Precinct Properties NZ Ltd & Precinct Properties Investments Ltd (PCT) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Precinct Properties' 2026 Half Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Scott Pritchard, Chief Executive Officer. Please go ahead.

Thanks, Amy, and good morning, everybody. And welcome to the 2026 half year results briefing for Precinct Properties. I'm joined today by George Crawford, Precinct's Deputy Chief Executive; Richard Hilder, Precinct's Chief Financial Officer; and Anthony Randell, Precinct's General Manager of Property. The program for today's call is outlined on Page 2 of the presentation. I'll shortly provide an overview of the highlights of the result before spending some time discussing the major themes that Precinct is focused on. I'll then hand over to Richard, who will cover the financial result, before George provides an overview of our capital partnerships and the investment market. Anthony will provide an overview of our investment portfolio and office markets. And following that, I'll provide an update on our development progress and offer some concluding comments. As usual, we will happily answer any questions on conclusion of the call. Turning to our highlights. The investment portfolio has performed incredibly well in the first half with the property team concluding over 25,000 square meters of space in the first half. This is the highest level of leasing we have seen for several years and indicates a renewed level of interest from occupiers to secure prime grade office space. Pleasingly, we continue to see positive leasing spreads with growth in contracted rents across our leasing deals of over 10%. On Monday this week, the Ministry for Foreign Affairs and Trade began occupying our development on Molesworth Street in Wellington, which is a particularly satisfying milestone for this project as the new 25-year net lease now commences. In terms of our financial performance, the investment portfolio has underpinned our earnings for the first half with like-for-like growth of 1.8% after adjusting for one-off items. While our FFO for the first half is down on last year, we remain very confident in our full year guidance of between $0.073 and $0.075 per share and expect that our second half FFO will be particularly strong. Most notably, in the first half, we have undertaken a number of capital management initiatives, including the $325 million equity raise completed in October last year. This places us in a great position to be able to advance many of our initiatives, in particular, the Downtown project, which I'll touch on a little later. Another of our key initiatives is the sale of 50% of PwC Tower, which George will touch on a little bit later. Turning to Page 4 and our key themes. Pleasingly, we are now seeing a strengthening economy across a range of our functions, being demand for office space, retail sales and the emergence of early momentum into the build-to-sell residential apartment market. The office markets are demonstrating different characteristics depending on the grade of quality and location. The prime grade office market in Auckland is continuing to perform well with growth in occupancy and growth in market rents. While Auckland is strong, Wellington remains relatively weak and is yet to show evidence of a recovering market. Consistent with the growing economy, we are now beginning to see signs of a more active construction market as developers become more confident in the economy they operate in. While increased activity is yet to materialize in increased construction costs, we expect that this will occur in the next 12 to 18 months as demand for labor reemerges. I'll now hand over to Rich to take you through the numbers.

