DEXUS (DXS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Dexus 2021 Half Year Results Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Darren Steinberg, Chief Executive Officer. Please go ahead.

Good morning, everyone, and welcome to our 2021 half year results presentation. Today, I'm joined by members of our executive team, and they will take you through their respective areas of focus. You'll hear from Alison on the financials; Deb on funds management; Kevin covering office; Stewart talking to industrial; and Ross providing a development and investments update. And as usual, we'll finish with questions. The COVID-19 pandemic has reinforced the importance of having a diversified business model and strategy that can deliver through the cycle, shown by our strong cash flows and resilient asset values. We will take advantage of the changed market conditions by focusing on initiatives that will help us unlock the relative value of our business and strengthen the platform for the future. These initiatives include: increasing the resilience of portfolio income streams; expanding and diversifying the funds management business; as well as progressing our group development pipeline. In the year ahead, this will see us continue to implement active leasing strategies to maximize office portfolio cash flow generation, increase weightings towards sectors with strong tailwinds and expand our flexible workspace offering. We'll also look to make changes to simplify our corporate structure subject to security holder approval. Looking at the highlights for the 6 months. Despite the impact of COVID-19, the first half of FY '21 was characterized by increased leasing activity and relatively strong rent collections, which contributed to our first half distribution of $0.288 per security. We achieved an $160 million uplift from independent valuations supported by the continued investment demand for quality assets. We progressed all of our immediate priorities, including ensuring that our portfolio had active COVID-safe plans in place to enable our customers to return safely to their workplaces. Our asset recycling program has progressed, which will enable us to continue to improve the quality of the property portfolio. We supported initiatives to grow our funds management business, while our consulting business continued to work with customers on the future of workspace. And lastly, planning has advanced at a number of key development projects. Our leadership, from an ESG perspective, continues to be globally recognized. For the second consecutive year, we were the #1 real estate company in DJSI, and we retained our leading positions on GRESB and the CDP Climate A list. This recognition is testament to our people and the way ESG is embedded and integrated across our business and how it is a part of our DNA. We continue to manage our properties for emissions reductions, supporting our net 0 commitment, and progressed our healthy buildings initiative. This initiative is focused on adopting proven technologies to enhance the air quality in our buildings and provide a touchless experience. And we became a founding member of the Australian Climate Leaders Coalition to collaborate with companies in other sectors to advance our journey to net 0. I'll now pass you over to Alison to cover the financials.

Thanks, Darren, and good morning, everyone. Turning to the composition of the result. Our property portfolio delivered AFFO of $326.2 million. Excluding the impact of rent relief and the provision for expected credit losses, a key highlight was like-for-like income growth of 1.5% across the office portfolio and 1% in the industrial portfolio. Our management business generated FFO of $27.3 million, down from $33.4 million in the previous corresponding period primarily due to the loss of leasing fees due to COVID-19 and a skew for development revenue to the second half of FY '21. And we delivered trading profits of $47.1 million post-tax from the sale of 4 identified trading assets. Independent valuations increased $160.8 million across the total portfolio or 1% on prior book values, with office values up 0.2% or $32.8 million. Our portfolio quality is reflected in the resilience of these valuations. Industrial values were up 4.8% or $112 million on the back of strong investment demand, which has led to a continued firming of cap rates. Our portfolio weighted average cap rates now stand at 4.95% for office and 5.36% for industrial. Over the next 12 months, we expect quality asset values to remain resilient due to the continued investment demand. Looking at the key financial metrics in further detail. Our focus on rent collections and securing trading profits underpinned the delivery of a distribution of $0.288 per security. We saw office property FFO decrease due to the impact of divestments and rent relief measures, partly offset by fixed rent increases and income from recently completed developments, including 180 Flinders Street and 80 Collins Street in Melbourne. Industrial property FFO reduced due to the divestments of the second tranche of the DALT portfolio, partly offset by fixed rent increases. And net finance costs decreased marginally due to lower floating rates and hedge rates, partly offset by lower capitalized interest at key development projects. And NTA per security increased $0.10 or circa 1% from 30 June to $10.96, primarily driven by asset revaluations. Turning to rent collections and rent relief. In half year '21, we collected 96% of rent across the total portfolio, which provides sufficient cash flow to pay our first half distribution. The total estimated impact to the half is $15.5 million, $11.3 million related to estimated rent waivers and $4.2 million related to provisions. The extension of the national commercial Code of Conduct in some states and the economic impact of the pandemic are expected to have a moderate impact on property portfolio income over the coming months. However, we have already assumed this in our full year FY '21 guidance for distribution per security. Moving on to capital management. We maintained a strong and conservative balance sheet with gearing of 24.9%, which remains below our target range of 30% to 40%. Gearing at this level provides sufficient capacity for a variety of opportunities, including new acquisitions, funding our development pipeline, initiatives that support the growth of our funds management business and our on-market securities buyback. We continue to selectively recycle assets, receiving the proceeds from the sale of 45 Clarence Street in late December 2020, with the proceeds from the contracted sales of 60 Miller Street and Grosvenor Place to follow once FIRB approval is received in the coming months. We also utilized the on-market securities buyback with over 5 million Dexus securities acquired to date. And we will undertake the buyback when we see the opportunity to enhance returns. Thank you. And I will now hand you on to Deb to provide an update on the funds management business.

