Centuria Industrial REIT (CIP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Centuria Industrial REIT FY '24 Results Conference Call. [Operator Instructions]. I would now like to hand the conference over to Mr. Jesse Curtis, Head of Funds Management for Centuria Capital. Please go ahead.

Good morning. Thank you for joining Centuria Industrial REIT's financial year '24 Results Presentation. My name is Jesse Curtis, Head of Funds Management for Centuria Capital. Also presenting today is Grant Nichols, Head of Listed Funds and CIP Fund Manager; and Michael Ching, CIP's Assistant Fund Manager. Also present in the room today is Jason Huljich, Joint CEO of Centuria Capital; and Tim Mitchell, Group Head of Investor Relations. Let's start on Slide 3. I would like to commence today's presentation with an acknowledgment of country. We are joining you from Milan at the Gadigal people of the Euro nation. Centuria managed the property throughout Australia and New Zealand and pays his respects to the traditional owners in each country to their unique culture and to their elders past and present. The Australian industrial real estate market continues to exhibit strong tailwinds driven by rising e-commerce adoption, a growing population and trend towards onshoring supply chains in the wake of global geopolitical uncertainty. CRP is well positioned to capitalize on these market and macroeconomic trends to the benefit of its unitholders. And we are proud with the results CIP has delivered in FY '24. In today's presentation, Grant and Michael will cover an overview of CIP's FY '24 performance, CIP's financial results, analysis of the operational performance, further detail on CIP's development pipeline and concluding with an outlook and guidance statement. Moving to Slide 5. Centuria Industrial REIT is managed by Centuria Capital Group. Centuria has over $21 billion of assets under management, and CIP is the largest fund managed by Centuria. CIP unitholders benefit from deep real estate expertise across the Centuria Group platform, including a fully integrated property facilities and asset management team and in-house development management. Synergies from being part of the group's wider $6 billion industrial real estate portfolio and strong alignment at Centuria is CIP's largest unitholder with a 16% co-investment, ensuring the manager's interests are strongly aligned to yours as unitholders. On to Slide 6. CIP's long-standing vision and strategy remains unchanged. We aspire to be Australia's leading domestic pure-play industrial REIT with the primary focus to delivering income and capital growth to investors from a portfolio of high-quality Australian industrial assets. We have, over the long term, executed on our strategy by differentiating CIP through growing the portfolio of high-quality, freehold, infill and last mile industrial assets that are relevant to our tenant customers, generating greater levels of tenant demand through the cycle. We believe these assets deliver superior returns to unitholders through favorable demand dynamics in markets with limited supply. The results that Grant and Mark will present today reflect the execution of this strategy, supported by the deep real estate capability of the broader Centuria team to drive value for unitholders. I will now pass you over to Grant.