Thank you, and good morning, everyone. Total comprehensive income after tax for the half was $3.2 million lower than the prior period. This outcome was driven by the valuation movements rather than operating performance. Independent valuations were completed across all of Precinct's partnership assets for 61 Molesworth Street and the Downtown Car Park. The $1 billion of partnership assets recorded a small 1.6% decline in the value for the calendar year. While Downtown Car Park recorded a $23 million devaluation due to the asset being valued on an as-is basis, we anticipate this unrealized movement will be recovered as the development progresses. After removing unrealized valuation impacts, other nonoperating items and one-offs, the group delivered stable underlying earnings for the half. We have completed property sales totaling $260 million, including the settlement of Amora Hotel, the InterCon Hotel and 22 Stanley Street. These transactions were complemented by a $325 million equity raise, significantly strengthening the balance sheet. Net tangible assets per share decreased by $0.03 to $1.18, reflecting the valuation movement. Overall, the interim results, reflects stable operating earnings, active capital management, and continued progress in positioning the business for long-term growth. Turning now to operating income. This slide provides detail on the performance of each segment for the 6 months. Earnings from the investment portfolio declined 4.8% to $69.2 million. However, after adjusting for one-off surrender income, underlying earnings increased by 1.8%. Adjusting for occupancy movements and the surrender payments, Auckland office FFO increased 2.6% on a like-for-like basis, while Wellington performed well, delivering 3.6% like-for-like growth. Our operating businesses achieved a combined operating profit of $3.9 million, a significant improvement from $1.9 million in the prior half. This was driven by a successful turnaround of Precinct Flex, good membership performance, and the stabilization of the hotel. Management fee income was $1.6 million lower. This anticipated decrease reflected the completion of Wynyard Stage 3, the disposal of 40 and 44 Bowen and the delayed settlement of 22 Stanley Street. Moving to funds from operations. Underlying funds from operations, which includes our property and operating investments, combined with the management business fell 3.9%. After net interest, tax and indirect costs, reported funds from operations were $53.8 million or $0.318 per share. Precinct's dividend for the first half equated to an FFO payout ratio of 106%. With major capital management initiatives executed, the warehousing of opportunities continuing and material portfolio changes occurring, for instance, 40 and 44 Bowen Street, this volatility was both expected and flagged at the FY '25 results. Importantly, full year FFO guidance remains unchanged at $0.073 to $0.075 per share, implying a dividend payout ratio of 90% to 92%. We expect contributions in the second half from Molesworth, which is now fully income producing, the Investment Boost and the settlement of Stanley Street. The settlement of this transaction triggers development of management fees and the recognition of revenue from the delivery of construction contract. Potential upside remains and relates to the timing of capital partnering at 256 Queen Street and Pillars and the settlement of ASB North Wharf. Finally, turning to capital management. We have successfully executed $0.5 billion of balance sheet initiatives, including the $325 million equity raise and the settlement of noncore assets. These actions have materially strengthened the group's financial position. Pro forma gearing at December reduced to around 34% with liquidity of $300 million. The weighted average cost of debt declined to 5%. And interest coverage at 1.9x will improve with Molesworth now income producing. While short-term hedging levels have reduced, deleveraging has resulted in FY'27 and FY'28 hedging exceeding policy limits. As previously guided during the equity issue, we expect to rebalance the swap book ahead of year-end to reduce overall hedging. The debt maturity profile is well staggered across bank debt, bonds, USPP and the convertible notes. The current funding environment is very competitive with borrowers benefiting from reduced margins and improved terms. Overall, the balance sheet is well positioned to support growth and fund the group's development pipeline in a disciplined manner. Thank you. I'll now hand over to George.

Thanks, Richard, and good morning. We continue to deliver on our capital partnering strategy. And on Slide 11, we highlight the acquisition of ASB North Wharf and our partnership with GIC. The acquisition aligns well with the strategy for this partnership with a high-quality building underpinned by a recently extended 14-year lease, fixed annual rent reviews and leased well below economic rents. With a yield on cost exceeding 7% post CapEx, we see this acquisition as compelling value and expect it to deliver excellent risk-adjusted returns for us and our partner. Moving to Slide 12. Following the ASB North Wharf acquisition, the commencement of 22 Stanley Street with Keppel and the sale of the remaining 20% in 40 and 44 Bowen, our capital partnerships now sit at $1.9 billion. We remain focused on our medium-term goal of $4 billion to $5 billion in partnerships. Within our immediate pipeline, we're progressing the PwC Tower Capital partnership and are now in exclusivity with a global institutional investor to form a 50:50 JV to acquire the PwC Tower. This is a major initiative for the business and documentation and due diligence are underway. We expect to have further updates on this process by our annual results. In November, we started construction of 256 Queen Street and have commenced a process to secure a capital partner for that project. The outlook for student accommodation demand in Auckland remains strong, and the PBSA sector generally, within the region, continues to attract significant investor interest. Our capital raise in October provided us with significant funding flexibility. We see that further advancing these key initiatives around 256 Queen Street and PwC Tower, will provide us with greater flexibility regarding how and when we bring capital into the Downtown project, with the overall goal being to maximize returns for Precinct shareholders. Turning to our residential build-to-sell platform on Page 13. Conditions in the Auckland residential market are improving as the impact of lower interest rates flow through. However, while sales volumes are increasing with elevated inventory levels, we don't expect to see much change in market pricing. In this environment, delivering high-quality homes in the right locations is critical to achieving sales. And within our pipeline projects, we see good signs that we are achieving this. After launching Pillars in October, we achieved 20% presales by Christmas and have further sales activity there in the new year. We're currently tendering for construction with a view to getting underway on this project by year-end. We also launched Dova in Mount Eden last week. And while this is a larger scale project, we have seen encouraging early interest from buyers in this neighborhood. Finally, turning to Page 14, we're seeing continued improvement in New Zealand investment market conditions, particularly for Auckland. This is underpinned by the positive yield spread. And while we have seen some volatility in interest rates, investors are increasingly confident to deploy capital. From an office perspective, we see that the strong occupier fundamentals, particularly for Auckland, are supporting investor interest, and Anthony will speak more to the strength in the occupier market shortly. After a long period of negative sentiment, it is particularly pleasing to see CBRE report office as the most preferred sector from the Asia Pacific Investor Intentions Survey. This recovery in sentiment for office is consistent with our discussions with direct investors. Thank you, and I'll hand over to Anthony to take you through the investment portfolio.

