Abacus Group (ABG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Abacus Group FY '24 Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Steven Sewell, Managing Director.

Good morning, everybody, and welcome on this Friday morning at the end of a busy week to the Financial Year '24 Results for Abacus Group. This is our first full year result as its own freestanding commercial real estate REIT and as the fund manager of Abacus Storage King, which, as you would appreciate, reported its results last week. I'm joined here today by Evan Goodridge, our CFO; as well as the Investor Relations team. So, what does Abacus Group look like in FY '24 and beyond? In this slide, you can see a snapshot. After successfully de-stapling, Abacus Group remains a diversified commercial REIT with a portfolio of office and retail assets as well as a strategic 19.8% stake in Abacus Storage King, which, at this point in our evolution happens to be our largest individual asset on the balance sheet. Total assets are valued at just over $2.6 billion with a weighted average cap rate way different to where it was just three short years ago. And hitting the mark on one of our key deliverables, we saw positive income growth in both office and retail in FY '24, which I will touch on shortly. Turning to the highlights that we want to call out for the financial year 2024. We remain very active in successfully recycling capital, selling out of two assets for about $108 million at or very close to the book value, plus just last week, we contracted to sell our 50% interest in Lutwyche Marketplace Shopping Centre for just over $60 million, a transaction that's expected to settle in this half. We remain active, upbeat and successful in driving and delivering on the performance of our commercial portfolio, seeing FFO from continuing operations up 3%, which highlights the 15.9% leasing spreads on new office deals in the period, an exceptionally strong lease-up at 201 Elizabeth Street and 77 Castle Ray Street here in Sydney. We see both capital and leasing appetite continue to improve. Our portfolio is proving extremely resilient, testaments to its diversification by market, asset grade and customer profile, where we are seeing our largely small-to medium-sized enterprise customer base on a very definite flight to value, so positioning Abacus' portfolio well to cater to these customers who are seeking superior locations with contemporary amenity at a competitive price point. We continue our enthusiasm and delight at the performance of our self-storage business, Abacus Storage King. Performance underpinned by an irreplaceable portfolio of land-rich assets in prime suburban locations and several structural tailwinds in what we still believe is an immature asset class here in Australia and in New Zealand. Abacus Group derives a return from this substantial stake in the business as well as the fees from managing the fund and our development management activities. The highly motivated and capable Abacus team is working constantly to deliver on our asset plans for our assets as well as positioning ASK to maximum advantage. I'll now hand over to Evan to run through the financial metrics and capital management initiatives.