Thanks, Alison, and good morning, everyone. Our funds management business is a strategic driver for Dexus, delivering value for investors while providing a full service platform across office, industrial, retail and health care sectors for our partners. All of our funds and partnerships are performing well, demonstrating their resilience of their portfolios and strategies despite the challenging market conditions. And we continue to make progress in growing our relationships with existing and new third-party capital partners, including progressing our new unlisted opportunity fund. Taking a closer look, we manage $15.6 million -- billion across our diversified funds management business, which includes 8 vehicles, providing Dexus investors with access to annuity-style, secure income streams. We're actively delivering on asset recycling opportunities for our capital partners while continuing to progress developments, many of which are held in partnership with Dexus. And as Darren mentioned, building on our track record, we will continue to expand and diversify our funds management business into the year ahead. Turning to the funds on the platform. We have a comprehensive business that includes widely held funds and joint ventures, where Dexus invests alongside like-minded capital partners. The widely held funds are our premium diversified fund, DWPF, and our growing health care fund, HWPF, both of which I will expand on shortly. There is also the Dexus Real Estate Partnership 1, which is the first in a planned series of opportunity funds established in August, where we are progressing discussions with investors. The Dexus Wholesale Property Fund or DWPF is our market-leading diversified fund with $10.1 billion of quality assets in its portfolio and a track record of outperformance, driven by the value-creating $1.9 billion development pipeline. The fund is a global leader in sustainability and known for its strong governance. And the fund raised $260 million of equity in the past 12 months. In line with the fund's strategy, we have supported performance via the acquisition and developments of assets, including being a major coinvestor with Dexus in projects such as 80 Collins Street in Melbourne and the Horizon estate at Ravenhall, Victoria. During the period, DWPF sold 452 Flinders Street in Melbourne, achieving a price which was an 11% premium to its prior book value. And in other activity, discussions continue to progress with the advisers of the Responsible Entity of AMP Capital's $5.4 billion diversified property fund, ADPF, a proposal for consideration for both sets of unitholders. The Healthcare Wholesale Property Fund or HWPF is Australia's largest open-ended, institutional-grade health care fund and has achieved an exceptional 1 year return of 15.3%. The fund's high-quality, sustainable portfolio, premium customer covenants and long lease tenures ensure the fund is relevant and attractive to investors. Since its establishment in 2017, we have successfully grown the fund through acquisitions and completing developments while continuing to strengthen our in-house health care capability. We also hope to announce shortly further acquisitions which are currently in due diligence. In the half, Dexus joined HWPF to acquire the Australian Bragg Centre under development in Adelaide. The asset will be home to a state-of-the-art clinical and research facility housing Australia's first Proton Therapy Unit specializing in next-generation cancer treatment and is backed by the state and federal governments. The group's exposure to health care assets will increase to more than $1 billion on completion of this development. I'll now pass you over to Kevin to talk through the office portfolio performance.