Thanks, George, and good morning, everyone. Turning to our investment portfolio. Robust first half performance reflects our proactive approach to asset and client management, combined with our market-leading portfolio and continued momentum in occupier demand. Portfolio occupancy remains at 97%. And as Scott mentioned, this is supported by around 25,000 square meters of secured leasing commitments, highlighting strengthening occupier confidence and improving economic conditions for our clients. The portfolio maintains a weighted average lease term of approximately 6 years with contracted rents positioned 6% below prevailing market rates. Recent leasing activity achieved spreads of 10% and exceeded valuation rentals by on average 1.9%. There is no doubt the 2-speed market between premium and secondary office accommodation still prevails, and we continue to attract strong businesses to our real estate where leaders are focused on providing the best possible space for their people in order to retain and attract talent within their business. Turning to Page 17. We are seeing the emergence of positive structural shifts in the office market, which we expect will underpin further occupier demand, particularly in the Auckland market. Occupier rightsizing seems to be largely complete with limited excess supply of subleasing activity, resulting in no material vacancy beyond reported market levels. Following an extended period of declining occupied densities, average space per worker has stabilized, and we believe further reductions will be increasingly impractical under best practice workplace design. Importantly, as hybrid working patterns mature, office attendance is increasing, driving higher occupancy in the workplace. These factors against the backdrop of a constrained medium-term supply outlook, we expect future CBD office space employment growth to translate into positive net absorption and increased demand, particularly across premium grade assets. Turning to Page 18. The Auckland premium market continues to diverge from the secondary market with vacancy in the secondary markets increasing and premium reducing to 2.7% below the 10-year average. Auckland portfolio leasing momentum strengthened materially with higher inquiry levels translating into leasing commitments. During this period, approximately 18,000 square meters were secured, predominantly with existing occupiers delivering a client retention rate exceeding 90%. Of note, we secured GHD, an international engineering firm on a 12-year lease spanning 3 contiguous floors at 21 Queen Street, including naming rights. This long-term commitment underscores GHD's strategic preference for a centrally located CBD headquarters. Fit-out works will commence immediately following the departure of NZ Super. Looking forward, our expectation is that inquiry levels and therefore, demand will continue to gain momentum and elevate transactional volumes within the Precinct portfolio. In regards to market rental growth, in the short to medium term, we anticipate Precinct's Waterfront premium asset will exceed market growth expectations outlined by research houses with A-grade assets delivering steadier, more moderated growth. In Wellington, as referenced on Page 19, occupied demand continues to remain subdued, primarily influenced by continuation of central government accommodation consolidations. This has resulted in vacancies increasing across the market. Importantly, the Wellington portfolio is underpinned by a weighted average lease term exceeding 7 years and a low vacancy rate of 4%. The portfolio is of a high-quality, functional and seismic resilient position it well to capture ongoing demand from government occupiers and corporate occupiers as it relates to AON Center and NTT Tower. Current vacancy within the Wellington portfolio is concentrated in the low levels of AON Center. We are taking a targeted and competitive approach to leasing the space and remain confident of securing commitments within the next 6 months. Looking ahead, we expect prime grade net rental growth to remain constrained in the short to medium term. Turning to Commercial Bay on Page 20. The retail center has delivered a solid performance for the half with FFO increasing by 2.5% on prior comparable period and occupancy maintained at 97%. Moving annual turnover rose 6% and specialty sales now sit at $12,500 per square meter. And encouragingly, occupancy costs for specialty retailers have declined to 16.2%, providing a supportive foundation for rental growth in the short to medium term. During the 6 months, 19 leasing transactions were completed, underpinned by strong retailer retention with 17 renewals from long-standing retailers who have been with the center since opening. We are optimistic that trading conditions and operating revenue will strengthen driven by rising international visitation and expanding events program in Auckland CBD, including the opening of the New Zealand Convention Center and improving household cash flows given interest rate softening. Precinct Flex, our flexible workspace meeting and events platform has progressed well through its operational reset. Operating profit increased from $0.4 million to $1.1 million over the period, driven by cost rationalization, integration with the core office platform and growth in membership revenue. Our focus remains on increasing occupancy above 80% across our sites. Thank you, and I will now pass back to Scott.