Thanks, Steven, and good morning. This has been a transformational year for the group as we've successfully completed the demerger of Abacus Storage King in August 2023 and repositioned our business model to focus on our core commercial portfolio as well as funds management and investment activities. This pivot was strategic and has enabled us to diversify our earnings, enhance our portfolio quality and deliver a strong and resilient performance in a challenging economic environment with funds from continuing operations increasing by 3% compared to the prior period. For FY '24, our funds from operations of $0.092 and distributions of $0.085 were in line with consensus, providing a payout ratio of 92%. I know that the second half distribution was 50% franked, and the group's intention is to distribute our remaining $76 million of franking credits to securityholders over the medium term. Operating earnings increased by 24.4%, with the growth driven by new income streams from our investment and management of ASK, as well as the resilience of our office portfolio, which delivered solid returns with like-for-like income up 6.7% compared to the prior period. The growth in our like-for-like office income was primarily driven by strong leasing spreads and a 40-basis point improvement in occupancy over the period. Our portfolio remains well positioned for further leasing success in the year ahead, with existing good levels of customer inquiry and leasing negotiations already underway, derisking our expiry profile. Recently, we have seen a noticeable increase in leasing demand as organizations are becoming more confident on their space requirements and prospective SME tenants have shifted their preference from a flight to quality thematic to instead a flight to value. Pleasingly, Abacus' portfolio is well positioned to cater for this change as most of our portfolio is in premium locations with contemporary amenities. Our rents remain at a competitive price point with the average net rents in the Sydney and Melbourne CBDs currently less than $1,000 per square meter. The group now has almost half of its operating income come from retail, management fees and the investment returns from its ownership in the ASK vehicle. The retail portfolio saw an increase in like-for-like income for the period up 1.6%. However, with the sale of Ashfield Mall in April and Lutwyche post balance date, our retail income in FY '25 will reduce. The lost income from these sales will be partly offset by our recent increase in ownership of the Myer Center, Melbourne, which settled end of June. As the manager of ASK, we owned $14.5 million in fees for the year, comprising $11.3 million for funds management and $3.2 million for development management services as well as benefiting from our investment returns due to our 19.8% ownership. We expect continued earnings growth in FY '25 from both the fees charged and the investment in ASK as this vehicle continues to perform strongly. Following the de-stapling process, the group's fixed hedge profile was more evenly distributed between the group and ASK, resulting in a weighted average cost of debt for the group for FY '24 at 4.4%. In the current interest rate environment, we are forecasting our cost of debt to increase to just over 5% in FY '25. Despite this forecast higher cost of debt and assuming no material changes in current business conditions, it is anticipated that FY '25's FFO will be broadly in line with that delivered in FY '24. Our balance sheet remains in a strong position. Recent divestments of noncore assets at close to book values have shored up the capital position of the balance sheet. During FY '24, Abacus divested 63 Ann Street, Surry Hills and Ashfield Mall for $108 million. Post balance date, the group expects to receive a further $60 million from the sale of Market Central Lutwyche, with the settlement expected to occur in the first half of FY '25. We continue to review each one of our assets and where appropriate, we'll continue to divest them in a disciplined manner at or near book value. As previously mentioned, we also increased our percentage ownership of the Myer Centre in Melbourne, which has improved the occupancy, WALE and overall quality of our portfolio. The group's largest investment though, remains its $419 million ownership in ASK, representing 16% of total assets. A further 15% of total assets reflects our remaining retail portfolio, being the Myer Centre, Melbourne and our Oasis Shopping Centre, Broadbeach; and our city office exposure makes up over 50% of the total office portfolio by value. With asset valuations declining, we continue to maintain a disciplined approach to capital management. The group's pro forma balance sheet gearing is 32%, and we are currently holding high levels of liquidity with acquisition capacity of over $325 million. We continue to hold significant headroom with cap rates needing to increase by more than 200 basis points before we approach covenant limits. The group currently has no committed development projects with limited capital requirements in the short term and should benefit from improved cash flows in FY '25 as most of the group's existing incentives have been previously paid out as fit our contributions and 62% of our existing vacant space has already been spec fitted. The group has recently extended its debt at attractive pricing, and we remain well supported by our lenders with no debt maturities in the next 12 months. The group also maintained significant hedge cover over the next four years, providing material protection against interest rate fluctuations with our current hedge position at 76%. We are confident that the group is well positioned to navigate the current market challenges and capture the emerging opportunities. In this environment, we believe it is prudent to maintain elevated levels of liquidity and gearing headroom. If however, the market stabilizes and/or additional liquidity events are realized, we will continue to review all capital management initiatives available. Turning to valuations. Our income profile remains resilient. However, our properties are not immune to the prevailing higher interest rate environment. And as such, an appropriate 79 basis points expansion in cap rates across our investment property portfolio has been taken over the past year. This has resulted in a decrease in investment property values of 12.7%, being office decreasing 14.2%, greenfield sites at 11.5% and retail at 8.2%. Despite this valuation decrease, our portfolio remains well diversified and in our view, is conservatively positioned with a weighted average cap rate of approximately 6.5%. We have recently seen a noticeable improvement in leasing market activity with face rents continuing to grow and incentives stabilizing. As such, we are more positive about Australia's office market performance in FY '25. Our office portfolio has now been revalued down 26% from pre-COVID level highs, and we believe that we are close to the end of the current devaluation cycle. I'll now hand back to Steven to talk further about the group's operations and our sustainability progress.

