Region Group (RGN) Earnings Call Transcript & Summary

Thanks very much and welcome to our FY '24 financial results. My name is Anthony Mellowes. I'm the CEO. I'm presenting these results. With me today is Evan Walsh, our CFO. And also in the room with me is Erica Rees, our Chief Legal and Investment Officer. Firstly, let me take you to Slide 4, which sets out our FY '24 highlights. Our funds from operations or FFO per security was $0.154 per security. Our adjusted funds from operation or AFFO, was $0.136 per security. The distribution per security was $0.137 per security and our statutory net profit after tax was $17 million. Our operational metrics remained strong. Our portfolio occupancy of 98%, our average specialty leasing spreads were 4% and our comparable nondiscretionary MAT growth remained resilient at 4%. With respect to capital management, we divested $177 million worth of properties as part of our $200 million capital recycling program. We have $262 million of cash and undrawn debt capacity. Our pro forma gearing at 32.3% is at the lower end of our range and our weighted average cost of debt rose to 4.3% with 94% of that debt hedged. Moving to Slide 5. Our resilient portfolio metrics supported by a healthy balance sheet positions us well for future investments. We did complete a record number of leasing deals of 552 at 4% spreads with our vacancy improving to 4.7%. Our supermarkets growth returned to 3% with 4% growth in nondiscretionary specialty sales. Our occupancy cost remains low at 8.8% with lower [indiscernible]. Our balance sheet is positioned for growth. Our cap rates shows the sector have stabilized, our gearing is at the lower end of the range, and we have that $260 million of liquidity. Our capital management initiatives have mitigated our downside risk with no debt expiries until FY '27, high hedging for FY '25 and FY '26, together with our successful issue of a $300 million 7-year MTN that we did in February 2024. Based on the above, allows us to continue to execute on value creation and growth opportunities, such as our acquisition of Cooleman Court, the establishment of our second fund with our JV partner for Metro 2 and our continued reinvestment into our existing portfolio. Slide 6 remains unchanged. Our strategy is to provide defensive resilient cash flows to support those secure and growing long-term distributions to securityholders. Moving to our operational performance, which starts on Slide 8. 88% of our gross rent is generated from nondiscretionary tenants with 47% of that growth trend attributable to our anchored tenants. The 53% of our gross rent is to the specialists and mini majors with a heavy focus on food, liquor, retail services and pharmacy and healthcare. We have 92 centers, which are geographically diversified across Australia. Slide 9 shows our leasing activity that has driven higher occupancy and also higher annual fixed rent reviews. We said we've got 98% portfolio occupancy, 83% of expiring tenants were retained. We reduced holdovers to 2.2% from 3.7% as of 30th of June 2023. Our portfolio WALE is 5.1 years and that WALE decreased by 0.4 of a year with increased leasing activity mitigating the natural expiry of leases, particularly the anchor leases. 4.1% of average annual rent reviews were applied across 90% of our specialty tenants and our average specialty gross rent has increased from $818 to $880 per square meter. Moving to Slide 10. We continue to capital partner with our anchor tenants to drive sales turnover with over 46% of our supermarkets generating turnover rent. We have 127 anchors contributing 47% of our growth trend. We have 60 Woolworths and 31 Coles stores and we are the largest and second largest supermarket landlord, respectively, for those two organizations. We now have 78 direct-to-boot and e-commerce those facilities. 3% supermarket comparable MAT growth, which is in line with the 3.2% on average since 2019. And we had $5.6 million of turnover rent generated from 50 anchor tenants with a further 24 within 10% of those thresholds. Moving to Slide 11. We continue to have consistent and resilient sales growth across our nondiscretionary tenants. Our 2.5% comparable MAT growth is driven by the supermarkets at 3%, our discount department stores at 1.1%, our mini majors at nearly 3%. Our nondiscretionary specialties are over 4% and our discretionary tenants at minus 4%. On Slide 12, our leasing capability has driven a record number of leasing deals with also growing leasing spreads. As I mentioned before, we have completed 552 deals being 303 renewals at an average leasing spread of 5.2% and 149 new specialty leases at 1.6% spread with an average incentive of 10 months for a 5-year lease. On all of these deals, we achieved an average annual 4.1% fixed rent review. Slide 13, we have refreshed our sustainability strategy and we are introducing an increased focus on governance, particularly procurement and transparency and accountability. Slide 14 shows we are expected to reach our interim net zero target for Scope 1 and 2 by FY '30 and this target is to be achieved through operational decarbonization with no carbon credits purchased to date. Slide 15 highlights some of our other sustainability achievements with excellent results in social and governance and we're well underway on our ASRS alignment and we expect to be fully aligned by FY '27. But this is at a setup cost of nearly $2 million and we expect that these ongoing reporting costs will be at least $1 million per annum. For additional information on all of the sustainability, please refer to our sustainability report, which was also released today. Now I'd like to hand over to Evan to talk through our financial performance. Over to you, Evan.