Thanks, Anthony. I'm turning to Page 22. Most notably in the period has been the completion of our Molesworth Street development in Wellington for occupation by the Ministry for Foreign Affairs and Trade. MFAT has leased all of the available space in this building and has, as intended, subleased the lower floors to MetService and Beca. The weighted average lease term is 21 years, and the development has been completed on time and in line with budget. Our active living sector projects now consists of 2 purpose-built student accommodation projects and 3 build-to-sell residential projects worth around $800 million, which all remain on program and each project is progressing well. The 2 PBSA projects have commenced in the last 6 months with Haydn & Rollett and ICON appointed as main contractors to build these projects. This is the first time that Precinct has engaged both Haydn & Rollett and ICON as main contractors, and we are very pleased with their performance to date. Accessing this part of the construction market is providing greater competitive tension and offering good construction pricing. It's also pleasing to now have over 1,600 student accommodation beds under construction and to be delivering these projects into a market with such clear supply-demand imbalances. In terms of new projects, we have now launched Pillars in St. Mary's Bay and Dova in Mount Eden, comprising a total of 141 build-to-sell apartments. For Pillars, we have launched a competitive tender process for the construction works and following further sales, expect to get underway with this project in the middle of this calendar year. For Dova, we have sought and received submissions from the main contractor market on an early contractor involvement basis and we are encouraged by the feedback. Dova is a larger scale, mid-price scheme and the early interest from prospective buyers also looks very good. In terms of the Downtown Car Park project, we have made significant progress in the half with our substantive FTA application lodged and a panel convener appointed. We have progressed our pre-leasing discussions, which now total around 50% of the lettable space, and we have advanced our discussions with potential builders for the project. It is our expectation that we will appoint a main contractor into an early contractor involvement regime within the next couple of months to allow sufficient time for that contractor to prepare to go to contract on a design and construct basis by year-end. Finally, some concluding comments. Our economy is improving and the markets that we are operating in are also showing signs of strength. It is evident that each of these markets are at different stages, but we remain very encouraged by the performance of our assets in each of their submarkets. The Auckland office portfolio is performing very well, and we expect that the Wellington portfolio will be resilient in the face of a weaker outlook. Commercial Bay is growing year-on-year, and we strongly expect that its best years are ahead of it. The living sector strategy is advancing well, and we believe our timing and our positioning is optimal to take advantage of the economic recovery, which is becoming evident. And we are thrilled with the support from our capital partners. Their appetite to continue to invest in New Zealand remains elevated, and we are delighted to have the relationships we have with such well-held investors. Finally, we are very pleased to reconfirm our dividend guidance of between dividend guidance of $0.0675 per share and our FFO guidance of between $0.073 and $0.075 per share and expect the second half FFO will be materially higher than the first half. That concludes our presentation, and we would be very happy to take any questions.