Thanks, Evan. And just picking up on that theme about our office assets, they have performed particularly strongly in the year with growth, as Evan mentioned, up 40 basis points on a like-for-like basis, taking our total occupancy to a strong 93.4%. We are certainly seeing improved physical utilization of our buildings, suggesting a much greater confidence and certainty from our tenant partners who generally are much lesser hybrid compared to larger space users. Our WALE of 3.7 years reflects the SME weighted customer base who generally commit to leases in the 3-to-5-year range. And it's noticeable that over 75% of the leases done in the year were actually on spaces of less than 750 square meters. The leasing success contributed to the 4.7% like-for-like rent growth compared to FY '23, in line with our commitment to direct capital towards assets with the best risk-adjusted returns in the near term. We did divest one noncore asset as mentioned, and we opportunistically acquired a very small building adjacent to our highest valued office building at 99 Walker Street over in North Sydney. Valuations are still being impacted across the market, as Evan explained, and we do continue to monitor trends on comparable transactions with supply and demand drivers in the major markets of Melbourne, Sydney and Brisbane. We're seeing signs that valuations are stabilizing, particularly in CBD markets and with face rents trending upwards and strong demand for good quality space. Some recent comparable transactions would indicate, as Evan mentioned, we're at the end or near end of the devaluation cycle. Turning to our portfolio. It is very different to what it was just 7 short years ago when I joined the company, and no doubt will continue to evolve, now being a well-diversified portfolio by submarket and importantly, by customer industry segments. Importantly, we own the assets in our portfolio today because for each of them, we see rental income growth potential and the opportunity to drive this income through active, smart strategies, in the large part, requiring limited CapEx. The result being that with quality A-grade buildings predominantly in great locations with superior amenity, we offer relatively affordable rents for the prime CBD locations we're situated in, predominantly Sydney, Brisbane and Melbourne. As I alluded to with increased utilization earlier, we're seeing signs that the office sentiment has turned a corner from an occupier's perspective, and we welcome the recent New South Wales' government return to office mandate and progressively more and more corporates doing the same. We believe this will only accelerate the trend, and anecdotally, we are having far fewer leasing conversations with tenants around the uncertainty of office requirements due to impacts of work from home strategies. Turning to the leasing metrics. The call out for this slide is that the average leasing spreads in FY '24 with 201 Elizabeth Street and 77 Castlereagh Street particularly, were very strong, albeit we do note from a small sample and against historically quite low rents. Whilst in some submarkets, capital incentives remain elevated, they're quite varied across the various submarkets in which we operate. Effective rent growth continues to be impacted by inflated incentives, and we expect the impact of this to moderate as occupiers place increased value on existing fit-outs, many of which have been recently completed and seek to locate in superior quality buildings at a good level of rent. We do believe we offer a superior occupier value proposition, location, amenity and occupancy cost, and that is certainly reflected in the discussions and negotiations that we're able to conduct with new and existing tenant partners. One measure we believe demonstrates our proactive tenant engagement is the strong retention levels in FY '24 with over 60% of space due to expire, being retained by existing tenants, showcasing not only our superior value proposition, but the various initiatives the team have put in place to add service layers for our customers and ensure dealing with Abacus is easier than our competitors in the market. Turning to the lease expiry profile, just an extension of what I was just discussing. The main callout from this profile is that much of the leasing to be done in the next couple of years is either now under negotiation or in many instances, actually agreed and under heads of agreement. The second half of FY '24, 77 Castlereagh, almost dealt with. We also see -- on the 6% current vacancy, the majority of that space has actually been fitted out and new offices available for lease. Active leasing campaigns are currently addressing these and upcoming vacancies; we're extremely comfortable with the lease expiry profile as it stands. Looking closer on the next slide, we just provide some color on