Thanks, Anthony and good morning, everyone. I'll start on Slide 17, where we highlight the key drivers of the movement our FFO from '23 to '24. Our FY '24 FFO is $0.154 per security, which has reduced by around 9% compared to FY '23. Our 3% comparable NOI growth has been outweighed by the impact from a 0.9% increase in the weighted average cost of debt. Excluding the effect of this, our underlying FFO has remained relatively stable with an increase of $0.001 per security to $0.17. Moving to Slide 18, where we provide our financial results for the year. Our statutory profit for the year is $17.3 million. This compares to $124 million loss in the prior year, with the impact of fair value movements in our property valuation stabilizing in the second half. As mentioned, our FFO was $0.154 per security, our adjusted funds from operations came in at $0.136 which is roughly in line with our distribution of $0.137 per security. The previously -- negative impact from the increase in cost of debt saw interest expense increased by 29%. The record volume of leasing deals saw our leasing incentive costs increased by close to $2 million. Incentive rates remain in line with long-run averages. On to Slide 19. Our balance sheet is conservative with gearing of 32.9%. This provides us with flexibility to act quickly on investment opportunities. As at 30 June, our total assets under management was $4.8 billion. This includes the assets held for sale at 30 June, but does not include the Metro Fund 2 properties. Post this, our assets under management would increase to above $5 billion. Pleasingly, our tenants continue to be in a position to pay their rent with the net rental amounts that are outstanding, reducing to just $4.7 million, which is around 1% of billings. This compares to $6.8 million a year ago. On Slide 20, this shows some further information around the change in the valuation of our portfolio. During the second half of the year, our like-for-like valuations increased by around $14 million. Cap rates stabilized during the half with a 3 basis point increase with market rental movements now driving the valuations going forward. For the full year, our like-for-like valuations reduced by approximately $74 million. On to Slide 21. We talk to the work we have been doing around mitigating our exposure to interest rates. In March '24, we issued a 7-year $300 million medium-term note to replace $225 million of notes that expired in June. We saw significant interest from both offshore and Australian debt investors with the final order book being 4.6x oversubscribed. This allowed us to issue at a fixed coupon rate of 5.55% that included a competitively priced margin of 1.45%. During the first half, we also undertook a no cost restructure of our hedging, where we were able to crystallize value in our debt book relating to the period post FY '28. This allowed us to enter into favorable new swaps to reduce the cost of debt in FY '25 and FY '26. This also significantly derisked our interest rate exposure with hedging levels increasing to 96% in FY '25 and to 82% in FY '26. Moving to Slide 22, which highlights some of our key debt metrics. We have total debt facilities of $1.7 billion, with around $260 million of funding capacity available for us to draw on, with none of this debt expiring until FY '27. Debt remains readily available, evidenced through us entering into a new $100 million 5-year debt facility with the Big 4 Australian Bank with whom we didn't have an existing debt facility. We have also had offers for further debt facilities from our existing and new lenders as well as having unsolicited inquiries from debt capital market investors. I'll now hand back to Anthony to talk through our value creation opportunities.

Thanks very much, Evan. Moving to Slide 24. As previously mentioned, our resilient portfolio and healthy balance sheet allows us to invest in growth opportunities. This is demonstrated by our disciplined acquisition of Cooleman Court, but also our disposal program, which is largely complete. We have divested 8 low-yielding, noncore assets for $177 million since May 2023. And Slides 25 and 26 show how we continue to increase the scale of our funds management platform. We acquired the management rights of an existing $394 million portfolio for zero consideration. With Metro 1 and 2, we now have nearly $700 million of funds under management across 13 convenience-based centers. Though held in two separate trusts, similar capital structures being 80% held by our global institutional partner and 20% held by Region. Our 20% co-investment for Metro 2 was for $39.4 million. This is a cap rate of just under 6%. The assets of Metro II are Cameron Park, Newcastle in New South Wales, Melbourne Square and South Bank of Melbourne, Byford Village, near the Suburb of Perth in Western Australia, West Village in the west end of the Brisbane CBD in Queensland and Omnia Potts Point in Sydney and also Spring Farm, which is in the growth corridor of Southwest Sydney. Evan, do you want to talk about recycling capital?

