true and fair view of the financial position of Property For Industry Limited and the group as at 31 December, and their financial performance and the cash flows for the year then ended. Report on Other Legal and Regulatory Requirements In accordance with the Financial Reporting Act 1993 we report that: > We have obtained all the information and explanations that we have required. > In our opinion, proper accounting records have been kept by Property For Industry Limited as far as appears from our examination of those records. BDO Auckland 15 March Albert Street Auckland New Zealand 48 PFI Annual Report PFI Annual Report 49

27 Corporate Governance and Statutory Disclosure Company structure PFI is a publicly listed company established in 1994 and managed by PFIM Limited. The manager reports to the board of directors and is responsible for all property portfolio and company management functions. The board currently has four directors, three of whom are independent and one representing the manager. Management structure PFIM is a private company owned by interests associated with McDougall Reidy & Co. The key individuals have extensive experience in the ownership, management and development of industrial property. The PFI management team is led by general manager Nick Cobham. The current management fee structure was introduced in April It was designed to align the interests of the manager and shareholders and to reward the manager for outperformance in the growth of shareholder wealth over time. PFI pays a base management fee plus an incentive fee calculated on total shareholder returns. The base fee is calculated at 0.70% up to $175 million of assets and thereafter at 0.35%. The incentive fee is calculated as 10% of the change in shareholder wealth above 10% and under 15%. Strategy Strategic Objective PFI s strategic objective is to provide shareholders with a target minimum annual increase in shareholder wealth of 10% through a combination of income and capital growth by way of acquisition and management of industrial property assets. Investment Strategy To invest in quality New Zealand industrial property in the main urban centres. To invest in multi-purpose rather than specialised properties that are occupied by a balanced spread of tenants. To invest in properties that display above-average income and/ or capital appreciation attributes. Specifically these will include properties that exhibit one or more of the following: > > Located in land constrained areas > > located close to important transport links > > Located on new or improving arterial routes > > Possess change of use potential. To take a financially disciplined approach, with debt currently limited to 35% of total tangible assets. To provide a risk-averse approach to acquisition, asset management and capital management consistent with delivering the target increase in shareholder wealth and distributing 100% of net cash operating earnings as dividends. Principal activity Property For Industry Limited (and subsidiaries) is a listed industrial property investment company. It currently invests solely in New Zealand. There has not been any change in the nature of the Company s business in the year ended 31 December, nor in the classes of business in which the Company has an interest. Governance The Board of Property For Industry Limited is committed to the highest standards of business behaviour and accountability. The Board regularly reviews and assesses the s governance structures and processes to ensure they are consistent with best practice standards. As part of the Board s ongoing monitoring and review of the s governance framework, the Board has developed a Corporate Governance Manual that forms the s corporate governance framework. The Manual includes a code of ethics, describes the Board s role and responsibilities and regulates Board procedures. It incorporates the New Zealand Exchange Limited (NZX) listing rules relating to corporate governance, the NZX Corporate Governance Best Practice Code recommendations and the New Zealand Securities Commission Governance Principles and Guidelines. A copy of the Manual is available on the website at The Corporate Governance Manual includes: 1. Code of Ethics; 2. Board Charter; 3. Audit Committee Charter; 4. Nomination Policy; 5. Remuneration Policy; 6. Share Trading Policy; and 7. Audit Independence Policy. Compliance with NZX requirements The NZX Corporate Governance Best Practice Code requires that companies such as PFI disclose the ways in which their corporate governance processes materially differ from the processes prescribed by the Code. PFI complies with the NZX Corporate Governance Best Practice Code except as stated below. Code of ethics The Board has developed a code of ethics that forms part of the Corporate Governance Manual. The code of ethics is intended to provide a framework for Property For Industry Limited s Directors, managers, representatives and subsidiaries by which they are expected to conduct their duties by facilitating behaviour that is consistent with PFI s business standards. The code is available on the website at Board composition, appointments, independence and operation The constitution allows for between three and eight Directors. As at 31 December there were three Directors: one representative of the manager and two independent Directors. It is company policy that there should always be a majority of independent Directors. The Directors of the Company and its subsidiaries as at 31 December were: > Peter H Masfen (Chairman) > humphry J D Rolleston > Anthony M Beverley At reporting date, Peter Masfen and Humphry Rolleston were independent Directors. Anthony Beverley was not an independent Director at reporting date; however, was determined to be an independent Director on 20 January Greg Reidy was appointed Director