our two major assets and the considerable leasing success that we've achieved at 77 Castlereagh Street here in Sydney, our office; and 201 Elizabeth Street just down the road. 77 Castlereagh now sits at a healthy 95% occupied, over 17 percentage points higher than it was just 6 months ago at 77.6%, an outstanding result in the current market and reflects the effectiveness of our refurbishments of the levels 8, 9 and 10, as well as the base building upgrades that we've done, lifts and lobbies refreshed, plus the installation up on the roof in an area that was previously occupied by [ plant ] of a state-of-the-art, end-of-trip facility available to all our tenant occupiers. Over 3,400 square meters of space has been leased since the half, and we credit closing these deals to the attraction of the building's amenity and the investments that we've made to improve the tenant experience, all amplified by the fact that the building sits above one of Australia's premier retail shopping center locations, Westfield Sydney. As well, 201 Elizabeth Street now sits at over 78% occupied, up over 28 percentage points from where it was at the half, 49.6%. We've done over 13,400 square meters of space leased since the half, with new tenants indicating they're attracted by the value offering, the 360-degrees views of the city and the harbor and the emerging street amenity, including the nearby opened Gadigal Metro Station. The other investments on our balance sheet are our self-storage strategic stake and the two retail assets. We disposed of our 50% interest of both Ashfield, which has already settled and Lutwyche, which will settle during this period. And far from being anti-retail, it was pleasing to be able to increase our stake in the Myer Melbourne CBD store to 50% in the half, which continues to perform exceptionally well. Our stake in Storage King delivered great investment returns as detailed by Evan and the business itself continues to perform strongly. As the fund manager, we continue to receive fees, and we view the self-storage sector with increasing favorable metrics as a very strong growth corridor going forward. Turning to our ESG and sustainability focus. The group continues to progress towards our targets, most notably our net zero greenhouse gas emission target by 2030, and we're particularly proud of the 36% reduction in emissions intensity in FY '24 compared to our FY '19 base year as well as our average NABERS rating currently sitting at 4.8 stars. We're also pleased to report that during the period, we've secured Climate Active Certification for two assets: 99 Walker Street in North Sydney as well as 51 Allara Street down in Canberra. Ongoing initiatives including enhancing the use of renewable energy throughout the portfolio and identifying additional opportunities for efficiency improvements in preparation for the new Australian sustainability reporting standards, which expect to become effective for the group from July 2027 onwards. Turning to the outlook. From a group strategy perspective, our vision is to create exceptional value for our customers and stakeholders through the identification, ownership and management of a portfolio of real estate investments. Across many years, the group has demonstrated its capability and entrepreneurial flare in investing in and maximizing the value and income return for Abacus' balance sheet investments. We believe we are well positioned with a strong asset backing and track record of capability to expand in the areas of joint ventures, capital partnering and funds management activities. We remain vigilant and open to pursuing opportunities where we can invest our capital and that of our partners to deliver this positive income and value growth returns. We do thank you for listening today. To conclude, I'd like to confirm that the group's balance sheet of investments are contributing to a well-diversified and growing income stream for the group. Looking ahead, we are confident that Abacus remains well positioned to leverage that platform and key enablers to deliver recurring income and value creation over the short to medium to longer term. We also believe there will be opportunities to expand this, as I mentioned, in capital partnering funds management initiatives moving forward. And despite the considerable inflationary pressures throughout the group's cost base, particularly in property expenses, rates and taxes, our portfolio curation shrinking the balance sheet, we are pleased to be able to provide stable distribution guidance year-on-year, with FY '25 distributions expected to be $0.085 for securities in a payout ratio range of between 85% and 95% of FFO. That ends our formal remarks for the financial year. I look forward to now taking any questions you may have or alternatively meeting with you in person in the days and weeks to come.

