Argosy Property Limited (ARG) Earnings Call Transcript & Summary

Thank you for standing by. Welcome to the Argosy Property Limited FY '24 Annual Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Peter Mence, CEO. Please go ahead.

Well, good morning, and thanks for joining us for the financial year '24 annual results. The result is understandably dominated by a further devaluation, roughly the same as in the first half, to property values. There is no cut to the dividend, and I know people will have been looking for that. And we know the economy is not well just quietly -- I'm not well either, but I expect to get better faster. So my apologies if I start coughing off. I'll start off the presentation as usual, and then Dave will take us through the financials, and then I'll talk a little bit more about leasing and more forward-looking stuff at the other end. The portfolio targets remain diversified in spite of a change to the asset allocation targets, lifting our industrial marginally at the expense of commercial offices, specifically and in Wellington. Turning to the strategy slide. The diversification has served us reasonably well, and the spread of risk worked very well for us through that COVID period. So no real change, just a slight increase to the industrial weighting. That is driven by risk return and property specifics. So there's quite a bit of work went into that change. Through the green commentary, the vast majority of our lease inquiry is still for green space. And increasingly, tenants are looking to us to assist them in their reduction of their own occupancy carbon footprint. So we do see that continuing and growing. Certainly, it has grown over the last year. And increasingly, we're seen as a service provider, an active contribution to the businesses that are the tenants in our portfolio. So that means that we've made some changes. I'll talk a little bit later on about the introduction of the likes of Footprint, which is getting some good positive feedback from tenants and prospective tenants. Sustainability, obviously, is very much a key [ plank ] of the overseas strategy what we've been doing for the last decade and what we're doing going forward. Argosy Property is, of course, net zero rated by Toit?. The largest risk to that carbon footprint for Argosy is the issue of refrigerants, managing refrigerants and specifically managing the leaks. Now there is no current viable zero harm refrigerant out there, but we're working on options and change in the design to minimize the degree to which we have to use the more harmful refrigerants. You'll see the climate disclosures under the XRB initial. That is very much an iterative process. We'll see that continue and expand as one goes through and -- health and safety. Just to note there, we are noticing, operationally, some, I'd call it, fatigue from contractors and, indeed, from tenants as the theme has been around for a while now, and it's important that we maintain a focus that avoids that fatigue, processes and systems to make it easy for people to do the right thing. The 224 Neilson Street property, where through the demolition and subbase works on that site. Interestingly, we have achieved over 99% diversion from landfill on that project so far and that is the more challenging demolition phase that we've been through. So I'm pretty happy with that as a result. And during the year, all our building certification goals, we have either met or exceeded. Just looking at some of the key highlights, picking through there. The metrics are still relatively tiny. Net property income is up 3.3%. NTA is down, courtesy from revaluations that were down. The dividend are held flat. Now we know that the economy is tough. We know that income levels are going to be tough. We believe that's achievable. It will be tough for us to deliver that without causing any issues to stay within our policy. But at the end of the day, you're not paying us to take the easy option. We need to try and make sure that we're doing the best we can in that space. Our current projections say that the dividend will be fine within policy. Gearing remains highly and comfortably within our range. It's a long way away from when we had the GFC, where we had a 45% covenant and a 42% gearing. So you never get back the sleep you lose from those things. Occupancy, whilst the occupancy is still less than we would have liked, and that has been affected by some relatively recent expiries, and most notably, the 39 marketplace property, where, obviously, we're looking for a change of use and that required a level of vacancy. That was occasioned most recently by the most beneficial transfer of NIWA from this building