Thanks, Jesse, and good morning, everyone. Before I begin on Slide 7, I would like to make a quick comment on the management changes that occurred during the half. Centuria has a demonstrable track record of promoting from within, which provides not only a level of consistency but retains knowledge within the group. In the case of CIP, while Jesse is no longer managing the fund day to day, he remains an integral part component of CIP's management and the expertise Jesse carried out throughout its 5 years of CIP fund manager is accessible to all within the group. As Jesse stated earlier, CIP's long-standing vision and strategy remains unchanged. And Michael and I look forward to continuing to work with Jesse in executing that strategy. Moving on to CIP's FY '24 results. Despite a higher debt cost environment, CIP delivered FY '24 upgraded FFO guidance of $0.728 per unit, while providing FY '24 FFO guidance of $0.785 per unit. This earnings growth was enabled by the strong leasing results, the Centuria team has been able to deliver, executing 43% average re-leasing spreads across a significant amount of leasing. Solid investment demand for urban infill industrial property has also seen stabilizing portfolio valuations as of 30 June, with the full year portfolio valuation slightly higher than December. These valuations were reinforced by the divestments CIPs throughout the year. With CIP disposing of 4 assets for a combined value of $120 million with each asset sold at or above book value. Looking at the results in more detail on Slide 8. Centuria's active hand-on approach to portfolio management successfully delivered more than 300,000 square meters of leasing transactions throughout the year, with average re-leasing spreads of 43%, up from 30% in FY '23 and 11% in FY '22. The Centuria development team delivered over 57,000 square meters of completions in FY '24, further enhancing CIP's portfolio while taking advantage of Australia's limited supply capability within urban infill industrial markets. Looking ahead, with nearly 40% of less expiring by FY '28 with over 80% exposure to urban infill industrial markets. CIP has significant embedded positive rent reversions to unlock in coming years. From a capital management perspective, divestment of noncore assets at an average 4% premium to book value has got gearing at the lower end of the target gearing range or 93% hedging will limit interest rate volatility throughout FY '24. Slide 9 details CIP's key metrics. The 89-asset portfolio over 30, June was valued at $3.8 billion with high occupancy of 97.1% and a weighted average less expiry of 7.6 years. CIP maintained its strong balance sheet with pro forma gearing of 34% and net tangible assets of $2.86 per unit. Before I pass to Michael, I will quickly touch on some of the key growth drivers for Australian industrial real estate on Slide 10 and how CIP take position to take advantage of these tailwinds. E-commerce penetration within Australia is still way below comparable global peers and provide a long runway of growth for industrial markets. Australian e-commerce is expected to increase $15 billion by 2027, generating in excess of 1 million square meters of demand for industrial space. Onshoring is another continued trend with greater investment in technology and automation, creating a more competitive manufacturing environment within Australia. Supply chain resilience continues to be a focus, reducing cost volatility in an uncertain geopolitical environment. Demand for coal story is set for growth with 40% of Australia's total retail spend on food and 11% of Australian exports related to food and beverage. As the Australian and global population continues to grow and with increasing preference for fresh produce, we expect strong ongoing demand for cold storage, particularly considering Australia doesn't have significant cold-store capacity with cold storage per capita significantly lower than global peers. Increased data center demand is another expected driver for Australian urban infill industrial markets, with the rapid growth of general AI, Cloud, content and gaming, significantly increasing demand for data center capacity, particularly in Sydney. Turning to Slide 11. CIP is very well placed to take advantage of these industry growth drivers, primarily because CIP's portfolio has critical mass in Australia's urban infill industrial markets. In Centuria, share management of CIP in '27 time, the portfolio has been methodically constructed with every asset value added by its unique market proposition and value-add capability. CIP's portfolio has a significant amount of embedded value, which can be unlocked through future real estate cycles. In the past few months, I've inspected over 80 of CIP's assets, and I've been constantly reminded of how active the Reds portfolio assets are, particularly the amount of people working within the facilities and the amount of vehicle movements they generate every hour. Contours are busy and car packed to full, antennas are competing to attract and return staff to well-located industrial assets within close proximity to a reliable workforce remains critical. Further, any automation and manufacturing improvements generally require a more highly skiable workforce, amplifying the need for a well-located facility. We're considering location in relation to customer base, outbound transport is generally 4 to 5x the Costa brand as proportion of an industrial tenant operational expenditure. This again drives demand for well-located industrial facilities within urban markets. The average tenancy size across the CIP portfolio is an additional key feature. More than 85% of market leases by number are between 3,000 and 20,000 square meters, with CIP's average tenant size is squarely within contributing to the REIT's high occupancy and short downtime. Finally, the average asset value of the $43 million is another key portfolio attribute. As already mentioned, CIP sold 4 assets throughout FY '24 at an average 4% premium to book value. The smaller average asset value increases the depth of investment demand, allowing CIP to execute nimbly at attractive pricing. I will now hand over to Assistant Fund Manager, Michael Ching, to take you through the financial results and portfolio overview.

