Auckland International Airport Limited (AIA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Auckland Airport Annual Results Call for 2021. [Operator Instructions] And just please be advised that today's conference is being recorded. But without further ado, I'll hand the conference over to your first speaker for today, Adrian Littlewood. Thank you, and please go ahead, Adrian.

Thank you, and good morning, everyone, and welcome to the annual results webcast for FY '21. Just a quick note, we are all doing this remotely given the level 4 lockdown here in NZ. So just an advanced apology for any audio quality issues or if we have some bumps along the way with dial-in and dial-outs. We'll work our way through that. But thank you for joining us. I'm joined by Phil Neutze, our CFO, who's on the call and some of our team also listening in. So look, FY '21 really reflects, I guess, the status of our business in the context of a pandemic. Significant impact from passenger activity volume, but underlying strength and us looking through and out the other side of this current phase and really trying to strengthen our business for the longer term. So I'm going to turn to and say a few words, an intro and summary reference in the slides. I'll then hand to Phil, who will walk through some of the more detailed results. And then I'll then give you an overview of some of the detailed activities and looking ahead to the future. So I'm going to turn to Page 5 of the presentation results. And look, this just gives you a quick scan of really what I said is the impact across our business, quite heavily dominated by passenger impact. It was, if I reference FY '19 numbers, international down about 95%. Domestic is still down almost 40% on what might have been normal in FY '19, so quite high impact. Flowing through to retail, again, heavily down in the period, down 87%. Transport have been a bit better, obviously supported by the return of domestic travel during the year, slightly down about 42% in the period, and I will touch on that more later. Hotels also affected by the same dynamic as is our investment in Queenstown. Property, though, has been the shining light in our current results, breaking through the $100 million revenue mark for the first time, up almost 14%. We still have a good pipeline of $160 million of projects under construction, and our portfolio value has now broken through the $2.5 billion mark with the lift in underlying property values. And the metrics there remain very strong. So I'll touch on that in more detail later. Just looking at the high-level results and how that all rolls up on Page 4, sorry, going back a page. So our top line revenue, down 50% to $281 million. Underlying earnings, $171 million for the year, down 34%, so reflecting some discipline there in cost management, but obviously, the headline being the underlying loss in the period. Page 6 of the presentation really shows that story quite starkly in the context of our history, and we've talked a lot about this. But this just shows you how the '20 and '21 have been affected by the pandemic compared to our long history vector in 1995 and this period. So that sharp decline on the right-hand side, you can see that breakout for international versus domestic and the various lockdowns throughout the year affecting domestic volumes. But obviously, as we all know, we're back into level 4 now. And so we're back into -- probably that looks closer to April '20 until we get out of this level 4 period. Turning to Page 7 before I hand to Phil. I just really wanted to preview and touch on what a great job our team has done because literally, our team has not wasted a day during this last 19, 20 months getting after what matters. If I think about the 4 legs left working on running the border safely and doing our work to protect New Zealand from COVID at the border, but at the same time, leading, I think, the work on how do we think about the future border models and network continues. Secondly, investing in core asset resilience and investments. Runways, roads, fuel lines, fiber and taking the time while we have it to invest in those core assets but, at the same time, resetting our infrastructure program and announcing it last week. In our commercial business, again, we worked very hard with our tenants right across our retail and commercial property portfolio. It's, a, helping them, supporting them, but obviously working and keeping that momentum. And the discount fashion outlet we've announced today is, I think, a sign of our view looking through this. And underpinned through all of that has been the work we did to stabilize the balance sheet, raise new liquidity, really concentrate our -- on our capital operational cost management and then reset our funding and covenants for the years ahead that really does allow us to chart our own path through this pandemic. So with that, I'm going to hand to Phil, who will pick up on Page 9 of the presentation. Over to you, Phil.

