Kiwi Property Group Limited ($KPG)

Good day, and thank you for standing by. Welcome to Kiwi Property FY '26 Annual Results webcast. [Operator Instructions] please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Clive Mackenzie, Chief Executive Officer. Please go ahead.

Thanks, Maggie. Kia ora,and good morning, everyone. Thank you for joining us for Kiwi Property's annual results announcement for the 12 months ended 31 March 2026. I'm Clive Mackenzie, the CEO of Kiwi Property. And today, I'm joined by Fraser Gunn, our Head of Investor Relations. We also have Tiniya Plessis, our Interim CFO; and Shaun Reed, our GM of Capital Transactions, in the room to answer questions at the end of the presentation. I presume you all have a copy of our presentation in front of you. If not, you can access one from the Investors section of our website at kp.co.nz. A quick reminder that as usual, we have included detailed financial property information in the appendices to the annual results presentation. Turning now to Kiwi Property's key metrics on Slide 4. Kiwi Property is focused on increasing long-term returns for its investors through the ownership, development and management of a portfolio of high-quality real estate. We believe our strategic retail-led assets located in metropolitan areas with great transport access such as Sylvia Park, LynnMall, Drury and The Base will continue to grow and that by prioritizing them, we will create the greatest value for our shareholders in the years ahead. As demonstrated on this slide, in FY '26, the operating performance of our assets supported robust earnings growth with improvement in all 5 of these key metrics when compared to FY '25. There were 36.7 million visits to our centers, up 3%. Sales of $1.9 billion were up 1.6% across the centers. Our occupancy across the total portfolio has risen to 99%, up from 96.9% last year. We continue to deliver rental growth with a 4.5% rent growth across the total portfolio. Importantly, this operating momentum flowed through to earnings with adjusted funds from operations, or AFFO, of $100.2 million, an increase of 8% on the previous financial year. On a per share basis, AFFO was $0.061 per share, up 5%. Turning now to Page 5. We are pleased with the achievements in FY '26, making progress against each of the priorities that we identified at the start of the financial year. Our focus was on growing rent, staying disciplined on costs, creating balance sheet capacity and achieving the sale of Sylvia Park Lifestyle to the Mackersy LFR Fund. The first priority we identified was rent growth. Leasing momentum remains strong with the business delivering a total leasing spread of 6.3%, supported by office leasing spreads of 13.4% and retail-led mixed-use leasing spreads of 6.6%. This reflected tenant demand and an improved retail trading environment over the last year. The second priority was cost discipline. Through disciplined cost management, employment and administration expenses were down 3.6% versus FY '25 after adjusting for one-off costs. We also reduced funding costs by refinancing the $100 million KPG040 series green bond with bank debt, lowering our weighted average interest rate from 5.3% in FY '25 to 4.81% this year. Creating balance sheet capacity was also a priority for the year. Gearing reduced to 37.4%, down 1% from last year, supported by the sale of the Plaza in December for $118.9 million. We further strengthened our capacity with the agreed sale of ASB North Wharf for $205 million, which will settle later this month, reducing pro forma gearing to 33.3% and creating scope for future growth opportunities. The fourth priority was achieving the sale of Drury LFR sites. Around 77% of the large-format retail land intended for sale of Drury is now under contract with unconditional and 3 with conditions to be finalized. Settlement and profit recognition is expected within the next 3 years. These land sales will help to fund the project's capital expenditure with minimal net gearing impact expected. Now turning to Slide 6. Beyond our FY '26 priorities, we achieved several other milestones that strengthen Kiwi Property’s platform and set us up well for the year ahead. ASB agreed to extend its lease at North Wharf for a further 9 years in July 2025, taking it through to 2040, which increased the investment appeal that led to the current transaction. The Drury development advanced materially during the year, including a land sale to Foodstuffs in April '25 and further conditional transactions with Costco, Briscoes Group and Harvey Norman late last year. IKEA opened its first New Zealand store adjacent to Sylvia Park Auckland in early December. Expected