Thanks, Deb. In an environment where global economies are still in lockdown, we're seeing Australian cities reigniting, with people returning to their workplaces in more significant numbers. Here are a few images across Sydney in the week commencing the 1st of February 2021. Office markets are feeling the effects of the economic uncertainty and delayed decision-making. The good news is that the main leading indicators have turned sharply positive. White collar employment is growing again, and job ads are back above pre-pandemic levels. Business confidence in November 2020 was higher than the average seen over the past 7 years. All of this bodes well for office demand recovering over the next 1 to 2 years. The commentary on working from home versus the office continues, but the impact on both near-term and longer-term leasing demand is still not clear. The most notable hit to short-term demand has been COVID-led recession, which saw some organizations shed people and, in turn, office space. Increased flexibility for employees was a pre-pandemic trend that has now accelerated. We've, however, had a busy period of leasing, up 24% period to period. And our experience across those deals completed shows that the office footprint is substantially unchanged. Key leasing highlights across the Sydney portfolio include securing large deals at 101 George Street, Parramatta; 2 Dawn Fraser Avenue, Sydney Olympic Park; and 309 to 321 Kent Street, Sydney. Notably, there were also a large number of deals done at single assets such as the MLC Centre where we transacted 16 deals over the period. The uncertainty created by COVID-19 is delaying some customers' decision-making, particularly in Melbourne, where inspections have only until recently been prohibited under the extended lockdown. As a result, we expect that the Melbourne office market will be challenging over the short term. Our leasing activity was reflected in the performance for the half. We leased around 93,700 square meters of office space across 135 transactions, in addition to 7,000-odd square meters across 16 transactions at office developments. This represents leasing across 7.6% of the portfolio by area, with more than 60% of these leasing deals done in Sydney. Occupancy remains high at 96%. And face rents remained largely unchanged in the core CBD markets where effective rents are under pressure as incentives continue to increase. Given the better-than-expected market occupancy levels and strength of key leading indicators, we expect incentives to moderate in some markets over the next 12 months. Our weighted average lease expiry remained stable at 4.2 years. As Alison mentioned, like-for-like income growth was 1.5%, excluding rent relief measures. Our quality portfolio continued to outperform the office benchmark over all-time periods to 30 September 2020, achieving a standout 1-year total return of 8%, representing one -- 140 basis points of outperformance. Turning to our expiry profile. We've made good progress on our forward leasing and expect to be within our target range by full year. The Rio Tinto known departure in FY '22 from 123 Albert Street in Brisbane will see this building repositioned to attract new customers. Our portfolio occupancy has consistently held above the market average, which is reflective of our asset quality, Sydney-centric portfolio and active asset management approach. We've been talking to many of you about what we've been doing in response to the evolution of office for more than 6 years, well before the onset of COVID-19. The concepts in this slide were extracted from an office strategy presentation back in 2019 and show how we think about space and how we've positioned ourselves to respond to an evolving landscape. We knew the future of office was going to involve more flexibility. What's changed is the quantum shift in organizations moving to provide more flexible work practices. Our suite of flexible offerings provide space from 1 hour to 10 years. Building on this, we will be launching an expanded Dexus Place offer mid this year, which will combine SuiteX with Dexus Place at the North Tower of 80 Collins Street in Melbourne. We've invested in amenity and systems and processes that make our customers' experience simple and easy within an environment that supports their operational objectives. Whether it be our new short-form lease, turnkey fit-out delivery service, or even our new online service portal, it's never been easier to do business with Dexus. Our workspace vision is aligned to our corporate purpose, creating spaces where people thrive. We have a fundamental belief that workplace is just as important to the well-being of organizations as public spaces are to the well-being of the community. Thanks. And I'll now hand you over to Stewart to cover the industrial business.