Thanks, Adrian, and thanks to my team, I think, for giving me this confronting slide to kick off on at Slide 9, by the way. So the comparison of PAX versus pcp is consistent with our usual approach, but it slightly understates the impact of COVID-19 on our FY '21 numbers. So versus the pre-COVID FY '19 results, international PAX for FY '21 were down 94.7%, and domestic PAX were down 3.1%. But in the final quarter of FY '21, the domestic PAX were running at just over 77% of pre-COVID numbers, and this peaked at nearly 90% in July of this year. On to Slide 10 now. So this is pretty self-explanatory. The main callout is that government-subsidized international cargo services held up our international aircraft movements and MCTOW at circa 30% of pre-COVID levels relative to the much greater decline in international PAX. Again, Slide 11 doesn't make great reading. It shows that border restrictions continued to have a dramatic impact on Auckland Airport's revenues during FY '21. We did, however, carefully control operating expenses, as Adrian mentioned, during the year, and we guided investors to expect this, this time last year. But this slide overstates the turnaround in expenses owing to some FY '21 reversals of CapEx impairments and termination costs. A better view is set out on Slide 14, which we'll get to shortly. Depreciation was up by about $12 million in FY '21. This reflected prior year's CapEx and completion in FY '21 of runway slab replacements, average refurbishments and various IT upgrades. And that included a fully new car park guidance systems. Interest expense rose by $22.2 million in FY '21, but all of that increase relates to one-off impacts of USPP, make-good payments and various swap closeout costs. So these changes will deliver more than $10 million per annum of interest savings going forward. Moving to Slide 12. The 2 main callouts I want to make from this slide relate to retail income and investment property income. So retail income was down nearly 90% versus pcp. Our international retailer sales were down by nearly 95%, slightly more than the reduction in international PAX versus pcp. And this is because MAG was waived for FY '21 and there were also some concession rate reductions. Investment property income, on the other hand, was our key standout performer in FY '22. It was up $12 million or nearly 14% versus pcp. And this reflected some big property developments coming online in FY '21. That included the Foodstuffs warehouse and office development, I think you'll learn a bit more about later, and some rate revisions. So now on Slide 13. And as indicated last year, Auckland Airport needed to quickly resize after the border was closed, and our revenues fell quite dramatically. So this impacted many expense lines. Sadly, we had to farewell many fellow staff in the final quarter of FY '20, and the annualized impact of this contributed to the 27.5% staff cost reductions in FY '21. The FY '21 P&L also benefited from some one-offs. We reduced impairments on some paused CapEx projects that we now expect to resume over the next couple of years and successful negotiations with several contractors who had to down tool some CapEx projects when we pause them. But we have resolved those discussions and resulted in significantly lower termination costs than we provided for in FY '21 -- FY '20, I should say. So together, these resulted in $19.4 million of reversals of prior period fixed asset losses, and that was partly offset by $2.5 million of new provisions that we made in FY '21. Turning now to Slide 14. As I first mentioned a few slides back and as we indicated to investors this time last year, Auckland Airport was able to significantly cut back on operational expenditure in FY '21 to respond to COVID-19. On a normalized basis, we -- sorry, we reduced OpEx by circa 30% versus FY '19. And those savings were concentrated in staff costs, as I mentioned earlier, as well as outsourced operations. Examples include baggage handling, bus services, our Strata Lounge, valet services and Park & Ride. And we also had reductions in utilities, cleaning and marketing costs. Now on Slide 15 and not too long before I hand back to Adrian. This slide is self-explanatory, and it calls out some of the main projects that contributed to Auckland Airport's nearly $200 million of CapEx in FY '21. So key projects included a major upgrade of the northern airport access road, so that's George Bolt Memorial Drive; the construction of State Highway 20B, so that's the road that goes east, high occupancy vehicle lanes. We renewed runway slabs as well as some additional apron slabs and fuel systems. We stood up a dedicated facility for processing passengers to managed isolation, and we completed the Foodstuffs office warehouse development as well as a couple of other investment property projects. So turning to Slide 16. So as you can see from the table to the right of the slide, if it wasn't for the interest coverage covenant waivers that we negotiated with our banks back in April last year, we would've been in default on this covenant for FY '21. And then moving forward from then, even before the Tasman bubble was closed on 25th of July and later, of course, New Zealand's level 4 lockdown from midnight this Tuesday, we were getting uncomfortable regarding our ability to comply with the 1.5x EBIT-based interest coverage covenant for FY '22 after the existing waivers were due to expire. So we set about negotiating a modified EBITDA-based interest coverage covenant to apply from June next year. So this starts at 2x and steps up in calendar 2023 to 2.5x and again, in calendar 2024 to 3x. Now I should just clarify that this EBITDA measure in this context is measured before fair value changes and investments and associates. So it's equal to our reported EBITDAFI measure, and we expect to comply with this covenant going forward. So waivers no longer are required. At the same time, we extended nearly $700 million of bank facilities due to mature early next year for between 7 and 19 months. So all in all, we're very comfortable in terms of liquidity going forward. Finally for me today, we're on Slide 17. Again, this slide is self-explanatory, but there's a couple of highlights I'd like to call out. Noncurrent assets grew strongly as a result of the circa 13% lift in PP&E, and that was dominated by the $760 million uplift in the fair values of noninvestment property land in FY '21. We also booked a nearly $530 million fair value increase in our investment property portfolio in FY '21, and this includes yet-to-be-developed investment property land. Cash reduced significantly during the year, and that mainly related to the circa $650 million of debt repayments that we made in FY '21. So that was largely USPP. There was some maturities as well as prepaying the remaining balance and $150 million in New Zealand debt capital markets bond that we repaid. So together, this resulted in our total borrowings falling by more than 1/3. And as I mentioned earlier, these debt repayments, plus the closing of some interest rate and currency hedges, will reduce our interest expense by more than $10 million per annum going forward. Back to Adrian now.