[Operator Instructions] Your first question comes from Arie Dekker at Jarden.

Just firstly, a couple of questions on PwC. In terms of the party you're in exclusive negotiations with, is that solely related to PwC, or are you also sort of in parallel talking to them as a potential partner for downtown?

The party that we're in negotiations with on PwC is just in relation to that asset, Arie.

Then can you just talk a little bit to the status of discussions on price with that party, whether that like I said, just the status? And then also, would you envisage needing to provide any undertakings or make goods as part of any transaction on PwC related to what happens with downtown leasing?

So in relation to the status of negotiations, we've granted exclusivity. So naturally, to get to the exclusivity, commercial terms have been part of that discussion. As I covered off in my comments, we're in negotiation on documentation and due diligence is underway. We expect to be in a position by our results to give more information on that transaction.

Just on the second part of that question in terms of any undertakings that might relate -- if you do a transaction with them in terms of impact on PwC from Downtown?

Yes. Look, in terms of the process we ran on PwC, obviously, parties that were looking at that asset have an awareness of Downtown and what's coming there. And I'd say as a backdrop, it provides a lot of confidence in terms of market rents and where they sit when they can see the level of interest around the new development of Downtown. I'm not able to go into any more detail on the terms and conditions that were under negotiation because we're in the midst of those negotiations at present.

Then just in terms of the commercial terms that you have had to discuss with them in relation to price and that they sort of sit within -- cover your -- of book value. There is no change to the book value of PwC following the process you've been through to date.

Look, as I said, Arie, we're in a process, and we'll provide an update on where that lands by our results at year-end.

Then just a couple of questions on Downtown. I guess just the first one is, do you expect by the time you get to fourth quarter of this calendar year and making a commitment, is your expectation that a precondition for pressing go would include external capital commitments beyond the minority interest that you're in discussions on or that isn't going to be a necessary precondition?

Arie, Scott here. Look, we are very open to the prospect of introducing capital prior to starting Downtown. But as indicated in October last year, when we executed the capital raise, we're also positioning the balance sheet to be able to commit to Downtown if we can't secure third-party capital on terms that we are comfortable with. And so that move in October really positioned us to be able to make decisions that were in the best interest of our equity holders. And so as I say, our preference, and it would be great to bring in third-party capital prior to starting, but we are positioning ourselves to be able to go on the basis of committing to it on our balance sheet.

Yes. And then, I mean, obviously, you've talked to market conditions improving and then also you've got what is going to be a decent build period. I guess just in terms of some of the other things you've got to get in position ahead of a go decision for the construction contract and pre-commitments. Is there a scenario where you'd see yourself pushing out, say, a year on committing? Or do you think that is highly unlikely?

I reflect a lot on kind of all of the projects that the business has done in the last kind of 10 years or so. And in particular, Commercial Bay as a reference point, as a management team, we feel really good about where we're positioned at the moment in terms of Downtown. Substantive consensus lodge, that's a key precondition, obviously. Pre-leasing is going very well. We've got good engagement from occupiers from outside of the portfolio for around half of the space. That's going really well. Engagement from builders is really encouraging. So we feel like we're in a really good position to be able to get started at the back end of this year. And a big part of that is also our capital plan. So if I think about those sort of 4 lenses, Arie, we feel like we're in really good shape actually. And there is a lot to do, and we're not in a position to press go yet. But by the end of this year, we feel like we might be in a position to get underway.

The next question comes from Nick Mar at Macquarie.

Sort of sounds reasonably kind of optimistic around leasing and occupancy, including some of the stuff you're looking at doing at least around AON. Where would you like to see occupancy or where do you think occupancy will get to by end of the financial year?

Our expectation is that we will maintain our occupancy at 97% by year-end.

So does that imply you've got some space coming back that would offset progress around the existing plots that you talked about?