traffic counts did not eventuate, thanks to careful collaboration between our management team, IKEA and Auckland Transport. In fact, we've seen a significant increase in visitation to the precinct, up nearly 8% over the 4 months since opening compared to the same period in the year prior. Our latest employee survey shows an 80% employee engagement score, which is in the upper quartile of similar-sized businesses and reflects our highly engaged workforce. During the year, we refreshed our business strategy, sharpening how we articulate our approach, reinforcing capital discipline and aligning our focus to the key areas that drive our business. Over now to Slide 7. Leasing momentum drove rental growth in FY '26 with overall rental growth of 4.5% and occupancy at 99%. Our weighted average lease expiry is 3.6 years, down slightly from FY '25 at 3.8 years. The leasing performance was led by positive leasing spreads at Sylvia Park of 7% and the base at 10.5% alongside continued strength in the office portfolio. Office leasing was particularly strong with leasing spreads of 13.4%, supported by tenant demand for premium space. Retail leasing performance remained positive, supported by an improved retail trading environment and new and expanding brands at Sylvia Park, including LEGO, Mecca, Adidas, RM Williams, W Cosmetics and Harley Harper. Looking ahead, 66% of portfolio income is subject to fixed or CPI-based rent reviews, which provides a solid platform for future rental growth. Turning now to Slide 8. We've maintained disciplined control over operating costs with a sustained focus on efficiency across the business. After normalizing for one-off costs, employment and administration expenses were $23.8 million. That's down around $900,000 or 3.6% versus FY '25. The key one-off items we've adjusted for include costs associated with the ASB North Wharf’s lease extension and other one-off transaction items. This cost discipline supported an improvement in our management expense ratio with this ratio improving by 5 basis points year-on-year. Over now to Slide 9. Retail conditions improved through the second half of FY '26, and that flowed through to positive sales growth across our centers. Total sales -- sorry, total portfolio sales were up 1.6% on the prior year and customer visitation continued to lift with more than 1 million additional visits compared to the previous year. Total occupancy cost is at 15.4% across the portfolio, broadly stable year-on-year. Over now to Slide 10. Portfolio valuations declined 1.3% or $41 million over the 12 months to 31 March 2026, reflecting a mix of market repricing and development outcomes across the portfolio. You may notice a subtle change in our portfolio segmentation. Our key strategic assets are those defined this year as retail-led mixed use. This segment comprises large-scale assets anchored by retail tenancies, which may have complementary uses such as office, residential or other non-retail components that support the overall performance of the asset. Our nonstrategic assets into 2 segments, office and other. There was strong valuation support at our shopping centers at Sylvia Park up 2.2%, the base up 4.2% and Lynn Mall up 5.6%. These outcomes were supported by income growth, leasing momentum and accretive capital investment. The office portfolio value declined year-on-year, reflecting capitalization rate movements consistent with broader New Zealand office market repricing, partially offset by market rental growth. The $36.1 million decrease in the combined Drury valuation reflects development costs and staging with capital invested ahead of income generation and valuation uplift. Value at Drury is expected to be recognized over time as stages are completed and lots are sold. On now to Slide 11. Sustainability remains an important focus for Kiwi Property, and we continue to lift the sustainability performance of our assets through targeted initiatives. During the year, 2 of our office assets improved their NABERSNZ energy ratings. For its first certification, Geneva House achieved a 5.5-star energy rating, while The Aurora Centre down in Wellington improved its performance, increasing from 5 star to 5.5 star. At Vero Centre, we delivered a 29% reduction in gas consumption following targeted investment to our gas usage from the base build. Looking ahead, NABERSNZ Energy for Shopping Centers rating tool is expected to launch in New Zealand in late 2026. Sylvia Park will participate in the pilot, creating the potential to add to our green asset base over time. I'd now like to hand over to Fraser, our Head of Investor Relations, to discuss our annual financial results beginning on Slide 13.