[Operator Instructions] Your first question comes from Steven Tjia from Barrenjoey.

Just a couple of questions for me. So, one on the leasing in '24. Just looking ahead at FY '25 office expiries, just what are your expectations here noting that Docklands in North Sydney are kind of softer markets at the moment?

FY '25, Steven, we've actually broken the back of a lot of the expiries. The ones in the current year, we've basically got almost those entire spaces spoken for. In FY '25, in the next year, we obviously have space varied across both -- all three markets: Brisbane, Sydney and Melbourne. We have got a lot of discussions underway on each of those spaces, and we're pretty confident about that. And in addition, we're also starting to tackle the FY '26 expiries. We do sense that there has been an inflection in the market in the last month or two. And as we've said a few times, this flight to value, we do see and in discussions with tenant reps and tenants directly, we do see that tenants are starting to zero in on what price point, what do they get for their money. And that gives us a lot of confidence to move forward with a lot of the strategies that we've got in place.

And then just a follow-up on that point. I suppose what kind of tenant [ to mind ] you seeing, is it still from the SMEs? Or are you seeing more interest from corporates and potentially government, now?

It is predominantly SMEs, but we have had the situation and actually in Sydney, we've had some tenants move into the city from near-city locations such as Bondi Junction, Chatswood, some of those fringe locations, tenants that are realizing that at the price, they can actually afford to be in a quality location in the city. So that's been pretty pleasing. We've actually done -- one of the major deals, we did a whole floor deal, we did here in 77 Castlereagh; was a tenant that was moving in from one of those fringe markets. And that's an attractive proposition for us.

Maybe just one more, if I can. Just on capital recycling and what type of opportunities you're thinking about '25. Is it more office focused or on the retail side?

We're open to looking at where the opportunity sits. I think from our perspective, it always boils down to what's the tenant demand for the space and what's the value of the underlying land holding. So, whether it is an office transaction, a mixed transaction, diversified or pure retail, we will be very much driven by the demographics, the tenant demand and particularly where we can see that income growth. I think to be able to buy assets at this point in the cycle at the sort of yields that people are selling assets for is pretty attractive if you can hold them through the cycle and then also capture that income growth. So, it is something that we are quite actively pursuing.

Your next question comes from Caleb Wheatley from Macquarie.

My first question, just on the leasing CapEx program for the office portfolio that came through in FY '24, can you just give us an update on the total amount spent in FY '24 and looking forward, if you're expecting any more of that CapEx will be required? Or are we largely through that program now?

In relation to the leasing CapEx that we spent in FY '24 is about $25 million for the year. It will probably be the same over the next 12 months as well because we're assuming that we're going to do a lot of leasing over that period as well. But after that, we should have broken the back of the majority of it.

Okay. And at the first half, I think you mentioned it was going to be $50 million. Is that just more of a timing issue and a stretch out in terms of the '25 to '25 now?

I think the $50 million was both the maintenance CapEx as well as the leasing CapEx that we thought we were going to spend. So that was about $50 million for FY '24. If we look into FY '25, it's probably a safe assumption to do, we're still looking at that. But then as I say, we would have broken the back of the majority of it into FY '26, '27.

My second question is just on the payout ratio. So, you're 85% to 95% of FFO, about 92% this year, and it sounds likely to be a similar level into '25. Should we expect that to start to revert back down closer to 90% or even below as that [indiscernible] begins to roll off?

Look, the business is doing really well, and we're forecasting at the operating level, it will do quite well into FY '25, but we've got the headwind of that interest rate. So, we're guiding everyone close to what we did with the FFO in FY '24 to FY '25 at this moment.

And obviously a preference to maintain the dividend alongside that, I suspect?

Yes, absolutely. And you probably heard that our target is to have a lot of that distribution franked to give our investors a greater return after tax.

And one more question for me, just around the new maximum gearing target. So, you've shifted from 35% to 40% there. Would be keen to get some additional color and rationale on why the shift up, and particularly, any comments on how you would think about look-through gearing, conscious of the debt that sits at the ASK level as well, please?