Yes, we do have some expiries coming in the second half of the year, which we're in advanced negotiations with securing them. And our expectation is that we should land sort of 2 or 3 of the 4 floors in the AON Centre by the end of the year, and that would maintain us at roughly 97%.

Okay. So it's more of a '27 story before you might see some improvement in occupancy. Is that how you're thinking about it?

Yes, that's right.

Then just in terms of what your sort of tenants are talking about, obviously, there's a lot of chat about AI and how that's going to sort of impact white collar workers in the world and some interesting stuff going on, particularly around software engineers, which I know we don't have a lot of around Auckland and New Zealand, and office buildings in particular. But what are you hearing around sort of hiring intentions for some of your biggest clients in legal, and accounting and things like intakes of graduates, and the likes and how that might sort of impact future demand?

Yes. I think, Nick, the first thing is business leaders are really focused on getting them into the best possible real estate in the best location. And this whole attraction and retention of talent has sort of been a story that's been around for probably 5 or 6 years. It hasn't really materialized probably until the last 2 years, and they're really focused on that. In terms of hiring intentions and the space that they occupy, it's probably really important to reflect on most occupiers have rebased their footprint over the last 5 years when there have been increasing densities and there's been hybrid working. All those sort of thematics have sort of, we think, have really bottomed out. And we're still seeing clients actually grow their footprint now. So we're pretty confident with regards to that. Obviously, we've got a pretty strong lens into that as we look into pre-leasing Downtown as well with major occupiers and their footprints and their intentions for that sort of PC data of that building is materially in line, if not slightly larger than what they currently occupy.

Then sort of the last question I had was just around -- sorry, I've just lost it. I'll get back on later.

The next question comes from Bianca Murphy at UBS.

So firstly, just on FFO. So you're guiding to an FFO per share uplift of over 30% for the second half. Could you walk us through how much of that uplift is structural compared to timing related? So I guess, in particular, settlements and development income recognition?

Yes, a good chunk of it is timing relating to 22 Stanley. So we had anticipated at full year that, that would have been settled ahead of Christmas, which would have led to development fee recognition and also that profit recognition. So there's probably a good 35 basis points of kind of earnings uplift into the second half just relating to that timing. Then the second element is the investment boost, which relates to Molesworth and that deduction is available when the building is able to be occupied. So that will come into the second half, and that's in around about 50 to 60 basis points.

Then in terms of the dividend policy, so first half FFO payout ratio of 106%, how comfortable are you with the dividend profile through periods of earnings volatility as the business sort of mix shifts towards active income in the future?

This is something that we spend a lot of time with the Board last year, looking at our earnings profile and a large part to why we did shift to the new dividend policy and having a range around FFO we are very comfortable, especially wouldn't make any call around the 6-month period. And we always look to long-term, medium-term earnings outlooks. So we're very confident with our dividends currently and kind of implementing the strategy that will grow that FFO. And then hopefully, over time, that payout ratio of FFO will come down from 90%, 92% and sub-90% would be ideal.

The next question is from Rohan Koreman-Smit at Forsyth Barr.

Just on the presales and Pillars, can you give us the total presales in Dova as well, given you've kind of had some or possibly had some in the second half already given some of your comments? And also on Pillars, I guess just capital partnering discussions and kind of how they're going, maybe also just a general comment around resi in that respect.

Thanks, Rowan. Presales and Pillar is probably sitting in the mid-20s. And look, if we got through 30-ish, then we might look to get started. We'll do to get construction pricing back in within kind of a month or so. So that's going to be informative for us around decision-making. In terms of capital partnering, I'll just hand over to George.

Yes. So our plan for Pillars is to have a capital partner in there targeting 50% partner alongside Precinct, and we're in discussions with parties at the moment around that. As we touched on in the presentation, we get presales through to around 30%. And the outcome of construction tender, our plan is to be under construction by our year-end.