Thank you, Phil. All right. So starting at Page 19 and just as a reminder for followers of our results, this presentation is really designed not only to support this call but also for others who can't join. They can view it later. So it is a bit of a record of the year as well as something to talk to you. So -- and some of these things we've talked about or touched on already, so I'll just touch on highlights as we go through so we may move quickly through this next section. So on Page 19, I guess it's just a reflection and a summary of the broad-based activity we've taken right across the business. No stones have been left unturned both to reset the business for the pandemic phase, put ourselves in there and control as much as we can of our own destiny through the equity raise and restructured financing, but all the work we've done to reset the business. And I think it's paid dividends and will help us on the way out. So that's sort of a summary of the strategy going into this. But if I turn to Page 20. Again, I just want to acknowledge the great work our team have done over the past 19 months to safely operate the border, to work closely with government border agencies and airlines around getting domestic travel going again and then really investing time and energy on how do we make systems and process work again in a safe way. So for example, we led the work on the trans-Tasman safe travel zone. We've built a quantitative risk-based border model. It was peer-reviewed through the New Zealand Medical Journal. And we obviously split our terminal into a health management zone and a quarantine-free travel zone. And again, no trifling issue, particularly when you have to put all systems into separate categories and manage it safely. So that's been a real joint effort, and I just want to acknowledge our team's work on that. So that's operations. If I turn to Page 21. The other theme that I touched on before was keeping on with the critical infrastructure investment despite the pandemic. So we have taken advantage of this time to keep on with key projects as well as bring forward others that were previously planned, which are very difficult to get after. And I think we've spent about $220 million across, obviously, a couple of financial years since the pandemic started in runways, airfields, utes and roading. And so that's been a feature. And for those of you who've traveled, you'll have seen the roadworks. They're getting close to completion now. For example, the runway upgrade was another huge project. And we've taken that same philosophy through to our updated infrastructure program. And it was great last week to be able to talk to that and talk about how we've reset that program. And I think the key in all of that has been, again, that close work with border agencies through the Border Executive Board, BARNZ in New Zealand and the other ones, and how we've rethought about that program. And that is a narrowed-down program with an anchor around the new domestic hub merging into the international terminal. So just quickly touching on that in a bit more detail, and this is the next page, which is Page 22, just to try and locate it because sometimes it's hard to get around the different elements. This tries to capture what was the anchor projects on this map. So you can see these projects that are now on hold, which is obviously the northern runway, the northern taxiways and stands, the international arrivals project and the cargo precinct. Those are on hold. And as we said last week, they are more orientated towards international travel. And so it's absolutely appropriate for those to go on hold. They are protected. The work is not lost. It will be restarted, and the team did a great job of never getting away out of those contracts where they were underway. So the 4 that are continuing, which I touched on, was obviously anchored by the new domestic hub merging with the international terminal. In that location, they're in the center of the page, a new ground transport hub, which I'll come back to you later. The road and transit system, which I think we will be spending $160 million in this phase on that program, which creates an entirely new traffic and transport system and then obviously, ongoing investment in the current domestic terminal. So that is the plan. And if you can locate the parts of that new domestic hub, you can imagine underneath that headhouse area, we call it. There's a lot of existing infrastructure that will be decommissioned like baggage systems and backhauls, power centers, operation centers, services and utilities, the service aircraft. So we were not able to do that prior to 2019 under our previous model because of how intensively used some of those assets were. So we are trying to use this time to decommission those assets. And in fact, where we will end up with is a better product -- end product for airlines, passengers and those operating in the airport environments. And it allows us to get real efficiency through contiguous security screening, common check-in, civil ground transport hub in a way that wasn't as possible before. So it's great to look at that. The network will really kick off in the new year. That work has been continuing over the last 19 months, but we'll be into enablement work, demolition and preparation of the sites early in the calendar next year. The next page gives a quick artist impression of the walk here. If you can imagine, for those regular travelers through International New Zealand, if you -- at Auckland, if you go through the current aviation security, you sort of head right towards the international gates. Under this model, imagine going left and heading down towards a new pier. That is the view you will see looking at towards the pier and the background, and this is the transitional area as you go through F&B and other shops on the way out to the new domestic pier. We think this is going to be a great product and something New Zealanders are really keen to see happen. Now turning to Page 24. Obviously, the air terminal is only part of the transport hub and how you get from vehicles and transport into the terminal as a key part of that transition. And we have updated our plans that we were starting out on