Thanks, Clive, and good morning, everyone. Turning to Kiwi Property's financial results for the 2026 financial year. Net rental income increased 4.3% year-on-year, growing by $8.3 million to $202.4 million. Growth was driven by strong performance in our retail-led mixed-use and office assets, reflecting the operating momentum we highlighted earlier. In the Sylvia Park precinct, net operating income increased by $7.8 million, supported by higher rental income from the full lease-up of Geneva House and Resido. The office portfolio increased $1.2 million, mainly driven by the Arora Centre through carpark income and savings in operating expenses. Reflecting this rental income growth, net operating income for the year increased 3.5% to $198.2 million. Turning over to Slide 14. Moving to earnings. Adjusted funds from operations, or AFFO, increased to $100.2 million, up 8% on FY '25, primarily driven by higher net rental income. On a per share basis, AFFO increased to $0.061 per share, up 5%. This includes the impact of the dividend reinvestment plan, which reinvested $21 million, increasing the number of shares on issue. Funds from operations or FFO increased to $107.3 million, up 5.7%, reflecting the uplift in operating profit. Net finance expenses decreased by $2.9 million, mainly due to a lower average interest rate and a lower debt balance for the year. Current tax expense increased by $1.4 million, driven by higher operating profit and partially offset by tax depreciation claimed on the investment boost incentive of $1.4 million. The effective tax rate on FFO was stable at 17%, broadly consistent with FY '25. Our dividend payout ratio was 92%, which sits within our target range of 90% to 100% of AFFO. Now turning over to Slide 15. Through FY '26, we have maintained disciplined capital management and strengthened balance sheet capacity. Investment properties and inventories decreased by $83 million, reflecting the divestment of the Plaza, capital expenditure and valuation movements. Gearing reduced by 100 basis points to 37.4%, supported by the proceeds from the Plaza sale. Following the disposal of ASB North Wharf, pro forma gearing reduces further to 33.3%, providing additional scope for growth opportunities. Our key covenants remain comfortable with an interest cover ratio of 3.28x and gearing well below the 50% limit. Credit metrics also improved with S&P revising Kiwi Property's outlook from negative to stable in December 2025, with the corporate issuer rating at BBB stable. Over now to Slide 16. Turning to our debt profile. We've maintained strong liquidity and a well-structured maturity profile. We finished FY '26 with $284 million of headroom across our bank facilities, supported by lower drawn debt following the divestment of Plaza in December 2025. Total debt outstanding at year-end was $1.2 billion, comprising $400 million of bonds and $816 million of drawn bank facilities. We continue to be well supported by our banking group. During FY '26, we refinanced the KPG $100 million green bond maturity with attractively priced bank debt, increasing our banking facility limit to $1.1 billion. The weighted average term to maturity was 2.9 years, reflecting our approach of using shorter tenure bank facilities where pricing is attractive, while maintaining a healthy overall maturity profile. Our maturity profile has bank maturities across FY '28 to FY '31 and bond maturities across FY '29 to FY '31, supporting resilience and flexibility through the cycle. On now to Slide 17. We have continued to actively manage our cost of debt, taking advantage of an improved funding mix and a lower interest rate profile where available. Our weighted average interest rate reduced to 4.81% in FY '26 from 5.3% in FY '25, a reduction of 49 basis points. This reflects a greater proportion of bank debt and lower overall funding costs while maintaining a prudent risk position. During FY '26, we entered into $95 million of fixed-rate interest rate derivatives, increasing certainty of interest costs. Our fixed rate profile remains strong with 74% of drawn finance debt at fixed rates at year-end compared with 88% at the end of FY '25. Following the settlement of the ASB North Wharf sale, hedging is expected to increase to 84%, providing a high level of fixed cover for the year ahead in an uncertain interest rate environment. I'll now hand back to Clive, who will resume on Slide 19.

