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Chairman's Outline Of Resolutions

Chairman's Outline Of Resolutions

The purpose of this meeting is to consider and vote on three Resolutions relating to the future structure and direction of Macquarie Goodman Property Trust, which, for convenience, I will refer to as “MGP”.

The first of these Resolutions relates to the pooling of MGP’s core properties with the New Zealand properties of Macquarie Goodman Industrial Trust.

Again, for convenience, I will refer to that Australian-based trust as “MGI”.

The second Resolution relates to the appointment of Macquarie Goodman Property Services (NZ) Limited as property manager of MGP.

The third Resolution relates to the basis on which MGP and MGI may enter into future transactions together, as co-owners, to acquire properties from, and sell properties to, unrelated third parties.

MACQUARIE GOODMAN MANAGEMENT LIMITED

Before discussing the formal Resolutions, I would like to make some brief comments about the recent changes that resulted in Macquarie Goodman (NZ) becoming the Manager of MGP and Macquarie Goodman acquiring a 20 percent unitholding in MGP.

In December 2003, Macquarie Goodman (NZ) became the Manager of MGP following Macquarie Goodman’s acquisition of the management company of MGP from Colonial First State Investments and, at the same time, its acquisition of a 20 percent unitholding in MGP from Sovereign.

Sovereign also sold down another 30 percent of its units in the Trust to institutional Unitholders through an underwritten book build.

The change in Manager, and the acquisition of a cornerstone unitholding in MGP by Macquarie Goodman, provides the opportunity for MGP to be repositioned as a leader in the industrial property market.

To align the interests of the Manager and Unitholders more closely, we intend to present to Unitholders a proposed performance based fee in the latter part of this year.

The performance fee will only be paid if MGP outperforms an agreed benchmark over a specific period.

This is consistent with Macquarie Goodman’s successful model in Australia and Singapore and we look forward to presenting more details in due course.

I would now invite John Dakin to provide an overview of the portfolio as it will stand if the Resolutions are passed today.

CEO’S ADDRESS

This morning, I will discuss the portfolio before and after the transaction, together with the benefits MGP will receive as a result of Macquarie Goodman’s Customer Service Model.

Let me explain how the Customer Service Model works, to give you an insight into the value Macquarie Goodman can add to your portfolio through superior service and product offerings to our customers.

Our Customer Service Model is designed to deliver complete property solutions to customers.

That means providing solutions in the following five key property areas, throughout Australasia:

sourcing;

planning;

creating;

managing; and

owning industrial and office park assets.

These five components combine to provide a unique experience for customers – unique because it is a holistic and complete property solution.

It is a solution that ensures customers enjoy service and products that are unparalleled in the industrial and office park sector.

Behind this commitment is a team of 150 dedicated property professionals with expertise in all property fields, including funds management, property services and development and project management.

It is an in-house team with a strong customer focussed culture.

It is this Customer Service Model and in-house property expertise that has seen Macquarie Goodman become the largest listed manager and developer of industrial and business space in Australasia, with $5.2 billion of funds under management and a $1.1 billion development pipeline.

MGI is Australia’s largest listed industrial property trust, with 110 properties covering 2.9 million square metres of space.

The market capitalisation of MGI stands at almost $3 billion and, every day, the Macquarie Goodman team meets the needs of around 520 customers in the portfolio.

Macquarie Goodman’s proven track record as a fund manager, and its development expertise, have resulted in a history of growing distributions and net tangible assets for MGI.

Macquarie Goodman’s strategy for MGP is to be a leading industrial space provider in New Zealand.

Our definition of the industrial property sector is reasonably diverse and I will take you through the four asset classes that make up this definition:

(a) warehouses/distribution centres are large single tenanted industrial facilities with clear span storage and distribution area and an office content of up to 10 percent;

(b) industrial estates are multi-tenanted estates in excess of 20,000 sqm with an office content of 5 percent to 20 percent;

(c) business parks are multi-tenanted estates in excess of 20,000 sqm with an office content of 20 percent to 60 percent; and

(d) office parks are low rise buildings comprising 100 percent office space within a functional environment including a variety of amenities.