So Slide 27 shows that we have progressed well on our capital recycling program, where we have divested $177 million of lower-yielding noncore properties at an average passing yield of 5.3%. We have redeployed this capital into accretive opportunities through the acquisition of Cooleman Court at a 6.7% initial yield and allocating $34 million of capital expenditure for the construction of Stage 2 at Delacombe Town Centre and on existing center projects. We had also paid down $69 million of debt where the marginal cost of debt is higher than the passing yield for the assets that we had sold. This has helped us with providing available debt capacity to fund our FY '25 capital program, which is detailed on Slide 28. This slide highlights the indicative spend on our capital deployment program. In FY '25, we are planning to spend around $75 million. With a targeted -- we are targeting a completion yield of between 6% and 10% and a 10-year IRR that is greater than our weighted average cost of capital. Although this spend is predicted to enhance our future returns, we expect that there will be a short-term impact to earnings. Anthony will now talk further to these initiatives.

Thanks a lot, Evan. Slide 29 summarizes our solar investment. We have invested $35 million to date and we now have 16 megawatts completed by June 2024. We are targeting 25 megawatts to be completed by the end of FY '27, '28. Our center repositioning, in Slide 30, shows the $35 million investment in our Region and revived center repositioning projects. We have three projects currently underway, which are focusing on remixing tenants and improving the customer experience to drive some greater asset value. Slide 31 is really our investments with our anchor tenants and some incremental developments. It demonstrates our continued investments with these anchor tenants and also these incremental developments, which are pad sites, et cetera. We continue to focus on our direct-to-boot in e-commerce offering while also completing the development of Stage 2 Delacombe Town Centre in Ballarat. Moving to Slide 33, the outlook for convenience-based centers. This is new, but I think it's a pretty important slide showing how the scarcity of new retail space, coupled with the continued strong population growth, will benefit existing center productivity. We believe that our portfolio is well positioned to take advantage of these market conditions. As well, our planned reinvestment in the portfolio, plus our lower occupancy costs provide greater upside for us to increase our specialty rents per square meter.

Sustainably drive our medium to long-term earnings growth. We are focused on generating comparable NOI growth of at least 3%. Through our value creation initiatives, we aim to add another 1% to our growth rate. Our work to increase our hedging levels, having mitigated some of the short to medium terms early in volatility, generated from interest rates with the longer-term impact dependent on market movements. Based on all of this, we are targeting medium to longer-term growth in our FFO and AFFO of at least 3% to 4% per annum. Anthony will now conclude with our key priorities and outlook.

Thanks, Evan. So Slide 35 just provides that waterfall of FY '24 to our FY '25 FFO guidance. Slide 36, we really believe our nondiscretionary retail will continue to be resilient and Region will generate comp NOI growth despite some elevated expense growth that we're experiencing at the moment. We have limited interest rate headwinds with relatively high hedging in place for FY '25 and '26. Our balance sheet is supported with stabilized valuations and gearing at the lower end of our range, which provides us with the opportunity to invest in our centers, be disciplined with acquisitions and explore future funds management growth. Assuming no significant changes in market conditions, our FY '25 guidance is for FFO of $0.155 per security and our AFFO of $0.137 per security. There we go. I'll finish that. We'd now like to open it up to any questions.

[Operator Instructions] Your first question comes from Lourens Pirenc from Jarden.

First, on FY '24, you missed on your guidance from February. So you could talk through what [indiscernible] kind of where would be the price?

Look, it's not too far off where we were. And the key movements there is some of -- the interest cost was in line with what we expected. Some of the property expenses, there was timing on that. And some of the leasing deals were done a little bit later than we expected. So -- but we're seeing that flow in effect to FY '25.

And then second question, just to do with that debt funded, it looks like you picked up a mandate from another manager, which is always good. Can you maybe just talk about opportunities out there to maybe do more of that or to grow the deferred funds more organically by buying assets in there?