on 20 January 2012, being the representative of the new manager PFIM Limited. The constitution provides that one third (or the nearest whole number to one third) of the directors must offer themselves for re-election at a meeting of shareholders each year. Board committees The Board has established an audit committee in accordance with the NZX Corporate Governance Best Practice Code. The Audit Committee has developed a written charter that outlines the Audit Committee s authority, duties, responsibilities and relationship with the Board. The Board is required to regularly review the performance of the Audit Committee. In addition to the Audit Committee Charter the Board has developed a policy on audit independence. At reporting date, members of the Audit Committee were Peter Masfen and Humphry Rolleston. Subsequent to his determination as an independent Director, Anthony Beverley has become a member of the Audit Committee. The Board has not established a nomination committee or a remuneration committee. This differs from the NZX Corporate Governance Best Practice Code recommendation that the Board establishes these committees to recommend director appointments to the Board and recommend remuneration packages for directors to the shareholders. The Board considers that size constraints prevent it from establishing such committees. However, the Board has developed nomination and remuneration policies which form part of the Corporate Governance Manual and are intended to guide the directors in making nominations and developing remuneration packages. The Board considers that the policies are consistent with best practice governance standards and this approach is appropriate given the size constraints of the Board. 50 PFI Annual Report PFI Annual Report 51

28 Corporate Governance and Statutory Disclosure Corporate Governance and Statutory Disclosure Board charter The Board has developed a charter that sets out its authority, duties and responsibilities. The Board has adopted the following governance objectives: > to establish a clear framework for oversight and Management of the Company s operations and for defining the respective roles and responsibilities of the Board and Management; > to structure itself to be effective in discharging its responsibilities and duties; > to set standards of behaviour expected of the Company s managers and representatives; > to safeguard the integrity of the Company s financial reporting; > to ensure timely and balanced disclosure; > to respect and facilitate the rights of shareholders; > to recognise and manage risk; > to encourage Board and management effectiveness; > to remunerate fairly and responsibly; > to recognise the legitimate interests of all stakeholders. The Board also has statutory responsibility for the affairs and activities of the company. It is responsible for producing annual financial statements that comply with generally accepted accounting practice and provide a true and fair view of the company s financial position. The Board has an obligation to protect and enhance the value of the assets of the company for the benefit of shareholders. It achieves this through approval of appropriate corporate strategies, with particular attention to capital structure, acquisition and divestment proposals, capital expenditure and the review of the performance of the Manager on a monthly basis. The Board delegates implementation of the adopted corporate strategies to the Manager. The Manager is contractually bound to manage the company for which it receives a management fee. The Manager s duties are defined as: > investment management duties; > property management duties; > administrative management duties. The Manager is responsible for attending to the financial and reporting needs of the Company. The Company s auditor conducts a compliance review every quarter at the Manager s cost. This review ensures that adequate controls are in place, cash funds are promptly invested, and payments are made when and where appropriate and correctly accounted for. The Audit Committee, comprising all independent Directors, meets twice a year (or more frequently if required) with the auditor to review the outcome of the interim review (30 June) and annual audit (31 December), and to recommend the annual audit and the annual financial statements for adoption by the full Board. Directors remuneration As noted previously, the Board, in setting the Directors remuneration, is to be guided by the remuneration policy that forms part of the Corporate Governance Manual. There has been no change to the remuneration paid to the Directors in. ALL in $ Peter Masfen Humphry Rolleston Anthony Beverley Michael Cashin 1 46 Total No Directors fees were paid to Michael Cashin in due to his death in November Dealing in company securities during The Board has developed a policy that deals with Directors, managers and representatives trading in Property For Industry Limited s securities and the disclosure requirements. This policy forms part of the Corporate Governance Manual and is available on the website at No. of Shares acquired/(disposed of) Consideration per share Peter Masfen Humphry Rolleston 2,525 $ Mar 11 Anthony Beverley Neither the Company nor its subsidiaries have provided any other benefits to a Director for services as a Director or in any other capacity. Date Attendances of Directors at the formal meetings of the Board and Audit Committee Board of Directors Audit Committee Neither the Company nor its subsidiaries have made loans to a Director, nor has the Company or subsidiaries guaranteed any debts incurred by a Director. Meetings Held Meetings Attended Meetings Held Meetings Attended Directors and Manager s shareholdings as at 31 December Peter Masfen Humphry Rolleston Anthony Beverley* 7 7 *Anthony Beverley was not a member of the