Thanks, Kevin, and good morning, everyone. As a top 3 industrial property manager in the Australian market, Dexus has been an active player over the last 30 years. The $5 billion Dexus industrial platform, which includes the $2.4 billion balance sheet portfolio, has performed strongly. Tenant demand for high-quality logistics facilities in precincts that are well-located near major transport hubs continue to drive leasing success across the portfolio. And we continue to work closely with our industrial customers to support their growth across Australia. Looking at the performance of the industrial portfolio, where most of the metrics show an improved position on FY '20, we leased circa 169,000 square meters of industrial space across 46 transactions over the past 6 months, with positive leasing spreads achieved at our Botany properties, The Mill and Lakes Business Park North. Occupancy remained high at 95.5% The weighted average lease expiry increased to 4.3 years following the average term of completed deals increasing from 3.5 to 5.3 years. Average incentives of 19.7% were impacted primarily by rising incentives in the Melbourne market, but importantly, we achieved extra WALE. Effective like-for-like income growth was 1%, excluding the impact of rent relief measures up from FY '20. We delivered a 12.8% 1-year return to 31 December 2020, and the portfolio is outperforming the industrial benchmark over the 3- and 5-year time periods to the 30th of September 2020. We've had great success nationally across our group portfolio, which is underpinned by our strong customer relationships. Our portfolio includes high-quality assets in prime locations along the East Coast of Australia and is occupied by a diverse mix of businesses with covenants that are benefiting from the e-commerce tailwinds in particular. We are growing our industrial business through acquisitions and the activation of our development pipeline, organically improving the quality of our portfolio, which Ross will talk to you next. Our approach ensures we work alongside our customers to deliver modern, functional facilities for current and future customers, as strong customer partnerships have underpinned leasing success at our developments, for example, at Horizon in Ravenhall, where we secured deals with the existing customer base across close to 100,000 square meters of space. I'll now hand you over to Ross to run through transactions and development pipeline.

Thanks, Stewart, and good morning, everyone. Australia's management of COVID-19 has improved Australia's appeal for many global real estate investors. And while transaction volumes are down across the market, we are encouraged by the levels of investment demand from private and foreign pools of capital seeking to invest in Australia. We aren't seeing material levels of discounting in transactions, and valuations, as you heard from Alison, remain largely unchanged from pre-COVID levels. With the Dexus portfolio comprising high-quality core assets and development opportunities, the driver for further asset sales and capital recycling is: to provide a source of funding for high-returning real estate projects in our $5.8 billion development pipeline; to free up capital to support the growth in our funds business, where fee streams improved the economics of holding low-returning core assets; to create value for shareholders by buying back stock at below fair value; and to continue to diversify the portfolio with a focus on ensuring a stable distribution profile. The group development pipeline sits at $11.4 billion, increasing $8 million in the half, driven by the acquisition of the Australian Bragg Centre in Adelaide; industrial developments, with new acquisitions and the upsizing of existing projects; moving existing stabilized assets into uncommitted developments, including 123 Albert Street in Brisbane and the Homemaker Centre at Prospect. And this is offset by $248 million of development completions in the half. The bulk of which was 180 Flinders Street in Melbourne, which delivered an unlevered project IRR of 22%. The amount of capital committed to the projects is modest at 3.2% of the balance sheet FUM, and we expect this to increase in the year ahead. While COVID will no doubt see some delays to some of the more significant city shaping projects in the portfolio, we remain confident on these projects given their prime locations and the medium-term outlook for office markets. These projects will complement our existing portfolio as we provide high-quality office accommodation to our customers, who are increasingly focused on ensuring that their workplaces are places that their people want to be, spaces that support the business needs of collaboration, innovation and culture. In the meantime, almost all of the development inventory has income coverage, which gives us a high degree of flexibility as to when we bring these projects to market and realize their development potential. The momentum in our industrial development business has continued in the first half of the year, with strong levels of inquiry and securing Amazon at our Horizon estate in Ravenhall. The industrial development pipeline sits at $1.2 billion. This is a great business for us and one which we see significant opportunity to grow as our customers benefit from multiple tailwinds and seek to drive operational efficiencies in modern, well-located facilities. Turning to the trading book. We've demonstrated our ability to generate trading profits over time, delivering strong returns for investors. Having derisked trading profits at the full year result last year, there was no material update on the trading book at the half other than to provide further color on the timing and profit forecasts. We realized $47.1 million of post-tax profits in the half. And for the projects we have under contract, we've revised our projected profits to circa $95 million pretax to be realized across FY '21 and '22. The focus for the rest of the year is locking in profits on the residual site at St. Leonards, and we're working on other opportunities to replenish the pipeline. Thank you. And I'll now pass you back to Darren to wrap up.