Yes. Thanks, Lou. Yes, look, we have a very good relationship with our joint venture partner. And yes, we did pick up that mandate from another partner which was very pleasing. So there is still more opportunities in this space, whether it's with this partner or other partners, we'll wait and see. But we've got -- our main focus is to bed this Metro 2 Fund down and we will obviously be looking at all other opportunities. But certainly, we're very pleased that we're able to get this portfolio across, but there is a fair bit of work to bed it down and put it into a shape that is reflective for our -- the returns for our partner.

Your next question comes from Cody Shield from UBS.

Just quick on '25 guidance. If I look at the MER in line with the long-run average, should it be trending lower with some of the asset management initiatives, you guys have been undertaking?

Look, FY '24 was lower than normal. So we're about -- roughly about $2 million lower than normal and there was a couple of things relating to that. And one is rent and there was also some management costs that was a bit lower. But essentially, we're expecting that to be back in line with normal dollars.

Right. Okay. So as far as the [indiscernible] goes from here, what are you expecting for that from '25 with the impact of that?

A lot of those savings will be built into the property level, not at the corporate level.

Okay. And maybe just on the kind of repositioning, that -- it's kind of been called out for a while, but it wasn't flagged as a headwind in '24 guidance. Can you guys have detailed the impact you're expecting in '25 on that front?

Yes. So look, in the '24 guidance there, we sort of had -- we were sort of setting up for that rather than spending a lot of dollars within in '24. In '25, the impact really is as we started to do work around those areas is we've got the -- loss rent from that -- those areas and additional costs, which aren't related to centers. So that's the main impact there.

And okay, we expect that you tell us the lost rental date for '25?

Apologies. What was that?

The lost rent for '25?

What is the loss rent for '25?

Look, I think if you take the -- in the guidance, there was $0.002. That's including all of those above.

Okay, sure. Just on the property expense piece, if I may, that's probably expense inflation, an ongoing theme, but something like the spending on security. To what extent is that going to be recurring and ongoing?

Yes, I'll talk to that. Look, security is being hit by two areas. One is just wages increase but the other is more hours. You'd read in the press. There's a lot more knife crime. There's a lot more issues, youth crime all around Australia and we are not immune from that. So security, I think, will continue to increase. It's a big issue for all of our retailers. It's a big issue for us as shopping center owners. And I think we've built in where we think it's going to be this year and that's more than just a straight wage. We're also increasing additional hours there as well.

Well, I suppose that that's going to change where you'd look to buy asset -- some of this is [indiscernible]?

Look, on a case-by-case basis, that's definitely one of the areas that we look at whenever we look at an asset, how much security they have, what is the type of area that it's in. So that's certainly a consideration that we look at for or acquisitions.

Your next question comes from Caleb Wheatley from Macquarie.

Just a follow up on the property expense line. In the past, you've spoken system strategies, particularly around restructuring leases to increase the recoverability and therefore, reduce that headwind going forward? Can you provide an update on that restructuring?

Yes. Look, it's on the edge, any of that restructuring that we do, where we bought assets and their specialty tenants and they're on gross leases. We've been converting them to net leases. But there, that takes a lot of time. There's a lot of tenants and there's over 5-year of leases. So that's where we do it. With the majors, we don't recover that from the majors and you can't just go and change a major deal, at least because it's 20 plus -- well, in some cases, 20 years old, obviously, there's 10 years to go 5 years, but the market for the mergers is pretty well that they don't pay their contribution to expenses except for increases in rates and taxes and insurance, all those sort of statutory costs. So it's on the edge with the specialties where we bought an existing center that the previous owner had a gross rent and we try and convert that to a net lease,

And just following up on the center of repositioning of the [indiscernible] that headwind into '25, should we think about this as sort of more of a one-off? Or as we go through more and more of the reconditioning projects, is it more, I guess, a permanent shift down as things go in and out of that sort of existing bucket [indiscernible]?

Look, the negative reduction to earnings is a one-off. So we should be expecting that the spend we're doing this year, we'll see that revenue starting to flow through in the next year.

But as we do other projects, there will be, obviously, those impacts going forward. So it will be a negative offset by a positive.

Yes. That makes sense. And final one for me. Obviously, you've got a bit of capital recycling and you've gone out [indiscernible] as well off the back of that flagging that development spend and also the new fund coming in. Just keen to think about how you think about those opportunities if you continue to recycle capital in terms of the deployment between those several levers that you flagged today?