previously. And I think again, we've used this time to make a better answer. So we have reconfigured our transport hub that will provide public pickup and drop-off commercial operators and transport with access to the front door of the terminal connected to the terminal with air bridges. So you've got to transit across that air [indiscernible] or the air bridge. It will provide about 2,500 car parks with a covered pickup and drop-off area for the public and really does form part of a wider multimode transport plan that considers both what we need now but also in the future. So we have a really clear view on Stage 2, and we also have a clear view on how mass transit would integrate into this transport hub. So we are aggregating activity in traffic or public movement into the terminals from this area. So this will be a huge step up in terms of experience for travelers. And I think it will be well welcomed and fits very tightly into the, I guess, the landside precinct with the hotel precinct just adjacent to that area and is entirely aligned with our current roading program that is almost complete. Now turning to Page 25. This really digs a bit deeper into the retail and transport subsegments that Phil touched on before. Look, again, I won't go into too much detail, but we've worked really hard to support our retailers in the retail segment. And our rent abatement arrangement is now circa $185 million in the year, and it's really a reflection of our support. And I guess that's also reflected in the fact our occupancy still remains very, very high, I think something about 96% in terminal retail and 99% on commercial property. And that's because we've supported them through that. Obviously, we are focusing on the restart. We want to make sure they are ready in whole to restart when they can, and then we've had fantastic feedback from our retailers on that. On the transport side, look, pleasing, I guess, to some degree, still well down on the prior year. But what we have seen is domestic parking recover strongly relative to passengers. And we've actually seen a bit of a mode shift away from share of taxi vehicles into private vehicles. That's been a help. Our team have worked on also promotions and upgrade cycles to give a great customer experience. And I think -- so you've seen a stronger car parking in domestic relative to passenger activity. If you compare back to the July '20 period, you can see that separation. So that's great, and the team managed to open the full suite of products in the year. Look, turning to Page 26. One of the highlights here has been our investment in property. That has continued. I think both the quality of the product that we build, the feedback from tenants, the core metrics in the portfolio have remained very, very strong. And I think we brought in roughly $500 million of assets into the portfolio in the past year with Foodstuffs DC and head office, the Interwaste development and the spec warehouse that has now been leased at Timberly Road. And we've got a great pipeline of high-quality tenants coming through. Just an update on the hotels. We continue to adopt our policy on the hotels, which is on hold. We're tracking recovery very closely. So the Mercure, the last time we got to talk, was getting closer to completion on closing the facade and protecting that site. That's now complete, and the works have stopped there. On the Te Arikinui Pullman Hotel, the 5-star Pullman hotel, that work is continuing. Facade is ongoing, and then we will track the decision about whether we continue with fit-out when that moment comes. Novotel has been supported by the MIQ contract there. So investment in property has continued to be very strong and a real standout in this period. Really underpinning our plan to pull our way through the pandemic and out the other side, we've announced today a fashion outlet, a discount fashion outlet located on the northeastern sort of boundary of the airport precinct on what is the old Aviation Golf Course that has been out of action for some time now. And this is a concept we've been thinking about for quite a long period. And we obviously have some landside retail today and some discount stores in there. But really, we have been holding this until we were clear on some key actions, which really revolves around runway orientation, consenting, the associated transport planning and investment that we've been doing in the last little while and then updating our infrastructure program focused on the domestic terminal. So we wanted to confirm that and understand the path on that and be clear with that before we confirmed on the discount fashion outlet. But this is a really exciting development, about 23,000 NLA, net lettable area, in this development, located away from the airport precinct, generous parking and an owner-operator or develop and operate model, where we will be the sole operator-owner of this. And we think that's important for the overall airport business and system, both commercially and operationally that we're able to manage that effectively. And we spent a lot of time looking at these similar developments overseas, Vancouver airport, I spent a lot of time talking to them, Brisbane and Perth and others. And we think there's a real opportunity in the market for a really focused DFO development. And we've had fantastic feedback from retail brands and actually through our market testing with end consumers about what they're looking for. And we want this to be a really quality development in the context of what a DFO should be. And so we're focusing on things like Green Star rating, how we work on general sustainability initiatives in this context. So we want to make this a really fantastic development. Look, these have taken obviously time to develop, but we are plodding our way through that path and excited about announcing that today. I'm going to move now to Page 28 and 29 because, again, for a small number of team with reduced head count, I'd say we're working very hard on many different fronts. And one other really pleasing bit of work our team right across our business have been involved in is updating our sustainability strategy and goals. And we have announced a whole range of new targets. That's been matched with