through to the Wyndham Street green property. Leasing inquiry, it's fair to say it has been better than we have expected, but we are seeing significantly increased periods of time with which to convert those inquiries. And there is some commencement date pressure and a lot of businesses are really looking to staff their new premises or their new rental level, if you like, in calendar year '25 rather than before Christmas this year. Rental growth has continued, and we're seeing reasonably solid like-for-like rental growth, but it is fair to say that tenants are very focused on their cost of occupancy. I'll take the sector summary and leave that for you to digest. There's no big changes in there, and it's pretty much statistical. You'll see the portfolio at a glance, though, shows that we're more than 50% in the industrial sector and largely close to or within target band. So you can see where we're going with all of that work over the next little while. The only point to note, really, is under value add. Our value-add assets are also income earning. That's obviously important to us to maintain that on the way through. And the key one there is the deferral of the Mt Richmond Industrial Park development, where we've retained the existing tenants on site to ensure that we're still getting an income through that. Our revaluations will clearly generate some interest. Current data suggests that cap rate expansion has stopped the last 3 months. Data is showing, other than in retail, no change to cap rates and projections. Retailers are still somewhat affected by the rental growth profile and the level of risk sitting in there of continued occupancy. So I might add that, that does not really apply to our Albany Mega Centre, where I'll talk a bit about that later. We're still seeing some rental growth. CBRE research have recently released some research data that shows them as being confident that the cap rate expansion phase is over, and that really gives us a further confirmation that share price has proven to be a rather poor indicator of property values going forward as indeed it has in every down -- significant downturn anyway since the property sector has been present in the New Zealand market. The market is not looking solid. We are seeing quite a bit of weakness, but we do know that it's not a 1987, and we do know that it's not a GFC. It is important that we continue to manage risk. Construction costs continue to fall and especially in the subcontract labor and structural steel sectors. We do expect to see some short-term pressure on land values with the drop in development activity, but I might add, I think that is definitely short term. Cap rates are looking reasonably stable, the pricing of risk coming from both vacancy and green obsolescence or lack of greening for property. There is, very obviously, a delta between what is green and what is not green in the valuations. We talk a bit about that going forward because we've got some good example of it ourselves. And our own sales and current negotiations suggest that there's still some conservatism sitting in some of those values. And I don't know that anybody else, but I was somewhat surprised, positively surprised with the quoted cap rate that Kiwi have secured in terms of -- well, I think those terms are great with respect to the Bureau Center. Turning to the value-add and green development. The 224 Neilson Street property, we're -- as I said, we're well underway with the civil works on that side. We're currently working with 2 possible tenants for that. It seems that at this point, the projections would show that our intended delivery date looks like pretty good timing. We are looking at a period currently at relatively low demand, but very low supply in the sector. And hopefully, all our projections come good, and it looks tidy for delivery on time. We're doing the leasing at 101 and 105 Carlton Gore Road. Now 105, you'll recall, 6-star green development. We've completed that work. 101, we deferred the green upgrades to that building. This is a really good example of the difference between green and not green And at a future presentation, we'd like to do some direct comparisons with what's happening there. Now both properties are actually leasing well with current negotiations, qualified negotiations. We'll end up with only half a floor left at 105 Carlton Gore Road and 2 half floors left at 101 Carlton Gore Road. It's very much a price difference and a tenant difference, but both properties are showing that they've got their place. I'll hand over to Dave to run through the financials given that I've already covered off the comments on 224 Neilson Street that I had listed there.