Yes. I mean, we set a target last year of around $200 million that we wanted to dispose of. We've done $177 million. We've still got a couple of what we call noncore assets that we will be disciplined and opportunistic in selling and that's what we'll be focused on. So that will raise another $20 million, $30-odd million. And yes, we want to reinvest back into our centers. We're also looking at getting good deals that are out there because there are some good deals for acquisitions. But you've got to remain disciplined. We're not buying for the sake of buying. We're buying because they're accretive. And then obviously, that reinvestment back into our centers because we think there is a really good opportunity to spend money in our centers to get some better returns there as well because the overall outlook is -- we're feeling pretty positive about the overall outlook for our sector. As we said, there's not a lot of -- there's actually no new supply coming on, yet there is more and more population coming into Australia and I don't think that is going to come off. It may come off a little bit, but it's still going to be very, very positive. So we -- that's what we're going to continue to do. Our cap rates have stabilized. So I don't think we need to -- we don't believe that cap rates are going to blow out. So therefore, our gearing, we're very comfortable with where our gearing is at the moment and that's why we're really positive on what we can do moving forward. There is good comp income growth from our centers. So I think the center values will continue to grow, which is a real positive for us. So we're feeling in quite a good position.

Previously [indiscernible] make the level of comfortability being at the bottom end of the target range. It seems like that commentary has come out, part of this presentation or is it an implication that you're then looking to maybe move to the middle end rather than the bottom end. If there's opportunity?

No. We've been -- I have to check how many times we did say at the bottom end of our range. Maybe we didn't say it as many times as we have previously, but we're very comfortable with being -- look, we've had a range of 30% to 40% in our 12-year history. We've been above 35% once and we've been below 30% twice. We're sitting at 32-ish, so I think at the moment, that's where we like to be. We think there is going to be growth in valuations going forward. So that's why we're comfortable with where that gearing is, at that lower end of the range.

Your next question comes from Simon Chan from Morgan Stanley.

When you break that up [indiscernible], if I recall correctly, that the target there was to by [indiscernible] a couple of cities, now that you've got metro funds to set up and I assume that -- you can add more, [indiscernible] you haven't really been doing too much, right? If I remember correctly, the last deal was actually a [indiscernible] you've got stuff ranging from [indiscernible] and grow that one a lot in Metro Fund 1?

So I couldn't hear you exactly. But I think what you're saying is Metro Fund 1 was originally set up and to get growth, which is right. It was originally set up with a target fund size of $750 million. And since interest rates have increased, our joint venture partners hurdle rates also changed and it was hard to meet those hurdle rates on that original fund and we got it up to $350 million, nearly $400 million. I think we sold an asset there as well in Metro Fund 1. But yes, it was delivering on the incomes that we had forecast for them and our partner was very happy with that portfolio. They had another portfolio at the time and they have moved that over for us to manage and that's what we're doing. We are not going to grow Metro Fund 2. We are going to continue to look to grow Metro Fund 1 as long as it meets the investment hurdles of our joint venture partner. We will do that, and they will also -- they're happy to invest when it meets those hurdles. At the rates that is there at the moment, it is probably -- it's harder but not impossible. There are some deals out there that we look at. I'll repeat what Metro Fund is. That is to grow in Sydney and Melbourne for our joint venture partner. Anything outside of Sydney and Melbourne, it is obviously up to us as the owner or the manager to decide whether we want to put it into Metro Fund or put it on the balance sheet.

[indiscernible] that answer. [indiscernible] supermarkets trading, I know it is what it is, but seems a bit of [indiscernible] therefore I'm looking at the [indiscernible] numbers in FY '23 with [indiscernible] of positive 3.5 and then at the half year was positive 4 and it's now down to positive 3 only. Are there any [indiscernible] there? Or is it just is what it is?

It pretty well is what it is. I think you should follow the commentary, I think -- have a look, there's been a lot of discounting going on at the supermarkets, a lot of promotional activity. There have been -- there was a lot of criticism by the government. There's ACCC inquiries, there's [indiscernible] inquiries into supermarket pricing. You will get a lot more commentary from both Woolworths and Coles as they do their next set of results on that. But I think you'll see it's prices of goods have come down whether that be through the supply chain or their decision to cut some prices or promotional activities probably where that's come from or it's a bit of both is where it's probably come from, but we'll get more color on that when they release their results in the next 2 weeks. But it is at pretty well long-term averages is 3% for supermarkets. Normally, one of them is trading, being Woolworths or Coles, one of them trades better at a point in time. But the combined growth is 3%, pretty well.