Thanks, Fraser. Our programme of recycling non-strategic assets frees up capital for reinvestment and is intended to enhance overall portfolio quality and performance over time, align to our capital allocation framework. In FY '26, we agreed to the sale of 2 property assets. The Plaza was sold for $118.9 million and settled in December 2025 and ASB North Wharf was sold for $205 million with settlement slated for later this month. Both assets performed strongly for Kiwi Property over time. The Plaza delivered an internal rate of return from inception of 11.4% and ASB North Wharf delivered an IRR from inception of 10.1%. Following these transactions, 74% of Kiwi Property's total portfolio by value will be retail-led mixed-use with high-quality retail as the primary use. We will also be more concentrated in our preferred locations with 95% of the total portfolio by value located in Auckland and Hamilton. Our focus is on growth areas such as these with high expected long-term population growth versus the wider New Zealand population. Overall, these sales are consistent with our strategy, sharpening portfolio quality, recycling capital and reinforcing our focus on high-quality retail-led destinations in the best locations. Moving now to Slide 20. With asset sales providing some capital for reinvestment, we have commenced several targeted projects across the portfolio that support long-term growth by enhancing tenant mix, customer experience and asset quality. Two of these projects are at Sylvia Park. The first is an Asian supermarket, which responds to a growing Asian catchment. We are also underway with a new pedestrian plaza that includes an extension to the existing Kmart tenancy and a new customer respite experience, also adding new and reconfigured food offerings directly onto green open space. In the office portfolio, the development program at Vero Centre will provide a comprehensive refresh of shared spaces to enhance amenity, functionality and tenant experience. We continue to advance developments this year and beyond, including expanding retail space on the upper level at the base. Moving now to Slide 21. Turning to Drury. Development works continue to progress through the year with Stage 1 civil and infrastructure works now well underway. Current works include the construction of key roads, installation of drainage and provision of utility services across the site. Completing this infrastructure is a key step to creating individual sections and enabling titles to be issued for the large-format retail land purchases. We remain focused on capital discipline, settlement of contracted sales and stage delivery. A major milestone was achieved with Fast Track project approval granted for Stage 2 in November last -- late last year under the Government's Fast-Track Approvals Act 2025. That approval increased the consented developable area to 140,000 square meters, providing additional scale and flexibility as the project advances. We've also included aerial footage in a link on this slide, which provides a helpful visual update of on-site progress at Drury, including the nearby Drury train station. Turning now to Slide 22. We have made strong progress on selling LFR land at Drury with 4 key sale and purchase agreements entered into during FY '26. Across these agreements, the LFR land sales have been agreed at an average price of $1,080 per square meter for a total selling price of $115 million. These transactions mean 77% of the land intended for sale for LFR purposes is now under contract, which is a meaningful derisking step for the project. Remaining sale conditions largely relate to completing agreed development works to enable the transfer of titles, which links directly to the civil and infrastructure projects we showed on the prior slide. Settlement timing is expected to occur across FY '27 to FY '29, consistent with the sequencing of the development works and the issuance of titles. Importantly, these jury land sales are expected to help fund the project's capital expenditure with minimal net gearing impact anticipated for Kiwi Property's balance sheet. Turning now to Slide 23. Drury development covers a gross land area of 53.4 hectares with a total acquisition and development cost of $155.9 million. The current market value at March 2026 is $146.5 million, reflecting the project staging and the timing of capital investment ahead of value realization. CapEx remaining post 31 March is estimated around $167 million with an estimated completed value of around $376 million. The project continues to be assessed against a targeted land development IRR of 15% to 20%, with value expected to be recognized progressively as stages are completed and sales occur. Turning now to Slide 24. Resido continues to move towards stabilization with strong occupancy outcomes despite soft apartment leasing conditions and increased supply. In March 2026, 98% of units were leased. Since September, Resido has maintained at least 97% of units leased. High-quality assets have continued to demonstrate resilience with new competing supply having no material impact on Resido's occupancy to date. Resido is achieving a rent differential for the wider Auckland apartment market of around 31%, demonstrating the value of the amenity offering. Proximity to Sylvia Park is a key demand driver, supporting both retention and demand with residents naming access to Sylvia Park as a standout benefit. Turning now to Slide 25. We are pleased with our