our updated reporting, which includes the climate change disclosure report and the greenhouse gas emissions report explaining our impact on the world and what we're doing about it. We're not recent to this rodeo. We've been at this for a long time, over many, many years. And in fact, the targets we set in 2012 around sustainability focused on warming at a 1.5-degree rate, we have well surpassed. And actually -- so it was appropriate to reset that. We've reset that a 2-degree scenario and have tested scenarios right through up, I think, to 4.8 degrees of warming across the world. But obviously, climate change and carbon is not the only bit, but important to acknowledge carbon in the context here is a net 0 by 2030 target, which I think is worth celebrating. But it goes across 4 dimensions of purpose, place, people and community. It touches on customer satisfaction in terms of their experience of the airport, our procurements, shareholder returns, carbon, water and waste targets, people targets around gender and diversity, safety and then how we can play a part in helping our community to benefit from being alongside an important economic hub for our country. So there's some real meaningful targets there for us to work on, mainly focused on 2030. If you look then on Page 30, you can dig into this in more detail. As is best practice, we, for the first time, have published these reports alongside our annual report. And you'll be able to dig into some real detail on our disclosures in there. You'll see that we've got some things to work on, I think, as every company does, but it's important that we put that down on paper and work towards it. So now sort of turning a little bit to outlook, and this is in a couple of phases. If I turn to Page 31, look, we acknowledge that there's still uncertainty right now, that this is a very unusual time, nothing like this in the history of the airport over 50-odd years. But we have worked hard on this, and we'll continue to work hard on it. You will have seen the Prime Minster last week talked about the reconnecting New Zealand strategy. I'm pleased to say our team have been leading on a lot of that work, and the Prime Minister mentioned an 8-week program to look at how we might design a border model for the future. As we've been central to that, alongside our aviation colleagues, that is a public and private partnership model. And we have determined to try and help the first design but then also, importantly, convert it into a credible operating model that can be operated at the border. Underneath all that, obviously, vaccine rollout is so critical, as is health capacity in the country and health technology around testing and surveillance. And I guess we are looking for clues overseas, and we can see those countries who had a tougher road through COVID, no doubt, but have had high vaccination rates where a new normal is emerging. It's important to listen to us on this call to remember that we don't need a switch back to FY '19 to continue all of our programs. We have quite a degree of flexibility to work with any recovery scenario and continue with our program, but we want to be involved in helping plodding that path out with the government. So we're working hard on that. So what does positioning for a post-COVID world look like? On Page 32, really simple. We need to work our way through reestablishing our aeronautical network and our aero commercial team. Although much smaller and not traveling nearly as much, it has maintained very close contact with our airline partners around the world. And we continue to get really good feedback about the desire to contact that they can reconnect with New Zealand. New Zealand is seen as a safe destination and has done a good job on COVID. And I do still think that in the future model of travel, high-value travel, New Zealand's proposition features very strongly in there. So we will work very hard on reestablishing that network route by route, working with governments and airlines. We will work with trades here to support growth in travel and cargo. And we do want to make sure our commercial business is in great shape so we can come out the other side in even better position than what we were. So if I then turn to 34 in terms of guidance and outlook. We are facing that uncertainty, as I mentioned. And that's really why we are suspending underlying earnings guidance for FY '22. There's just too many moving parts at the moment for us to give that, and I think we'd be in constant updates to the market if we tried to. Having said that, we are committing to guiding on CapEx. And so CapEx guided to $250 million to $300 million in FY '22, and that does include completing some existing projects that are underway but also progressing the design and enabling works, as I mentioned before, about the terminal development program. And we want to see that through. And it's important for you to know that, that program has been part of the discussions with our banks. And I'm happy to say, they're really clear on that path. Obviously, pricing is looming on the horizon. And we are consulting on whether we defer that. Obviously, with the uncertainty, it's quite hard to apply the usual building blocks model in the way that we normally would. And so we need to go through that process of consultation to really just work that out. But I know that some of the other airports have done the same. So look, obviously, the guidance is subject to any of those material adverse changes, which are becoming frequent these days. Just finally, before I sort of sign off and hand over to Q&A, it's my final results in this job. It's been a great privilege to work for this company. I'm incredibly proud of what our team has done, particularly during the pandemic period. But even pre-pandemic, they worked incredibly hard, and I'm really proud of the work they do. We'll see our way through this. And I'm hoping that the work that we've been putting in the last 19 months has really set that up for the future. It's also been great to work with all of you on this call, which we won't get a chance to meet face-to-face probably before I leave. But I just wanted to thank you all for your support. And with that, I'll hand back to the moderator.