Sure. So, ASK's gearing target hasn't changed, that's still 35%. The reason why we upped it to 40% is we're very excited about the future of the market. We're seeing the income profile change, and we think we're close to the end of that devaluation cycle. So now is the time to up that gearing so we can take advantage of any opportunities that present themselves.

And gearing on a look-through basis influence your thinking at all?

Yes and no. In relation to groups like ASK, where they target getting 35% in storage is growing. They've got their own profile, and we're really happy to be the [ management ] stay 19.8% invested. A lot of our other JVs out there actually don't have that much gearing associated with it at this stage.

Your next question comes from Larry Gandler from Shaw and Partners.

Can I just continue to explore the major expiries in FY '25? I think you had about a 60% retention rate you said for the last year. Is that something that you'd expect for FY '25? Or are your discussions leading to perhaps a notion that it could be a greater level of retention?

I think, that would be pretty standard, Larry, to get to that sort of 60% to 70% retention. That's a strong result by any office landlord's metrics; I would hazard a guess. Predominantly, the three big vacancies or lease expiries for the year are as it turns out, one in Brisbane, one in Sydney, one in Melbourne. We are seeing elevated levels of inquiry in Brisbane. It's only a single building; it's 2 King Street on the edge of Fortitude Valley. And we have had considerable success there. In fact, the space that's in the chart for expiry has gone under heads of agreement. The one in Sydney is over in 99 Walker Street, it's a multi-tenanted building, the Victoria Cross Metro stations just opened this week. The whole precinct over there is jumping. So, we're extremely confident about that. And then the balance is the space at 710 Collins Street down in Melbourne, which, as you'd appreciate, is in joint venture with Walker Group. We've just deferred the development of the tower above the Docklands building, and it won't be built, that tower, for 10-plus years. So, there is a leasing strategy around that space. It's quite unique space. And early indications are that there's a number of players that are attracted to the space because of its -- it's an enormously large footprint over two levels, quite funky sort of space, not traditional office space. So, we don't have any difficulty whatsoever Larry, with that expiry profile. We're very comfortable with those transactions, getting them done pretty quick, smart.

And related to that, rather than expiry, you have some vacancy opportunities, looking at Elizabeth Street, 78%. What's the sort of prospects for leasing that to -- into the 90s over the next, say, through F '25?

Yes. So well, the fact that we've been able to move at 28 percentage points since the half, I think what you're seeing there with our partners at Charter Hall, who've managed that process and asset manage that building, we have seen an enormous influx of tenants attracted to the building because of the dollar value of rent combined with the 360-degree views of the harbor and park. And I think the metro station opposite the Parkline Place, Gadigal metro station that opened this week, just exacerbates the attractiveness of that precinct. So, we think we can move that very materially, that occupancy. And again, we're pretty comfortable about that situation. And we think that's a great tailwind for the business. I think that just boosts the income return going forward.

Yes. And does that occupancy move in F '25 or it takes a bit longer to get that?

No. I think we'll continue to move. It may not be at the same trajectory, 28 percentage points in 6 months, but we think we can keep on shifting it back to what would be standard occupancy for a building of that size, multi-tenanted of between 90% and 95%.

Last question for me for Evan. Evan, on the balance sheet, there's properties held for sale, it's over $100 million. Does that include Lutwyche? Or are there other items in there?

It's two assets, Larry, one is Lutwyche, and so we're really pleased to have got that one away. And the other one is some industrial land out near Parramatta at the old Camellia site.

Your next question comes from Richard Jones from JPMorgan.

Just on that last comment, so that's just part of the Camellia site that you're selling, is it or all of it?

No, the entire Camellia site.

So that was carried $65 million. Is that being sold at $40 million odd -- is that…

No, there's two.

I can get you the exact number, Richard, but it's carried, I think, a little bit lower than that $65 million, the number that it's -- sorry, it is carried at $65 million, correct.