investment at Mackersy Property has progressed to the next stage. In December, Kiwi Property's original $6.5 million investment made by a convertible loan in November 2024 converted to a 50% ownership interest. A recent independent valuation supports the cost of the investment, including future earn-out payments. While the previously announced sale of Sylvia Park Lifestyle into a Mackersy-managed large-format retail fund did not proceed, the strategic merits of the Mackersy investment remain. The investment provides ongoing exposure to a scaled investment management platform with an earnings growth trajectory. Over now to Slide 27 to discuss Kiwi Property's refreshed strategy. Over recent years, we've delivered against our strategic priorities, strengthened our balance sheet, sharpened our portfolio and demonstrated the resilience of our retail-led portfolio through a challenging economic environment. And as the business has matured, we saw an opportunity to simplify how we articulate our strategy. Our strategy remains consistent, but we've refined how we describe it, bringing greater clarity, focus and consistency to what already drives performance at Kiwi Property. Our purpose to create places where people connect and thrive reflects the role our assets play in people's lives. Our ambition is to be New Zealand's leading creator of retail-led destinations, delivering superior experiences and returns. This refinement more clearly expresses what we do and why it matters and specifically highlights our aspirations for investors. We've also sharpened our long-term strategic pillars. They are enduring and describe the fundamental drivers of value at Kiwi Property, supported by annual goals and priorities. The 4 pillars are Assets, Capital, Customers and Capability. For investors who want more detail, we've referenced the refreshed strategy content in our annual report. On now to Slide 28. Our investment philosophy supports our refreshed strategy with disciplined capital allocation focused on long-term value creation. We prioritize capital to opportunities that are earnings accretive and aligned with our strategic objectives. We look at assets and opportunities that demonstrate strong sustainable earnings supported by defensible demand drivers and resilience through the cycle from scale, location, quality and income durability. Investments are assessed against defined return hurdles under Kiwi Property's investment decision-making framework to ensure discipline and consistency in decision-making. Our investment philosophy is centered on ownership of a resilient retail-led portfolio focused on best-in-class assets in high-growth nodes. Over now to Slide 29. Looking ahead, we have a clear set of FY '27 focus areas designed to drive sustainable growth and create value for shareholders. First, we'll refine and grow our high-quality retail-led portfolio, progressing opportunities that strengthen portfolio quality and earnings resilience. Second, we'll maintain balance sheet flexibility and deploy capital with discipline, staying anchored to our capital allocation framework. Third, we'll aim to win on experience to sustain leasing momentum, building on the strong leasing outcomes delivered in FY '26. And fourth, we'll seek to lift operating performance through an efficient and high-performing team with continued focus on cost control, productivity and execution. These focus areas link directly back to our 4 strategic pillars, giving a clear line of sight between strategy, priorities and delivery in FY '27. Turning now to Slide 30. FY '26 saw improvement across both the retail and office sectors as well as the transaction environment. The retail sales environment strengthened through the year, supporting improved trading outcomes across the sector. Office conditions remain competitive, but we saw good leasing demand for quality assets, which is consistent with the leasing results we delivered during FY '26. Transaction activity also resumed during FY '26, which supported our ability to progress capital recycling. In recent months, conditions have become more complex with a more uncertain environment emerging. In particular, market volatility and emerging cost pressures from fuel supply disruption have increased uncertainty across the operating environment. Against that backdrop, Kiwi Property portfolio remains resilient, supported by quality assets with high occupancy, which positions us well as we move into FY '27. And finally, over to Slide 31 for our dividend guidance for the next financial year. We will adopt a highly disciplined approach to the operation of our business in FY '27 to deliver on strategy and drive asset performance. With the majority of our portfolio income subject to fixed or CPI-based rent review, Kiwi Property has a solid platform for future rental growth. As a business, our goal is to deliver sustainable earnings, and we target 3% average annual dividend growth over time. For FY '27, we are guiding to a full year dividend of $0.0575 per share. This represents 2.7% growth on the prior year and average growth of 3.2% over FY '26 and FY '27. Thank you for joining us today. That concludes our overview of Kiwi Property's FY '26 annual financial results. Today's presentation, along with our FY '26 annual report, property compendium, sustainability report and climate-related disclosures is available on the Kiwi Property website. I'll now pass over to Maggie to open up the phone lines for questions. Thank you.