Thanks, Grant. Moving to the FY '24 financial results on Slide 13. CIP delivered funds from operations of $109.3 million or $0.172 per unit in FY '24, in line with the upgraded guidance provided in February. Strong leasing outcomes achieved throughout the year resulted in CIP outperforming our initial FY '24 earnings guidance of $0.17 per unit. Gross property income for the year was $227.2 million, an increase of $7.2 million year-on-year and was partly impacted by the asset divestments executed throughout the FY '23 and FY '24 period. Pleasingly, leasing outcomes achieved across the portfolio delivered a strong growth in like-for-like net operating income of 6.5% for the year. The $2.2 million of other income recorded in FY '24 relates to the coupon payments received on our fund through development project, Campbellfield and Victoria. This project is now complete. Higher interest rates resulted in CIP's total interest costs increasing by $7.5 million to $51.4 million for the full year. Looking at capital management in more detail on Slide 14. CIP continues to maintain a strong balance sheet. During the year, we divested to $120 million of assets with profits used to repay debt. We canceled $105 million of excess capacity and entered into $200 million of interest rate swaps to maintain a higher level of hedging in a volatile interest rate environment. Post balance date, CIP refinanced $100 million debt facility for a further 5 years at attractive terms. Throughout these initiatives, CIP maintains a robust balance sheet with pro forma gearing of 34% over $174 million of available liquidity and no debt maturities till FY '26. CIP enters FY '25 with 93% of debt hedged. CIP's balance sheet provides ample headroom to our debt covenants and continues to be well supported by our lenders. Moving on to Slide 16. This slide shows detailed CIP's portfolio composition and geographical spread as Australia's largest listed domestic pure-play industrial REIT. CIP continues to provide investors with exposure to 100% industrial real estate only portfolio with 99% of assets held under freehold ownership. The portfolio remains geographically diversified with a favorable 90% weighting to Australia's East Coast. 83% of CIP's portfolio is located in core urban infill markets, close to densely populated catchments with limited supply and where tenant demand is highest. Looking at Slide 17, which outlines our leasing activity for the year. FY '24 was an extremely strong year of leasing for CIP with over 300,000 square meters or over 22% of the portfolio leased with average leasing spreads of 43%. Excluding the near 95,000 square meter renewal to AWH in Perth, which is an outlier given its size, CIP's leasing spreads for FY '24 would be 47%. CIP's strong leasing spreads can be attributed to our portfolio, long-standing portfolio construction strategy, focusing on fund assets in key urban in-field location, where tenant demand is highest. Notable leasing transactions completed during the year include a 26,000 renewal, 26,000 square meter renewal of the Ritec shop at our Bandenba asset in Queensland and an early renewal of EWE Group at our asset in Chullora New South Wales, which delivered an immediate rental uplift for CIP while providing the tenant with security of tenure over the site. Looking forward, the portfolio offers near-term mark-to-market opportunities with 39% of leases expiring by FY '28. Slide 18 provides a case study on our active asset management. In this case, leasing success across our Western Australian portfolio. CIP secured significant leasing outcomes from more than 65% of WS portfolio during the year, including the renewal and expansion of AWH across nearly 95,000 square meters at our assets in Bibra Lake. This is the largest leasing transaction in the first industrial market year-to-date and AWH is CIP's largest tenant by area. We also leased 12,300 square meters across 2 tenancies at our newly completed canning well development. The development is now fully leased at rents significantly higher than the initial underwrite of the project. Our active asset management, we dedicated than on the ground in Perth has resulted in strong leasing outcomes for CIP during the year with over 120,000 square meters of leasing, which directly contributed to a valuation increase of 8% across the WS sub portfolio during the year. Slide 19 outlines our high-quality customer base. 93% of our customers are listed national or multinational corporations and 99% of our leases are net or triple net, providing resilience to our income streams from some of Australia's most recognizable brands. I will now hand you back to Grant to talk you through the strategic transactions during the year.