And Steven, I mean, obviously, this has been a long holding for the group. It's been flagged for massive resi development; that obviously didn't get off the ground. Can you just talk us through the -- I mean, it's obviously non-income-producing as well. So maybe just work through the decision-making?

I think -- well, it sits in the lap of the Gods with planning by the New South Wales government, Richard and we don't see any time soon that the planning certainty for that block will be realized. And we've taken a decision to market it as is where is. We were comforted by the strong bids that we received, and we're in detailed discussions with one party on that parcel. And we'd be hopeful that within the 12 months that we'll sell, so. It does draw to a close, a long saga, history, as you know, Richard.

The -- just Evan, just on the gearing, just that the increase in -- I assume its group gearing up to a target range of 40% would have covenant gearing at 45%, 46%. And I note your ICRs at 2.5x. So again, if you gear up, I imagine that is going to take a hit. So just wondering, do you think about renegotiating your covenants? Or would you be happy that you'd be that close to both the ICR and LTV covenants?

I think -- can I just add there? Sorry to jump in, Richard. It's not a target gearing of 40%. It's a range, and the upper limit is 40%. I think what we've demonstrated is that we're more than comfortable to target gearing in the sort of 30% to 35%. We took a decision that in line with many of our peers, an upper limit of 40% is commercially sensible, particularly as Evan detailed after 3 years of asset devaluations that have seen nearly 30% reduced in the level of gearing of our assets.

The only thing I'd add to that, Richard, is with the proposed divestment of Camellia, which is non-income producing and the opportunities that we see, which we think could be great income-producing, that ICR would be protected even if we drew down a bit more.

Just the exit yield on Lutwyche and the entry yield, if you like, in terms of [indiscernible] Myer Melbourne, can you clarify, is that a positive income or negative income differential?

It'll be marginally positive. I think we've had about -- it's about a $60 million transaction on Lutwyche, and the yield is actually comparable and it's about a $72 million transaction on Myer. So, there's a net positive there.

And Steve, can you just explain why and how that kind of transaction at Myer [indiscernible]?

We were attracted to the fact that we've been able to purchase a building that over the last 15 years has had more than $1 billion spent on it, and we've invested at a value of about $400 million, $450 million. It was a discussion that I had with Charter hall about their interest and would they be interested in it, and we were able to reach agreement with Avi and the team at CLW. So, we love the real estate. It's an inflation-linked lease. And the Myer department store business is going particularly well. We're particularly comforted by the recent negotiations and discussions around that business, and we're very happy to be the landlord of their single biggest CBD store.

And one last question. Just 201 Elizabeth, where do you think you might get occupancy to over the next 6 months?

It will be in the 80% range. If we can get it to 90%, that would be fantastic. But we've broken the back of that level of occupancy that got down under 50%, while we were working on the development scheme. And I think the cash flow is starting to show very strong signs of upswing. And we've always seen that that's an investment that we've suffered a low running yield for many years, but we always were confident in the location, and I think clearing the decks of that development scheme extension with our partners has only seen a very positive momentum there for occupiers, both existing occupiers and people attracted to the building.

There are no further phone questions at this time. I'll now hand back for webcast questions.

There's a couple of questions that relate to what do we plan on investing into and acquiring? We do not have any target levels or percentages or mix of assets, either retail or office. We'll invest where we see value, and we see the opportunity to apply the skills of the platform, whether that's in asset management, development management or all of the above. There is also another question just in relation to the cost of managing the ASK business. And Evan has alluded to the fact that the funds management fee is in the range of $10 million to $12 million. That's at a marginal profitability from our perspective. So, it does cover costs. And a large part of that fee is actually taken up by the costs, the overall cost of the business. And it was specifically set up that way, that fee. It's not intended to be a big profit generator. So they were the only questions that came through on the web. So that will conclude the presentation for today. We thank you again for listening in. I wish you a good Friday and look forward to catching up. Thanks, everybody.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.