[Operator Instructions] Question comes from the line of Arie Dekker from Jarden.

Just first couple of questions on Drury. I mean the CapEx expectations to complete Stages 1 and 2 went up a bit on where they set at first half despite the second half expenditure. I guess it's obviously earthworks heavy nature of the spend and you got the fuel impacts at the moment in that. Can you just talk a little bit to how exposed you are to cost escalation pressures on the $90-odd million Stage 1 CapEx remaining?

Thanks, Arie. And good morning. Yes, look, we've obviously, like everybody else, are facing potential cost increases through fuel. We've got a fixed price that we have in terms of those infrastructure works we're putting in place. Most of the sort of land movement and moving soil around has actually already occurred on the side. So this is more about putting infrastructure in the ground. So we believe we're well covered in that space. But the longer this goes on, there's obviously some risk that may come down the line.

Yes. So I think the commitment at balance date sort of sat at $26 million on that -- are you saying that on that $26 million expenditure that you've got that sort of your fixed price on that and then your exposure is on how long this continues on the balance?

Yes, yes, that will be correct.

Okay. And then just with regards to the guidance, what level of Drury profits, if any, are you allowing for in the guidance? And what's the gating item for releasing that in the FY '27 year?

Yes. So a good question. So for FY '27 year, we don't have any of the potential Drury land sale profits in that guidance.

Great. And the effective tax rate similar to FY '26 and '27?

Yes, that's correct.

Great. That's helpful. Just a little bit of guidance on a couple of the net income outlooks on property. So obviously, you've done a great job getting Vero leased up and you've invested in the asset. I think net income at just under $25 million in '26, just a very small touch on '25. What level of net income growth should we expect from Vero in FY '27?

The asset is almost fully leased at the moment. I think we've got about half left to go. So really just the fixed increases that are in the leases that are coming through, and that's probably around the 3% to...

Yes, I mean, is there going to be -- given that you sort of list it progressively through FY '26, I mean, should we see a step-wise increase on the recorded '26 net income level? And I'm just trying to get a bit of a sense of what order of magnitude that will be.

Yes, that's a good point. We might have a couple of one-offs separately with you when we give you a little bit more detail on that.

Okay. And, that's great. On Resido, just given market conditions and the nature of your contracts, what sort of allowance are you making for sort of FY '27 net income growth? It looks like it's sort of settled at around $8 million annualized, maybe a touch higher based on the second half levels. So just interested in an indication of sort of growth you're expecting in '27.

Yes. Look, growth is a little bit trickier on residential at the moment. You can obviously look around the residential market and see that rentals are subdued. I would say we're probably averaging sort of 1% or 2% growth at the moment on Resido. It will all depend on the residential market and how we can respond to that as that improves. But we'd probably work at the current level of 1% or 2% until the economy improves.

Great. And last one for me, just on seismic. You obviously noted that the regulation changes at the first half and sort of watching that. Did you get any benefit in the valuations for full year from these pending sort of changes? And if so, what sort of order of magnitude was the reduction in seismic allowances?

No, we haven't had any benefit in our valuations. But you'll recall, we have around $100 million of allowances, of which about 70% of that or $70 million is for our Auckland assets. So as that legislation goes through its process, we'll look for some of that to be able to firm up over time.

Yes, that's great I've recognized.

Thanks Arie. Thank you.

Next, we have Bianca Murphy from UBS.

Just firstly, a follow-up question on Drury. So you note 77% of Stage 1 LFR is now contracted. At the half, 77% was under contract. So limited progress in terms of new contracts there. Can you just clarify what is holding back the progress for that site?

Yes. We haven't done any further transactions since the half year. At the moment, we're more focused on actually putting infrastructure in the ground and getting title for that -- those deals that we've done. We are talking to the market. There is demand from a number of operators, and we're just working through that process.

Okay. And then moving on to Vero. So yes, occupancy has improved meaningfully there, obviously. Could you just talk about how incentives are trending for that asset?

Yes. Incentives are about 11% of gross income at the moment for Vero, which is -- that's held pretty much consistent all the way through the lease-up cycle since we lost Bell Gully. We fully leased the Bell Gully space now, and there continues to be ongoing support for Vero for -- given it's a high-quality asset. And there's also support, obviously, with the improvements we're making to the shared space for our users, yes.

Okay. And then lastly, just on the consumer and the Middle East conflict. Could you just talk about what sort of impact you're seeing in April and May so far in terms of footfall in your retail?

Yes. Another good question. The good news is that we've continued to see the similar trend in terms of footfall and sales growth that we've seen coming into the year-end. So that's maintained. I think that talks to the resilience of the assets and the high quality of the assets that we have and that they still remain compelling for the consumer. Obviously, the longer this issue continues, that may be under pressure as we go forward. But at the moment, the assets are holding up well, foot traffic and sales are holding up well.