Thanks, Michael, turning to Slide 20. For strategic divestments during the year contributed to underpin CIP's net tangible assets and demonstrated portfolio liquidity. The noncore assets were divested at an average premium of 4% to book value and a disposal further optimized portfolio construction. The divestments were complemented by 2 acquisitions during the year. CIP acquired a 5-megawatt data center in the per suburb of Malaga, increasing the CRP data center sub portfolio to over $450 million. CIP also acquired 11 Hexham Place in Wetherill Park. This acquisition adds to our existing forward joining assets and creates further scale and development opportunity. CIP now has a 5.7 hectare Amalgamated site in the tightly highly fragmented infill City industrial market. Touching on valuations on Slide 21. During the year, CIP's portfolio weighted average capitalization rate expanded 55 bps to 5.81% with the cap rate expanding 162 bps since June '22. As previously mentioned, we saw a stabilizing portfolio valuation at 30, June, with full year portfolio valuation slightly higher than December due to leasing success and strong market rental growth offsetting the slowing cap rate expansion. Looking at ESG highlights on Slide 22. Under Centuria's management, CIP has created a flexible and relevant sustainability framework. During FY '24, CIP implemented a number of ESG initiatives, including launching a new sustainability target of 0 scope to emissions by 2028, targeting 5star Green Star design for all future developments. The continued partnership with Healthy Heads an organization focused on mental health in the transport and logistics industries and the continued rollout of solar across CIP assets. Moving to Centuria's development capability on Slide 24. CIP has established a strong track record of unlocking embedded value from urban infill industrial science. Over the past 2 years, Centuria has delivered with an end value of approximately $250 million most recently MAD Connect at Campbellfield in Victoria and 24 BestoRoad in Canvas WA. These developments are accretive to earnings while improving the overall portfolio quality by providing modern, functional industrial facilities in desirable locations. They also could not be easily replicated in the transaction market. Looking ahead, CIP has identified a development pipeline with a $1 billion estimated value on completion. This pipeline focuses on limited competing development capability within urban infill industrial markets and the key growth drivers for industrial markets. This development potential is enabled by CIP maintaining an industrial portfolio of critical mass largely within densely populated urban infill locations. When thinking about CIP development pipeline, it is worth considering the identified pipeline is expected to be delivered over 5 years at a run rate not dissimilar to what CIP delivered in FY '24 and FY '23. While the pipeline has an expected end value of $1 billion, it only requires approximately $400 million to $500 million, of funding and CIP has multiple avenues to explore. 94% of the development pipeline is currently income-producing, providing optionality and timing flexibility. And again, 94% of the development pipeline is located within urban infill markets where supply is severely constrained. An update on specific development projects has been noted on Slide 24, including a 60,000 square meter multi-level development in Wetherill Park in New South Wales, where we have launched SFDI, which are to cater to a severe lack of modern stock in this long-established infill industrial market. $11,500 development in Dermot, Victoria, where we've submitted a DA to maximize at currently unutilized site and a modern 7,500 square meter facility adjacent to our existing facility are currently vacant land in Direct SA, which has received approval. In addition to the potential developments, CIP has progressed the repositioning of the cold storage facility in Keysborough and the expansion of an existing facility at 30-foot Driving Dermot. Both Victorian projects are expected to complete in the second half of FY '25 and are generating good tenant interest. Turning to current market conditions on Slide 26. Industrial rents have continued to increase in all major industrial markets opened at a slower pace than prior periods. Forecast demand is expected to remain greater than historic leverages. While there has been a modest increase in supply, vacancy remained very low and the supply being delivered and achieved a high level of pre commitment. Overall, supply remained relatively subdued considering the low vacancy rates due to the limited availability of industrials owned land, core access to and provision of critical infrastructure and the implications of higher construction and debt costs on development feasibilities. Concluding on Slide 27. Strong set tailwinds such as e-commerce adoption, auctioning of production and assembly, data center growth and increased demand for cold storage will continue to benefit Australian industrial markets, particularly in field industrial markets where these tailwinds are generating the greatest tenant demand. For a portfolio with existing critical mass in Australian urban infill industrial markets, CIP is well placed to benefit from these tailwinds, given the limited potential for additional supply within these markets. In FY '25, CIP will remain focused on maximizing value add opportunities across the portfolio while maintaining balance sheet capacity. We are pleased to provide CIP's FY '25 FFO guidance of $0.0785 per unit and distribution guidance of $0.163 per unit. That concludes the full part of the presentation. I will now hand back to the operator for any questions.

[Operator Instructions] Your first question comes from Caleb Wheatley from Macquarie.

My first question is just on guidance. Are you able to provide any more color, please, on the key inputs from your perspective, particularly around re-leasing spreads expected throughout FY '25 occupancy and any input on interest costs as well, please?