Audit Committee at reporting date but joined on 20 January Directors interests register In June, the Board authorised the renewal of the Directors and Officers insurance cover as at 30 June for a period of 12 months and has certified, in terms of section 162 of the Companies Act 1993, that this cover is fair to the Company. No Director has given notice to the Company of an interest in any transaction with the Company or its subsidiaries. No Director has sought authorisation to use Company information. The Board has developed a policy that covers trading in PFI s securities and the disclosure requirements for Directors, managers and representatives. This policy forms part of the Corporate Governance Manual and is available on the website at Peter Masfen Beneficial 4,000,905 4,000,905 Non-beneficial 250, ,000 Humphry Rolleston Beneficial 119, ,532 Anthony Beverley Non-beneficial 612,055* 1,252,429 *AMP Capital Investors (New Zealand) Managed Funds as of 31 December All the above are also Directors for P.F.I. Property No. 1 Limited, P.F.I. Property No. 2 Limited, P.F.I. Property No. 3 Limited, P.F.I. Property No. 4 Limited, P.F.I. Property No. 5 Limited and PFI Property No.6 Limited. Employee remuneration No employees, or former employees, of the Company or its subsidiaries received remuneration or other benefits in their capacity as employees, the value of which was or exceeded $100,000 per annum. Donations Neither the Company nor its subsidiaries made any donations during the year. Auditor s fees BDO Auckland Audit fees Audit of the financial statements $41,000 other fees paid to auditors for other assurance services $37, PFI Annual Report PFI Annual Report 53

29 Shareholder Statistics Shareholder Statistics SUBSTANTIAL SHAREHOLDER NOTICES AS AT 29 FEBRUARY 2012 As at 29 February 2012 the total number of shares on issue was 219,010,665. There were no substantial security holders as at 29 February As at 11 August 2010, ING (NZ) Limited ceased to be a substantial security holder, having previously held 11,072,570 shares (5.13% of ordinary shares). HOLDER Ordinary shares % Ordinary shares in total Nil 2010 ING (NZ) Limited 10,598, % 20 Largest registered shareholders as at 29 February 2012 Shareholder spread as at 29 February 2012 ORDINARY SHARES Number of holders Percentage of holders Percentage holding Up to 5, % 1.0% 5,001 10,000 1, % 3.4% 10,001 50,000 2, % 24.5% 50, , % 9.3% 100, , % 11.2% 500,001 and above % 50.6% Total 4, % 100.0% HOLDER Holding Percentage holding Geographical spread as at 29 February New Zealand Central Securities Depository Limited 43,377, % 2 Custodial Services Limited 25,105, % 3 Fnz Custodians Limited 15,004, % 4 Investment Custodial Services Limited 10,407, % 5 Masfen Securities Limited 4,000, % 6 Forsyth Barr Custodians Limited 3,754, % 7 Superlife Trustee Nominees Limited 1,900, % 8 Pmg Trust Limited 1,450, % 9 New Zealand Depository Nominee Limited 1,300, % 10 Clifford Stuart Lyon 1,010, % 11 University Of Otago Foundation Trust 1,008, % 12 Martyn Timothy Brick & Christopher James Mcfadden & John Garland Burke 853, % 13 Antony Trevor Morris & James Edward Webber 700, % 14 Forhomes Investments Limited 543, % 15 Dunedin City Council 536, % 16 Frimley Foundation 500, % 17 H B Williams Turanga Trust 500, % 18 Alfred James Wakefield & Susan Mary Wakefield 500, % 19 Roderick Ian Milne & Paul Roderick Milne 467, % 20 Robert Edward Oates & Katherine Helen Oates 450, % ORDINARY SHARES Number of holders Percentage of holders Auckland & Northern Region 1, % Hamilton & Surrounding Districts 1, % Wellington & Central Districts % Nelson, Marlborough & Christchurch % Dunedin & Southland % Unknown % Overseas % Total 4, % 54 PFI Annual Report PFI Annual Report 55

30 directory DHL 7 9 Niall Burgess Rd, Mt Wellington Company and registered Office Property For Industry limited Shed 24, Prince s Wharf 147 Quay Street Auckland tel: Fax: the Company s Directors Peter masfen (Chairman) humphry Rolleston Anthony Beverley Gregory Reidy Manager PFIm limited Shed 24, Prince s Wharf 147 Quay Street Auckland tel: Fax: General Manager nick Cobham tel: Fax: cobham@mrco.co.nz Chief financial Officer/ Company secretary Craig Peirce tel: Fax: peirce@mrco.co.nz auditors BDo Auckland level 8, 120 Albert Street Po Box 2219 Auckland 1140 tel: Fax: Legal advisers morrison Kent morrison Kent house level 19, 105 the terrace Po Box Wellington tel: Fax: Chapman tripp level 35, nz Centre Albert Street Po Box 2206 Auckland 1140 tel: Fax: Burton and Co level 3, 16 Viaduct harbour Avenue Po Box 8889 Auckland tel: Fax: Valuers Colliers International level Queen Street Po Box 1631 Auckland CBRe limited level 14, Zurich house 21 Queen Street Po Box 2723 Auckland Jones lang lasalle level 16, PWC tower 188 Quay Street Po Box 165 Auckland Bankers AnZ national Bank limited level 27, AnZ Centre Albert Street Auckland 1010 Commonwealth Bank of Australia new Zealand Branch level Albert Street Auckland 1010 share registrar Computershare Investor Services limited level 2, 159 hurstmere Road takapuna, north Shore City Private Bag Auckland 1020 tel: Fax: Managing your shareholding Online to change address, update your payment instructions and to view your investment portfolio including transactions, please visit: General enquiries can be directed to: enquiry@computershare.co.nz Private Bag 92119, Auckland 1142 tel: Fax: Calendar March 2012 May 2012 Final dividend payment Annual report released 2012 First-quarter result announced 2012 First-quarter dividend paid Annual meeting September 2012 November 2012 February Interim report released 2012 Third-quarter result announced 2012 Third-quarter dividend paid 2012 Full-year financial result announced August Half-year result announced 2012 Half-year dividend paid March Final dividend payment 2012 Annual report released 56 PFI AnnuAl RePoRt