[Operator Instructions] But our first question today comes from the line of Amit from Jefferies.

The first question is on the domestic infrastructure investment. Now if I think correctly, you said it will be dependent on the aviation recovery as well. So I was just wondering if you can talk to some of the passenger triggers you agreed with the airlines when this investment gets activated in a meaningful way.

Yes. Sure. Amit, look, I think the way we've constructed the program and the way we're thinking about the program is in phases. So we've highlighted and focused on the enabling works, that first $30 million, in the early part of next year as the first phase. Obviously, the next phase is where you start to press the big buttons around spend coming out of the ground, which is obviously those points where we will pause and just look at the market. It's quite hard to be precise about what specific metrics we'll be watching. But clearly, passengers will feature most highly and a combination of both domestic and international. But if I try and give you a reference point, back in February, we talked about, you only have to believe domestic operating roughly where it has been in the last year or so, plus roughly just over half or close to 2/3 of Tasman traffic coming back for us to be able to continue on our program completely. And what that means is we don't need a full FY '19 sort of traffic recovery to continue on the program as we've described it. We've got quite a lot of capacity. We're in a position where when markets or passenger volume drops heavily, it's quite hard because we've got fixed costs. But on the other side, when markets recover, you also get a significant amount of capacity quite quickly. So that's probably a rough guide in terms of how we'd look at it. We're obviously still quite a way away from those months, but we are thinking about that as we construct contracts and programs.

Very good. Just another question on the PSE4. Obviously, you've said the pricing is -- I mean, that would be delayed. And you've said some of the underrecovery from lower pricing, I mean, would be recovered through the years as PSE4 progresses. But I mean, can you just give a sense of in terms of -- would you be -- still retain the passenger volume risk in the PSE4 or would you be looking to share some of this risk, both upside and downside, with the airlines?

Phil, do you want to take that one?

Yes. Sure. So yes, the concept that we're consulting on is that for the period of the price raise, effectively, we are sharing passenger aircraft movement recovery risk on that because that year or whatever the price freeze period would flow into the building block models as actuals. So to the extent that we had an underreturn in that period, it would be made up through the forecast return over the remainder of PSE4. At the moment, we are not looking at a extended form of risk sharing around recovery, but that's definitely something that we would need to look into in detail. Effectively, what we're talking about is a 2-stage consultation. One is the consultation to freeze prices for a period, where we got extreme levels of uncertainty on the outlook. And then we would consult on the remainder of the period, and discussions around risk sharing around passenger recovery will come into that consultation.

Great. Just a final question on the OpEx now. Obviously, $133 million in OpEx in fiscal '21, that's a 30% reduction, good outcome. So I mean, just your view for fiscal '22. I mean, would you be able to deliver similar levels of underlying OpEx for the next year? Or how sticky are some of these decreases?

Yes. Well, we did provide some guidance on 1st of July around the OpEx outlook as well as our expected retail income. And so we still see that range as being relevant. I'm just trying to remember off the top of my head actually what that range is that we guided. Perhaps I'll just...

I think you said $160 million, $175 million.

Yes. That's correct, yes. So given recent events, you would -- I think it's fair to assume that we would be aiming for something less than the top of that range. We need to work through our response to the current disruption and the extent that will impact OpEx over FY '22. There were a number of areas that were on hold during FY '21 that we can't indefinitely. So we do need to incur that additional expenditure. Examples include upcoming retender of duty free. There's quite a process that's involved that. As well as Adrian touched on earlier, the aeronautical pricing reset, there's quite a bit of input from economists and regulatory lawyers, et cetera, that go into that. And there's some other compliance areas that we do need to pick up. So we're not expecting to be able to continue at FY '21 levels, but we are expecting to be within that guidance range that we announced in July.

Your next question comes from the line of Benjamin Brayshaw from Barrenjoey.

Adrian, congratulations on a successful tenure as CEO. I just wanted to firstly chat about tax. There would appear to be $29 million of tax expense for the second half of 2021. Could you just clarify, what does that relate to? And does AIA have carryforward tax losses that it can utilize for the next 12 months?