Your next question comes from Howard Penny from Citi.

Just a question on the capital recycling. You can see a good yield spread on the acquisitions of 6.73%. And even the value-add at [ 6% ] versus the disposals at 5.3%. But just thinking about the growth of those relative assets. Are there -- is it safe to say they both had similar growth outlook or are you seeing any difference there?

Yes. Look, our -- what we've described as our noncore assets that we've been selling have traditionally been -- that might sound strange, lower yielding, but also a lower growth. The reason you can have lower yielding or target yielding and lower growth is the price point of around -- normally, most of them are around that $20 million or sub-$20 million in which there's a lot more demand for those assets, particularly from high net worth individuals that don't necessarily have need for debt financing. So -- and they like owning a shopping center. So they have traditionally been lower yielding lower growth, we will obviously like to buy higher yielding, higher growth. But normally, I think -- what we're looking for is really good, solid shopping centers around that 6% that also have sort of that 3% growth, which puts us up around that 9%, is really where we're heading.

That's great. And just thinking about -- you mentioned that these sort of high net worth individuals working at asset and the deals? Is it just more that they're specifically looking in a certain region or area for those acquisitions and hence, you're able to get that attractive spread or are there other factors as well?

No. It's -- they don't -- they're all across Australia. There's lots of different people in different markets that look at different assets. So -- but they are more the locals in those areas. So it's not -- yes, they often buy the center and they have a job for their children there, sometimes I've seen that. So -- but it's more local investors purchasing those -- in their local catchments. [indiscernible] Southeast Queensland, Northern Queensland, Victoria, New South Wales, South of North Coast, Sydney, South Coast, that's -- they are the sort of regions, but it's more geographic than local.

And just on the solar project, just the way that -- for your growth leases but also for perhaps the net leases, how are you charging for that electricity?

Sorry, can you just repeat that? Did you say the solar?

Yes, Just on the solar, how the economics work on that? Are you able to pass through a sort of economic cost of energy to the tenant?

So there's two parts to our solar installation. We basically -- the first part is our energy consumption. So our car park lighting, our air conditioning in the malls, whatever the case, where we use common area electricity usage, we obviously don't have to buy as much because we're using solar, which is a real benefit, so that's straight on our cost side, operating cost. The second part is we also are able to then put in what's called embedded networks, where all the tenants basically are able to buy that solar off us -- solar electricity off us at a rate that is cheaper than what they can get elsewhere in the market. And so that's -- we get an income there as well, which is where we can get some better returns. So we do okay on the reduction of expenses, but you make more returns on the embedded networks. And it depends how many tenants are in there and that type of thing. But generally speaking, the largest tenants being Coles and Woolworths don't generally participate in that embedded network. They have their own purchase agreements from much larger companies than just the landlord.

Next question comes from Murray Connellan from Moelis Australia.

Just a quick one on the specialty leasing spreads. It looks like there was -- there was a bit of a recovery on those metrics in the second half of the year. It looks like in the last 6 months you were doing average specialty spreads of about 6% from the renewals and close to 2% on the new leases, which is quite a bit [indiscernible] than what was reported in the first half. Just wondering whether there's anything to call out there in terms of one-offs. What drove that? And then I guess, what you would see the outlook being there?

Yes, nothing in particular. We had a higher skew of new leases in the sort of first half than the second half. And -- but both our new leases and renewals were slightly better in the second half. So -- but it wasn't materially different. And our leasing incentives stayed roughly the same. So there's no -- I wouldn't call out that there's anything materially that's changed, I think it was just the mix that we did. The guys probably focused on the heart of lease deals in the first half is where it happened.

And then just a quick query on the guidance, please. Could you give a bit more color on what your assumptions are for the BBSW interest rate '25?

We've assumed current BBSW interest. We haven't -- I think that's -- we're not in the game of forecasting out market rates. However, though, we're pretty much fully hedged for the rest of the year. So there's not much impact of changing interest rates on us.

And then just the timing on settlements of Metro and [indiscernible]?

In September, we've got a couple of conditions precedent to do, which are very minor. And then we're into just a straight procedural transaction to finalize, but it is changing trusts and everything like that does become difficult, but it's September. Hopefully, the earlier, not later part.

