Hugo Johnston Drive

Strategy in action: the Penrose portfolio

Realising value

In August of 2015, PFI purchased a portfolio of five Penrose properties for $28.5 million. Two years on, PFI General Manager, Simon Woodhams, talks about the creation of $13 million of shareholder value from that transaction.

Buy well

“We bought well. That’s been fundamental to the success of the whole deal: buying a suite of quality buildings, in a prime location, at a good price. Which leads to the more interesting question, ‘How come? What was it that enabled us to do that?’ Part of it is about who you know: we’d had a good relationship with Brendan Lindsay, the Sistema founder, for many years. He was a shareholder in Direct Property Fund1 and he’s always taken an interest in industrial property and what we’re doing. And so, in some ways, it was natural that when he needed a buyer for these properties, he would call us.”

Be good to do business with

“But there is more to it than that. The way I see it, a good deal is when both parties are happy with the outcome and that’s how it was with Brendan.
“Key to this transaction was that we were able to work together to facilitate his exit from the properties into Sistema’s new building when it was ready. It’s about reciprocity: being good to do business with.”


“Couple that with focus. PFI is the only listed property vehicle in New Zealand with a sole focus on industrial property. The benefit of that focus is the depth of your market knowledge and the sharpness of your instincts. We already knew Brendan, we knew the properties, we knew the location—we already owned properties in Hugo Johnston Drive. When you have that degree of focus you can make decisions more quickly and with much greater confidence.”


“Obviously, scale is a factor, too. We could only contemplate a deal of this magnitude now that we’re a billion-dollar fund. A few years ago we wouldn’t have been able to, but now we can. It’s well within our risk tolerance: we’re not betting the farm.”


“There’s a perception, I think, that PFI is a hardware business… by that I mean people assume it’s all about the asset; having the right property in the right location. And there’s truth in that, but it’s also about the software: the point I was making about being good to do business with. When it came to leasing these buildings, whether it was the initial lease back to Sistema, or the subsequent leases, one of the ways we created shareholder value was by understanding industrial tenants. A property is almost never exactly right for the prospective tenant, so we’ll work with them to configure it for what they need…and structure the deal accordingly. High-quality industrial tenants prefer dealing with professional landlords and are prepared to pay a premium for that because they know there’s not going to be a problem every time there is a dollar to be spent.”

A conservative approach

“Another point to make, I think, is that PFI is by nature conservative. The relevance of that to this project is that the assumptions we made — for example, about how long each property might take to let once Sistema moved on — were ones we were comfortable with: realistic, not wishful thinking. Giving ourselves headroom. What’s happened is that we’ve outperformed those expectations and so delivered even more value than we predicted. That’s a nice place to be.”

Outcome focus

“Perhaps the most important point is that we never lose sight of why we’re here: to create shareholder value. It’s very easy, in business, to become consumed by the ‘what’, by the day-to-day activity. Which is understandable, because it can be exhilarating. The approach by Crown Equipment to buy 65 Hugo Johnston Drive is a good example of what I’m talking about, because we hadn’t intended to sell, we were looking for tenants. But when they presented their offer it became apparent that we should accept. It would allow us to crystallise the value gain and release a sizeable chunk of capital that we could send back out to work somewhere else. I think the way we keep the operational and the strategic working in such alignment is a key component of PFI’s success.”

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