Firstly, thank you for the comment. I'll hand to Phil on tax.

Yes. Yes. So this is deferred tax expense. So it relates to the investment property revaluation, nonland component of that. So it's not going to be incurred as a cash expense this financial year. And yes, we do have significant losses that will carry forward.

Okay. And just on the, I suppose, the covenant renegotiation, could you just clarify, has there been any change in the margin for the underlying syndicated facility?

Yes. So the way we went about the extensions was bilateral conversations with the 5 or so of the 8 banks that had maturing facilities over January to April next year. And we -- the line fees and margin were part of that discussion. Together, taken together, there was a material reduction in overall fees through this refi compared to where we got to the refinancing in April last year.

Okay. And just finally, in relation to the property portfolio, you're highlighting 185 hectares of land available for future development. Could you just talk about the composition of that? How much is available for development within the landings and how much is outside of the landings and, therefore, presumably more long term in opportunity?

Yes. Yes. I think the available land in the landing is around about 40 hectares of that. But in terms of our total investment property land holding, we've got more like 220 hectares. So there's approximately 40 hectares of that, that we've tagged that is not developable. There's things like riparian margins around estuaries and other areas unsuitable for the development. But yes, it's a minority that's in the landing. There's a significant area in the old golf course and also as you move east on Timberly Road, to the right of the road as you're hitting east.

Your next question comes from the line of Andy Bowley from Forsyth Barr.

Best wishes, Adrian, for the future. A couple of questions from me, the first of which is around the recovery profile. So really keen to dig into your thoughts about how things unfold here in New Zealand. There's clearly a lot of unknowns out there at the moment. But IATA, if we step back, are expecting global PAX recovery back to pre-COVID levels by calendar year '23. And maybe the way to frame my question is, could you give us an idea of how you're thinking about Auckland Airport in calendar '23 versus pre-COVID-type levels?

Yes. Sure, Andy. And it's slightly disappointing you didn't get through so many questions. That breaks the streak. Look, it's really hard to say what it looks like. And as we said consistently through this, it has been the New Zealand dimension on this. Look, my personal view is it's going to be clunky on the way out, and it will probably happen initially slowly and then will accelerate in terms of what the recovery shows. So that curve will sort of take a while to get going and then really take off. And that's all subject, though, to what we don't know around virus behavior activity and also mitigations and response. I know we're all prognosticators on viruses now, but these things do tend to fizzle out over time as vaccines sort of take place and it becomes endemic. It's just New Zealand may be slower to that path than the rest of the world. I think we've been tracking very closely, even others do, what's happening in other markets, U.S., Europe, others. There are still bumps, no question, but some of those domestic airlines in the U.S. are operating over FY '19 performance. And people are very keen to travel again. So there will be some catch-up in there. It's also why we are very focused on how do we help the -- help safely reopen the border with the government on it. I think the government here knows, as the PM have said, that we have to reconnect. It's going to be a tricky period between now and then. So we want to make sure that we put the effort into designing the system so there's not a sort of [ hidden hope ] outcome. So look, Andy, I do think in the new year, you'll start to see markets recover. Naturally, Australia will always be the focus for our country. And then you will see other countries reconnect and some candidates that were mentioned like Singapore, Korea and others, Taiwan. So it's hard to give a clear view. But by '23, '24, maybe normal is getting closer again. It will be a new normal, there's no question. Some things that we have today around process will remain, and there will be new. And then other things will fall away as it becomes more normalized. Sorry, Andy, that's as good as we can give at the stage.

No. No, fair enough. I don't know either. So I'm not sure anyone -- any of us do. Second question, retail, Phil, you mentioned a couple of things. One, you mentioned concession rate reductions, and you also mentioned around the RFP process for duty-free concessions. So maybe could you elaborate on both of those? Firstly, in terms of the concession reductions, are they temporary? And how are you thinking about concession rates when borders reopen? And then on the RFP side of things, what's the process? What's the timing for the duty-free concessions?