Thanks, Peter, and hello, everyone. So first slide from me is the gross property income waterfall. Gross property income was $131 million for the period compared to $124.3 million last year. Rent reviews contributed $5.3 million of the increase, and there's more detail on that in the appendix as usual. The main drivers, as covered at the half year, were some solid market reviews in the Auckland industrial and Wellington office sectors. There was some solid leasing progress in the Citibank building, which is almost full, and this offset, to some extent, increased vacancy at 39 Market Place and 147 Lambton Quay. There was an additional $200,000 contribution from the acquisition last year of Maui Street and Hamilton, and there was a solid contribution this year from the completed developments at 8-14 Willis Street and 105 Carlton Gore Road. This was tempered somewhat by the withdrawal of 224 Neilson Street for development. The sale of 25 Nugent Street last year and 10 Transport Place this year impacted income by $700,000. So gross income was up by 5.4% on the prior year. On to the next slide which is P&L. Net property income was up by $3.7 million or 3.3% in the prior period, largely driven by the increase in rentals and completed developments noted earlier. The increase was tempered by an increase in property expenses, particularly in nonrecoverable insurance and rates in Wellington and lower tenant recoveries at 39 Market Place. Admin expenses were up due to the interim valuation undertaken this year as well as additional ESG and health and safety costs in a setup of our new captive insurance company. The [ MER ] is 54 basis points and corporate expenses to net property income is 9.9%, which isn't too far off last year. Interest expense was up by $7.5 million over the prior year. The rate variance was $4.7 million. The volume variance was $1.3 million, and we had lower capitalized interest of $1.5 million this year. Peter's covered the revaluation loss booked in the period and we received $3 million last year for the filed settlement of the Albany Lifestyle Centre. The net loss after the revaluation loss was $55.3 million compared to a loss of $80.8 million last year. The next slide covers net distributable income. After the usual fair value adjustments, net distributable income was $55.8 million compared to $64.2 million last year. Prior year benefit from the Albany receipt, as I noted, which was largely not accessible. However, higher interest and tax has weighed on this year's result. In addition to the non-accessible Albany receipt, tax expense last year was also helped by higher capitalized interest, higher repairs and maintenance deductions and some one-off swap restructured deductions. On a per share basis, net distributable income was $0.0658 per share compared to $0.0758 per share last year. The next slide covers AFFO, adjusted funds from operations. Amortization of tenant incentives and leasing costs was slightly higher this year due to additional amortization on lease terminations and divestments. Maintenance CapEx was lower than last Year. As we signaled previously, there were some reasonably large carryover projects from the prior year, completed over the course of this year, particularly in the industrial sector. The biggest maintenance capital items this year related to tenant fitout works at Citibank in 101 Carlton Gore Road. In fact, the office maintenance CapEx was pretty similar to what it was last year. Maintenance capital recovery is greater than last year due to the divestments of 10 Transport Place and 308 Great South Road. Following the lower maintenance CapEx this year, AFFO was $0.09 per share compared to $0.0686 per share last year. The next slide covers the movement in investment properties. Basement property fell by $171 million in the period. This is primarily driven by the revaluation loss of $112 million covered earlier, divestments of $58 million and the transfer of 8 Forge Way to held for sale and that's $35 million. Offsetting this were capitalized development costs of $35 million. Largest expenditure here was $10.2 million on 105 Carlton Gore Road, $6.9 million on Neilson Street and $3.9 million on 143 Lambton Quay. The portfolio, after deducting the right-of-use asset in respect of the ground lease at 39 Market Place, was valued at just under $2 billion at 31 March. The next slide is NTA per share. As usual, the movement in NTA is largely driven by the impact of any revaluations. Revaluation loss during the year translated to a $0.13 per share decline in NTA to $1.45 per share. Moving on to the next slide, which looks at debt to total assets. Balance sheet is in good shape with debt to total assets at 36.5% compared to 36.3% at the half year and 35.1% last year. We have Forge Way in held for sale and that will settle in March 2025. There's a further $23 million in assets we regard as noncore and we'll be looking to move these on as soon as we can. We feel there is sufficient headroom currently to complete existing developments and act on any near-term opportunities should they arise. Next slide covers interest rates. Our weighted average interest rate increased slightly during the period to 5.6% from 5.4% in March last year. The main reason being the increase in the [ BKB ] and 90 day rate over the last year. Our interest rate cover remains at a solid 2.4x compared to 2.5x at the half year and 2.8x last year. Our main covenant is 2x. The level of fixed rate cover is unchanged from the half year and last March at 71%. There's now $255 million in forward starts commencing mostly from March 5 next year, and we continue to add in cover on [ those ]. In fact, we added another $20 million effective from March 25 just last week. We provided more color on our hedging profile and also the weighted average margins on our drawn debt in the Appendix, FYI. The next slide looks at our debt profile. So we've refinanced some of our bank debt during the period, pushing out tenor. There was also an increase in the bank facility to $525 million. Marginal line fees remain pretty good, pretty sharp actually. Nearest expiry is now April '25, and we're currently going through a refinancing process with our banks to expand net and tranches and I think there's plenty of appetite. The nearest green bond matures in March 2026, and we expect to refinance this with another green bound, subject to margins being acceptable. The green bonds represent 38% of total debt facilities at 31 March, unchanged from the half year. The last slide from me is on dividends. We announced this morning our fourth quarter dividend for FY '24. It will be $0.16625 per share with imputation credits of $0.1633 per share attached. Record date is 12 June and the payment date is 26 June. Our guidance for next year is for an unchanged dividend. Despite a restrictive interest rates sitting and higher taxation as a result of the government's policy on tax depreciation of buildings, we are targeting the dividend to stay within the top end of our AFFO policy, which is 85% to 100% of AFFO over a rolling 3-year period. So now back to Peter for some more leasing commentary.