Through this industrial property sector specialisation, we produce focussed management and greater market knowledge and relationships.

Our objective for MGP is to implement a relatively balanced weighting across these four asset classes over time.

I would now like to provide you with an overview of the assets MGP is looking to acquire an interest in from MGI.

MGI’s portfolio has four properties located in New Zealand; and we are proposing to pool these with MGP’s core assets.

First, Auckland Distribution Centre.

This is a high quality warehouse/distribution centre valued at more than $20 million.

The property is fully occupied with an average weighted lease expiry of 4.3 years and its key customers include Ford NZ and Linfox.

The Gate Industry Park is arguably one of MGI’s most successful properties.

It is a premium industrial estate in Penrose that is also 100 percent occupied.

The property is valued at more than $46 million, with an average weighted lease expiry of 5.7 years and high quality customers such as BOC Gases, Carter Holt Harvey, Rapak Asia Pacific, USG and Yates New Zealand.

Also in Penrose is Penrose Industrial Estate, which is valued at more than $28 million.

It has an average weighted lease expiry of 7.3 years, enjoys 100 percent occupancy and its major customer is Turners Auctions.

Finally, Central Park Corporate Centre is an office park valued at more than $54 million.

With an average lease expiry of 3.7 years, this property has high profile customers like Armourguard Security, Avis Rent a Car and The Simpl Group.

In total, these four properties are valued at around $150 million, excluding the development properties, and cover around 134 thousand square metres.

They enjoy 95 percent occupancy and have a yield of 9.1 percent.

Allow me to talk through how your portfolio looks prior to the transaction with MGI, and how it will look if the transaction is approved.

The transaction will result in:

exposure to a larger, sector specific industrial property portfolio;

enhanced balance within the portfolio across the key asset classes in the industrial and office park sector;

longer weighted average lease expiry profile;

significant increase in the number of customers; and

reduced reliance on larger customers.

These favourable statistics will be reinforced by the strong alignment of interests of MGP and MGI and a Manager that delivers a consistent and established Customer Service Model.

This model has the potential to deliver rental growth through increased customer retention, high occupancy rates and increased flexibility for customers.

Finally, the expert team that Macquarie Goodman aims to bring to MGP will create secure and profitable customer relationships that will in turn lead to optimum returns and capital growth for Unitholders.

CHAIRMAN'S EXPLANATION AND DISCUSSION OF RESOLUTIONS

We should now turn to the three formal Resolutions to be considered by this meeting.

I propose to comment on each of these in the order set out in the Notice of Meeting and, having done so, in each case I will pause and take any questions or comments on each of them.

Further, I confirm that as Resolutions 1 and 2 are interdependent, both must be passed before actions contemplated by them can be implemented.

RESOLUTION 1 – POOLING OF ASSETS

Resolution 1 authorises the pooling of MGP’s core properties with MGI’s New Zealand properties.

Approval of this Resolution is required under NZX Listing Rule 9.2.1, as the proposed pooling constitutes the entry by MGP into a material transaction with a related party, namely MGI.

The pooling transaction is explained in considerable detail in the Explanatory Memorandum, which was sent to Unitholders with the Notice of Meeting, but I should highlight briefly some of the features of that transaction.

Approval of this Resolution will mean that MGP and MGI will become co-owners of MGP’s core properties and MGI’s New Zealand properties.

The result will be a portfolio of thirteen core properties, nine contributed by MGP with a value of $133 million, and four contributed by MGI with a value of $150 million.

This difference in value means that the initial proportionate interest in the co-ownership arrangement will be 47 percent held by MGP and 53 percent held by MGI, with decisions being made jointly.

John has already introduced you to the four properties that are to be contributed by MGI.

There are of course an existing nine properties currently within MGP’s core portfolio.

The Nestlé Building is a fully occupied warehouse/distribution centre valued at $8 million, with high profile company Nestlé as the key customer.