Thanks, Ross. Today's presentation has reinforced the core elements of our business that you gain access to in an investment in Dexus and reinforces the underlying value in our overall business above the current share price. In this lower-for-longer interest rate environment, we believe that the desire for secure income streams will fundamentally benefit direct asset classes and, in particular, quality real estate assets. Fortunately, we have a fully integrated real estate platform with direct exposure to high-quality real estate in diverse and key-performing markets that has a track record of delivering solid returns over the long term. Our funds management business provides a capital-efficient way for us to increase our presence across multiple high-growth sectors. And the activation of our city-shaping development pipeline has embedded long-term value and provides the opportunity to organically grow at the appropriate time. So to conclude, we expect the impacts of the COVID-led recession to continue to flow through the Australian economy in 2021. In this environment, we will focus on growing our funds management business. We've seen strong leasing demand across our property portfolio in the half, along with robust asset valuations, which have been supported by strong investment demand. Questions remain on the impacts of working from home on the office sector. However, we are confident that the office will remain a core part of our customers' needs, and will continue to deliver solid, long-term returns for investors. And as Kevin outlined, we have been preparing for increased flexibility for many years. Taking all of this into account, we maintain our guidance with the expectation that the full year distribution per security amount will be consistent with FY '20. That now ends the formal part of today's presentation. We'll now open up to any questions you may have.

[Operator Instructions] Your first question comes from Simon Chan from Morgan Stanley.

My first question just relates to the last point that Darren talked about in terms of increased flexibility. I guess, can you elaborate on that, what it means for Dexus going forward? Like is it shorter-term leases? Is it, like you mentioned, more percentage -- a high percentage of your building dedicated towards flex space, et cetera? Can you just talk about how the composition might change going forward?

I'll pass over to Kevin to answer that one.

Yes, Simon. Simon, we've been, as you know, focused on our flexible space business, Dexus Place, for a while. We'll be expanding that offer. I think most companies, larger companies for a while now have been focused on a core amount of space and some flexible component. We think COVID -- the COVID period just probably accelerates some of that thinking. And so we'll be expanding, as we see opportunities in our portfolio, the Dexus Place offer to accommodate that flexibility. So I think it's something that was happening before, it's going to continue, and we're well positioned to accommodate it within our portfolio.

So of all the leases that you've renewed, I guess, in the first half, those tenants, do they, in general, take up more space, take up less space or same amount of space?

Yes. As I said in my remarks, most of the renewals involved -- we're involved with were the same like-for-like tenancies, which was encouraging given the recession that we're in. So yes, we're pretty pleased with that outcome.

Can you talk about the duration of the leases? Are they your standard 5 to 7 years? Or were there a few that decided to go for the shorter-term option?

There was a mix. There were some short-term extensions. There were some options renewed. There were some longer-term deals done. So I think probably not a lot different, to be honest, to the same period, the corresponding period last year.

Great. So of the 93,000 square meters leased, can you talk to, I guess, what percentage were effective deals? And what percentage were normal deals?

The effective deals were probably around the 60% mark compared to face deals. So reflecting -- 55% of the deals we did in the period were renewals. And so -- where fit-outs were in good condition, although those tenants opted for abatement or effective deals.

Great. And just the last one. Darren, at the start of your pres there, you talked about a corporate structure or something like that for Dexus, subject to shareholder approval. What changes are you looking to implement?

Yes. Look, as you're aware, Dexus is made up of 4 stapled trusts, which is a function of the group's history, and it does require us to release accounts for all of those trusts each reporting period. So what you'll see shortly is an explanatory memorandum will be issued, which will have the full details of what we are proposing, and that will require a shareholder vote sometime later on this half.