One of the key things that I'll add, Rowan, is that the move we made in October last year is to remove the criticality of the point at which we start a project in terms of construction as being kind of a precondition for capital. So across all of our capital partnerships and that program that we have, if we see really good pricing from the construction market and we've got presales, then we may be inclined to go, but still be open to bringing third-party capital into projects once construction is underway, same way that we have with 256 Queen. Then in terms of your second question around Dova, we launched that formally to the market last Thursday. So it's still early days. Registrations look really strong actually. It's a different price point to Pillars, obviously, more mid-market, but in a really strong location, obviously adjacent to Mount Eden and Grammar Zone. We're receiving good registrations at the moment. I mean, conversion to sales will probably be quite indicative in the next 2 or 3 weeks. So that's going to be an interesting kind of reference point for us.

Then maybe just a follow-up to one of Arie's around the wider Downtown development. Did you entertain any discussions with any potential capital partners about the whole Precinct, or did you just solely focus on PwC Tower?

Yes. I think you have to be quite deliberate when you're having these conversations with partners. And so when we took PwC to the market, it was very much around that. The opportunity for Downtown is becoming known amongst capital partners. And once we get more clarity around kind of outcomes and meeting the preconditions that we mentioned earlier, then that gives you a better opportunity to kind of engage with partners. So those conversations may still happen later this year as well.

Then maybe one for Richard. Just your convertible notes and the stack of expiries, how do you think about those in terms of conversion and cash settlement just given the need to maintain flexibility, but also all of these other potential sell-downs of assets and capital partnering positions going on?

I view it as a true option for us at the moment. So we'll see how the next 6, 9 months go and then into next year as well. They provide great flexibility for the business around our balance sheet in executing other opportunities if they present themselves. So at this stage, no hasty decision on them.

The next question comes from Francois de Cannart D'hamale from ANZ.

I'm guessing at this stage, we're extremely focused on selecting the main contractor for Downtown. So could you please describe the competitive landscape there? And also any material changes you expect to see compared to the contract you had in place for the construction of Commercial Bay?

I think when you're sort of contemplating large-scale projects like Downtown and similar with Commercial Bay, Commercial Bay was a design and build contract with a GMP that then translated into a fixed price contract. And we're quite attracted to that regime for Downtown and the engagement that we're having with the main contractor market around that has been on that basis. I think the difference that we've seen between the construction market in 2015 and the construction market now, is that there's more awareness around design development risk and where that risk may sit. And so contractors are slightly more cautious and perhaps we will need more time to understand what that kind of design development looks like up until pre execution of the construction contract. So what that perhaps translates to is the likelihood of moving into an ECI regime and giving the contractor greater ability to kind of learn about the project, whereas in 2015, we ran a more competitive process on a D&D basis. So slightly different. The outcome that we're seeking is not dissimilar though.

In terms of like the landscape of potential contractors, have things changed or are you happy with the depth of the bench that you're facing?

Yes, the landscape has most certainly changed. I mean, we've all seen the withdrawal of Fletcher from vertical construction. We've seen the emergence of contractors like ICON. And I would say that we've also seen in the last couple of years, the interest from larger Tier 1 Australian-based main contractors into the New Zealand market. I think it's been really pleasing to see some initiatives like helping Zed's seeking active interest from those that sort of main contractor cohort out of Australia and then establishing a panel. That's given some of those larger Aussie contractors confidence that there's a pipeline here. And it's that pipeline that is a key driver for them in their decision-making. So I think the actors compared to 2015 are different, Francois, but we're seeing good interest in the project. There's more than one party that's interested. We've got a range of engagements underway at the moment. And yes, as I said in the call, we're hoping that we'll enter into an ECI regime within a couple of months' time.

There are no further questions at this time. I'll now hand back to Mr. Pritchard for closing remarks.

Thanks, Amy. And look, thanks, everyone, for joining us today and for your continued support. Our view is that we are really well poised. We're well poised for the short term, but we're very well poised for the long term. Office markets are back. I don't think there's any doubt about that. For the first time in the last 10 years, we think we've got some tailwinds coming our way. And so that's really pleasing. Our balance sheet is strong. Our emerging exposure to the living sector will place us in a really strong position over the next decade or so, and we're really grateful for all of your support and all of your interest. So with that, have a great day.

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