The remaining properties fit within the office park category, including:

The Millennium Centre, a high quality office park valued at more than $43 million, occupied by major customers Genesis Power, Mighty River Power and Spotless Services.

The IBM Centre is valued at $21 million and is occupied by major customers IBM New Zealand, Grey Worldwide and Boffa Miskell.

BTI House is valued at $17 million and is occupied by high profile customers such as Arnotts New Zealand, BTI New Zealand and Sony Music (NZ).

Public Trust House is valued at more than $16 million and is occupied by major customers Public Trust and Vector.

The Ricoh and Kodak Buildings are each valued at more than $7 million, with customers including Carrier Air Conditioning, Nokia New Zealand, Otis, Ricoh New Zealand and Kodak New Zealand.

The EDS Building is valued at more than $5 million and is fully occupied by EDS (NZ).

And finally, Windsor Court is a $6.4 million office building housing customers such as the Bank of New Zealand, Caltex New Zealand and Walters Williams.

In total, these nine properties are valued at around $133 million and cover around 60,000 square metres.

If this Resolution is approved, after the pooling is implemented, the total value of the combined core portfolios of MGP and MGI will be $283 million.

The net lettable area will be 191,365 sqm and the occupancy rate will be 98 percent.

The combined portfolio will also enjoy a renewed and enhanced focus on the industrial and office park sectors.

As you can see from the chart, history shows that the industrial sector has performed well compared with the retail, office and diversified sectors in Australia.

When you combine this performance with Macquarie Goodman’s industrial funds management expertise, and consider that the combined portfolio will be positioned as a leading player in New Zealand’s currently fragmented industrial property market, you can see how this pooled portfolio has the potential to offer strong performance.

In line with this new strategy being applied to your portfolio, three of the existing properties in MGP will not be included in the co-ownership arrangement, and have been earmarked for sale.

These are Unisys House, Panasonic House and the South City Shopping Centre, which are inconsistent with the enhanced industrial property focus of the new portfolio.

In fact, today the Board approved a conditional contract to dispose of Unisys House for $44 million and we are pleased to confirm that the price exceeds the current book value of this property.

Subject to the outcome of the meeting today, the Manager intends to utilise the proceeds of the sale to equalise the proportionate interests of MGP and MGI in the core properties from the current level of 47 percent and 53 percent respectively, to 50 percent each, as well as reduce MGP’s debt level.

Two of MGI’s properties, The Gate Industry Park and Central Park Corporate Centre, also include development land valued at $18 million.

These have been excluded from the proposed co-ownership arrangement.

However, MGP may choose to acquire its proportionate share of these properties on completion, but will not be exposed to the risks associated with their development, or to the non-yielding aspect of the properties during the development phase.

The pooling transaction has been reviewed by Deloitte Corporate Finance.

In its appraisal report, which was sent to Unitholders with the Explanatory Memorandum, Deloitte Corporate Finance has stated that:

“In [their] opinion, after having regard to all relevant factors, the terms and conditions of the Transaction are fair to the Non-associated Unitholders.”

RESOLUTION 2 – PROPERTY SERVICES AGREEMENT

Resolution 2 relates to the appointment of Macquarie Goodman Property Services as property manager for MGP.

Macquarie Goodman Property Services is a wholly-owned subsidiary of Macquarie Goodman Management Limited.

As property manager, Macquarie Goodman Property Services will manage the pooled properties of MGP and MGI under a formal Property Services Agreement, and will be paid fees for those services.

In relation to MGP’s properties, these services are currently outsourced to external property managers.

The approval of Resolution 2 is being sought because the independent directors of the Manager believe that Unitholders should have the opportunity to consider this property services arrangement.

In addition, this approval may be required under the NZX Listing Rules due to the possibility that the fees payable to Macquarie Goodman Property Services could exceed the threshold set out in the related party provisions of the NZX Listing Rules.

We explained earlier, and in detail, how Macquarie Goodman’s Customer Service Model is designed to enhance the value and performance of your portfolio.

By approving this Resolution today, MGP’s Unitholders will enjoy the performance and value-added benefits that flow from Macquarie Goodman’s Customer Service Model.