Your next question comes from Sholto Maconochie from Jefferies.

Darren and team, just a quick follow-up from Simon's questions. On the incentives, I think you said on the phone, you expect them to moderate in the next 12 months. So 22%, just about 8% below sort of market given the quality. What are you expecting them to moderate to in the next 12 months?

Sholto, they -- the 22% was an average over the half. They were still quite low in the first quarter. They jumped up a bit in the second quarter as we did more leasing. So I think we might see in the next quarter, maybe 2 quarters, them stay elevated and even increase marginally. But I think over a 12-month period, in Sydney, particularly, we might see them plateau and start to abate following that next 12 months.

Okay. And then if you take out the effective deals, I think you said 55%, 60%, what would the incentives have been if you have that number?

Yes. So incentives ex effective were circa 27%.

Okay. Okay. And then just on the occupancy, it looks like it actually went up from the quarter. So it was down slightly on the June '20, but actually went up at 60 basis points from September. What was driving that, just some new deals? So that 45% were new deals? Was it? Is that the main increase?

You're right. It is across portfolio. And then we -- obviously, the ones I mentioned earlier in my remarks.

Okay. And then just on the trading profits, obviously, strong period in the first half. Is that fair to say that the second half is largely going to be no trading profits and it's more in '22 now?

Ross, do you want to...

We're not providing composition of trading profits between the halves, but I think to assume that there's going to be some degree of skew is probably a reasonable assumption at this stage.

Okay. And then just on the other commentary around the Melbourne market. Do you expect more -- that will be more sort of post 31 March to start seeing inspections to improve?

Yes. All things being equal, it's a bit of a moving feast in terms of restrictions coming on and off there. But hopefully, as things return to a maybe more normal footing, I think the good news is that what we're hearing from our customer base is they're all itching to get back to the workplace. No one in Melbourne -- I think they have given up on the fantasy of working from home. I think that the reality has set in that they really do want to be back together in the office. So I think -- the good news is I think when we're back to a more normal footing, we're going to see a lot more -- a bit of a rebound, we think, in inquiry. Like Sydney, I think Sydney was quiet through that sort of initial 3, 4, 5 months of COVID from March. And then we saw a reasonably strong rebound in the second quarter leading into Christmas, as businesses sort of dusted off and focused on the future. And we're hoping to see a similar thing in Melbourne.

And then just on the Rio Tinto expiry in Albert Street in Brisbane. What sort of downtime are you expecting on that asset? Is it a bit of a mini repositioning? What sort of CapEx and/or downtime do you expect on that?

I might hand over to Ross. We are going to be doing a significant repositioning undertaking and development on that. And -- but I'll hand over to Ross to answer.

Yes. So the scope of works for that will be ground plane, end-of-trip, a reasonable amount of on-flow works given that tenancy was reasonably bespoke for Rio. So it will be off-line. I don't think we're providing guidance exactly on a downtime, but I think the Brisbane market has been a little slow. So I would think it's going to be 12 months or a little bit north of that was probably a reasonable assumption at this stage. But we're not giving specifics at this stage.

Further update on that in the second half of the year.

So it won't be in the maintenance cap. That will be a development project, so not in the -- to be seen in AFFO?

Yes. That's correct.

Okay. And then just finally, just on the funds management stuff with AMP. When do you expect to see a resolution of that or announcement on that negotiation?

Yes. Look, I would expect you'd have some insight -- further insight on that towards the middle of the year. There's a lot to play out yet.

Your next question comes from James Druce from CLSA.

Firstly, just on face rents. What are your expectations for the second half and for the next year in terms of growth or market rent growth?

Kev, do you want to pick that up?

Yes. Face rents have held pretty well, and we think that they'll continue to hold. And you might even see some nominal growth in some markets over this period. I think that the pressure in the market really has been incentives as occupancy wound back, as more sublease space come in the market from companies that were impacted by the recession. That incentive pressure obviously marched up. So I think face rents, though, in the main are going to continue to hold over the period ahead.