So, just going in adverse, Caleb, we forecast a planning rate or an average planning rate 4.6% the full year. In relation to other comments, when we're forecasting, we are looking at every single individual vacancy or lease expiry that's occurring across the year. So, we haven't factored a single number. Everything has been done individually. So, at this stage, we can't really give you an average, if you like, in terms of downtime per expiry or average re-leasing spread per expiry.

No problem. And then just a second follow-up question. On the payout guidance as well, just looking at the payout ratio compared to FFO, it looks like it's been coming down obviously over the past few years. Just any further comments on the rationale as to why the payout ratio would be coming down, please?

So, I think we've got a long-term ambition to probably get the payout ratio to about 90%, albeit at this stage, we're more than comfortable with the circa 93% that we'll have for FY '24. So, I think in the coming years, you'll see potentially CP not grow quite as much as the FFO until we get down to about that 9% or ratio number.

And is that more of a reflection of sort of and say, NTA that it's rolling through? Or does that have anything to do with potential capital commitment upcoming from the development pipeline?

Look, I think it's probably a combination of both. But when you're thinking about where our developments sit at the moment, at this stage, we have no committed projects, but it's more just we think it's a prudent capital management position going forward.

Your next question comes from Richard Jones with JPMorgan.

Just wondering if you could step through your development hurdle rates as well as expected starts in '25 and how much income may come off-line as a result of that?

Sure, Richard. So, in FY '25, the majority of the projects remain in planning, I don't think you'll see significant starts within FY '24. So, from that perspective, I don't think you're going to see much impact on FFO. And, in terms of the hurdle rates, look, for most of these projects, we're seeking a yield on cost in excess of 6.5%. So, some will be better than that. So, it really is on a project-by-project basis, but really, that's what we're targeting.

And just leasing at Campbellfield, can you just give us an update on how you're tracking there and what your expectations are for the remaining 20,000 square meters?

So, there's 2 years that remained for lease in that facility. At this stage, we've got interest on both. But obviously, we don't have any executed lease agreements at this stage. Our belief is that those 2 existing facilities will be leased in the coming months and hopefully by half year results, we will confirm about that facility is fully off.

Your next question comes from Stephen Tjia with Barrenjoey.

Just sort of vacancy is increasing across Australia off low base. Just can you talk about your expectations for market rent growth in '25?

Yes. I think when people talk about the rising vacancy rates in industrial. It's worth remembering that the national vacancy rate is still below 2%. So, whilst it's coming off a very low base, it remains super light. From that perspective, we still perceive that there will be rental growth coming across the majority of industrial markets in the coming 12 months. It may not be as strong as what we saw in particularly FY '22 and FY '23. But I think there is still opportunity for some pretty decent rental growth to come through Australian industrial markets.

And just on your debt. Can you talk about the extension that you've done if there are any major change in terms? And when your WACR kind of looks like across '25, are there any changes in the second half.

So, in terms of the recent financing renewal, we've got some very strong support from our lenders at this point in time. There has been no material change to debt terms. If anything, we've probably seen a slight improvement on debt pricing in the last 6 months. So, from that perspective, we don't foresee there is any material refinancing risk within CIP at the moment. As mentioned, we've got very, very strong support from our lenders. Sorry, Stephen, I missed the second part of that question, what was that?

And just around your on WACR to debt, obviously, it's highly hedged at the moment. Are there any major hedges that rolled off in the second half?

Yes. So, the hedge books detailed in the stat count, but just for clarity, we incurred a weighted average cost to do a 3.0% in FY '24, we expect that, that will be somewhere around 4.5% through FY '25.

The next question comes from Tom Bodor with UBS.

I'd just be interested in sort of following up on some more market-wide commentary and just what you're seeing across the portfolio in terms of how sublease space and incentives are tracking?