Next, we have Nick Mar from Macquarie.

Just following up on Drury again. The valuation or expected valuation at the end has sort of come down the last half. Obviously, the costs have gone up to sort of crunch your margin. You maintained that 15% to 20% IRR target. How much of the valuation move and the sort of expected end value move is what you called out as sort of timing factors? Or is there sort of a genuine kind of margin impact here? And have you flexed within that expected IRR range since the last update?

Okay. Well, thanks, Nick. I'm going to pass this one over to Shaun, and he will talk to those questions around valuation.

The valuation is just a point in time as if we had to sell those sites today, both Stage 1 and Stage 2. So it's really a reflection of where we are in the land market as opposed to where the gross realization is. There has been a slight adjustment in gross realization, but it's less than 3%. So it's a cost and also time of the current market, which is impacting the appraisal. And in terms of our forecast for IRR, we still are maintaining a target of 15% to 20%.

That's helpful. And then just on Vero, given where you've set sort of net rents and the effective rents, do you think the sort of the existing tenants prior to the reletting are significantly under rented now? How are you looking at that...

I think as we've got space back, we've been able to improve our rental profile. When you look at the Bell Gully space, that was a large tenancy over multiple floors. We've been able to break that space up and have got a higher rental outcome through that process. And as space has come back just as through the normal course of business, we've been able to repurpose that space and drive higher rental growth through those opportunities. So I think you'll see that trend continue as we reset rents in going forward, yes.

Okay. And then in terms of capital, are there any sale processes underway for your sort of non-strategic assets? And what's plan now with the A at Sylvia Park that fund?

Well..So we've got no in-market transaction activity at the moment. But we have obviously called out what we consider to be non-core assets. And so we'll keep an eye on the market. And as and when we see opportunities, we may bring those to market. We've always liked LFR as an asset class, and we particularly like our Sylvia Park LFR that we have. What we were looking to do is bring a capital partner alongside us on that, and we're still open to that opportunity in the future, but not progressing anything actively at the moment.

Our last question comes from Rohan Koreman-Smit from Forsyth Barr.

Just quickly back on that asset sales question, obviously selling the Plaza is reasonably dilutive and North Wharf as well. And the other ones that you have in there, there's a couple of quite high-yielding assets. When you think about managing dilution and the earnings impacts, kind of how do you think about the timing of those asset sales?

Yes. So obviously, maintaining our dividend and maintaining our earnings over time is really important for us and for our shareholders. So we'll make sure that we stage any further asset sales in line with either potential developments, which bring on new income streams or the possibility of acquiring other assets in the market as well. So we'll look to balance that over a period of time.

And just going back to Drury, the other part is the resi land out there. Obviously, resi market is quite slow. There's been talk of some other potential options you have for that land. Can you give us some color on how that's progressing?

Yes, sure. So what has been identified as resi land is also able to be sold and it's got a zoning for mixed use, so it can be a number of other things. So we're obviously talking to local government about specific buildings, central governments as well around hospitals and schools, but also looking at the opportunity for additional LFR as well because we have strong large-format retail development opportunities coming at us as well. So we're just looking at the market and looking at where those opportunities are to sell some of that land.

Perfect. And then last question. Just you've got your gearing down finally to the middle of your range when North Wharf sold. You've got some money to spend to Drury, but like you say, could be largely balance sheet neutral. You talk about scope for growth opportunities. I guess, how are you going to balance that versus kind of gearing in the range that you're looking for? And can you give us some idea of what sort of opportunities you think might present themselves?

Well, in terms of how we grow the asset base, as I mentioned earlier, there's 2 ways of doing that, either through our development program, which we will continue to sort of plug away at over time as the demand is there. And the second is to look into the market to see whether there are any opportunities. As we've called out with our strategy refocus and refresh is we focus in on those retail-led assets, whether they be high-quality shopping centers or high-quality large-format retail, that will be our primary focus as we go forward, looking for those really strong assets in growth areas.

Thank you for all the questions. This concludes today's Q&A session and conference call. Thank you for participating. You may now disconnect. Have a great day.