Thanks, Dave. Just turning to what has been a reasonably active period with leasing, and it's fair to say that the retention rate is a little bit better than expected, inquiry levels in [ affected ranks ], too, so a little bit better than expected. But we're seeing extended time periods to convert those inquiries. And as I mentioned earlier, a number of tenants looking to defer or manage their commencements until the beginning of calendar year 2025. Notwithstanding that, the number of leasing -- good leasing results during the year. And as I said, we've got some good progress with 101 and 105 Carlton Gore Road. The lease expiry profile, again, not alarming for the next 2 years. We've got 2 modest years in '27 and '28. However, we've got some -- a number of expiries that obviously we're already working on. The portfolio review shows an expected retention rate, which is actually pretty positive, should stay largely where we're at. So going forward over the next 12 to 24 months, I'm not expecting any particular issues to keep us awake too long there. It's a delicate balance between acquired market with tenants more likely to retain their existing premises because they don't want to incur the cost and making sure that they've got the growth potential going forward. Turning to the market and what we're seeing. Obviously, with industrial, as I mentioned a little earlier, there's a low supply for the current year and also a relatively low demand. 2025, however, is expected to be quite a bit busier, thus increased focus on sustainability or green building for the industrial space. And they're gaining as expected and we've highlighted before, increased height requirements for new buildings. So addressing those with what we have, and it appears that our timing, based on the current projections, our timing for the Neilson Street first building looks pretty good. In the office space, there's a lot of commentary in the media about lots of public sector jobs and what impact that might have on the market. And it's probably worthwhile reflecting that we're really only giving up on the [ loan ] of 6 months of the growth in the prior calendar year. So that market is still not looking challenging. Working from home is definitely diminishing, and particularly in Wellington, where we're seeing a number of confidential inquiries for additional space from businesses and organizations who have overestimated the amount of working from home that they're going to be carrying on a longer term basis. And it's not hard to draw a line between people being nervous about the continuance of their position and being in the office. So those probably go together there. And the office space in Auckland, we've very recently opened our Footprint offering. Our Footprint is our version of coworking space. and it's been established in a [ Citigroup ] building, very, very well received thus far. It's very early, but it's going very well. And I'm sure Steve would be happy to show you through and, indeed, book a meeting room for you if you require it. The only 2 occasions when I've look to organize a meeting there myself, it's already been committed to somebody else, so I guess that's a positive sign. In the retail space, the sector has obviously still got some challenges. For us, though, we still got a reasonably strong demand at the Albany Mega Center. Rental growth over there is still quite well evident. Our bricks and mortar are actually doing relatively well versus online, and we didn't really expect to see that reverse as much as it has since the COVID lockdowns. For us, our tenants at risk remain relatively modest, and we've dealt to those already that we consider to be on life-support or in particular challenges, and in Albany Mega Center, with those that this occurred, that means that we've been able to realize better rentals on the replacement tenants. So turning to focus and outlook, what we've got going forward. Obviously, there are a number of issues that we need to make sure that we manage on the way through and an economy that, as we've mentioned, is still somewhat challenged. We still have to pay for the increased taxation and the depreciation, however an adviser might consider that policy to be. The diversified portfolio is still working for us. And obviously, it was pretty good to us through the lockdown period. From a capital perspective, we continue to be well placed. And our early move into sustainability in green properties has been paying quite a bit of dividend for us in terms of delivery to tenants. The experience in the intellectual capital that we have developed in this space is showing to be quite beneficial for some of the tenants. And it's pleasing to see that some of our tenant inquiry is now driven specifically because we seem to be active in the sustainability space. Also, what we're seeing in that space is our own tenant -- our own staff surveys, without exception, had the fact that new -- that Argosy was a sustainably focused business in the top 3 reasons for wanting to be working at Argosy. Looking forward a bit further, obviously, the rain will stop, and we won't be -- best off, for now, [ we'll be here ] when that occurs. So we do need to look through where we're at and make sure that we're well positioned for that future. We do need to manage the risks and prepare for a challenging calendar year, but focus on what's happening in 2025 and make sure that we're in the right position for that. The current financial year will certainly continue to deliver challenges, but we have seen a worse at the "New Zealand First," that's not our first rodeo. So we do know what to expect and how to come out the other side. That's all from us. We're happy to take questions.