The foundation of Macquarie Goodman’s Customer Service Model is its dedicated in-house team of property professionals.

Your new portfolio will benefit from access to Macquarie Goodman’s expertise in all property fields including funds management, property services and development and project management.

The New Zealand operation of Macquarie Goodman will initially have fifteen dedicated people.

Macquarie Goodman’s track record provides proof of the potential benefits it can offer your portfolio performance.

The result is expected to be:

more secure and profitable relationships with customers; and

a property manager that is highly responsive to customer needs, both now and in the future.

If passed, Resolution 2 authorises a Property Services Agreement under which Macquarie Goodman Property Services can charge certain fees to MGP for property management services that were previously performed by third parties.

The fees referred to in the Explanatory Memorandum are expressed as percentage parameters.

The effect of Resolution 2 is to authorise MGP to pay fees to Macquarie Goodman Property Services within those parameters

Those fee parameters have been reviewed by Deloitte Corporate Finance, which confirmed them as fair to Unitholders not associated with Macquarie Goodman.

However, to provide clarity on the fees to be paid, the Manager would like to confirm that for the next twelve months it will charge the following fees in respect of certain services:

disposal fees on the identified non-core assets will be capped at 0.25 percent of the sale price of the property;

acquisition fees will be capped at 0.75 percent of the acquisition price of the property; and

on the renewal of an existing lease, the commission payable will be 25 percent of the commission payable in respect of a lease to a new customer.

These fees are either at the lower end of, or below, the fee parameters that will be authorised by Resolution 2 if it is passed.

Should Macquarie Goodman Property Services propose an increase in the fee ranges referred to in the Explanatory Memorandum, that proposal will be submitted to Unitholders for consideration and approval.

When making your voting decision, you should understand that these fees are competitive in the market, that they give your portfolio access to Macquarie Goodman’s Customer Service Model and dedicated in-house team of experts and, most importantly, will ensure that the relationship with the customer is maintained by Macquarie Goodman

In its appraisal report, Deloitte Corporate Finance stated:

“In [their] opinion, after having regard to all relevant factors, the fees payable by MGP to Macquarie Goodman Property Services under the Property Services Agreement are fair to the Non-associated Unitholders.”

RESOLUTION 3 – QUALIFYING TRANSACTIONS

The approval of Resolution 3 is required as a condition of a waiver that has been granted by the Market Surveillance Panel of the NZX.

If that waiver had not been obtained, future transactions where MGP and MGI acquire or sell properties together as co-owners could be related party transactions, requiring Unitholders’ approval under the NZX Listing Rules.

The waiver will allow MGP and MGI, acting together as co-owners, to enter into future arm’s-length transactions to acquire properties from, and sell properties to, unrelated third parties without having to obtain Unitholders’ approval on each occasion.

The transactions to which the NZX waiver applies are described in detail in the Explanatory Memorandum and are referred to as “Qualifying Transactions”.

It is important that MGP is able to undertake such transactions without having to obtain Unitholders’ approval so that MGP can remain competitive in relation to future joint ownership opportunities.

The waiver granted by the NZX from the requirement to obtain Unitholders’ approval to Qualifying Transactions is for a three year period and is subject to a general approval being obtained from Unitholders in the form of Resolution 3.

The waiver is also subject to a number of other conditions that are outlined in the Explanatory Memorandum.
These ensure that the relevant Qualifying Transactions are entered into on arm’s-length terms and are transparent and include requirement:

that an independent valuer’s report must be obtained on each Qualifying Transaction;

secondly, that the Manager’s independent directors must review the valuation report and certify that, in their opinion, the transaction is on arm’s-length terms and complies with MGP’s investment policies; and

finally, that disclosure of any such transactions must be made in MGP’s annual and half yearly reports.

The practical effect of Resolution 3 - and the NZX waiver - is that MGP and MGI, as co-owners, will be able to buy and sell properties together in the ordinary course of business without having to seek Unitholders’ approval on each occasion. ENDS

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