Yes. I'll go at that. Look, so right through this, Andy, we've taken quite a bespoke -- it's been very customed to each tenant and their circumstance in the market. So certainly, whether it's land side or terminal, it has been temporary in nature and sort of rolling. And maybe that's gone from more month-to-month to a slightly longer sort of window. And we're constantly leading in thresholds and metrics that allow us to restart the conversation with retailers about so now is the time to be going again. So I mean, domestic, while very small compared to international, is a good example of that. We supported the domestic terminal retailers through the initial lockdown period. It's got them going again, and some of them were trading ahead of where they were pre-pandemic. So that's a great sign. What's important for us is the continuity through to the other side and getting going again. A lot of the hard decisions by some of those retailers have been made, and we still have -- as I said, our occupancy is, I think, close to 96%. So that's been really pleasing. And I guess, obviously, we are looking ahead to the next tender cycle. So again, not sort of focused on here, but our team have done a lot of work on looking ahead to that next tender cycle and trying to think about how our replan approach would look. What we had to land first in that sequence was the terminal integration plan and how domestic would integrate into international. And so we've actually -- we did a lot of work working through a range of options, which we don't go here. But how that would work because obviously, we don't want to have a tender process with a lot of details not confirmed. So look, I think we're actually in pretty good shape. We are still focused on, I guess, a single operator model for the duty-free, which is by far the vast majority of airports around the world, there's only a handful which we have -- like a couple globally who run a full-service till model. So that still remains our focus, but we're going to work our way through that. But I think we're in good shape for that, Andy.

So just in terms of timing of that, I think the current concessions end, what, next year, end of next year. Are you expecting still to manage the process as those expire? Or can we extend the existing concessions further because of the uncertainty?

Well, if those are all parts of the calculations, then we need to [ wait ]. And I guess we'll leave our time as long as we can to get a clearer path, a little bit like we're doing on the aero pricing. I think that the greater certainty we can have on what recovery looks like, the better. I think we'll start to close on that Q1 to calendar year next year. So that will help us. But look, no change in program right now. We're working on the basis we're running a standard program in terms of retender. But obviously, we can modify that if we need to discuss them with the retailers as we go through.

Your next question comes from Andrew Steele from Jarden.

The first one for me is just on your CapEx guidance. Can you just highlight the swing factor between the top end and bottom end of the range? And if you could, in particular, call out the amount of investment property expenditure that you expect?

Phil, do you want to pick that one up for Andrew?

Yes. Sure, Andrew. So the range really reflects potential range in our delivery of those CapEx plans over FY '22. As we've talked about, particularly this time last year, we put on ice almost the entire in excess of $2 billion aeronautical CapEx program a bit before this time last year. And that means that quite a few of the redundancies were focused on that project management space. So we're in the process now of ramping up that team again. So it's just applying a risk adjustment to delivery of the budget and CapEx. And sorry, what was the second part of your question, Andrew?

How much within that do you expect for a decent property expenditure?

Yes. Investment -- yes. So let me see. If you look on Page 15 of the financial results, at the bottom of it, we've got the outlook for FY '22. So investment property between $50 million and $65 million.

Great. And just I guess a follow-up to Andy's question on the retail side of things. How would you describe your current relationship with the 2 existing duty-free operators?

Yes. Really good. We're in constant contact, both head office and more local offices. Look, they're going through the same sort of parallels. It's actually not dissimilar to the airlines, right? So something like an existential crisis to bring you all together. So look, it's very regular, and that applies not only to the duty-free guys but all the retailers.

Great. And just last one for me is just on the change in profile of capitalization of OpEx and interest costs. What's the -- so the level of those 2 numbers -- sorry, what's the level of the 2 numbers you expect for FY '23 -- sorry, FY '22?

I will have to come back to you on that one, Andrew. I actually don't have that at my fingertips, but we're starting a number of projects. So we would expect capitalized interest to increase reasonably significantly in FY '22.

Your next question comes from the line of Wade Gardiner from Craigs Investments.

Just want to labor the point on retail. I mean, outside of the duty-free operators, are there a number of other tenders? Because I understand we know the timing of the duty free, but some of the other retailers are on different timing is my understanding. Are there are a number of those that are also expiring? And are you comfortable that they will be happy renewing contracts?

Yes. I'll get it, Wade. Look, the timing is different, you're right. I can't, off the top, remember exactly what the sequence is. But if you think about when we went through that cycle, duty-free certainly came out of the blocks first and was contracted some 18 -- 24 months, I think, before the new space was complete. So there is a profile to the expiry, which starts really with duty-free. Look, in terms of what that means on the other side, look, it's still a little bit hard to say because we're not alone in this. This is a global issue. Some of the retailers are global. Some of them are more local, local operators. So I don't want to pretend it's going to be a perfect pivot out to the other side, but -- and there will be some bumps that -- with some of them as they spin up and start going again. But look, the best thing we can do that the most -- that we can do to stay in control of our own destiny is to stay close to them and support them and keep them operating on the mature path. Sorry, that's probably all I can say, Wade, is that until we get there, it's all hard to say.