[Operator Instructions] Your first question comes from Nicholas Hill with Craigs IP.

Congratulations on the steady results. In terms of divesting 39 Market Place, how progressed are you?

Yes, that's a good question. I guess I should have expected to see that. We've got 3 parties we're currently actively negotiating with. One of whom is on paper, but it's moving somewhat slowly. With respect to that, clearly, I don't want to be sitting around just waiting for a sale, so we're working with occupancies as well, just ensuring that we've got the flexibility to provide vacant positions should purchaser require that.

Okay. And then does the book value of 39 Market Place include any value for the option to reposition the asset for, say, short-term accommodation?

The book value, which you'll notice quite modest was simply done on the basis of a largely vacant building.

Okay. And then I note in your projections that they include the sale of the 39 Market Place. If the sale does not go through or occurs in a much later date, would that cause you to revise your dividend guidance?

Well, it would probably cause us to change the strategy on the building first and make sure that we could get the occupancy income level up, so we'd rather more focus on that than on changing the dividend if possible.

Okay. And then just sort of looking at the maintenance CapEx recovered in sale, could you go through what exactly this was for and the rationale behind this being a feature in the transaction?

I'm going to throw that to Dave.

Yes, that's something we've been doing for a long time actually since we started looking at AFFO. So the difficulty is -- with AFFO is that maintenance capital is treated as a revenue item. And of course, in the books, it's not a revenue item. It's on capital account. So when you -- if you get to generation -- and when you actually finally sell something, you end up with a reevaluation gain, which is a realized gain, cash gain, which is lower than what you would have had if it had been on revenue account. So what we do was go and make an adjustment for that. We canvas this with key investors 8 -- 7 or 8 years ago when we started doing it. It's just -- I guess, to see [ it as ] just a bit of an anomaly because there's quite a lot of expenditure Transport Place, including a roof and some office fitouts in 308 Great South Road, so it kind of sticks out of it, but normally, the adjustment's quite minor.

Okay. And then last one for me. Looking at your valuations, I was wondering if you could say what the difference in definition between a cap rate and the market yield is? For example, your industrial portfolio has a cap rate of 5.94% in the presentation. But in the footnotes of the annual report, there is a market yield of 6.43%.

Well, a cap rate is what you're capitalizing net market income as. And that's actually your cap rate. That's what a [ better one ] will use to capitalize mid-market rent. And then the value will make adjustments for things like future capital expenditure for -- there might be reversions, there might be -- there's a number of adjustments that makes, so you end up with a value. And so then the value, you divide the net market rent by the value, and that will give you your market yield. Hope that's clear?

Okay. Yes.

That's cap rate valuation with a net present value adjustment for cash differences and calculate the yield, yes.

Your next question comes from Nick Mar with Macquarie.

Just on the investment band. Can you just talk through the rationale for the change, the sort of time frame you expect to move within those bands and how you expect to achieve it, whether it's through just addition to industrial, for example, or whether you're actively going to be selling office as well to get that [ thing ] down?

Yes. The adjustment to the bands is done as normal on a risk and return basis looking out over the 5-year period. So the change we'd expect to see is over a 5-year period. It's not something that we're particularly focused on delivering in the next 12 months. The -- how do we get there? It's asset allocation rather than stock selection, so it's going to be a bit of both. And clearly, the delivery of the Neilson Street and Mt Richmond development pipeline will increase the industrial side. But there are a couple of smaller office buildings in Wellington that could easily be disposed of in that same time period as well.

Okay. No, that makes sense. Just on Neilson Street while we're here, can you provide some metrics around the returns? You've obviously given the IRR, but not initial yield and you've given value on completion, but not total project cost. So could you just enlighten us with those, please?

Yes, sure. So the project -- I mean, there are 2 phases to the project. It started in January, finishes -- plan to finish until November next year. Total input costs, including book value is at $107 million. Predicted valuation at end is $115 million, so you get a development gain of about $8.5 million. IRR is 8.1%. The net rent at the end is just under $6 million, so you've got a yield on cost of about 5.7%.

Okay. No, that's great. When you look at your investment hurdles, how does that sort of stack up?

Well, it's over -- the IRR is downright the same which is pretty close to our investment hurdle.

Okay. No, that's fine. And then just on the dividend, something we sort of discussed softly at the half year, but you sort of formally kind of changed your policy now to a 3-year rolling basis. Can you just talk through when that occurred, the rationale behind it? And the numbers that you provided for the dividend payout for this year, were those on a 3-year basis? Or were they just for the previous 1-year policy?