Yes. Thanks, Tom. Look, in terms of sublease space, there's probably 2 elements to this question, but they're both related. The majority of sublease space that we have seen and also probably where there is some softness within the industrial markets is occurring in tenancy sold in excess of 20,000 square meters. So, from that perspective, it doesn't have a large impact on particularly the broader CIP would have got an average tenant size of about 7,500 to 8,000 square meters. And that's where we're seeing a lot of the demand continuing to come through. So, I think where you're seeing weakness at the moment with incentives potentially starting to creep up and some sublease availability. It really is in those larger box sizes, which hasn't had a material impact on CIP at this point in time.

So, is it generally whole facilities though? Or is it portions of facilities where that is coming in?

Look, we've heard of frag and sake, if you got a 40,000 square meter box that some people are seeking to sublease potentially 20 of that or some significant components or compartments of that. But we haven't seen in terms of what's comparable to the CIP portfolio, either power facilities or whole facilities that really compete in that sort of 3,000 to 10,000 square meter mark.

And then just a second question. On the data center acquisition, it's got a relatively short WALE, I'd just be interested in thoughts around likelihood of tenant renewal and also the facilities constructed in 2009. So, I'm guessing it might not be up to current standards. So, just some comments around sort of the risk around that asset being vacated or redundant over time?

Yes. Thanks, Tom. I think the hardest thing when looking at a data center is the availability of power. Now, if you've got an existing data center, I think there is going to be strong demand for data center going forward. So, for agent's sake and we're still very confident that the tenant will renew. But if that space was to become available, just the availability of power to that site makes it a very attractive proposition. So, we are pretty confident that we are going to have no material issues on that side.

And so, from a land perspective, is there a major CapEx required? Should the tenant bake out over time to get it up to standard or a new tenant?

Not from the landless perspective, no.

Your next question comes from Simon Chan with Morgan Stanley.

It looks like you did a fair bit of leasing in FY '24 and it looks like the bulk of it came in the second half by square meters. Just wondering, when did those new leases take effect from, did they all kick in, in the second half? Or do you think most of them actually more FY '25?

So, you're quite right. So, the largest renewal that we did was AWH, and that lease line was near on 100,000 square meters of space and that's going to forward at date of ores. So, there is some of these leases won't have an impact until later on through FY '25. It won't be an immediate or won't immediate from July.

So, with that in mind, I mean, just mathematically, the like-for-like NOI growth in FY '25 should be pretty enormous then given the average spread was 40-odd percent, right? And then the stuff that's not renewing is growing at, call it, 3%, like the like-for-like growth should be enormous. And then I'm just trying to connect the dot, why is your FFO growth like sub-2%. I mean the weighted average interest I get, you were saying is going up by 60 bps, 65 bps, et cetera, but that doesn't offset this enormous like-for-like NOI growth that you're looking at, and you're not taking our assets offline for development, right, like you said before. So, I'm just trying to connect the dots there. Can you help us?

So, I haven't seen your model, Simon, so I can't really give you a clear guidance as to what's occurred. But clearly, there is an issue in terms of increasing debt costs are eroding that FFO growth that we or the NOI growth that we are achieving. And as mentioned, of the leasing we've done, not all of it is daily from 1 July. So, it does come through in groups and drafts throughout the course of FY '24. So, it's not an immediate like-for-like calculation.

Your next question comes from Andrew MacFarlane with Bell Potter.

Look, just a follow-on on the development pipeline. You've kind of called out in the presentation just in terms of the $400 million to $500 million requiring funding. Can you just give us a bit of color on how you think you might achieve that?

So, as mentioned, the development pipeline is expected to be levered over a 5-year period. So, and as mentioned in the prior question, we have no committed developments at this stage. So, there is no immediate development funding that we have to meet. And thinking about how that would play out, look, through FY '24, we sold $120 million of assets. We've had a very good track record of being able to sell assets at or above book value. So, if it came to be that, that was the way that we were funding our development pipeline, there'll be no issues doing that. But just to reinforce, we're expecting that it will be between $400 million or $500 million required to fund our development pipeline over a 5-year period, and there are multiple avenues that we can explore to fund that.

Just one follow-on, just I guess, on Capture. You just kind of mentioned just wondering what your kind of expectations are for FY '25 on either the buy or sell side of the equation.