Yes. Okay. And just on the leasing spreads, I actually thought they might be a bit more positive just because of how much Sydney's run over the last few years. And you might be rolling off some pretty low rents in the past, notwithstanding the pretty challenging environment. Can you just give some color on what you think those leasing spreads will be looking like going forward?

Yes. Leasing spreads are a hard one to forecast, particularly this period, but 3% negative across the portfolio, negative 5.7% in Sydney, positive 6% in Melbourne. So they're a little bit all over the place, James, to be honest. I think going forward, I think if you think about where incentives are, if face rents are holding, incentives are maybe ticking up and then flat lining, you probably see similar spreads maybe for the next 12 or 18 months before they start returning to positive territory again.

Yes. Okay. Okay. Just one question on OpEx, something that's -- I'm just trying to get my head around. So you had around $31 million worth of office incentives, including rent freeze, on sort of 94,000 square meters leased, so around $330 a meter. If I look at FY '20, that was around $1,000 a meter, and it's been averaging sort of $400 to $500 a meter for the past 4 to 5 years. Just wondering how you sort of explain that drop.

Yes. Well, we -- obviously, when COVID hit, we had a good look at ourselves and had to make sure that we conserved cash where we could. So there's probably a little bit of catch-up in maintenance CapEx for the balance of the year. But I think it's going to be in line with what the portfolio needs. And what we don't get to this year, we'll provision sensibly for the next couple of years to get it done where we need to. But also, the other thing with some of the CapEx is we've probably had the ability to save, and we'll continue to, on what we would normally call lessor works where older tenancies vacated, we might spend a significant amount of money stripping out or a fit-out and repositioning those floors for future letting. Some of the fit-outs have been in pretty good condition. So we've been able to look at repurposing and indeed have repurposed many of them to save on CapEx. So expect to see a little bit of that for the next 12 to 18 months as well.

And that's the benefit of the in-house team we now have in place.

I think I was just referring to the leasing incentives, not the maintenance CapEx. Maybe we'll take that one off-line, but it does seem like a fair drop considering you did a similar number of square meters leased in the past 12 months in FY '20 as well. And just one more, if I can.

On that, that just might reflect the timing of the transactions as well.

Okay. So that might -- that will pick up second half is what you're saying, just when the actual benefits are paid.

Yes.

Okay. Just one more question for me, if I may. Just in terms of talking to your tenant base, how much of the actual tenant base has sort of indicated their long-term plans at the moment?

Look, I think there's different buckets. Some are still trying to navigate their way through a pretty challenging environment. A lot of the deals we've done are clearly companies looking to move forward and seeing through this period as a short-term hiccup and very focused on growth in the future. So some of the deals that we've done are 10-year deals, big global companies, very focused on workplace, having their people back in their workplaces collaborating, innovating and producing at high levels and taking very long-term commitments. So I think it's a mixed bag, which you'd expect. In a recessionary period, it does cause navel-gazing from the best of us as you'd sort of plot how you might navigate troubled waters. But the pleasing thing from our perspective is that we've got some very good companies in our portfolio. Even the small business -- or the small tenancies, sometimes very big global companies, and many have focused on the future and making lease commitments as part of that future.

Your next question comes from Tom Bodor from UBS. Your next question comes from Sajid Nebhani (sic) [ Suraj Nebhani ] from Citigroup.

That's Suraj Nebhani. So just wanted to clarify a couple of things. So I think, Alison, you mentioned that there is some COVID impact assumed in the full year DPS guidance for second half. Can you just give the quantum on that, if possible?

Sorry. Was your question about the COVID -- the impact of COVID on the second half?

Yes.

Well, I mean, we're not going to give exact detail, but I guess what can -- you can assume is that obviously, we've had $15.5 million of impact in the first half. Now the Code of Conduct essentially goes out to March for a couple of states, finishes in December for another couple of states. So we have assumed that a similar level of inquiry or assistance will be sought by tenants for that period. So you can kind of do the maths on that. I won't give you the exact number, but yes.