Well, the numbers we're providing this year is on a 3-year basis. So when we say the top end, we're looking at the last 2 years as well.

But, like, the 96% looks like it's just based on the one year though.

Yes. So you got something [ $0.0686 ] last year, [ $0.069 ] this year. And then you need to -- what we look at next year is obviously a payout that's going to be greater than 100%, but at least an 100% over a rolling 3-year period. That's what we're targeting.

Sorry, just for the rationale, for the change and when you made this decision, it hasn't really been widely flagged to the market as far as I can see.

It was made about a year ago.

Yes. I thought we did.

I think we'd have it after the interim. I mean, I think it certainly was in some of the analyst notes in the interim.

But it's sort of the first time I've seen it in the pack and it's sort of not in the prezo and sort of annual report, so just trying to understand, usually, when this dividend also changed, there's sort of a decent discussion about the rationale for it and everything else. Is it just that…

Well, the rationale is…

We're sort of moving and going through a tough year or...

Well, it's to reduce volatility in the dividend. If you had -- rather than each year, you have it over a rolling 3-year period, you can reduce a bit of volatility that we're paying out to investors.

Your next question comes from Vishal Bhula with Jarden.

Congrats on the great results, and divestment program is really good. Just a couple of quick questions on me on leasing front. Just the new market assets, is it still the 1 floor left at 105 Carlton Gore Road? And maybe, could you give us some more color at 101 Carlton Gore Road. It looks like there's no vacancies and the yield seems really low on a short WALT.

Yes. I can give you a bit more color. We've got a couple of deals that are hanging in the balance that are just subject to documentation with key terms and Board approvals given from the other side. So that would mean we'd only have half a floor remaining at 105 Carlton Gore Road. And all those deals being done at or above our projected rentals, so Pretty comfortable with that. At 101 Carlton Gore Road, remember that's the one we haven't done the upgrade on. That progressed reasonably well. And it's a good balance to have the green building and the non-green building, too, completely different rental rates. That means that you're able to respond to just about anything in the market. And again, we've got solid interest that we're in the final stages of tying up. That will leave us with 2 half floors on different levels, one on the ground available at 101 Carlton Gore Road. And of those two, we've got solid interest in one of them. So it's not documented yet, but we're pretty positive. So overall, leasing has gone reasonably well. As I say, it takes a lot longer than normal to get those lease deals across the line. And in many cases, you're negotiating to try and bring the commencement date as -- forward by 2 or 3 months. Sorry, there was another part to that question, what was it?

No, no, all good. No, sorry. I'm just a bit confused on 101 Carlton Gore Road sorry, because in the property pack you provide, it's got no vacant space and it's got [ wall ] to 2.6 years and a yield of 3.3% or so. So I'm just wondering, does it have any vacancies?

Yes. That's because -- yes, that's not a problem. The reason for that is that, part of that -- it's subject to projects at the moment, a seismic project. So those 2 floors at the top weren't available for lease because they're being worked on at the moment. We're trying to lease them, but project's basically wiping them out from the vacancy steps.

Yes. So there's something on vacancy step because of the construction activity.

Okay. So the 94% portfolio vacancy, does that not include the 2 floors that are doing seismic?

That's right. Yes.

Yes.

Okay. Perfect. That's enough on that one. And then there are some question -- comments around the pack around the -- just the overall Wellington office market and the vacancy [ start ] lifting and the expectations for it to get worse. Do you see any kind of risks worth calling out for your assets down in Wellington?

Sorry -- do I see any, what?

Do you see any kind of risks in the leases you have in Wellington for any vacancies?

Not with the leases we have. And in fact, we think there's probably need upside. I don't think I'm talking out of school to say that the government have put a moratorium model new leases down there. We're not quite sure how long that will last. But the existing leases that are in place don't see any risk to that. In fact, in some instances, we are working with occupiers who need a little more space than they have currently leased, simply because they've got more people coming into the office.

Perfect. And then just last one for me. Just with MB being such a large expiry in '27, just, could you share any comments on the general sentiment around that lease?

Yes. I'm very confident with that. We're in, I'd like to think, in final stages of tying that up. So we don't expect that to be a vacancy.

Your next question comes from Bianca Fledderus with UBS.

Can you hear me?

Yes.

Yes.