So, I think through FY '25, from our perspective on industrial, we're seeing good levels of demand for the type of product payers. So, obviously, we've done those 4 transactions through FY '24 at or above portfolio. The of market approaches that we are receiving at the moment for other CIP assets indicate that there is ongoing strong demand for the type of product CIP. So, we are reasonably confident that we will see the valuation stabilize through FY '24. And then you'll continue to see some pretty decent demand for septal assets.

Your next question comes from Edward Day with Norlec Australia.

Can we just go back to Campbellfield. Is that taking longer to lease up than initially expected? And can you maybe just chat to the dynamics in that particular market if it is, in fact, taking longer?

It probably has taken slightly longer than we would have anticipated. And there's probably a couple of components to that. We've had a couple of lease negotiations for over, which probably caused us to reset, which was unfortunate. I don't think it's indicative of the market in totality. But probably within Goldman as a broader group, we are seeing stronger demand in the Campbellfield and we probably are seeing in the north at the moment. But as mentioned in a prior question, we've got negotiation on all the vacant space within that facility at the moment, and we're confident that will get done within the next 6 months.

And then you've got, I think it's about 24,000 square meters coming up for expiry in per field. Just firstly, the specific timing on that and then I guess your expectations around an outcome for that asset?

Yes. Thanks. So, as per field, the existing tenant is looking at doing a short-term holdover within that facility, and that's still being negotiated at this point in time. So, that may hold over slightly longer than when their expiry was to occur. In terms of the outlook for leasing that space, again, we'd be hopeful by half year results, we'll have any outcome on that space. But at this stage, we forecast about 6 months downtime.

[Operator Instructions] Your next question comes from James Druce with CLSA.

I just wanted to follow on from Tom's questions just around general conditions. I was curious what you're seeing or expecting in terms of demand over the next 6 months? Are you expecting demand to pick up? Or what are your expectations?

We probably do have an expectation that the second half of calendar year '24 will be stronger than the first half of calendar year '24, so, from that perspective, we probably do foresee there will be an increase in transaction velocity in the second half of '24. But as mentioned, we've told the benefit that CIP has and the style of assets that we own, like our tenancy profile is generally very highly in demand. So, we haven't really seen a slowdown so much as the broader market in that first calendar or the first half of calendar year 2024. A lot of that has definitely been in that large box market that I was articulating prior.

And what's driving that pickup that you're expecting?

There's 2 things. I think there's going to be a greater amount of lease expiries that need to be dealt with. But I think there is probably the larger oxides anyway, there was a period where tons are probably growing more than they have the capacity for at that point in time. And our understanding is that has now been mostly taken up. So, that will hopefully get to a point where it starts to come back into the market in net absorption.

And then just on Slide 26, it's of a related question. Just looking at 2025, about half of the new forecast supplies is speculative. At what point, I know vacancy is pretty tight at the moment, but at what point does that become uncomfortable?

Well, I don't think it becomes that uncomfortable because it's still like in terms of just the natural absorption or the natural expansion you've seen in an average year, would still evaporate that supply pretty quickly. And this is one thing, obviously, I've come from an office background. What surprised me most about the industrial market at the moment, you probably had the strongest ton demand we've ever seen in industrial markets, but we haven't seen an ever launch of supply. What we're seeing is supply is pretty much being offset by natural tenant demand like average ton demand. I don't think this is going to create a headache at all.

And if I may, just go on one more on other topic. You've got a reasonable exposure to Victoria. I'm just curious, can you just comment on the impact that the absent charges and the commercial industrial property tax has had on values or might have down the track?

Yes, it's a really good question. I wish I could be more direct to the answer. But at this stage, we haven't really seen or we don't really know what the impact will be. Obviously, it's going to have an impact. But at this stage, we haven't seen enough transactions to fully ascertain what impact foreign owners are going to or how they're going to price the change in taxation for that. So, yes, it's going to be an interesting thing to watch in the coming years. But at this stage, we probably haven't got a full view on what the impact will be.

There are no further questions at this time. I will now hand the conference back to Mr. Nichols for closing remarks.

Thank you, everyone, for joining us for today's presentation. If you have any follow-up questions, please don't hesitate to contact any of the team. And with that, we thank you very much, and have a good day.

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