Next question comes from Richard Jones from JPMorgan.

Anthony, in relation to specialty sales growth of this quarter, moderate in period-on-period. Just wondering, was that negative in the second half? And can you maybe call out what the discretionary sales growth was in the second half as well?

I think it's been pretty consistent. It's been -- look, our discretionary is apparel predominantly, also jewelry, but it's -- we're not talking high end for us. It's really -- I'm just turning the page here. So apparel has been down in that other section there, that's jewelry, et cetera, the gifts and florists are down a little bit and leisure is down a little bit there. So but it's predominantly in that apparel area. I don't think it would -- we'll have to come back to you on the exact numbers of first half versus second half because we don't look at it in a 6-monthly rolling basis. But it hasn't changed dramatically. It may have improved slightly in the second half, but yes -- it's a small part for us. It's 10% of our gross rent side.

The overall set sales second half to -- maybe come back to that. And just your thoughts on the tax cut that have come through 31st of July? Or in fact, do you see that happening on sales growth in your portfolio?

Well, we haven't -- we get our results, the sales figures for July over the next couple of weeks. So we haven't got them yet and the first tax cuts came in, in the month of July. So we just don't know that yet. I expect that there will be a slight benefit because people are getting $8,000 of, which is roughly $700 a month. It's sort of individual but pays tax. So that should start to sort of flow through. We do -- we are probably skewed a bit more to the lower demographics than higher demographics with our portfolio. So -- but look, I think it's a bit early to say, but I think there is going to be a benefit, whether it's going to be a material benefit, I don't know. In the past, when there have been straight cash handouts, you can see it straightaway. But whether that happens straight away here, I am unsure.

What's the gearing in net refund [indiscernible]?

I can't say that, but it's -- if you do the numbers on $394 million at 20%, and we sort of put our equity amount there, you can work it out.

[Operator Instructions] Your next question comes from Sholto Maconochie from MLP.

Just a quick one on the guidance. If you unpack it, it looks like the Metro is accretive by around 2% on a 9-month impact. And it seems like [indiscernible] lot of dilution. I'm just trying to understand why it's so weak, given you've got the Metro Fund, which wasn't in consensus. And you've also got the impact to a -- 1.3% impact on the repositioning. So just sort of unpack why the guide [indiscernible]?

Look, Sholto, there's three areas, I think I'll point to. One is we mentioned that our corporate costs were going back in line with what our long-run average is. That's about 0.3%. Weight average cost of debt is still another one. And you've got 0.2% from your repositioning of your centers. So if you add all those three together, that's what's pulling our guidance back down versus what the growth rate you're probably expecting.

It looks like everything on a comp basis looks pretty good, this just be one-offs that is impacting it. And then just finally on the specially [indiscernible] question, do you think there'll be pressure on spreads given that negative sales deteriorate in the second half? In the first half?

I haven't seen that happening. I think -- look, I think there is still -- rent isn't the biggest issue for retailers at present, it's obviously a big issue. It always is a big issue. But I think wages is their biggest issue at the moment. We've still been -- there is still inflation. The sales too bad. It is coming back a little bit, but it is coming back off very large highs off the back of COVID recovery, et cetera. And we are getting back to a bit more normalized areas. Obviously, the harder piece for us is our discretionary, which is negative, but it is only sort of 10% of our income, whereas our pharmacy and healthcare is very good. Medical is great. So -- and food and [indiscernible], which is a big, big part of us is sort of at that 1.5%, 2%. I think they are a pretty good set of numbers. They're pretty solid. We get pretty excited when we move from sort of three to four or we would be [indiscernible] go down to 2% from 3% on our nondiscretionary, but I think the discretionary will be bouncing back, cycling off some bigger numbers. And I think you're going to see them start to normalize out of it and hopefully get some growth as some of those tax cuts, et cetera, do come through.

And just finally, on the positioning CapEx. Does that $10 million on e-commerce [indiscernible] Rental line, you get a return on that? Is it more just bringing people to centre?

On the e-commerce facilities, we do rentalize that, it's usually roughly in line with cap rates, but we don't get that, obviously, until we've spent that money.

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

All right. Well, thank you all very much. I hope you have a good rest of results season and look forward to speaking to all of you over the next couple of weeks. Thanks very much and have a great day.