Asset Plus : 2021 Annual Report

ANNUAL REPORT 2021

Munroe Lane, Auckland

Artist Impression

Contents

01	10	30
Chairman's Letter	Property Report	Financial Statements
02	14	54
Key Points from the	Finance Report	Independent Auditor's
Financial Year		Report
04	18	57
Strategy Update	Director Profiles	Shareholder
		Statistics
05	19	59
General Update	The Manager	Directory
07	20
Performance of	Corporate
the Portfolio	Governance
08

ESG Initiatives

Chairman's Letter

Chairman's

Letter

Over the past 12 months we have further progressed our transformation to move towards a quality, diversified portfolio, giving us a solid base from which to pursue future value-add initiatives.

The successful capital raise in October 2020 was the final step in securing the Munroe Lane, Albany development opportunity, which we believe will be transformational for Asset Plus.

We now have sufficient funds in conjunction with a revised bank facility to deliver this project, which is expected to be completed in December 2022. The development is anchored by Auckland Council as the key tenant, and is expected to materially increase portfolio WALE given the 15 year lease from completion.

The development is tracking well and scheduled for completion within the targeted date. All delivery costs have now been fixed. In addition, transactional evidence is increasingly favourable for comparable long dated income producing assets secured with blue chip tenants. This is evidenced by the Munroe Lane "as-if complete" valuation, which has increased to $146.85 million (assuming the property is fully leased).

We are very pleased to have obtained Resource Consent for the potential and preferred redevelopment of 35 Graham Street, Auckland Central, and our current plan is to lease this development opportunity. Marketing is now underway, and the leasing success will determine the ultimate scale of the project as we seek a level of pre-commitment before commencing this potential material redevelopment.

A full scale redevelopment with the addition of three further levels remains our preferred approach, and would further increase our weighting towards the desirable Auckland market. WALE would also increase, as well as the overall scale and quality of the portfolio.

It is pleasing to see a number of material leasing transactions occurring in early 2021, indicating that central, modern, efficient, and sustainable office premises remain in demand despite the trend towards working from home in the wake of the COVID-19 pandemic.

The scale of potential development opportunities before us (which remain subject to shareholder approvals where needed), relative to the current size of the balance sheet, requires a prudent capital management approach. As we continue to progress these activities, we are giving consideration to future capital structure as well as earnings streams through the current, and potential development windows.

The successful divestment of Eastgate Shopping Centre has been structured with a deferred settlement to support earnings during part of the Munroe Lane development window, and reflects our strategy to divest non-core assets which lack potential value-add opportunities. The asset is being divested at a small discount to carrying value, but the valuation gains across the balance of the portfolio mean that NTA is forecast to hold constant at 44.8 cents per share in the near term.

The existing portfolio continues to be actively managed, with a number of renewals completed across the retail portfolio and new leases secured during the year - a positive result given the constraints placed on both tenants and landlords as a result of COVID-19.

The impact of COVID-19 has been widely felt across the economy, and Asset Plus has not escaped this - particularly given our portfolio's weighting to retail assets. We were fortunate to have a number of essential services tenants within the retail portfolio, which insulated us somewhat. Ultimately, while earnings for the financial year were broadly in line with expectations, the impacts of the pandemic meant we worked closely with tenants to provide rental abatement and relief as required, which reduced net income on a 'like for like' basis.

Historically low interest rates are clearly driving investor demand and appetite for commercial property. The office sector has been impacted by COVID-19, with some stock coming to the market for sub-lease. However, recent transactional evidence suggests that the Auckland office sector remains attractive, with supportive long-term demand drivers.

It is our belief that office culture is integral to the engagement of staff and therefore success of most businesses, and while today's working environment allows for more location flexibility, demand for office space is likely to remain durable in the long term.

As previously indicated, the dividend will continue to be reviewed on a quarterly basis moving forward, having regard to the operating cash flow and capital requirements of the business.

Finally, we thank you, our shareholders, for your continued support, which we do not take for granted. We look forward to presenting further updates to you on the implementation of our strategic initiatives in the coming months.

Regards,

Bruce Cotterill

Chairman

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